<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1999
Registration No. 333-90599
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
POST-EFFECTIVE
AMENDMENT NO. 1 TO
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
GLOBAL PHARMACEUTICAL CORPORATION
(Exact name of registrant 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, Pennsylvania 19124-5694
(215) 289-2220
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
BARRY R. EDWARDS
Chief Executive Officer
GLOBAL PHARMACEUTICAL CORPORATION
CASTOR & KENSINGTON AVENUES
PHILADELPHIA, PENNSYLVANIA 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. LAURIE A. MILLER, ESQ.
Fulbright & Jaworski L.L.P. Law Offices of Laurie A. Miller
666 Fifth Avenue 3542 Oak Knoll Drive
New York, New York 10103 Redwood City, California 94062
(212) 318-3000 (650) 361-8141
---------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement is declared effective and all
the conditions to the proposed merger of Impax Pharmaceuticals, Inc. with and
into the Registrant, as described in the enclosed joint proxy
statement/prospectus, have been satisfied or waived.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
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. / /
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(as filed with the Securities and Exchange Commission on November 12, 1999)
Filed by Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
/X/ Definitive Proxy Statement Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.1a-12
GLOBAL PHARMACEUTICAL CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: common
stock, no par value, of Impax Pharmaceuticals, Inc. ("Impax"); Series A
Preferred Stock, no par value, of Impax, Series B Preferred Stock, no
par value, of Impax and Series C Preferred Stock, no par value, of
Impax.
(2) Aggregate number of securities to which transaction applies: 5,067,073
shares.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): As of August
23, 1999, there were 5,067,073 shares of Impax common stock, Series A
preferred stock and Series B preferred stock and Series C Preferred
Stock outstanding which would be converted into approximately 16,904,114
shares of Global common stock, $.01 par value. The Global common stock
is quoted on the Nasdaq Small Cap Market. As of August 23, 1999, the
average of the high and low sale prices of Global common stock was
$4.5625. Consequently, shareholders of Impax would receive Global common
stock equal to approximately $77,125,020.
(4) Proposed maximum aggregate value of transaction: The proposed maximum
aggregate value of the transaction is $77,125,020, the aggregate market
value of the securities to be received by shareholders of Impax.
(5) Total fee paid: $15,425.
/X/ Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $15,425
(2) Form, Schedule or Registration Statement No.: Schedule 14A
(3) Filing Party: Global Pharmaceutical Corporation
(4) Date Filed: August 25, 1999
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
For 1999 Special Meetings Of Stockholders
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Dear Stockholders of Impax and Global:
Impax and Global have agreed to combine by a merger of Impax into Global.
The combined company will be renamed Impax Laboratories, Inc. In the merger,
the combined company will issue shares of its stock in exchange for existing
shares of Impax preferred stock and common stock and Global preferred stock, as
detailed in the chart on page 5 under the Section "What Global and Impax
Stockholders Will Receive as a Result of the Merger." Existing shares of Global
common stock will remain unchanged by the merger. Following the merger, Impax
shareholders are expected to own approximately 74% of the outstanding shares of
the combined company.
In order to complete the merger, we must obtain the approval of each of
our companies' stockholders. You should know that certain shareholders of
Impax, who own in excess of 70% of Impax's outstanding stock, have agreed to
vote their shares in favor of the merger. In addition, Global's executive
officers and directors or their related entities who own approximately 55% of
the outstanding Global stock have indicated their intention to vote in favor of
the merger. As a result, unless these officers and directors change their
minds, stockholder approval of the merger is assured for both Impax and Global.
The boards of directors of both Impax and Global have approved the merger and
recommend that their respective stockholders vote FOR the merger proposal as
described in the attached materials. The location, date and time of your
company's special meeting, being held to consider and vote on the merger, are
set out in the applicable Notice of Special Meeting appearing immediately after
this letter.
---------------
We urge you to carefully read this joint proxy statement/prospectus,
including the section describing risk factors relating to the merger, that
begins on page 15.
---------------
Global's common stock is traded on the Nasdaq Small Cap Market under the
symbol "GLPC".
Sincerely,
/s/ Larry Hsu /s/ Barry R. Edwards
- --------------------------- --------------------------------
Larry Hsu Barry R. Edwards
President President and Chief
Executive Officer
Impax Pharmaceuticals, Inc. Global Pharmaceutical
Corporation
Neither the Securities and Exchange Commission nor any state securities
commission has approved the merger described in this joint proxy
statement/prospectus or the common and preferred stock to be issued in the
merger, nor have they determined if this joint proxy statement/prospectus is
accurate or adequate. Furthermore, the Securities and Exchange Commission has
not determined the fairness or merits of the merger. Any representation to the
contrary is a criminal offense.
This joint proxy statement/prospectus is dated November 9, 1999, and is
first being mailed to stockholders on or about November 10, 1999.
<PAGE>
[GRAPHIC OMITTED]
CASTOR AND KENSINGTON AVENUES
PHILADELPHIA, PENNSYLVANIA 19124-5694
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
November 9, 1999
The Global special meeting is being held on December 13, 1999, at 10:00
a.m. Eastern Standard Time, at the offices of Fulbright & Jaworski L.L.P., 666
Fifth Avenue, 24th Floor, New York, New York.
The purposes of the Global special meeting are:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of July 26, 1999, between Impax Pharmaceuticals, Inc. and
Global Pharmaceutical Corporation, which will approve the merger and the
following actions described in the merger agreement:
(a) an amendment to Global's certificate of incorporation changing the
name of the corporation to "Impax Laboratories, Inc." and increasing
the number of shares of common stock which Global is authorized to
issue to 50,000,000 shares;
(b) the election of the directors of the combined company; and
(c) the adoption of the Impax Laboratories, Inc. 1999 Equity Incentive
Plan; and
2. To act upon such other matters as may properly come before the special
meeting and any adjournment or postponement of the meeting.
Only stockholders of record at the close of business on November 4, 1999
will be entitled to notice of and to vote at the special meeting or any
adjournment thereof. All stockholders are cordially invited to attend the
special meeting in person. However, whether or not you plan to attend the
special meeting in person, each stockholder is urged to complete, date and sign
the enclosed form of proxy and return it promptly in the envelope provided. No
postage is required if the proxy is mailed in the United States. Stockholders
who attend the special meeting may revoke their proxy and vote their shares in
person.
By order of the board of directors,
Cornel C. Spiegler,
Secretary
PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND
INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD.
<PAGE>
[GRAPHIC OMITTED]
30831 HUNTWOOD AVENUE, HAYWARD, CALIFORNIA 94544
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
November 9, 1999
Hayward, California
The Impax special meeting is being held at 30831 Huntwood Avenue, Hayward,
California, on December 10, 1999, at 10:00 a.m. Pacific Standard Time:
1. To consider and vote on a proposal to adopt the Agreement and Plan of
Merger, dated as of July 26, 1999, between Impax Pharmaceuticals, Inc. and
Global Pharmaceutical Corporation, and to approve the merger and other
transactions described in the merger agreement; and
2. To act upon any other matters properly coming before the special
meeting and any adjournment or postponement of the meeting.
Only shareholders of record at the close of business on November 4, 1999
will be entitled to notice of and to vote at the special meeting or any
adjournment thereof. All shareholders are cordially invited to attend the
special meeting in person. However, whether or not you plan to attend the
special meeting in person, each shareholder is urged to complete, date and sign
the enclosed form of proxy and return it promptly in the envelope provided. No
postage is required if the proxy is mailed in the United States. Shareholders
who attend the special meeting may revoke their proxy and vote their shares in
person.
By order of the board of directors,
Laurie A. Miller
Secretary
PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE
ENCLOSED PROXY CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
OBTAINING INFORMATION .................................................................... 4
QUESTIONS AND ANSWERS .................................................................... 4
SUMMARY .................................................................................. 5
The Merger .............................................................................. 5
What Global and Impax Stockholders Will Receive as a Result of the Merger ............... 5
Tax Consequences ........................................................................ 5
Appraisal Rights ........................................................................ 5
Ownership of the Combined Company Following the Merger .................................. 6
The Rights of Impax Shareholders Will Change as a Result of the Merger .................. 6
Our Reasons for the Merger .............................................................. 6
Conditions to the Merger ................................................................ 7
Restrictions on Alternative Transactions ................................................ 7
Termination of the Merger Agreement ..................................................... 7
Opinion of Global Financial Advisor ..................................................... 8
Expected Accounting Treatment ........................................................... 8
Board of Directors and Management of the Combined Company Following the Merger .......... 8
Additional Compensation or Executive Officers as a Result of the Merger ................. 9
The Special Meetings .................................................................... 9
The Companies ........................................................................... 10
Global Pharmaceutical Corporation ....................................................... 10
Impax Pharmaceuticals, Inc. ............................................................. 11
COMPARATIVE PER SHARE DATA ............................................................... 11
SUMMARY SELECTED FINANCIAL DATA .......................................................... 12
Global Summary Selected Historical Financial Information ................................ 12
Impax Summary Selected Historical Financial Information ................................. 13
Global and Impax Unaudited Summary Selected Pro Forma Combined Financial Information .... 13
RISK FACTORS ............................................................................. 15
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS ............................... 19
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION ....................................... 20
MARKET PRICE INFORMATION ................................................................. 29
THE SPECIAL MEETINGS ..................................................................... 30
The Global Special Meeting .............................................................. 30
When and where the Global special meeting will be held ................................ 30
What will be voted on at the Global special meeting ................................... 30
Stockholders entitled to vote ......................................................... 31
Number of shares that must be represented for a vote to be taken ...................... 32
Vote required to approve the merger agreement ......................................... 32
Voting your shares .................................................................... 32
Changing your vote .................................................................... 32
How proxies are counted ............................................................... 33
Solicitation of proxies and costs ..................................................... 33
The Impax Special Meeting ............................................................... 33
When and where the Impax special meeting will be held ................................. 33
What will be voted on at the Impax special meeting .................................... 33
Stockholders entitled to vote ......................................................... 33
Number of shares that must be represented for a vote to be taken ...................... 34
Vote required to approve the merger agreement ......................................... 34
Voting your shares .................................................................... 35
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Changing your vote ....................................................................... 32
How proxies are counted .................................................................. 33
Solicitation of proxies and costs ........................................................ 33
THE MERGER ............................................................................... 36
Background of the Merger ................................................................ 36
Joint Reasons for the Merger ............................................................ 38
Global Board of Director's Consideration and Approval of the Merger ..................... 39
Information and Factors Considered by the Impax Board of Directors ...................... 40
Opinion of Global's Financial Advisor ................................................... 41
Anticipated Accounting Treatment ........................................................ 49
Material Federal Income Tax Consequences ................................................ 50
Regulatory Approvals .................................................................... 51
Appraisal Rights ........................................................................ 52
THE MERGER AGREEMENT ..................................................................... 55
Form of Merger .......................................................................... 55
Consideration to be Received in the Merger .............................................. 55
Exchange of Shares ...................................................................... 55
Treatment of Impax Stock Options and Warrants ........................................... 56
Representations and Warranties in the Merger Agreement .................................. 56
No Solicitation of Transactions ......................................................... 56
Benefits Matters ........................................................................ 57
Covenants in the Merger Agreements ...................................................... 57
Conditions in the Merger Agreement ...................................................... 58
Stockholders' Meetings .................................................................. 60
Board of Directors ...................................................................... 61
Officers ................................................................................ 61
Transition Planning ..................................................................... 62
Other ................................................................................... 62
Termination ............................................................................. 62
Termination Fees and Expenses ........................................................... 62
Indemnification and Escrow .............................................................. 63
DESCRIPTION OF GLOBAL'S CAPITAL STOCK FOLLOWING THE MERGER ............................... 64
Authorized Capital Stock ................................................................ 64
Common Stock ............................................................................ 64
Preferred Stock ......................................................................... 64
Warrants ................................................................................ 67
Transfer Agent and Registrar ............................................................ 67
COMPARISON OF RIGHTS OF STOCKHOLDERS OF IMPAX AND GLOBAL.................................. 68
Summary of Material Differences Between Current Rights of Impax Shareholders and Rights
Those Holders Will Have Following the Merger .......................................... 68
State Law Takeover Legislation ........................................................ 68
Corporate Governance .................................................................. 68
Voting Rights ......................................................................... 69
Size of the Board of Directors ........................................................ 69
Election and Classification of the Board of Directors ................................. 70
Removal of Directors, Filling Vacancies ............................................... 70
Special Meetings of Shareholders ...................................................... 70
Shareholder Action by Written Consent ................................................. 70
Advance Notice Provision .............................................................. 71
Liability of Directors, Indemnification of Directors and Officers; Insurance .......... 71
Amendment of Certificate of Incorporation ............................................. 72
Amendment of By-laws .................................................................. 72
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Appraisal Rights ..................................................................... 73
Business Combinations ................................................................ 74
GLOBAL PHARMACEUTICAL CORPORATION ....................................................... 75
Selected Historical Financial Information of Global .................................... 75
Global Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................................ 76
Global's Business ...................................................................... 82
Products and Product Development ....................................................... 83
Beneficial Ownership of Global Common Stock by Certain Stockholders and Management ..... 90
Management of Global ................................................................... 94
Certain Relationships and Related Transactions ......................................... 100
WHERE YOU CAN FIND MORE INFORMATION ABOUT GLOBAL ........................................ 100
IMPAX PHARMACEUTICALS, INC. ............................................................. 100
Selected Historical Financial Information Of Impax ..................................... 100
Impax Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................ 102
Impax's Business ....................................................................... 104
Impax Security Ownership of Certain Beneficial Owners and Management ................... 113
Management of Impax .................................................................... 115
Executive Compensation ................................................................. 116
Employment Agreements .................................................................. 116
Employee Stock Options ................................................................. 116
Employee Warrants ...................................................................... 117
Certain Transactions of Impax .......................................................... 118
TRANSACTIONS BETWEEN GLOBAL AND IMPAX ................................................... 119
MANAGEMENT OF THE COMBINED COMPANY ...................................................... 120
The Directors and Executive Officers of the Combined Company ........................... 120
Board Observers ........................................................................ 122
Committees of the Board ................................................................ 122
Director Compensation .................................................................. 122
Executive Compensation ................................................................. 122
Employment Agreements of the Combined Company .......................................... 122
Impax Laboratories, Inc. 1999 Equity Incentive Plan .................................... 124
SECURITY OWNERSHIP OF THE COMBINED COMPANY .............................................. 128
STOCK EXCHANGE LISTING .................................................................. 130
FEDERAL SECURITIES LAWS CONSEQUENCES: STOCK TRANSFER RESTRICTION
AGREEMENTS ............................................................................. 130
EXPERTS ................................................................................. 130
LEGAL MATTERS ........................................................................... 130
INDEX TO FINANCIAL STATEMENTS ........................................................... F-1
ANNEXES
ANNEX A Agreement and Plan of Merger ................................................... A-1
ANNEX B Opinion of Gruntal & Co., L.L.C. ............................................... B-1
ANNEX C Section 262 of the Delaware General Corporation Law ............................ C-1
ANNEX D Chapter 13 of the California Corporations Code ................................. D-1
ANNEX E Amendment to the Certificate of Incorporation of Global ........................ E-1
ANNEX F Certificate of Designations for the Series 1 Preferred Stock ................... F-1
ANNEX G 1999 Impax Laboratories, Inc. Equity Incentive Plan ............................ G-1
</TABLE>
iii
<PAGE>
OBTAINING INFORMATION
Global has filed a Registration Statement on Form S-4 to register with the
Securities and Exchange Commission the combined company common stock being
issued to Impax shareholders in the merger. Global also intends to file a
Registration Statement on Form S-3 to register the shares of common stock
underlying the Series 1-A and Series 1-B preferred stock being issued in the
merger. This document is part of the S-4 registration statement and constitutes
both a prospectus of Global and part of the special meeting proxy statement of
Impax and Global. As allowed by the rules of the Securities and Exchange
Commission, this joint proxy statement/prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement.
You can get a copy of any of these materials by writing or telephoning the
Secretary at Global Pharmaceutical Corporation, Castor & Kensington Avenues,
Philadelphia, Pennsylvania 19124, telephone number (215) 289-2220. If you would
like to request documents from Global, please do so by December 5, 1999, in
order for them to be delivered to you in time for the Global special meeting.
There is no charge for these requested materials.
You should rely only on the information provided in this prospectus or any
supplement. We have not authorized anyone else to provide you with different
information. 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. This joint proxy statement/prospectus does not constitute an
offer to sell or a solicitation of an offer to buy securities, nor does it
constitute the solicitation of a proxy, in any jurisdiction to or from any
person to or from whom it is unlawful to make such offer or solicitation in
such jurisdiction.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: After you have carefully read this joint proxy statement/prospectus, please
sign and mail your proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the appropriate special
meeting. In addition, you may attend the special meeting in person and
vote, whether or not you have signed and mailed your proxy card.
If you sign and send in your proxy and do not indicate how you want to vote,
your proxy will be counted as a vote in favor of all the proposals. If you
do not vote or you abstain from voting, it will have the effect of a vote
against the proposals.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card before the special meeting of
your company or attend the meeting in person and vote. You also may revoke
any proxy by written notice to the Secretary of Impax or Global, as
appropriate, prior to your company's special meeting.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares as to the merger only if you provide
instructions on how to vote. You should instruct your broker to vote your
shares, following the directions provided by your broker. If you do not
instruct your broker to vote your shares, they will not be voted. Shares that
are not voted will be counted as votes against the merger proposal.
Q: Should I send in my stock certificates now?
A: No. After the merger occurs, Global will mail instructions to all former
Impax shareholders and holders of Global preferred stock for exchanging
their stock certificates.
Q: Whom should I call with questions?
A: If you are a Global stockholder and you have additional questions you should
contact:
Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, Pennsylvania 19124
Attention: Cornel C. Spiegler
Telephone Number: (215) 289-2220
If you are an Impax shareholder and you have additional questions you
should contact:
Impax Pharmaceuticals, Inc.
30831 Huntwood Avenue
Hayward, California 94544
Attention: Laurie A. Miller
Telephone Number: (510) 471-3600
4
<PAGE>
SUMMARY
This summary highlights information about the merger which we believe will
be most important to you. However, you should read the entire joint proxy
statement/prospectus, including the merger agreement and other attachments, for
a complete understanding of the merger, our business after the merger and our
securities.
The Merger
(See page 36)
What Global and Impax Stockholders Will Receive as a Result of the Merger.
<TABLE>
<S> <C> <C>
Each existing share of: Will become these shares of the Total combined company shares
combined company: to be issued
Impax common stock, Series A 3.3358 shares of common stock 16,904,114 shares of common stock
preferred stock and Series B
preferred stock
Impax Series C preferred stock 5.849 shares of common stock Shares are included in number above
Impax Series D preferred stock 0.05 shares of Series 1-B preferred 170,000 shares of Series 1-B
stock preferred stock (convertible into
11,341,651 shares of common stock)
Global Series C preferred stock 50 shares of common stock 450,000 shares of common stock
Global Series D preferred stock One share of Series 1-A preferred 50,000 shares of Series 1-A preferred
stock stock (convertible into 2,500,000
shares of common stock)
</TABLE>
Shares of Global common stock outstanding prior to the merger will
continue to represent an equivalent number of shares of common stock of the
combined company after the merger.
We refer to the ratios for converting Impax and Global stock into stock of
the combined company as the "exchange ratios."
Tax Consequences
(See page 50)
Fulbright & Jaworski L.L.P., counsel to Global, has expressed its opinion
that the merger will qualify as a reorganization for federal income tax
purposes. If the merger qualifies, the stockholders of Impax and Global will
generally not recognize gain for Federal income tax purposes when their shares
are converted. Because of recent changes in the Internal Revenue Code involving
preferred stock issued in a reorganization, there is some uncertainty in the
case of holders of Impax Series D preferred stock whose stock is converted into
Series 1-B preferred stock in the merger. Also, Impax shareholders will have to
pay tax on any cash received for fractional shares.
Appraisal Rights
(See page 52)
If you own shares of Global's common stock or preferred stock, you have
"appraisal rights" under Delaware law. "Appraisal rights" allow stockholders
who object to the merger to require the company to buy their shares for their
fair value as determined by a court. A stockholder might want to exercise its
appraisal rights if it feels that the value of the shares of combined company
stock it will receive in the merger is less than the fair value of its Global
shares. On page 52, we explain what you must do to exercise these rights.
If you own shares of Impax common stock or preferred stock, you have
appraisal rights under California law. On page 53, we explain what you must do
to exercise these rights.
5
<PAGE>
Ownership of the Combined Company Following the Merger
(See page 128)
As a result of the merger, approximately 60% of the outstanding voting
stock of the combined company will be held by seven stockholders (or their
affiliated entities). These stockholders, the amount of their ownership and the
position they will hold with the combined company are as follows.
<TABLE>
<CAPTION>
Amount of
Stockholder Ownership Position with Combined Company
- ----------------------------- ----------- --------------------------------------------------------
<S> <C> <C>
Charles Hsiao ............... 4,092,419 Chairman and Chief Executive Officer
Larry Hsu ................... 1,940,828 President, Chief Operating Officer and a Director
Robert Fleming Inc. ......... 2,500,000 Representative will be member of the board of directors
Chemical Company of
Malaysia (Berhad) ......... 5,541,154 Representative will be member of the board of directors
President (BVI)
International Investment
Holdings, Ltd. ............. 3,669,357 Representative will be member of the board of directors
China Development
Industrial Bank, Inc. ..... 3,669,357 Representative will be member of the board of directors
Kingdon Capital
Management Corporation..... 1,882,353 Representative will be member of the board of directors
</TABLE>
Due to their stock holdings, 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 the combined company.
The Rights of Impax Shareholders Will Change as a Result of the Merger
(See page 68)
Currently, the rights of Impax shareholders are governed by California law
and Impax's articles of incorporation and by-laws. After the merger, Impax
shareholders will become stockholders of Global (as the legal survivor of the
merger), and, therefore, their rights will be governed by Delaware law and
Global's certificate of incorporation, as amended, and by-laws. A summary of
key differences between the rights of Impax shareholders and Global
stockholders is described in this joint proxy statement/prospectus at pages
68-74.
Our Reasons for the Merger
(See page 38)
We believe that combining our resources will enable us to be a stronger
competitor in the pharmaceuticals industry for the following reasons:
o The combined company will have a significant increase in products under
development and will have access to Global's well-established generic
product sales and marketing team.
o The combination of marketing and product development expertise in the
same company will lead to better strategic planning in product
development.
o The merger provides the combined company with greater financial resources
and enhanced borrowing capabilities than each company had on its own. This
should enable the combined company to afford to have more products under
development and to spend more resources on commercializing and marketing
its products.
o The management and directors of Global and Impax believe that the merger
will result in significant opportunities for cost savings due to economies
of scope and scale and the elimination of duplicative expenditures; for
revenue growth due to greater sales and marketing capabilities; and for
technological development due to the combined efforts of our technical
personnel.
6
<PAGE>
Conditions to the Merger
(See page 58)
Completion of the merger requires:
o approval of the merger proposal by the Impax shareholders;
o approval of the merger proposal by the Global stockholders;
o absence of any law or injunction preventing the merger or causing an
adverse effect on the business, financial condition or regulatory status
of either company or the combined company;
o approvals from government regulators;
o not more than 10% of the value of Global's or Impax's outstanding stock
have dissented as to the merger proposal;
o receipt by Impax and Global of satisfactory environmental evaluations of
the other's facilities; and
o absence of events which adversely affect or are reasonably likely to
adversely effect the business, financial condition or regulatory status
of either company.
Other than conditions pertaining to stockholder approvals and the legality
of the transaction, either of Global or Impax could elect to waive conditions
to its own performance and complete the merger.
Restrictions on Alternative Transactions
(See page 56)
The merger agreement limits the ability of each of our boards of directors
to solicit or participate in discussions with any third party about
transactions alternative to the merger, other than as may be necessary for the
board to fulfill its fiduciary obligations. In addition, the merger agreement
requires each company to seek stockholder approvals required to complete the
merger even if its board of directors was to change its recommendation of the
merger.
The termination fees provided for in the merger agreement, which are
discussed under the following section called "Termination of the Merger
Agreement," could deter either Impax or Global from entering into an
alternative transaction by making it more difficult or expensive.
Termination of the Merger Agreement
(See page 62)
Global and Impax mutually may agree to terminate the merger agreement at
any time. In addition, either company may terminate the merger agreement if
specified events do or do not occur. These include:
o if the merger is not completed by December 31, 1999;
o if a court or government regulator permanently prohibits the merger;
o if a condition to a company's obligation to consummate the merger cannot
be satisfied;
o if the required stockholder approvals are not obtained;
o if the board of directors of the other company withdraws or adversely
changes its approval or recommendation in favor of the merger, or if
that board of directors recommends an alternative transaction with a
third party;
o if the other company does not comply in any material respect with any of
its obligations under the merger agreement or its representations and
warranties are false in a material respect; or
7
<PAGE>
o if a third party commences a tender offer or exchange offer for 10% or
more of the outstanding common stock of Impax or Global, and the board
of that party recommends that the stockholders tender their shares in
such offer.
Global or Impax must pay to the other its expenses incurred in connection
with the merger, up to $500,000, plus a termination fee of $500,000 if the
merger agreement terminates because of any of the last 3 events just listed.
Additionally, Global must pay to Impax an additional $500,000 if the merger
agreement terminates due to Global's failure to obtain the requisite
stockholder approval for the merger.
Opinion of Global Financial Advisor
(See page 41)
Global received an opinion from Gruntal & Co., L.L.C., its financial
advisor, to the effect that as of the date of such opinion, the consideration
to be received by the Impax shareholders was fair, from a financial point of
view, to the holders of Global common stock. Gruntal subsequently affirmed its
opinion on November 8, 1999. We have included the opinion in this joint proxy
statement/prospectus as Annex B. Global urges its stockholders to read the
opinion of Gruntal & Co., L.L.C. in its entirety.
Impax did not solicit an opinion of a financial advisor.
Expected Accounting Treatment
(See page 49)
The merger is intended to be accounted for as a reverse acquisition of
Global by Impax under the purchase accounting method for financial reporting
purposes in accordance with generally accepted accounting principles. Following
the merger, the combined company will report on the basis of Impax's historical
financial statements.
Board of Directors and Management of the Combined Company Following the Merger
(See page 120)
Upon completion of the merger, the combined company's board of directors
will consist of the following ten members, each of whom is elected based on the
stated merger agreement provision:
<TABLE>
<CAPTION>
Name of Director Merger Provision
- ----------------------------------------------- ------------------------------------------------
<S> <C>
Barry R. Edwards, Charles Hsiao and Larry Hsu Specifically named individuals
David J. Edwards and Michael Markbreiter Two persons selected by Global's current board
Brian Keng, Jason Lin and Oh Kim Sun Three persons selected by Impax's current board
Nigel Fleming and a second mutually agreed Two persons mutually selected by the
upon board member current boards of Impax and Global
</TABLE>
Certain significant shareholders of Impax and Global have entered into a
shareholders' agreement committing these persons to vote their shares for the
next three years for the election as directors of the individuals designated
each year by the members of the current boards of Global and Impax.
The current members of the board of directors of Global and of Impax, as a
group, also each have the right to designate one observer to the combined
company board of directors.
8
<PAGE>
When the merger is completed, the following persons will serve as
executive officers of the combined company:
<TABLE>
<CAPTION>
Name Position Current Position
- ------------------ --------------------------------- ----------------------------------
<S> <C> <C>
Charles Hsiao Chairman and Co-Chief Executive Chairman and Chief Executive
Officer Officer of Impax
Barry R. Edwards Co-Chief Executive Officer Chief Executive Officer of Global
Larry Hsu President and Chief Operating President of Impax
Officer
</TABLE>
Additional Compensation for Executive Officers as a Result of the Merger
(See page 122)
In connection with the appointment of Charles Hsiao as Chairman and
Co-Chief Executive Officer, Barry R. Edwards as Co-Chief Executive Officer, and
Larry Hsu as President and Chief Operating Officer, each of them is expected to
enter into an employment agreement with the combined company when the merger is
completed. These agreements provide that Dr. Hsiao, Mr. Edwards and Dr. Hsu
will each receive an annual salary of $175,000 and will be eligible for a bonus
as determined by the board of directors. Each agreement will be for an initial
term of three years, and be automatically renewed for successive one year terms
unless either party delivers a written notice of termination at least six
months prior to the expiration of the initial term or any renewal term. If the
combined company terminates the employment of Dr. Hsiao, Mr. Edwards or Dr. Hsu
without cause, the executive leaves the combined company for good reason, or a
change in control of the combined company occurs, the executive will be
entitled to certain severance payments.
In addition, Mr. Edwards' employment agreement provides that he will
receive an option to purchase 270,000 shares of common stock at the prevailing
market price at the time the option is granted. It is expected that the option
will be granted immediately after the merger is completed. Global's Board of
Directors, Mr. Edwards and certain persons who are a majority of the
individuals designated to become directors of the combined company have agreed
that Mr. Edwards will not receive any additional stock options for the next
three years. The shares covered by this option vest and become exercisable on
the following schedule: (i) first year -- 0%; (ii) second year -- 10%; (iii)
third year -- 40%; (iv) fourth year -- 50%.
The Special Meetings (See page 30 as to Global and page 33 as to Impax)
Global. The Global special meeting will be held at 10:00 a.m., on December
13, 1999 at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, 24th
Floor, New York, New York. At the meeting, Global stockholders will be asked to
vote on a proposal to adopt the merger agreement, which will approve the merger
and the following actions:
(a) an amendment to the Global certificate of incorporation to change the
name to "Impax Laboratories, Inc." and to increase the number of
authorized shares of common stock from 17,000,000 to 50,000,000 shares.
The proposed amendment to the restated certificate of incorporation will
not be effective unless the merger is completed. We have included the
form of the proposed amendment to the restated certificate of
incorporation in this joint proxy statement/prospectus as Appendix E.
(b) the election of directors of the combined company; and
(c) the adoption of a new equity incentive plan. This plan will generally
enable the board of directors of the combined company (or a committee of
the board) to grant stock options, stock appreciation rights and stock
bonuses to officers, employees, consultants and directors of the
combined company. In addition, non-employee directors of the combined
company will receive
9
<PAGE>
automatic option grants under the proposed plan annually. Up to 2,400,000
shares of common stock are issuable under this proposed new plan. We have
included a copy of the proposed plan in this joint proxy
statement/prospectus as Annex G.
We refer to this proposal as the "Global merger proposal." Approval of this
proposal requires the approval of at least a majority of the outstanding shares
of Global common stock, Series C preferred stock and Series D preferred stock,
voting as one class, and a majority of the Series D preferred stock, voting as
a separate class.
Impax. The Impax special meeting will be held at 10:00 am, on December 10,
1999 at 30831 Huntwood Avenue, Hayward, California. At the meeting, Impax
shareholders will be asked to vote on a proposal to adopt the merger agreement
and approve the merger and other transactions described in the merger
agreement. We refer to this proposal as the "Impax merger proposal." Approval
of the Impax merger proposal requires the affirmative vote of at least a
majority of the outstanding shares of each of Impax's common stock; Impax's
Series A preferred stock, Series B preferred stock, and Series C preferred
stock, voting together as one class; and Impax's Series D preferred stock,
voting as a separate class.
The Companies
(See page 75 as to Global and page 100 as to Impax)
Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, Pennsylvania 19124
(215) 289-2220
Global is a specialty pharmaceutical company engaged principally in the
development, manufacture and marketing of solid oral generic prescription drugs
in smaller, niche markets. The niche markets generally have fewer competitors
and can result in higher profit margins as compared to larger market products.
The company is headquartered at its 113,000 square-foot, research and
manufacturing facility located in Philadelphia, Pennsylvania, and is
incorporated in Delaware.
Global was formed in April 1993 to acquire the manufacturing plant
equipment and certain related assets and liabilities of Richlyn Laboratories,
Inc. These assets included Richlyn's Abbreviated New Drug Applications, known
as ANDAs, New Drug Applications, known as NDAs, and New Animal Drug
Applications, known as NADAs. Richlyn operated a generic pharmaceutical
business from 1947 to 1992 when its facility was closed for failure to comply
with FDA regulations concerning current Good Manufacturing Practices, known as
cGMP.
From its inception through 1997, Global devoted substantially all of its
efforts to improving and renovating its facility, and establishing policies and
procedures to bring its manufacturing facility into compliance with cGMP.
Global received FDA approval for its first product, Tetracycline Hydrochloride
250 mg capsules, and began shipping products in September, 1997. Global is now
marketing 25 generic products, with Global's products being sold by all of the
20 largest pharmaceutical wholesalers, in terms of sales volume.
Until the quarter ended December 31, 1997, when Global became operational,
Global was considered a development stage company. The year ended December 31,
1998, was Global's first full year of operations with $4,401,000 in revenues
and net loss applicable to common stock of ($4,755,000). Revenues for the six
months ended June 30, 1999 were $4,217,000 and Global's net loss applicable to
common stock for the six months ended June 30, 1999 was ($3,020,000). Global
had an accumulated deficit of $24,137,000 at June 30, 1999.
10
<PAGE>
Impax Pharmaceuticals, Inc.
30831 Huntwood Avenue
Hayward, California 94544
(510) 471-3600
Impax is engaged in developing and commercializing oral pharmaceuticals
utilizing controlled-release drug delivery technologies. Controlled-release
pharmaceuticals are designed to reduce the frequency of drug administration,
improve the effectiveness of the drug treatment, ensure greater patient
compliance with the treatment regimen and reduce side effects by releasing drug
dosages at specific times and in specific locations in the body.
Impax is applying its patented and non-patented drug delivery technologies
initially to develop generic versions of high sales volume, controlled-release
brand name pharmaceuticals. Impax has submitted ANDAs to the FDA covering
generic versions of three different branded, prescription pharmaceuticals. The
ANDA for Pentoxyfylline ER tablets was approved in August 1999 and was Impax's
first ANDA approval. Impax currently has 15 additional controlled-release
products under development.
Two other products are being developed by Impax for potential NDA filings.
For these products, Impax is using its drug delivery technology to develop
improved formulation of brand name drugs.
The extensive technology background and product development experience of
the founders allow Impax to compete in an area that requires highly-skilled
employees. Impax has developed four drug delivery systems, one of which has
already been licensed to a large multi-national pharmaceutical company.
COMPARATIVE PER SHARE DATA
The following table sets forth historical per share data for Global and
Impax, pro forma data for Global giving effect to the proposed merger under the
purchase method of accounting, and equivalent pro forma per share data for
Impax. The information presented should be read in conjunction with the
historical financial statements and related notes of Impax and of Global, the
Unaudited Pro Forma Combined Financial Information and related notes, and the
Selected Historical Financial Information, each appearing elsewhere in this
joint proxy statement/prospectus. Comparative pro forma data have been included
for comparative purposes only and do not purport to be indicative of (1) the
results of operations or financial position which actually would have been
obtained if the merger had been completed at the beginning of the period or as
of the date indicated or (2) the results of operations or financial position
which may be obtained in the future. Impax equivalent pro forma per share
amounts are calculated by multiplying the pro forma combined net loss per share
and the pro forma combined book value per share by 3.3358, which is the number
of Global shares issued for each share of Impax common stock. Neither Global
nor Impax paid cash dividends for the periods presented.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------
HISTORICAL PRO FORMA
---------------------- ----------------------
GLOBAL IMPAX COMBINED IMPAX
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ $ $ $
Net loss per common share ........... (0.43) (1.69) (0.36) (1.20)
Book value per common share ......... 0.14 5.09 1.43 4.77
<CAPTION>
AT OR FOR THE
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------
HISTORICAL PRO FORMA
---------------------- ----------------------
GLOBAL IMPAX COMBINED IMPAX
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ $ $ $
Net loss per common share ........... (1.07) (2.43) (0.66) (2.20)
Book value per common share ......... (0.51) 0.78 1.17 3.90
</TABLE>
11
<PAGE>
Summary Selected Financial Data
Global Summary Selected Historical Financial Information
The following selected financial data as of and for the five years ended
December 31, 1998 are derived from the audited financial statements of Global.
The selected financial data as of and for the six months ended June 30, 1999
and 1998 are derived from the unaudited financial statements of Global. The
unaudited financial statements of Global include all adjustments, consisting
solely of normal recurring accruals, which management considers necessary for a
fair presentation of the financial position and the results of operations for
such periods. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for future periods.
The data should be read together with Global's financial statements and related
notes and "Global Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this joint proxy
statement/prospectus.
STATEMENT OF OPERATIONS DATA:
(in thousands except per share data)
<TABLE>
<CAPTION>
For the six
months ended For the year ended
June 30, December 31,
------------------------ ---------------------------------------------------------------
1999 1998 1998 1997(b) 1996(b) 1995(b) 1994(b)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue ............... $ 4,217 $ 1,918 $ 4,401 $ 427 $ -- $ -- $ --
Total operating expenses ........ 2,521 2,421 4,766 6,164 5,121 4,221 1,831
Operating loss .................. (1,524) (2,406) (4,639) (5,936) (4,943) (4,221) (1,831)
Net loss ........................ (1,546) (2,347) (4,615) (5,877) (4,608) (4,463) (1,988)
Net loss applicable to common
stock(a) ...................... (3,020) (2,347) (4,755) (8,424) (4,608) (4,463) (1,988)
Net loss per share (basic and
diluted) ...................... $ (0.43) $ (0.54) $ (1.07) $ (1.97) $ (1.08) $ (1.80) $ (0.92)
</TABLE>
- -------------
(a) The net loss applicable to common stock includes imputed preferred stock
dividends of $1,474 for the six months ended June 30, 1999 and $0 for the
six months ended June 30, 1998; and $140 for the year ended December 31,
1998 and $2,547 for the year ended December 31, 1997.
(b) Prior to the fourth quarter of 1997, Global was considered a development
stage company.
BALANCE SHEET DATA:
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
--------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- --------- ------------ ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets ........................... $12,494 $8,769 $ 8,853 $11,322 $9,440 $12,855 $3,232
Long-term debt ......................... 1,876 2,050 1,967 2,129 1,197 1,280 2,559
Mandatorily redeemable preferred
stock ................................ 5,900 5,843 6,354 6,335 -- -- --
Stockholders' equity/(deficit) ......... $ 1,042 $ (498) $ (2,379) $ 1,378 $7,351 $10,124 $ (616)
</TABLE>
12
<PAGE>
Impax Summary Selected Historical Financial Information
The following selected financial data as of and for each of the five years
ended December 31, 1998 are derived from the audited financial statements of
Impax. The selected financial data as of and for the six months ended June 30,
1999 and 1998 are derived from the unaudited financial statements of Impax. The
unaudited financial statements of Impax include all adjustments, consisting
solely of normal recurring accruals, which management considers necessary for a
fair presentation of the financial position and the results of operations for
these periods. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for future periods.
The data should be read together with Impax's financial statements and related
notes and "Impax Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this joint proxy
statement/prospectus.
STATEMENT OF OPERATIONS DATA:
(in thousands except per share data)
<TABLE>
<CAPTION>
For the six
months ended For the year ended
June 30, December 31,
------------------------ ------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue(a) ............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Total operating expenses ......... 3,843 2,000 5,832 3,771 2,201 667 17
Operating loss ................... (3,843) (2,000) (5,267) (3,696) (1,991) (569) (17)
Net loss ......................... (3,628) (1,959) (5,222) (3,608) (1,893) (541) (17)
Net loss per share (basic and
diluted) ....................... $ (1.69) $ (0.91) $ (2.43) $ (1.69) $ (0.89) $ (0.49) $ n/a
</TABLE>
- -------------
(a) Impax is considered a development stage company.
BALANCE SHEET DATA:
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
---------------------- -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- --------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets ....................... $11,888 $ 3,030 $ 3,408 $ 5,196 $4,792 $2,452 $192
Redeemable preferred stock ......... 24,999 10,251 12,206 10,052 6,497 2,677 208
Stockholders' equity ............... $10,937 $ 2,694 $ 1,682 $ 4,467 $4,509 $2,363 $192
</TABLE>
Global and Impax Unaudited Summary Selected Pro Forma Combined Financial
Information
The following table sets forth unaudited pro forma combined financial
information for Global and Impax which gives effect to the merger, accounted
for as a purchase of Global by Impax for accounting and financial reporting
purposes, as if it had been consummated as of January 1, 1998 for the income
statement data and June 30, 1999 for the balance sheet data. See "The Merger --
Anticipated Accounting Treatment." The pro forma data are not necessarily
indicative of the results that would have been achieved had this transaction
been consummated on these dates and should not be construed as representative
of future operations. This presentation is subject to the assumptions set forth
in the notes to the Unaudited Pro Forma Combined Financial Information
appearing elsewhere in this joint proxy statement/prospectus. The information
presented should be read in conjunction with this pro forma financial
information and the notes, and the historical financial statements including
the notes, of Global and Impax, respectively, appearing elsewhere in this joint
proxy statement/prospectus. See "Unaudited Pro Forma Combined Financial
Information", "Global Financial Statements" and "Impax Financial Statements."
13
<PAGE>
Unaudited Summary Selected Pro Forma Combined Financial Information
(in thousands, except share and per share data)
Pro Forma Combined Statement of Operations Information:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1998 June 30, 1999
------------------- -----------------
<S> <C> <C>
Sales .......................................... $ 4,401 $ 4,217
Operating loss ................................. (14,257) (7,543)
Net loss ....................................... (14,188) (7,350)
Net loss applicable to common stock ............ (14,328) (8,824)
Loss per share, basic and diluted .............. (0.66) (0.36)
Shares used in per share calculation, basic and
diluted ...................................... 21,722,750 24,349,945
Pro Forma Combined Balance Sheet Information:
June 30, 1999
-----------------
Current assets ................................. $ 16,108
Total assets ................................... 63,583
Working capital ................................ 12,001
Current liabilities ............................ 4,107
Long term liabilities .......................... 2,396
Mandatorily redeemable preferred stock ......... 22,000
Stockholders' equity ........................... 35,080
</TABLE>
For a discussion of the pro forma adjustments and related assumptions with
respect to the merger, and more complete pro forma financial information, see
"Unaudited Pro Forma Combined Financial Information" at page 20 of this joint
proxy statement/prospectus.
14
<PAGE>
RISK FACTORS
If you approve the merger, your original investment in Impax or Global, as
applicable, will represent an investment in the combined company. The merger of
Global and Impax involves a high degree of risk. You should consider carefully
the following risk factors, as well as the other information included in this
joint proxy statement/prospectus, in deciding whether to approve the merger.
Even if the merger is completed, we may fail to realize benefits from combining
our companies. We believe that an important benefit from the merger is that the
combined company will utilize the strongest elements of the management,
strategy, and operations of each of Global and Impax. We may not successfully
integrate the operations of Impax and Global without encountering difficulties
or losing key personnel, and the benefits that we expect from this merger may
not be realized. Even if the merger is completed, it may not result in combined
results of operations and financial condition better than what would have been
achieved by Global or Impax independently.
If the merger is completed, our costs related to the merger may be
significant. Global and Impax, together, expect to incur merger-related
expenses of approximately $700,000 in the year ending December 31, 1999, as the
merger is expected to close in the fourth quarter. These expenses include costs
for legal and accounting fees, costs of financial printing, listing fees and
other related costs. This estimate does not include any costs associated with
restructuring, integrating or consolidating the operations of the two
companies. This amount is only an estimate and may change. In addition, we may
incur unanticipated expenses in integrating Impax's and Global's businesses. We
expect that the savings from the elimination of duplicative expenses and the
realization of other efficiencies related to this integration may offset any
additional expenses in the future. However, we may not achieve a net benefit in
the near future, or at all.
The combined company will continue to experience operating losses, initially at
greater levels than either of the individual companies, which makes our future
profitability uncertain. The business of the combined company may never be
profitable. Each of Impax and Global has generated minimal revenues to date and
has experienced operating losses since inception. As of June 30, 1999, the
accumulated deficit of Impax was $14,909,000 and the accumulated deficit of
Global was $24,137,000. As of July 31, 1999, Global also had outstanding
indebtedness in an aggregate principal amount of $3,005,000 at interest rates
ranging from 2% to 9% annually. Since each company is experiencing operating
losses, the aggregate cash drain on the combined company is increased. It is
also possible that either company, if it remained independent, would be
profitable at an earlier time than the combined company will be profitable, if
at all. To remain operational, we must:
o develop new products which have attractive market demand;
o obtain regulatory approvals of newly developed products;
o properly receive, warehouse and store raw materials and supplies;
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.
If we are unable to obtain additional financing, we may need to modify our
business operations and plans by spending less money on research and
development programs, developing fewer products and filing fewer drug
applications with the FDA. Upon completion of the merger, the combined company
will have approximately $7 million of unrestricted funds. We estimate that
these funds will be sufficient for the next 9 months of operations at our
planned expenditure levels. The exact amount and timing of future capital
requirements will depend on many factors, including continued progress with our
research and development
15
<PAGE>
programs, expansion of such programs and, ultimately, the approval and launch
of the combined company's products. The combined company may not be successful
in obtaining additional capital in amounts sufficient to continue to progress
and fund our operations. Additional financing also may not be available to us
on terms favorable to the combined company or our stockholders, or at all. In
the event that adequate funds are not available, our business operations and
plans may need to be modified. This could result in less money being spent on
research and development programs, fewer products being developed and at a
slower pace, and fewer drug applications being filed with the FDA.
If we need to raise additional capital for expansion, our stockholders may
sustain dilution in ownership or otherwise be adversely affected by
arrangements made with other companies. The combined company may need to raise
additional capital in the future to fund its planned expansion. To the extent
the combined company raises additional capital by issuing equity securities,
ownership dilution to stockholders will result. To the extent the combined
company raises additional funds through strategic alliance and licensing
arrangements, we may be required to relinquish rights to certain of our
technologies or product candidates, or to grant licenses on terms that are not
favorable to the combined company, either of which could reduce the value of
the combined company.
If the net income per share of Global common stock is reduced because of the
additional stock being issued in the merger, it could reduce the market price
of the Global common stock. We expect to issue an additional 16,904,114 shares
of Global common stock and an additional 170,000 shares of Global preferred
stock in connection with this merger. The issuance of these shares may reduce
the net income per share of Global common stock, including below levels
currently anticipated and published by industry analysts. This could reduce the
market price of the Global common stock after the merger unless we can achieve
revenue growth, cost savings and other benefits from the merger that will
offset the effect of the issuance.
Because the exchange ratios are all fixed, stockholders will not know the
market price value of the stock they will receive or which will be issued in
the merger at the time when they vote on the merger. Each of the exchange
ratios are fixed. The number of combined company shares to be received by Impax
and Global stockholders will not change, even if the market price of Global
common stock changes. As a result, Impax shareholders will not know the value
of the combined company stock they will receive in the merger and Global
stockholders will not know the value of the combined company stock to be issued
in the merger, at the time when they vote on the merger proposal. In addition,
neither Impax nor Global has the right to terminate the merger agreement based
upon any adverse fluctuation in Global's stock price. From July 27, 1999 (the
day of the public announcement of the merger) through November 5, 1999, the
Nasdaq market price per share of Global common stock ranged from $3.50 to $5.625
and closed at $4.25 on November 5, 1999.
Control of the combined company will be held by a limited number of
shareholders, most of whom are Impax shareholders who can exercise significant
influence over all matters requiring stockholder approval and thereby limit
your power to influence corporate action. As a result of the merger, the
shareholders of Impax will own approximately 74% of the outstanding voting
stock of the combined company. Moreover, approximately 64% of the outstanding
voting stock of the combined company will be held by seven stockholders. 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 the combined company. In
addition, holders of approximately 64% of the outstanding voting stock of the
combined company have entered into an agreement committing them to vote their
shares of stock for the next three years for the election as directors of the
individuals designated each year by the current boards of Global and Impax. In
this regard, you should also review the Description of Global's Capital Stock
Following the Merger section later in this joint proxy statement/prospectus.
If Impax shareholders approve the merger, their company will become subject to
an outstanding court order governing manufacture of products which may
adversely affect 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 Global acquired the facilities and drug
applications of Richlyn, it became
16
<PAGE>
subject to the conditions in that court order. After the merger, the combined
company will continue to be subject to the 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 cGMP before the
products can be marketed.
Although Global was informed in January 1998 that product by product
inspection was no longer required for Global to manufacture and sell products,
the FDA has the continuing authority to reverse or reconsider its position and
again require product by product inspection and prior authorization. Requiring
such inspection and authorization would subject Global to a higher level of
scrutiny than is standard for the generic pharmaceutical manufacturing
industry. Any reversal or reconsideration by FDA will delay product
introduction plans.
The order against Richlyn also requires that Global hire and retain a
person, subject to FDA approval, who is qualified to inspect its drug
manufacturing facilities to determine that its methods, facilities and controls
are operated and administered in compliance with cGMP. This person must examine
all drug products manufactured, processed, packed and held at Global's facility
and certify in writing to the FDA Global's compliance with related cGMP. In
addition to the cost and expense of this examination, Global may not be able to
maintain compliance with cGMP, which would severely restrict its operations.
If the Global stockholders approve the merger, their company may have
additional exposure to patent infringement litigation as a result of Impax's
product development efforts, which could adversely affect our product
introduction efforts and be costly. The patent position of pharmaceutical firms
involves many complex legal and technical issues and has recently been the
subject of much litigation. There is no clear policy establishing the breadth
of claims allowed or the degree of protection afforded under such patents.
During the past several years, there is an increasing tendency for the
innovator of the original patented product to bring patent litigation against a
generic drug company. This litigation is often initiated as an attempt to delay
the entry of the generic drug product and reduce its market penetration.
As of the date of this joint proxy statement/prospectus, Impax has
submitted three filings for new generic drug applications with the FDA, and is
expected to submit additional applications. Consequently, it is possible that
Impax, and, if the merger is approved, the combined company, could become
subject to patent infringement claims or litigation as a result of its product
development. If a patent infringement claim is asserted, the combined company
may incur substantial legal fees in defending itself. Any such claim or
litigation will likely defer the FDA approval and marketing of the product and
could result in a complete barrier to such product's entry into the market.
If certain holders of our equity exercise their rights to acquire shares of
common stock, it may lower the future value of the common stock. Upon
completion of the merger, there will be a total of 220,000 shares of
outstanding Series 1 preferred stock. These shares presently are convertible,
at any time at the option of their holders, into an aggregate of 13,841,720
shares of our common stock. The shares of preferred stock also have
anti-dilution protections, if the Company were to issue stock for a price below
stated levels, which could make them convertible into additional shares of
common stock.
Upon completion of the merger, there will be outstanding warrants and
options to purchase an aggregate of 6,053,329 shares of combined company common
stock at exercise prices ranging from $0.75 to $13.175 per share of common
stock. In addition, under Global's arrangement with Merck KGaA, a German
company, Global issued warrants which are exercisable for 40,000 shares of
common stock for each aggregate $1 million in gross profit, if any, earned by
Global under an agreement with a subsidiary of Merck KGaA (up to a total of
700,000 shares of common stock). The exercise price for these warrants and
options may be at prices below the then trading market price for the combined
company's common stock. Consequently, any exercise of these options or warrants
could dilute the future value of our common stock.
If the combined company issues additional preferred stock it could adversely
affect the rights of holders of our common stock. After the merger, the board
of directors of the combined company will have the authority to issue up to an
additional 1,780,000 shares of its preferred stock and to determine the price,
rights, preferences and privileges of those shares (except that the rights,
preferences and privileges may not be more favorable to the stockholder than
the Series 1 preferred stock, without the approval of the Series 1 preferred
17
<PAGE>
stock), without any further vote or action by the stockholders. Preferred
stockholders could adversely affect the rights of holders of common stock by:
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.
18
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
In this joint proxy statement/prospectus, we have made forward-looking
statements relating to the future results of each of our companies and the
combined company. These statements are based on our estimates and assumptions
and are subject to a number of risks and uncertainties. Forward-looking
statements are preceded or followed by the words "anticipates," "believes,"
"estimates," "expects," "hopes," "targets" or similar expressions.
The future results of the combined company could be affected by subsequent
events and could differ materially from those expressed in the forward-looking
statements. If further events and actual performance differ from our
assumption, actual results could vary significantly from the performance
projected in the forward-looking statements.
The following important factors, along with those discussed elsewhere in
this joint proxy statement/prospectus, could affect the future results of the
combined company and could cause those results to differ materially from those
expressed in the forward-looking statements:
o the timing of, and regulatory and other conditions associated with, the
completion of the merger and the ability of the combined company to combine
operations and obtain revenue enhancements and cost savings following the
merger.
o materially adverse changes in economic conditions in the markets served by
our companies;
o material changes in available technology;
o the extent, timing, success and overall effects of competition from others
in the pharmaceutical markets; and
o the success and expense of our efforts and those of our suppliers,
customers and business partners in achieving year 2000 compliance.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following sets forth certain historical financial information of
Global and Impax on an unaudited pro forma basis after giving effect to the
merger on a "reverse acquisition purchase" basis (as if Impax had acquired
Global). The unaudited pro forma combined statement of operations includes the
results of operations of Global and Impax for the respective periods presented
and gives effect to pro forma adjustments as if the merger had occurred on
January 1, 1998. The unaudited pro forma combined balance sheet includes the
historical balance sheet of Global and Impax as of June 30, 1999 and gives
effect to the pro forma adjustments as if the merger had occurred on June 30,
1999. This data should be read in conjunction with the selected historical
financial information, the comparative per share data and the separate
historical financial statements of Global and Impax and the notes thereto
included elsewhere in this joint proxy statement/prospectus. The unaudited pro
forma combined financial statements are not necessarily indicative of the
operating results that might have occurred had the merger actually taken place
on January 1, 1998 or the actual financial position had the merger been
consummated on June 30, 1999 and should not be construed as representative of
future operations. Management does not expect significant changes to the
preliminary valuation of the transaction, however, the final purchase price
allocation could be different from the amounts reflected in the unaudited pro
forma combined information. In addition, the unaudited pro forma combined
financial information gives effect only to the adjustments set forth in the
accompanying notes and does not reflect any restructuring costs, nor any
potential cost savings or other synergies that management expects to realize as
a result of the merger.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Global Impax
Pharmaceutical Pharmaceuticals, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
---------------- ------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Net sales .................................... $ 4,401 $ -- $ 4,401
Cost of sales ................................ 4,681 -- $ 122 (a2) 4,803
--------- ---------- --------- -------------
Gross profit (loss) .......................... (280) -- (122) (402)
Research and development ..................... 2,229 5,127 37 (a2) 7,393
Selling, general and administrative .......... 2,537 705 12 (a2) 7,434
873 (a3)
3,307 (a4)
Other operating income, net .................. (407) (565) -- (972)
--------- ---------- --------- -------------
Operating loss ............................... (4,639) (5,267) (4,351) (14,257)
Interest income .............................. (137) (45) -- (182)
Interest expense ............................. 113 -- -- 113
--------- ---------- --------- -------------
Net loss ..................................... (4,615) (5,222) (4,351) (14,188)
Less: Imputed dividends on
preferred stock ............................. (140) -- -- (140)
--------- ---------- --------- -------------
Net loss applicable to common stock .......... ($ 4,755) $ (5,222) $ (4,351) $ (14,328)
========= ========== ========= =============
Net loss per common
share (basic and diluted) ................... $ (1.07) $ (2.43) $ (0.66)
========= ========== =============
Shares used in per share calculation ......... 4,432,016 2,145,000 21,722,750(b)
========= ========== =============
</TABLE>
21
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Global Impax
Pharmaceutical Pharmaceuticals, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
---------------- ------------------ --------------- -------------------
<S> <C> <C> <C> <C>
Net sales .................................... $ 4,217 $ -- $ 4,217
Cost of sales ................................ 3,220 $ 61(a2) 3,281
---------- ---------- -------- -------------
Gross profit ................................. 997 -- (61) 936
Research and development ..................... 997 3,303 19(a2) 4,319
Selling, general and administrative .......... 1,524 540 6(a2) 4,160
436(a3)
1,654(a4)
Other operating income, net .................. -- -- -- --
---------- ---------- -------- -------------
Operating loss ............................... (1,524) (3,843) (2,176) (7,543)
Interest income .............................. (72) (215) -- (287)
Interest expense ............................. 94 -- -- 94
---------- ---------- -------- -------------
Net loss ..................................... (1,546) (3,628) (2,176) (7,350)
Less: Imputed dividends on
preferred stock ............................. (1,474) -- -- (1,474)
---------- ---------- -------- -------------
Net loss applicable to common stock .......... $ (3,020) $ (3,628) $ (2,176) $ (8,824)
========== ========== ======== =============
Net loss per common
share (basic and diluted) ................... $ (0.43) $ (1.69) $ (0.36)
========== ========== =============
Shares used in per share calculation ......... 6,995,831 2,147,362 24,349,945(b)
========== ========== =============
</TABLE>
22
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS:
(dollars in thousands, except share and per share data)
a. Adjustments to the Pro Forma Combined Statement of Operations for the
year ended December 31, 1998 and the six months ended June 30, 1999 in
connection with the proposed merger are presented below:
1. Management believes $48 of the excess fair value over book value of
Global's net assets is related to inventory. We have not reflected any
adjustment to cost of sales in the unaudited pro forma combined statement of
income for the year ended December 31, 1998 or the six months ended June 30,
1999 with respect to the fair value adjustment to Global's inventory as any
adjustment is considered to be a non-recurring charge directly related to this
transaction.
2. As a result of recording property, plant and equipment at fair value,
depreciation expense is increased on a pro forma basis.
3. Adjustment reflects the amortization of the amount of the purchase
price allocated to identified intangible assets. Amortization was calculated on
the straight-line basis using useful lives between 3 and 8 years.
4. Reflects the pro forma impact of the amortization of goodwill.
Amortization was calculated on the straight-line basis over ten years.
b. Shares used in the per share calculation reflect 16,840,734 shares as
of December 31, 1998 (16,904,114 shares as of June 30, 1999) issued to Impax
shareholders as if they were outstanding from the beginning of the period
presented and 450,000 Global shares following the conversion of Global Series C
preferred stock into common stock as if the conversion had occurred at January
1, 1998. Impax shares are calculated using 1,990,000 shares of series A and B
preferred stock as of December 31, 1998 (2,009,000 shares as of June 30, 1999)
and 2,147,362 shares of common stock converted at the exchange ratio of 3.3358
per share and 519,631 shares of series C preferred stock converted at the
exchange ratio of 5.849 per share. Global shares are calculated using 9,000
shares of series C preferred stock converted at the exchange ratio of 50 per
share. Shares used in the pro forma income (loss) per share basic and diluted
calculation for the year ended December 31, 1998 are as follows:
<TABLE>
<S> <C>
Impax shares based on assumed exchange ratios ........................ 16,840,734
Global preferred shares based on assumed exchange ratio .............. 450,000
Global weighted average common shares issued and outstanding ......... 4,432,016
----------
Shares used in per share calculation ................................. 21,722,750*
==========
</TABLE>
Shares used in the pro forma income (loss) per share basic and diluted
calculation for the six months ended June 30, 1999 are as follows:
<TABLE>
<S> <C>
Impax shares based on assumed exchange ratios ........................ 16,904,114
Global preferred shares based on assumed exchange ratio .............. 450,000
Global weighted average common shares issued and outstanding ......... 6,995,831
----------
Shares used in per share calculation ................................. 24,349,945*
==========
</TABLE>
- ------------
* Because there are pro forma net losses in both the six-month period ended
June 30, 1999 and the year ended December 31, 1998, only the common shares
outstanding have been used to calculate both the basic earnings per share
and diluted earnings per share as the inclusion of the potential common
shares would be anti-dilutive.
Note: In-process research and development costs in the amount of $1,425, which
will be written off immediately after the transaction is completed, have been
excluded from these unaudited pro forma combined statements of operations.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AT JUNE 30, 1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Global Impax
Pharmaceutical Pharmaceuticals, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
---------------- ------------------ ------------------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................... $ 2,602 $ 589 $ 3,191
Short term investments ........................ 507 8,062 8,569
Accounts receivable ........................... 2,583 -- 2,583
Inventories ................................... 1,321 -- $ 48 (1a) 1,369
Prepaid expenses and other .................... 118 278 396
--------- --------- --------- ---------
Total current assets .......................... 7,131 8,929 48 16,108
Property, plant and equipment, net ............. 3,890 2,850 1,631 (1b) 8,371
Intangible assets, net ......................... 765 -- 4,472 (1c) 38,311
1,425 (1e)
(1,425) (2)
33,074 (1f)
Deferred financing costs, net .................. 24 -- (24) (1d) --
Investments .................................... 684 -- 684
Deposits ....................................... -- 109 109
--------- --------- --------- ---------
Total Assets ................................... $ 12,494 $ 11,888 $ 39,201 $ 63,583
========= ========= ========= =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable .............................. $ 1,149 $ 378 $ 1,527
Notes payable ................................. 764 -- 764
Current portion of long-term debt ............. 168 -- 168
Accrued expenses .............................. 1,595 53 1,648
--------- --------- --------- ---------
Total current liabilities ..................... 3,676 431 4,107
Long-term debt ................................. 1,876 -- 1,876
Accrued compensation ........................... -- 520 520
--------- --------- --------- ---------
Total Liabilities .............................. 5,552 951 6,503
--------- --------- --------- ---------
Mandatorily redeemable preferred stock ......... 5,900 -- (5,900) (3c) 22,000
17,000 (3d)
5,000 (3f)
---------
Stockholders' Equity
Preferred stock ............................... -- 24,999 (24,999) (3a) --
Common stock .................................. 73 335 (335) (3b) 246
173 (3e)
Additional paid-in capital .................... 25,106 2,227 (25,106) (1h) 52,883
41,595 (1g)
9,061 (3g)
Unearned compensation ......................... (1,715) (1,715)
Accumulated deficit ........................... (24,137) (14,909) (1,425) (2)
24,137 (1i) (16,334)
--------- --------- --------- ----- ---------
Total Stockholders' Equity ..................... 1,042 10,937 23,101 35,080
--------- --------- --------- ---------
Total Liabilities and Stockholders' Equity ..... $ 12,494 $ 11,888 $ 39,201 $ 63,583
========= ========= ========= =========
</TABLE>
24
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET:
(dollars in thousands, except share and per share data)
Because the merger will be accounted for as a reverse acquisition purchase
and Impax, which is treated as the acquirer for accounting purposes, is
receiving Global common stock and preferred stock rather than Global's assets
and liabilities, the fair market value of the Global common stock and preferred
stock outstanding for a reasonable period of time before and after the
announcement of the merger determines the purchase price for accounting
purposes. For purposes of the pro forma statements, the purchase price for
Global consists of the following:
<TABLE>
<S> <C>
Global stock issued and outstanding ..................... $ 40,050
Global stock options and warrants at fair value ......... 7,063
Direct expenses of the purchase ......................... 455
--------
Total purchase price ................................. $ 47,568
========
</TABLE>
The average market value of Global common stock for a reasonable period of
time before and after the announcement of the merger was $3.925 per share and
there were 7,254,053 common shares issued and outstanding. There were also
9,000 shares of Global Series C preferred stock and 50,000 shares of Global
Series D preferred stock outstanding of the date of acquisition with an
aggregate fair value of $11,578. The fair value of Global stock options and
warrants was determined using the Black-Scholes option pricing model. The fair
value of each option and warrant was estimated on the date of grant with the
following assumptions: (i) no expected dividend yield in 1999, (ii) expected
stock price volatility of 108.26%, (iii) weighted average risk free interest
rate of 5.89% and (iv) expected life of option of five years in 1999.
The direct expenses of the purchase consist primarily of legal, accounting
and other fees.
1. For purposes of determining the pro forma effect of the acquisition on
the combined financial statements, the fair value of Global's net assets have
been estimated in accordance with Accounting Principles Board Opinion No. 16:
<TABLE>
<S> <C>
Net assets of Global at June 30, 1999 ...................................... $ 6,942
Fair value adjustments:
1a. Adjustment of inventory to estimated fair value ........................ 48
1b. Adjustment of property, plant and equipment to estimated fair value .... 1,631
1c. Adjustment of other intangibles to estimated fair value ................ 4,472
1d. Adjustment of deferred financing costs to estimated fair value ......... (24)
1e. Adjustment to record in-process R&D at estimated fair value ............ 1,425
1f. Recording of goodwill .................................................. 33,074
-------
$47,568
=======
</TABLE>
The purchase price was allocated to the mandatorily redeemable preferred
stock and shareholders equity as follows:
<TABLE>
<S> <C>
Purchase Price ......................................... $ 47,568
Less amounts allocated:
Mandatorily redeemable preferred stock ................ (5,900)
Common stock .......................................... (73)
---------
Amount allocated to additional paid-in capital ......... $ 41,595(1g)
=========
</TABLE>
Additionally as part of the purchase price allocation, the Global
historical additional paid-in capital balance of $25,106(1h) and accumulated
deficit of ($24,137)(1i) are written off.
2. Purchased in-process research and development represents the value
assigned in a purchase business combination to research and development
projects of the acquired business that were commenced, but not yet
25
<PAGE>
completed, at the date of acquisition and which, if unsuccessful, have no
alternative future use in research and development activities or otherwise. In
accordance with Statement of Financial Accounting Standards No. 2, "Accounting
for Research and Development Costs," as interpreted by FASB Interpretation No.
4, amounts assigned to purchased in-process research and development meeting
the above criteria must be charged to expense at the date of consumption of the
purchase business combination. In this regard, the company estimates charges
for purchased in-process research and development of $1,425 with respect to the
merger. The company has not reflected any adjustments to the pro forma
statements of operations for the year ended December 31, 1998 or the six months
ended June 30, 1999 as any adjustment is considered to be a non-recurring
charge directly related to this transaction. The impact of the write-off of
in-process research and development has been reflected in stockholders' equity
as at June 30, 1999. The company believes that the assumptions and forecasts
used in valuing purchased in-process research and development are reasonable.
No assurance can be given, however, that future events will transpire as
estimated. As such, actual results may vary from the projected results.
The valuation of in-process research and development followed established
pharmaceutical industry practices used to value and manage in-process research
and development. A simplified model of that valuation methodology is as
follows:
Cash Flows from Successful Completion
Less: Cash Flows to Complete
Less: Return on assets Employed
-------------------------------------
Equals: Adjusted Cash Flows
Times: Probability of Technical Success
-------------------------------------
Equals: Risk Adjusted Cash Flows
Times: Present Value Factor
-------------------------------------
Equals: Fair Value
Cash Flows from Successful Completion represents the estimated future
revenues forecast to be earned over the life of the product less the costs and
expenses required to generate those revenues, assuming successful completion of
the project in process. Cash Flows to Complete represents the estimated future
research and development costs required to complete the project, assuming the
project is ultimately successful. Return on Assets Employed represents an
allocation of the estimated future profits from the product to existing assets,
including identifiable intangible assets, thereby ensuring that all appropriate
future cash flows are attributed to existing assets for purposes of determining
their fair value. Probability of Technical Success represents management's
assessment of all risks associated with successfully completing a given
project.
Management has identified four products which have been valued as
in-process research and development. Management estimates that these products
range from 12% to 87% complete. In the aggregate, these products will require a
total of approximately $1,225,000 of research and development expenditures to
complete. Estimated remaining research and development expenditures for
individual products range from $30,000 to $450,000.
New product development efforts for generic drugs generally involve four
main areas:
1. Pre-formulation
2. Formulation development
3. Method development and validation
4. Bioequivalency
5. Regulatory filing
o Pre-formulation involves analytical testing of the reference product,
sourcing of necessary ingredients and review of literature searches to
aid in formulation development.
o Formulation development involves the lab scale production of
experimental batches to determine the optimal formula or formulas which
best match the desired characteristics of the reference product. This
stage ends with production of pivotal batch(es) for bioequivalency
testing.
26
<PAGE>
o The method development and validation stage involves the development of
the manufacturing process and the validation that the process creates
the appropriate results.
o Bioequivalence testing involves the comparative evaluation of the test
and reference products in human volunteers according to preset
protocols. Typically this is the most costly phase of new product
development.
o Regulatory filing involves collection, assembly and review of all of the
information and data required for the applicable regulatory filing with
the FDA.
For one compound, the Company needs to complete phases 4 and 5. For two of
the compounds, the Company needs to complete phases 2 through 5. For one of the
compounds, the Company needs only to revalidate the method.
Commercialization is expected to be achieved in 2001 for one of the
compounds and in 2002 for the remaining three. For all of the above compounds
the brand name drug patent has previously expired.
3. As a result of the proposed transaction, the pro forma impact of the
conversion of the historical equity of Impax and Global is as follows:
<TABLE>
<S> <C>
3a. Elimination of Impax historical preferred stock ................ $ (24,999)
3b. Elimination of Impax historical common stock ................... (335)
3c. Elimination of Global historical Series C and D preferred stock (5,900)
3d. Establish Global Series 1-B preferred stock .................... 17,000
3e. Establish new common stock ..................................... 173
3f. Establish Global Series 1-A preferred stock .................... 5,000
---------
3g. Establish pro forma additional paid-in capital ................. $ 9,061
=========
</TABLE>
According to the merger agreement, each share of Impax common stock,
Series A preferred stock and Series B preferred stock is converted into 3.3358
shares of Global common stock and each share of Impax Series C preferred stock
is converted into 5.849 shares of Global common stock. In addition, each share
of Global Series C preferred stock is converted into 50 shares of Global common
stock. The following summarizes the shares to be issued and the determination
of par value of the common stock on a pro forma combined basis:
Conversion of Impax Stock to Global Common Stock
<TABLE>
<S> <C>
Impax common stock issued and outstanding at June 30, 1999 ............. 2,147,362
Impax Series A preferred stock issued and outstanding at June 30, 1999 . 1,580,000
Impax Series B preferred stock issued and outstanding at June 30, 1999 . 429,000
---------
Total .................................................................. 4,156,362
Exchange ratio ......................................................... 3.3358
---------
Shares issued .......................................................... 13,864,792
----------
Impax Series C preferred stock issued and outstanding at June 30, 1999 . 519,631
Exchange ratio ......................................................... 5.849
----------
Shares issued .......................................................... 3,039,322
----------
Conversion of Global Preferred Stock to Global Common Stock
Global Series C preferred stock issued and outstanding at June 30, 1999 9,000
Exchange ratio ......................................................... 50
----------
Shares issued .......................................................... 450,000
----------
Pro forma combined common stock shares issued .......................... 17,354,114
Par value per share .................................................... $ .01
-----------
Pro forma combined common stock par value .............................. $ 173
===========
</TABLE>
27
<PAGE>
According to the merger agreement, each share of Impax Series D preferred
stock is converted into .05 shares of Global Series 1-B mandatorily redeemable
preferred stock. At June 30, 1999, there were 3,400,000 shares of Impax Series
D preferred stock outstanding. In addition, each share of Global Series D
preferred stock is converted into one share of Global Series 1-A mandatorily
redeemable preferred stock. At June 30, 1999, there were 50,000 shares of
Global Series D preferred stock outstanding. Therefore, for purposes of the
unaudited pro forma combined balance sheet, 220,000 shares of Global Series 1-A
and 1-B mandatorily redeemable preferred stock will be issued. The following
summarizes the shares to be issued and the determination of par value of the
Series 1-A and 1-B mandatorily redeemable preferred stock on a pro forma
combined basis:
<TABLE>
<S> <C>
Conversion of Impax Preferred Stock to Global Series 1-B preferred stock:
Impax Series D preferred stock issued and outstanding at June 30, 1999 ................ 3,400,000
Exchange ratio ........................................................................ .05
---------
Shares issued ......................................................................... 170,000
Redemption value per share ............................................................ $ 100
Pro forma Global Series 1-B preferred stock at redemption value ....................... $ 17,000
=========
Conversion of Global Preferred Stock to Global Series 1-A Convertible Preferred Stock:
Global Series D preferred stock issued and outstanding at June 30, 1999 ............... 50,000
Exchange ratio ........................................................................ 1
---------
Shares issued ......................................................................... 50,000
---------
Redemption value per share ............................................................ $ 100
---------
Pro forma Global Series 1-A at redemption value ....................................... $ 5,000
=========
</TABLE>
The combined company is required to redeem the Series 1-A and Series 1-B
preferred stock, on March 31, 2004, at a price per share equal to $100 plus all
declared but unpaid dividends. The holders of the Series 1-A and 1-B preferred
stock can also require the redemption of their preferred stock upon the
happening of certain events, including the sale of the combined company or its
assets, the elimination of a public trading market for shares of its common
stock, or the insolvency of or bankruptcy filing by the combined company.
4. The unaudited pro forma combined financial information does not give
effect to any one-time charges, restructuring costs, nor any potential cost
savings, revenue enhancements or other synergies that could result from the
merger. To the extent that any restructuring costs are accounted for as accrued
liabilities and included in the allocation of the purchase price consideration,
goodwill would increase and the pro forma net loss included in the unaudited
pro forma combined statement of income would increase as a result of increased
amortization expense.
28
<PAGE>
MARKET PRICE INFORMATION
The Global common stock is listed on the Nasdaq Small Cap Market under the
symbol "GLPC." We are providing you with the reported high and low sale prices
of Global common stock as reported on the Nasdaq Small Cap Market for each
calendar quarter during the last two years and to date during this year. There
is no public trading market for Impax's common stock.
<TABLE>
<CAPTION>
High Low
---------- ----------
<S> <C> <C>
From January 1 through November 5, 1999
Period from January 1 through March 31, 1999 ............ $ 3.38 $ 1.94
Period from April 1 through June 30, 1999 ............... $ 3.98 $ 2.72
Period from July 1 through September 30, 1999 ........... $ 5.50 $ 3.00
Period from October 1 through November 5, 1999 .......... $ 4.63 $ 3.50
From January 1 through December 31, 1998
Period from January 1 through March 31, 1998 ............ $ 5.63 $ 2.88
Period from April 1 through June 30, 1998 ............... $ 5.38 $ 3.00
Period from July 1 through September 30, 1998 ........... $ 3.25 $ 1.88
Period from October 1 through December 31, 1998 ......... $ 2.38 $ 1.00
From January 1 through December 31, 1997
Period from January 1 through March 31, 1997 ............ $ 9.63 $ 6.88
Period from April 1 through June 30, 1997 ............... $ 8.38 $ 4.00
Period from July 1 through September 30, 1997 ........... $ 7.38 $ 3.75
Period from October 1 through December 31, 1997 ......... $ 5.50 $ 3.00
</TABLE>
On July 26, 1999, the last full trading day prior to the public
announcement of the proposed merger, the closing price on the Nasdaq Small Cap
Market was $3.88 per share of Global common stock. As of November 4, 1999,
there were approximately 749 holders of record of Global capital stock and 43
holders of record of Impax capital stock. We urge you to obtain current market
quotations before voting your shares.
29
<PAGE>
THE SPECIAL MEETINGS
The Global Special Meeting
When and where the Global special meeting will be held
This joint proxy statement/prospectus solicits, on behalf of the Global
board, proxies from the holders of Global common stock, Series C preferred stock
and Series D preferred stock to be voted at the Global special meeting, to be
held as follows:
Monday, December 13, 1999
10:00 a.m.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
24th Floor
New York, New York
Proxies solicited will also be voted at any adjournment or postponment of
the Global special meeting. We first mailed this joint proxy
statement/prospectus and the form of proxy to Global stockholders on or about
November 10, 1999.
What will be voted on at the Global special meeting
At the Global special meeting, Global stockholders will consider and vote
on a proposal to approve and adopt the merger agreement including the merger of
Impax and Global. By voting to approve the merger, Global stockholders will be
voting to approve the following items:
(1) an amendment to Global's certificate of incorporation to change the name
from "Global Pharmaceutical Corporation" to "Impax Laboratories, Inc." and to
increase the number of shares of Global common stock authorized for issuance to
50,000,000 shares.
The merger agreement provides for the issuance of approximately 31.5 million
shares of common stock (including shares of common stock issuable upon
conversion of preferred stock being issued) to the Impax shareholders. An
additional 3,798,142 shares will be reserved for issuance upon the exercise of
outstanding options and warrants held by Impax equity holders. Global currently
has 17,000,000 shares of common stock authorized for issuance, of which
approximately 12,411,890 shares are outstanding or already reserved for
issuance. The proposed amendment to the certificate of incorporation will
increase that number to 50,000,000 authorized shares to permit the issuance of
the shares to the Impax shareholders. This amendment will also permit the
combined company to reserve for issuance the 2,400,000 shares of common stock
covered by the proposed Impax Laboratories, Inc. 1999 Equity Incentive Plan
approximately 1,930,094 shares of which will be issuable upon the exercise of
outstanding options held by Impax employees and directors. Finally, Global's
board believes it would be desirable to increase the number of shares of
authorized Global common stock to make available additional shares for possible
employee benefit plan issuances, acquisitions, financings and for other
corporate purposes that may arise. The name change to "Impax Laboratories,
Inc." is deemed desirable in order to more fully utilize the good will
associated with the "Impax" name.
(2) the election of certain named individuals to serve as directors of the
combined company.
Pursuant to the terms of the merger agreement, the board of directors of the
combined company after the merger will consist of Charles Hsiao, Barry R.
Edwards, Larry Hsu, three individuals selected by the current members of the
Impax board, two individuals selected by the current members of the Global
board and two individuals mutually selected by the current members of the
Global and Impax boards. The following persons have been selected as the
initial directors of the combined company after the merger, occupying the
director seat positions indicated:
30
<PAGE>
<TABLE>
<CAPTION>
Name of Director Director Seat Position
- ----------------------------------------------- ------------------------------------------------
<S> <C>
Barry R. Edwards, Charles Hsiao and Larry Hsu In accordance with the merger agreement
- ---------------------------------------- ----------------------------------------------
David J. Edwards and Michael Markbreiter Two persons selected by Global's current board
- ---------------------------------------- ----------------------------------------------
Nigel Fleming and a second mutually agreed Two persons mutually selected by the current
upon board member boards of Impax and Global
- ---------------------------------------- ----------------------------------------------
Brian Keng, Jason Lin and Oh Kim Sun Three persons selected by Impax's current board
</TABLE>
Information regarding these individuals can be found in the section
entitled "Management of the Combined Company" appearing on page 120 of this
joint proxy statement/prospectus.
(3) the adoption of the new Impax Laboratories, Inc. 1999 Equity Incentive
Plan.
As required by the merger agreement, the Global board has adopted, subject to
approval by the Global stockholders of the merger proposal, a new equity
incentive plan entitled "The Impax Laboratories, Inc. 1999 Equity Incentive
Plan." Under the 1999 Equity Incentive Plan, the combined company may award
incentive and non-statutory stock options, stock appreciation rights and stock
bonus awards to officers, employees, directors and consultants of the combined
company and its affiliates. The compensation committee of the board of
directors (or, in the case of awards to non-employee directors, the board) will
administer the 1999 Equity Incentive Plan and determine, subject to the
provisions of the 1999 Equity Incentive Plan, who will receive awards, the
types of awards to be made and the terms and conditions of each award. Subject
to adjustment to reflect stock dividends and other capital changes, the maximum
number of shares of combined company common stock which may be issued under the
1999 Equity Incentive Plan is 2,400,000 shares. A more complete summary of the
primary features of the 1999 Equity Incentive Plan may be found in the section
entitled "Management of the Combined Company -- Impax Laboratories, Inc. 1999
Equity Incentive Plan." The full text of the plan is set forth in Annex G to
this joint proxy statement/prospectus.
Certain significant shareholders of Impax and Global have entered into a
shareholders' agreement committing these persons to vote their shares for the
next three years for the election as directors of the individuals designated
each year by the members of the current boards of Global and Impax.
The current members of the board of directors of Global and of Impax, as a
group, also each have the right to designate one observer to the combined
company board of directors.
The amendment to Global's certificate of incorporation, election of the
named individuals as directors of the combined company, and the adoption of the
new equity incentive plan are conditions to the consummation of the merger.
Stockholders entitled to vote
The merger cannot be completed without Global stockholder approval.
The Global board has set November 4, 1999 as the record date to determine
which Global stockholders will be entitled to vote at the special meeting. Only
Global stockholders who hold their shares of record as of the close of business
on November 4, 1999, will be entitled to receive notice of and to vote at the
Global special meeting. On November 4, 1999, there were:
o 7,254,053 shares of Global common stock outstanding and entitled to vote
at the Global special meeting, held by approximately 749 stockholders;
o 9,000 shares of Global Series C preferred stock outstanding and entitled
to vote at the Global special meeting, held by one stockholder, Small
Cap Value Portfolio of Bear Stearns & Co., Inc.; and
o 50,000 shares of Global Series D preferred stock outstanding and
entitled to vote at the Global special meeting, held by two related
stockholders, Fleming U.S. Discovery Fund III, L.P. and Fleming U.S.
Discovery Offshore Fund III, L.P.
31
<PAGE>
Number of shares that must be represented for a vote to be taken
In order to have a quorum, a majority of the total voting power of the
outstanding shares of Global's capital stock entitled to vote at the Global
special stockholders meeting must be represented in person or by proxy. If a
quorum is not present, a majority of the shares that are represented may
adjourn or postpone the Global special meeting.
Vote required to approve the merger agreement
Each share of Global common stock is entitled to one vote on each of the
matters being voted on at the Global special meeting. Each share of Global
Series C preferred stock and Series D preferred stock is entitled to 50 votes
on each matter to be voted on. The affirmative vote, either in person or by
proxy, of a majority of the outstanding shares of:
o Global common stock, Series C preferred stock and Series D preferred
stock, voting as one class; and
o Global Series D preferred stock, voting as a separate class;
is required in order to approve the merger agreement.
These shares may be represented either in person or by proxy. If you
abstain from voting or if you do not submit a proxy card and do not vote in
person at the Global special meeting, your non-action will have the effect of a
vote against the merger. Also, any broker non-vote will have the effect of a
vote against the merger.
As of the close of business on September 30, 1999, the directors and
executive officers of Global as a group (including the entities with which
these individuals are associated) beneficially owned 5,575,489 shares of Global
common stock, or approximately 55% of the total voting power of the issued and
outstanding shares of Global common stock. These figures are calculated without
counting shares which could be acquired by exercising stock options because the
shares underlying those options cannot be voted at the Global special meeting.
In addition, the entities with which two of these individuals are associated
own 100% of the outstanding shares of Global Series D preferred stock. These
directors and executive officers of Global (and the entities with which they
are associated), including the holders of all of the Series C preferred stock
and Series D preferred stock, have indicated their intention to vote their
shares "FOR" the approval and adoption of the merger agreement.
Voting your shares
The Global board is soliciting proxies from Global stockholders. This will
give you the opportunity to vote at the Global special meeting. When you
deliver a valid proxy, the shares represented by that proxy will be voted in
accordance with your instructions. If you do not vote by proxy or attend the
Global special meeting and vote in person, it will have the same effect as
voting against the merger.
You may grant a proxy by signing and mailing your proxy card. You may also
cast your vote in person at the meeting.
Mail. To grant your proxy by mail, please complete your proxy card, and
sign, date and return it in the enclosed envelope. To be valid, a returned
proxy card must be signed and dated.
In person. If you attend the Global special meeting in person, you may
vote your shares by completing a ballot at the meeting.
Changing your vote
You may revoke your proxy at any time before its exercise at the Global
special meeting. You may revoke your proxy by delivering a notice in writing to
the Secretary of Global, granting a later-dated proxy or appearing in person
and voting at the Global special meeting. You will not revoke your proxy by
simply attending the Global special meeting unless you complete a ballot.
32
<PAGE>
How proxies are counted
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the Global board. A valid proxy also gives the
individuals named as proxies authority to vote in their discretion when voting
the shares on any other matters that are properly presented for action at the
Global special meeting. You should be aware that any such properly executed
proxy cards are intended to be voted for approval of the merger proposal,
including of the merger and the matters contemplated by the merger agreement. A
properly executed proxy card marked "abstain" will not be voted. However, it
may be counted to determine whether a quorum is present. A proxy marked
"abstain" will have the effect of a vote against the merger.
Brokers who hold shares of stock as nominees will not have discretionary
authority to vote these shares in the absence of instructions from the
beneficial owners (sometimes referred to as "broker non-votes"). Broker
non-votes will be counted as present for purposes of determining whether there
is a quorum at the Global special meeting. Therefore, if your shares are held
by a broker or other nominee and you do not give them instructions on how to
vote your shares on the merger, this will have the same effect as voting
against the merger proposal.
Solicitation of proxies and costs
Proxies for use at the Global special meeting are being solicited by the
Global board of directors. Proxies will be solicited chiefly by mail; however,
certain officers, directors, employees and agents of Global may solicit proxies
by phone or other personal contact. These persons will not receive additional
compensation for conducting this solicitation. Global will bear the cost of the
solicitation of the proxies, including postage, printing and handling.
GLOBAL STOCKHOLDERS SHOULD NOT SEND IN STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
The Impax Special Meeting
When and where the Impax special meeting will be held
This joint proxy statement/prospectus solicits, on behalf of the Impax
board, proxies from the holders of Impax common stock, Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series D
preferred stock to be voted at the Impax special meeting, to be held as
follows:
Friday, December 10, 1999
10:00 am
Impax headquarters
30831 Huntwood Avenue
Hayward, California 94544
Proxies solicited will also be voted at any adjournment or postponement of
the Impax special meeting. We first mailed this joint proxy
statement/prospectus and the form of proxy to Impax shareholders on or about
November 10, 1999.
What will be voted on at the Impax special meeting
At the Impax special meeting, Impax shareholders will consider and vote on
a proposal to approve and adopt the merger agreement and the transactions
contemplated by the merger agreement, including the merger of Impax and Global.
Shareholders entitled to vote
The merger cannot be completed without Impax shareholder approval.
33
<PAGE>
The Impax board has set November 4, 1999 as the record date to determine
which Impax shareholders will be entitled to vote at the Impax special meeting.
Only Impax shareholders who hold their shares of record as of the close of
business on November 4, 1999 will be entitled to receive notice of and to vote
at the Impax special meeting. On November 4, 1999, there were:
o 2,147,362 shares of Impax common stock outstanding and entitled to vote
at the Impax special meeting, held by 15 shareholders;
o 1,580,000 shares of Impax Series A preferred stock outstanding and
entitled to vote at the Impax special meeting, held by eight
shareholders;
o 428,600 shares of Impax Series B preferred stock outstanding and
entitled to vote at the Impax special meeting, held by 14 shareholders;
o 519,631 shares of Impax Series C preferred stock outstanding and
entitled to vote at the Impax special meeting, held by two shareholders;
and
o 3,400,000 shares of Impax Series D preferred stock outstanding and
entitled to vote at the Impax special meeting, held by seven
shareholders.
Number of shares that must be represented for a vote to be taken
In order to have a quorum, a majority of the total voting power of the
outstanding shares of Impax's capital stock entitled to vote at the Impax
special meeting must be represented in person or by proxy. If a quorum is not
present, a majority of shares that are represented may adjourn or postpone the
Impax special meeting.
Vote required to approve the merger agreement
Each share of Impax common stock, Series A preferred stock, Series B
preferred stock and Series D preferred stock is entitled to one vote on each of
the matters being voted on at the Impax special meeting. Each share of Impax
Series C preferred stock is entitled to 1.75 votes on each matter to be voted
on. The affirmative vote, either in person or by proxy, of a majority of the
outstanding shares of:
o the Impax common stock;
o the Impax Series A preferred stock, Series B preferred stock and the
Series C preferred stock, voting together as one class; and
o the Impax Series D preferred stock, voting as a separate class.
These shares may be represented either in person or by proxy. If you
abstain from voting or if you do not submit a proxy card and do not vote in
person at the Impax special meeting, your non-action will have the effect of a
vote against the merger. Also, any broker non-vote will have the effect of a
vote against the merger.
As of the close of business on October 1, 1999, the directors and officers
of Impax as a group (including the entities with which these individuals are
associated) beneficially owned 1,571,836 shares of Impax common stock, or
approximately 73% of the total voting power of the issued and outstanding
shares of Impax common stock. These figures are calculated without counting
shares which could be acquired by exercising stock options because the shares
underlying those option cannot be voted at the Impax special meeting. In
addition, the entities with which these individuals are associated own
approximately 71% of the outstanding shares of Impax Series A preferred stock,
Series B preferred stock and Series C preferred stock and approximately 88% of
the outstanding shares of Impax Series D preferred stock. These directors and
executive officers of Impax (and the entities with which they are associated)
have indicated their intention to vote all their shares "FOR" the approval and
adoption of the merger agreement.
In addition, holders of approximately 73% of the outstanding shares of
Impax common stock, approximately 77% of the outstanding voting power of the
shares of Impax Series A preferred stock, Series B preferred stock and Series C
preferred stock (together as a class), and approximately 88% of the outstanding
shares of Impax Series D preferred stock have granted Global a voting proxy to
vote their shares in favor of the merger agreement.
34
<PAGE>
Voting your shares
The Impax board of directors is soliciting proxies from Impax
shareholders. This will give you the opportunity to vote at the Impax special
meeting. When you deliver a valid proxy, the shares represented by that proxy
will be voted in accordance with your instructions. If you do not vote by proxy
or attend the Impax special meeting and vote in person, it will have the same
effect as voting against the Impax merger proposal.
You may grant a proxy by signing and mailing your proxy card. Impax may
also request that shareholders return their proxy cards by fax. You may also
cast your vote in person at the meeting.
Mail. To grant your proxy by mail, please complete your proxy card, sign,
date and return it in the enclosed envelope. To be valid, a returned proxy card
must be signed and dated.
In person. If you attend the Impax special meeting in person, you may vote
your shares by completing a ballot at the meeting.
Changing your vote
You may revoke your proxy at any time before its exercise at the Impax
special meeting. You may revoke your proxy by delivering notice in writing to
the Secretary of Impax, granting a later-dated proxy or appearing in person and
voting at the Impax special meeting. You will not revoke your proxy by simply
attending the Impax special meeting unless you complete a ballot.
How Proxies Are Counted
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the Impax board of directors. A valid proxy also gives
the individuals named as proxies authority to vote in their discretion when
voting the shares on any other matters that are properly presented for action
at the Impax special meeting. You should be aware that any such properly
executed proxy cards are intended to be voted for approval of the merger
proposal, including of the merger and the matters contemplated by the merger
agreement. A properly executed proxy card marked "abstain" will not be voted.
However, it may be counted to determine whether there is a quorum present. A
proxy marked "abstain" will have the effect of a vote against the Impax merger
proposal.
Solicitation of Proxies and Costs
Proxies for use at the Impax special meeting are being solicited by the
Impax board of directors. Proxies will be solicited chiefly by mail; however,
certain officers, directors, employees and agents of Impax may solicit proxies
by telephone or other personal contact. These persons will not receive
additional compensation for conducting this solicitation. Impax will bear the
cost of the solicitation of the proxies, including postage, printing and
handling.
IMPAX STOCKHOLDERS SHOULD NOT SEND IN STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
35
<PAGE>
THE MERGER
Background of the Merger
Global
The Global board and management regularly consider Global's strategic
alternatives as part of their ongoing efforts to enhance stockholder value.
These alternatives have included:
o seeking additional financing, which would enhance Global's ability to
develop, commercialize and market its products on an independent basis;
o increasing Global's strategy of entering into alliances with other
pharmaceutical companies for the development of products for Global; and
o merging with a strategic partner to gain access to greater scientific,
technical and development capabilities, as well as financial resources.
Over the past year, individual directors and management of Global have had
contacts with a number of organizations that were potentially interested in a
strategic combination. These organizations have included both research and
development companies and pharmaceutical firms. None of these discussions moved
beyond the preliminary stage. In May 1998, Barry R. Edwards, President and
Chief Executive Officer of Global, and Charles Hsiao, Chairman of the Board and
Chief Executive Officer of Impax, and Larry Hsu, President of Impax, first met
and held introductory discussions concerning their respective businesses. On
May 13, 1998, Global and Impax entered into a confidentiality agreement in
order to generally explore business opportunities between the companies. These
discussions revolved around a joint-development approach for a select group of
products, half of which would be developed by Global and half by Impax. At
subsequent meetings during June through November 1998, discussions included
Global providing packaging, marketing and distribution services to Impax for
Impax's other products under development in addition to the products being
developed jointly.
On December 10, 1998, Cornel Spiegler, Chief Financial Officer of Global,
and Mr. Edwards made a presentation to the Global board regarding Global's
alternatives, including a possible business combination with Impax. At that
time, the Global board authorized management to investigate the possibility of
a merger with Impax. Subsequently in December 1998, Global and Impax held
discussions regarding the strategic advantages of a merger.
In January 1999, Global pursued both financing alternatives that would
permit Global to expand its product development and commercialization
activities and possible strategic combinations. Global reviewed potential
sources of financing, including a private offering of preferred stock. Global
also analyzed a possible strategic combination with Impax and with others.
On March 2, 1999, Global consummated the first of two tranches of a
private placement of its preferred stock, with gross proceeds to Global of $3
million. The second tranche, which was committed to at that time by the
purchasers (the Flemings funds), required the Global stockholders' to approve
an amendment to Global's certificate of incorporation increasing the authorized
capital stock available to be issued. On May 18, 1999, the second tranche of
the preferred stock sale was consummated, with gross proceeds to Global of $2
million. This financing provided Global with sufficient working capital to give
Global flexibility in its strategic combination discussions.
On March 4, 1999, Mr. Edwards made a presentation to the Global board
concerning Impax and the possible strategic advantages of a merger of the two
companies. Among the benefits reviewed at the meeting were the additional
research and development capabilities that Impax could provide to Global and
the additional administrative, manufacturing and marketing capabilities that
Global could provide to Impax. The Global board also considered Global's
strategic future as a "stand alone" company, alternatives in light of
conditions in the capital markets, the results of exploratory discussions with
other potential merger partners and the proposed terms of the Impax merger. At
the meeting on March 4, the Global board instructed management to continue
exploratory discussions with Impax and formed a Task Team consisting of
directors
36
<PAGE>
Philip Chapman, George Keane, Udi Toledano and Barry Edwards. Additionally, Mr.
David Edwards of Flemings funds was asked to participate as an observer on the
Task Team (at that time, David Edwards was not yet elected to Global's Board of
Directors). Additional discussions continued between the companies for the next
several weeks, and culminated in Global and Impax executing a Letter of Intent
on March 16, 1999. Detailed business, financial and legal due diligence
commenced immediately. Beginning shortly thereafter, the parties and their
counsel began a series of negotiations over the terms of the merger agreement.
In addition, the Global board directed management to arrange a meeting
between the members of the merger Task Team and the founders of Impax. The
meeting took place in New York City on March 26, 1999.
At a meeting held on April 30, 1999, the Global board reviewed the
progress of the due diligence review of Impax. At the meeting, Global's
management made a presentation to the Global board concerning Impax and the
proposed terms of a merger. The Global board directed management to continue in
its review and discussions and to prepare a detailed presentation for the
board.
On May 7, 1999, a meeting of the Global board was held to review various
aspects of the proposed merger, including detailed forecast and valuation
analyses prepared by management in the course of evaluating the merger with
Impax. The Global board directed management to retain financial advisors to
continue to analyze Impax and the proposed merger, as well as other options
that may be available to Global.
At a meeting held on May 12, 1999, the Global board again considered its
strategy of remaining an independent company. Based on a variety of factors,
including the expected two-to-three year time horizon for commercialization of
several of Global's key products and conditions in the capital markets, the
Global board concluded that it would be desirable to pursue a combination with
a strategic partner with more significant scientific, technical, and research
and development capabilities. After a further review of the terms of the
proposed Impax merger, as well as Impax's financial resources, research and
development capabilities and success to date in the pharmaceutical industry,
the Global board authorized management and its advisors to pursue a transaction
with Impax. Over the next several months, Global management, the Task Team of
directors and outside advisors continued their due diligence review of Impax
and negotiations regarding specific terms of the merger and the documentation.
On July 26, 1999, the Global board met to discuss the merger and its
finalized negotiated terms, including the proposed consideration being paid to
Impax shareholders. Representatives of Gruntal and Co., L.L.C. and Global's
legal counsel attended the meeting. At the meeting, Gruntal discussed the
consideration being paid to Impax shareholders and delivered its opinion to the
Global board that the consideration being paid to the Impax shareholders was
fair from a financial point of view to the Global common stockholders. A
detailed review and discussion of the merger documentation ensued, including
the termination and non-solicitation provisions contained in the merger
agreement. These provisions permit the board to consider and, if desirable,
accept an unsolicited superior proposal in the event that one is presented
prior to the closing date of the merger. The Global board also gave specific
consideration to the termination fee contained in the merger agreement. The
Global board then approved the final terms of the merger agreement and
authorized its execution.
Impax
As part of its business and strategic development, the Impax board and
management continuously evaluates strategic alternatives to further its
development and growth in the industry. These alternatives have included:
o seeking additional equity financing to accelerate Impax's development
and commercialization of products;
o seeking debt financing to enable Impax to build its own manufacturing
facilities;
o strategic alliances with other pharmaceutical companies, whereby the
pharmaceutical companies provide the financing and marketing
capabilities, and Impax provides the research and development expertise
and efforts.
37
<PAGE>
During 1996 and 1997, Impax held extensive discussions with another
pharmaceutical company concerning a prospective merger or other combination of
the company. This company was an established manufacturer of pharmaceutical
products. However, the discussions never advanced beyond the preliminary
negotiations and due diligence investigation phase.
In May 1998, Charles Hsiao, Chairman of the Board and Chief Executive
Officer of Impax, Larry Hsu, President of Impax and Barry R. Edwards, President
and Chief Executive Officer of Global initiated discussions. On May 13, 1998,
Global and Impax entered into a confidentiality agreement to allow the parties
to explore business opportunities. These discussions related to strategic
alliances with respect to joint development of certain products. In November,
1998, Impax discussed the possibility of contracting with Global to provide
packaging, marketing and distribution to Impax for certain Impax proprietary
products.
In December, 1998, Impax and Global explored the possibility of merging
together, and held numerous discussions regarding the strategic advantages of a
merger and the appropriate exchange ratio.
In the fourth quarter of 1998, Impax was concurrently pursuing offshore
equity financing to allow Impax to continue to fund its product development
activities and its plans to construct manufacturing facilities. Impax evaluated
various sources of equity financing, with particular focus on potential
synergies between Impax and the prospective investor. In March 1999, Impax
consummated an offshore private placement of its Series D Preferred Stock. In
this financing, Impax raised an aggregate of $17,000,000.
During March, 1999, Impax had numerous discussions with each of the
individual members of the board of directors, concerning the various aspects of
a prospective merger with Global.
A board meeting was held on May 3, 1999, in Taipei, Taiwan, at which all
the members of the board of directors were present. Drs. Hsiao and Hsu made
presentations to the Impax Board concerning Global and the potential strategic
advantages of a merger of the two companies. Among the principal benefits
anticipated from Global were the manufacturing and marketing expertise that
Global could provide. Dr. Hsu also presented detailed financial information on
Global, as well as forecasts on the financial results of the combined company.
After a review of the terms of the proposed Impax merger, as well as Global's
financial resources, its manufacturing and marketing capabilities, the Impax
board authorized management and its advisors to pursue a transaction with
Global. Over the next several months, Impax management and its advisors
continued their due diligence review of Global and negotiations regarding
specific terms of the merger.
On or about July 2, 1999, the merger agreement was delivered to each of
the members of the Impax board of directors. From June 30, 1999, through July
13, 1999, Dr. Hsu held individual meetings with each of the members of the
Board, either in person or by telephone. In each of these meetings, Dr. Hsu
reviewed the terms of the proposed merger, the fairness of the exchange ratio,
and lengthy discussions followed.
On July 25, 1999, the Impax board of directors, via unanimous written
consent, approved the merger agreement and the related transactions.
Joint Reasons for the Merger
The directors and management of Global and Impax believe that the merger
will create a stronger competitor and will provide significant value for the
shareholders of Impax and Global for, among other things, the following
reasons:
The merger brings together a complementary blend of assets and
capabilities.
o Global will realize significant enhancement to its generic product
pipeline via Impax's extensive projects, and Impax will have access to
Global's well-established generic product sales and marketing team.
o The combination of marketing and product development expertise in the
same company will lead to better strategic planning in product
development.
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<PAGE>
o The merger enables both companies to accelerate execution of their
strategies through added financial reserves and enhanced borrowing
capabilities.
o The management and directors of Global and Impax believe that the merger
will result in significant opportunities for cost savings, revenue
growth, technological development and other benefits. The combined
company is expected to achieve synergies through economies of scope and
scale and the elimination of duplicative expenditures.
Global Board of Directors' Consideration and Approval of the Merger
In reaching its conclusion to approve the merger agreement, the Global
board consulted with management of Global, as well as its financial and legal
advisors and considered a number of factors in addition to those explained in
the section discussing the reasons for the merger, including the following:
1. The importance of the merger in implementing and accelerating Global's
basic long-term growth strategy in light of the current economic,
financial and business environment.
2. Global's financial condition, results of operations, business and
prospects, as compared to those of the combined company's. In
considering this financial information, the Global board took into
account Global's and Impax's recent and historic valuations and earnings
performances, as well as an analysis of the business opportunities
presented by the merger. The Global board considered detailed financial
analyses and pro forma and other financial data presented by Gruntal, in
addition to the business of Global and Impax and the industries in which
they operate.
3. The terms of the merger agreement, as well as other information
concerning the merger, including the terms and structure of the merger.
Among other things, the board considered the expectation that the merger
will be treated as a tax-free transaction for U.S. federal income tax
purposes to Global stockholders and will be accounted for using purchase
accounting.
4. Impax's access to capital to finance research and development which
would enable the combined company to pursue more product development and
license products to others at a later stage in development, thereby
increasing its share of profits.
5. Global's access to Impax's research and development expertise which,
Global believes, can be leveraged to broaden its product line.
6. The benefit to achieving economies of scale, because the pharmaceutical
industry is characterized by intense competition and consolidation.
7. The advantages and potential disadvantages of the merger structure,
including the sharing of board of director seats and senior management
positions in the combined company between people from the two companies
and the use of a co-CEO structure;
8. The other potential major transactions which might be available to
Global either in addition to, or as alternatives to, the merger, and the
effect of the merger in making it easier or harder to pursue those
transactions; and
9. The difficulty of integrating the business of Global and Impax, and the
possible adverse effects that could result from the need for senior
management to focus significant time and effort on completing the merger
and integrating the business.
10. The effect on Global stockholders of Global continuing as a stand-alone
entity compared to the effect of Global combining with Impax, in light
of the factors summarized above.
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<PAGE>
The Global board also considered a number of potential risks and
disadvantages relating to the merger, including:
1. the difficulty and management distraction inherent in integrating two
businesses;
2. risks relating to the disparate nature of Global's and Impax's core
businesses;
3. the risk that the merger would not be consummated;
4. the one-time charge that will be incurred in connection with the Merger;
5. the majority stock position to be held post-merger by the Impax
shareholders;
6. the dilution to the existing stockholders of Global; and
7. the uncertainty regarding stockholders', customers', suppliers' and
employees' perceptions of the merger.
Please refer to "Risk Factors" earlier in this joint proxy statement/prospectus
commencing on page 15.
The Global board believed that these risks were outweighed by the
potential benefits to be realized from the merger. The foregoing discussion of
the information and factors considered by the Global board is not intended to
be exhaustive but is believed to include all material factors considered by the
Global board in approving the merger. In view of the wide variety of
information and factors considered, the Global board did not find it practical
to, and did not, assign any relative or specific weights to the foregoing
factors and individual directors may have given differing weights to different
factors.
Information and Factors Considered by the Impax Board of Directors
In deciding whether to approve the merger, and the merger agreement, the
Impax board of directors considered a number of factors in addition to those
explained in the section discussing the reasons for the merger. The following
summarizes the other material information and factors that the Impax board of
directors considered:
1. Important consideration about Impax, Global and the proposed combined
company including:
o the financial condition, results of operations, cash flows and
prospects of Impax, Global and the combined company;
o the expectation that the combined company will produce greater
stockholder returns than either Impax or Global could produce on its
own;
o the belief that the combined company will produce earnings growth at
or above the high end of Impax's current projected range, and will
increase the ability to sustain these earnings by producing
significant synergies; and
o the strategic fit of Impax and Global, including the potential
synergies resulting from the combinations of marketing and product
development expertise in the same company and the impact of those
synergies on the ability of the combined company to compete in the
industry.
2. The proposed structure of the transaction and the other terms of the
merger agreement including the following:
o the representations and warranties of the parties;
o the covenants of the parties and the effect of those provisions on
the operations of Impax and Global prior to the merger;
o the requirement that Impax and Global must pay the other (1) its
expenses incurred in connection with the merger, up to $500,000, and
(2) a termination fee of $500,000 if the merger agreement is
terminated after the board of directors changes its recommendation
and the stockholders of that company fail to approve the merger.
40
<PAGE>
3. The financial presentations and the analysis of the special project
report presented by Dr. Hsu at the Impax board meeting on May 5, 1999;
4. The impact of the merger on Impax's shareholders and employees;
5. The dollar amount of synergies which the which the combined company
should be able to realize, and the risks that the synergies would not
all be realized;
6. The financial implications of not being able to account for the
transaction as a "pooling of interest";
7. The advantages and potential disadvantages of the merger structure,
including the sharing of board of director seats and senior management
positions in the combined company between people from the two companies
and the use of a co-CEO structure;
8. The other potential major transactions which might be available to Impax
either in addition to, or as alternatives to, the merger, and the effect
of the merger in making it easier or harder to pursue those
transactions; and
9. The difficulty of integrating the business of Global and Impax, and the
possible adverse effects that could result from the need for senior
management to focus significant time and effort on completing the merger
and integrating the business.
In addition to these factors, the Impax board of directors also considered
the potential adverse impact of other factors on the proposed merger. These
included:
o the challenges in combining the assets and workforces of two companies;
o the ability of the combined company's management to continue to focus on
strategic goals while working to implement the merger; and
o the risk that the proposed merger would not be consummated.
The Impax board of directors did not assign particular weight or ranking
to any of the factors it considered in approving the merger. Also, in making
their determination, it is possible that individual directors may have assigned
a different level of importance to each factor.
The Impax board of directors unanimously recommends that Impax
shareholders vote FOR the Impax merger proposal.
Opinion of Global's Financial Advisor
Gruntal was retained by Global to provide a fairness opinion in connection
with the merger based upon Gruntal's experience and expertise. At the July 26,
1999 meeting of Global's board, Gruntal rendered to the board its oral opinion,
confirmed in writing as of the same date, that based upon and subject to the
matters stated in the opinion, as of July 26, 1999, the Global common stock and
the Global Series 1 preferred stock to be issued to the shareholders of Impax
in connection with the merger is fair, from a financial point of view, to the
holders of Global common stock. Gruntal subsequently affirmed its earlier
opinion in writing on November 8, 1999.
The full text of Gruntal's opinion dated July 26, 1999, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken is attached as Annex B to this document and is incorporated in this
summary by reference. Global stockholders should read Gruntal's opinion
carefully in its entirety. Gruntal's opinion is directed to Global's board and
the fairness of the consideration issued to the shareholders of Impax in
connection with the merger from a financial point of view to Global's common
stockholders, and does not address any other aspect of the merger nor does it
constitute a recommendation to any Global stockholder as to how to vote at the
Global special meeting. The summary of Gruntal's opinion set forth in this
document is qualified in its entirety by reference to the full text of the
opinion.
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<PAGE>
In arriving at its opinion, Gruntal:
o reviewed a draft of the merger agreement dated July 20, 1999 and, for
purposes of its opinion, assumed that the final form thereof would not
differ in any material respect from such draft;
o held discussions with members of senior management of Global and Impax
regarding their respective past and current business operations and
their financial conditions and future prospects;
o reviewed historical financial and business information provided to them
by the management of Global and the management of Impax;
o reviewed internally prepared financial projections of Global and Impax
furnished to them by the management of Global and the management of
Impax;
o reviewed the historical stock prices and trading volumes of Global
common stock;
o reviewed certain historical financial and operating data of public
companies whose business Gruntal considered comparable to that of each
of Global and Impax;
o reviewed the financial terms, to the extent publicly available, of
certain transactions which Gruntal considered comparable to the
contemplated merger;
o performed discounted cash flow analyses of Global and Impax based upon
certain assumptions of future performance provided by management of
Global and management of Impax; and
o conducted such other analyses and reviewed such other information as
Gruntal deemed appropriate.
In the course of its review, Gruntal relied upon and assumed the accuracy
and completeness of all the financial and other information furnished to it by
Global and Impax and their respective representatives and did not attempt to
verify that information. Gruntal did not make or obtain any independent
evaluations or appraisals of the assets or liabilities of Impax or Global,
including, but not limited to, liabilities arising from or connected with any
pending or future litigation to which Global or Impax was or may become a
party. With respect to the financial projections furnished to Gruntal or
discussed by Gruntal with the management of Global and Impax, Gruntal assumed
that they had been reasonably prepared and reflect the best currently available
estimates and judgment of Global's and Impax's management as to the expected
future results of operations, synergies and financial condition of Global and
Impax to which such analyses and forecasts relate, and Gruntal assumed that
such expected future results of operations, synergies and strategic benefits
would be realized in the amounts and time periods as described by such
management and for purposes of one or more of its analyses, or part of its
analysis, may have made certain modifications to that information as discussed
in the conclusion of this section on page 48. Global's and Impax's financial
projections are each highly dependent on the outcome of clinical trials, market
acceptance of untested products, including pharmaceutical products and drug
delivery systems, and the efforts of corporate partners. The inability of
Global and Impax to realize such expected future results of operations,
synergies and strategic benefits could affect Gruntal's opinion, and Gruntal
expressed no view as to whether such future results of operations, synergies
and strategic benefits would actually be realized. Gruntal also assumed that
the transaction would have the tax consequences described in the merger
agreement and in discussions with, and other materials furnished to Gruntal by,
representatives of Global. In addition, Gruntal noted that Global expects to
pay no income taxes for the next several years due to an approximately $20
million net operating loss carry forward.
Gruntal's opinion was necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of,
July 26, 1999. It should be understood that subsequent developments including,
without limitation, any changes to the terms or conditions of the contemplated
merger, may affect its opinion and that Gruntal does not have any obligation to
update or revise its opinion, other than to provide a letter with respect to
affirming its opinion. Gruntal expressed no opinion on the price at which
Global common stock or the Global series 1 preferred stock would trade at any
future date. Gruntal also assumed that in the course of obtaining the necessary
regulatory or other consents or approvals, contractual or otherwise, for the
contemplated merger, no material restrictions, including any divestiture
requirements or amendments or modifications to, the contemplated merger would
be imposed.
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<PAGE>
Gruntal's opinion did not address the merits of the underlying business
decision by Global to engage in the merger. Gruntal expressed no opinion as to
the prices at which Global or Impax shares would trade following the
announcement or, in the case of the Impax shares, consummation of the merger.
The following is a summary of the material financial analyses performed by
Gruntal in arriving at its opinion. Certain of the financial analyses performed
by Gruntal were deemed by Gruntal to be more material to its analysis and
others were determined to be less material or not meaningful to its analysis
and, therefore, may not have been relied on to issue its opinion.
Valuation of Global
In consideration of the fact that the merger requires the issuance of
Global's common stock, Gruntal conducted a variety of analyses to determine
that the range of potential market values of the Global common stock to be
issued in connection with the merger appropriately reflects the stock's implied
value. Gruntal performed two primary valuation analyses of Global:
(i) Discounted Cash Flow Analysis: This analysis consists of adding the
discounted present value of the projected future free cash flows of
Global from January 1, 2000 to December 31, 2003 and the discounted
present value of the terminal value of Global, based on a multiple of
net income projected for the year ending December 31, 2003;
(ii) Comparable Company Analysis: This analysis is a comparison of Global
with certain generic pharmaceuticals companies, which are publicly
traded companies in the generic pharmaceuticals industry and are
specified below, which analysis consisted of reviewing and considering
certain financial and market data for the generic pharmaceuticals
companies.
Global Discounted Cash Flow Analysis
Gruntal performed a discounted cash flow analysis, based on the financial
projections provided by Global's management. Global's projections were modified
by Gruntal to reflect a more conservative approach towards the future
operations of Global.
A range of values for Global's equity was determined by the following
discounted cash flow method: calculating the present value of Global's
estimated future free cash flows from January 1, 2000 to December 31, 2003, and
adding to such amount the present value of Global's terminal value obtained by
capitalizing Global's projected net income for the year ending December 31,
2003 at multiples of 14x, 16x, 18x and 20x. The range of the terminal value
multiples used for Global was based on the range of multiples of net income at
which certain generic pharmaceuticals companies selected by Gruntal are
expected to trade over the long term.
Gruntal applied discount rates of 30.0%, 35.0% and 40.0% to calculate the
present value of Global's estimated future free cash flows from January 1, 2000
to December 31, 2003 and the terminal value calculated based on the above
multiples of Global's 2003 projected net income. This range of discount rates
was derived using certain assumptions as to the risk associated with
achievement of the modified Global management projections.
The range of present values derived for Global's equity by applying the
discounted cash flow analysis based upon the modified Global management
projections was $27.8 million ($2.69 per share) to $49.9 million ($4.83 per
share), with an average value of $37.9 million ($3.66 per share).
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<PAGE>
Global Comparable Company Analysis
Gruntal analyzed eleven generic pharmaceutical companies to evaluate the
market and aggregate values at which these companies trade relative to their
respective historical and projected financial performance. The generic
pharmaceutical companies used in the Global Comparable Company Analysis, whose
business, industry, products or operations Gruntal considered to be comparable
to Global in one or more respects, consisted of the following companies:
Global Comparable Companies
o Alpharma Inc. o IVAX Corporation
o Barr Laboratories o Lannett Company
o Copley Pharmaceutical, Inc. o Mylan Laboratories Inc.
o Duramed Pharmaceuticals, Inc. o Warner Chilcott Laboratories
o Halsey Drug Company o Watson Pharmaceuticals, Inc.
o Hi-Tech Pharmacal Co.
Gruntal analyzed, among other things, the market values and certain other
financial data for the generic pharmaceutical companies, including their
revenue, earnings before interest and taxes (which is commonly referred to as
EBIT), earnings before interest, taxes, depreciation and amortization (which is
commonly referred to as EBITDA) and earnings per share, in each case, for the
most recent twelve month period for which information was available and on an
estimated basis for 2000 and 2001. The estimates for the generic pharmaceutical
companies were taken from I/B/E/S International Inc., a well-known aggregator
of financial data from publicly available research reports published by a
variety of investment firms and research analysts. The average values,
excluding any outliers, for market value of common equity on July 22, 1999 plus
total long-term debt and preferred stock less cash, or enterprise value, as a
multiple of each of the indicated statistics for the generic pharmaceutical
companies, were as follows:
(i) Twelve Months Ended 3/31/99 revenue: 3.1x
(ii) Twelve Months Ended 3/31/99 EBIT: 13.3x
The average values, excluding any outliers, for market value of treasury
method diluted common equity on July 22, 1999 as a multiple of earnings per
share for the following periods for the generic pharmaceuticals companies were
as follows:
(i) Twelve months ended 3/31/99 earnings per share or EPS: 20.6x
(ii) 2000 EPS: 20.4x
(iii) 2001 EPS: 17.4x
Applying these multiples to Global's twelve months ended March 31, 1999
results and to the modified Global management projections yielded implied
equity values for Global ranging from $15.3 million ($1.48 per share) to $96.0
million ($9.28 per share), with an average of $56.6 million ($5.47 per share).
Valuation of Impax
In rendering its opinion, Gruntal, among other things, performed three
primary valuation analyses of Impax:
(i) Discounted Cash Flow Analysis: This analysis consists of adding the
discounted present value of the projected future free cash flows of
Impax from January 1, 2000 to December 31, 2003 and the discounted
present value of the terminal value of Impax, based on a multiple of
net income projected for the year ending December 31, 2003;
(ii) Comparable Company Analysis: This analysis is a comparison of Impax
with certain publicly traded companies in the drug delivery industry,
which are specified below, and which analysis consisted of reviewing
and considering certain financial and market data for the drug
delivery companies selected by Gruntal; and
44
<PAGE>
(iii) Comparable Merger and Acquisition Transactions Analysis: This
analysis is a comparison of the multiples paid in certain merger and
acquisition transactions involving companies in the drug delivery and
generic and specialty pharmaceuticals industry.
Impax Discounted Cash Flow Analysis
Gruntal performed a discounted cash flow analysis, based on the financial
projections provided by Impax's management. The Impax management's projections
were modified by Gruntal to reflect a more conservative approach towards the
future operations of Impax. In the long run, Impax's financial projections are
highly dependent on the outcome of clinical trials, market acceptance of
untested products and the efforts of corporate partners.
The implied value of Impax's equity was determined by the following
discounted cash flow method: calculating the present value of Impax's estimated
future free cash flows from January 1, 2000 to December 31, 2003, and adding to
such amount the present value of Impax's terminal value obtained by
capitalizing Impax's projected net income for the year ending December 31, 2003
at multiples of 20x, 22x, 24x and 26x. The range of terminal value multiples
applied to Impax was based on the range of multiples of net income at which
certain drug delivery companies selected by Gruntal are expected to trade over
the long term.
Gruntal applied discount rates of 40.0%, 45.0% and 50.0% to calculate the
present value of Impax's estimated future free cash flows from January 1, 2000
to December 31, 2003 and the terminal value based on a multiple of Impax's 2003
projected net income. This range of discount rates was derived using certain
assumptions as to the risk associated with achievement of the modified Impax
management projections.
The range of present values derived for Impax's equity by applying the
discounted cash flow analysis based upon the modified Impax management
projections was $180.8 million ($19.93 per share) to $314.1 million ($34.62 per
share), with an average value of $242.1 million ($26.70 per share).
Impax Comparable Company Analysis
Gruntal analyzed ten drug delivery companies that it selected to evaluate
the market and aggregate values at which these companies trade relative to
their respective historical and projected financial performance. The drug
delivery companies used in the Impax Comparable Company Analysis, whose
business, industry, products or operations Gruntal considered to be comparable
to Impax in one or more respects, consisted of the following companies:
<TABLE>
<S> <C>
o Andrx Corporation o Emisphere Technologies, Inc.
o Biovail Corporation International o Fuisz Technologies Ltd.
o CIMA Labs Inc. o Kos Pharmaceuticals, Inc.
o Cygnus, Inc. o K-V Pharmaceutical Company
o Elan Corporation PLC o Matrix Pharmaceutical, Inc.
</TABLE>
Gruntal analyzed, among other things, the market values and certain
financial criteria for the drug delivery companies, including their revenue,
earnings before interest and taxes, or EBIT, and earnings per share, in each
case, for the most recent twelve month period for which information was
available and on an estimated basis for 2000 and 2001. Such estimates for the
drug delivery companies were taken from I/B/E/S International Inc., a
well-known aggregator of financial data from publicly available research
reports published by a variety of investment firms and research analysts. The
average values, excluding any outliers, for market value of common equity on
July 22, 1999 plus total long-term debt and preferred stock less cash, or
enterprise value, as a multiple of each of the indicated statistics for the
drug delivery companies were as follows:
(i) Latest twelve months ended revenue: 7.5x
(ii) Projected 2001 revenue: 4.1x
The average values, excluding any outliers, for market value of treasury
method diluted common equity on July 22, 1999 as a multiple of earnings per
share for the following periods for the drug delivery companies were as
follows:
(i) Twelve months ended 3/31/99 EPS: 25.7x
(ii) 2000 EPS 16.7x
(iii) 2001 EPS 13.5x
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<PAGE>
Applying these multiples to Impax's twelve months ended March 31, 1999
results and the modified Impax management projections yielded implied equity
values for Impax ranging from $30.0 million ($3.31 per share) to $340.3 million
($37.51 per share), with an average of $207.1 million ($22.83 per share). Due
to the early stage of development of Impax, Gruntal applied the relevant latest
twelve month multiples to future Impax earnings and revenue, as projected in
the modified Impax management projections, to obtain projected enterprise and
equity values of Impax in the future. Gruntal then discounted these values to
the present using a 45% discount rate. Such values are included in the range
and average values above.
Impax Comparable Merger and Acquisition Transactions Analysis
Gruntal reviewed the consideration paid in certain merger and acquisition
transactions involving drug delivery and generic and specialty pharmaceuticals
companies. The transactions which Gruntal reviewed consisted of the
acquisitions or pending acquisitions, listed in the following table:
Drug Delivery and Generic and Specialty
Pharmaceuticals M&A Transactions
<TABLE>
<CAPTION>
Effective Date
of the Transaction Target Acquiror
- -------------------- ----------------------------- ----------------------------
<S> <C> <C>
3/17/99 SEQUUS Pharmaceuticals Inc. ALZA Corp.
3/11/99 DepoTech Corp. SkyePharma PLC
1/18/99 TheraTech Inc. Watson Pharmaceuticals Inc.
Pending ALZA Corp. Abbott Laboratories
</TABLE>
Gruntal also calculated multiples for each transaction based on the ratio
of the equity value of the transaction to the acquired companies' respective
net income for the most recent twelve month period for which data was available
prior to such transaction and the ratio of the equity value of the transaction
plus total debt and preferred stock less cash, which is commonly referred to as
enterprise value, to the acquired companies' pre-acquisition last twelve months
ended revenue and latest twelve months ended EBIT. The high, low, average and
median equity value of the transaction multiples of last twelve months ended
net income for the drug delivery and generic and specialty pharmaceuticals
merger and acquisition transactions, which are specified above, were 50.2x,
45.3x, 47.8x and 47.8x respectively. The high, low, average and median values
of the ratio of the equity value of the transaction plus total debt and
preferred stock less cash, or enterprise value, as a multiple of each of the
indicated statistics for the drug delivery and generic and specialty
pharmaceuticals merger and acquisition transactions were as follows:
(a) Twelve months revenue: 10.5x, 6.4x, 9.2x and 9.9x;
(b) Twelve months EBIT: 42.3x, 30.1x, 36.2x and 36.2x.
Applying the average multiples to Impax's results for the twelve months
ended March 31, 1999 and projected results yielded implied equity values of
Impax ranging from $50.7 million ($5.58 per share) to $683.5 million ($75.33
per share) and an average value of Impax's equity of $328.9 million ($36.25 per
share). Due to the early stage of development of Impax, Gruntal applied the
relevant twelve months ended March 31, 1999 multiples to future Impax earnings,
revenue and EBIT as projected in the modified Impax management projections, to
obtain projected enterprise and equity values of Impax in the future. Gruntal
then discounted these values to the present using a 45% discount rate. Such
values are included in the range and average values above.
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Valuation of Combined Company
Gruntal conducted a valuation of the pro-forma combined company to depict
the potential value accretion to Global's stockholders. Gruntal performed two
primary valuation analyses of the combined company. Both of these analyses were
performed on the combined company without synergies and the combined company
with synergies, as provided by Global's and Impax's management and modified by
Gruntal.
(i) Discounted Cash Flow Analysis: This analysis consists of adding the
discounted present value of the projected future free cash flows of
the combined company from January 1, 2000 to December 31, 2003 and
the discounted present value of the terminal value of Global, based
on a multiple of net income projected for the year ending December
31, 2003;
(ii) Comparable Company Analysis: This analysis is a comparison of the
combined company with certain drug delivery companies, which are the
same publicly traded companies used in the Impax comparable company
analysis.
Combined Company Discounted Cash Flow Analysis
Gruntal performed a discounted cash flow analysis, based on the financial
projections of Impax and Global and anticipated synergies as provided by
Global's and Impax's management. The synergies were modified by Gruntal to
reflect a more conservative approach towards the future operations of the
combined company.
An implied value of the combined company's equity was determined by the
following discounted cash flow method: calculating the present value of the
combined company's estimated future free cash flows, with and without
synergies, from January 1, 2000 to December 31, 2003, and adding to such
amounts the present value of the combined company's terminal value obtained by
capitalizing the combined company's projected net income, with and without
synergies, for the year ending December 31, 2003 at multiples of 20x, 22x, 24x
and 26x. The range of the terminal value multiples used for the combined
company was based on the range of multiples of net income at which certain drug
delivery companies selected by Gruntal are expected to trade over the long
term.
Gruntal applied discount rates of 40.0%, 45.0% and 50.0% to calculate the
present value of the combined company's estimated future free cash flows, with
and without synergies, from January 1, 2000 to December 31, 2003 and the
terminal value calculated based on a multiple of the combined company's 2003
projected net income, with and without synergies.
The range of present values derived for the combined company's equity by
applying the discounted cash flow analysis based upon the combined company's
projections without synergies was $197.7 million ($4.72 per share) to $342.1
million ($8.16 per share), with an average value of $264.1 million ($6.30 per
share).
The range of present values derived for the combined company's equity by
applying the discounted cash flow analysis based upon the combined company's
projections including management provided synergies, as modified by Gruntal,
was $291.6 million ($6.96 per share) to $497.0 million ($11.86 per share), with
an average value of $386.0 million ($9.21 per share).
Combined Company Comparable Company Analysis
This analysis was based on the financial and market data derived from the
Impax Comparable Company Analysis.
The data derived in the Impax Comparable Company Analysis yielded implied
equity values for the combined company without synergies ranging from $77.1
million ($1.84 per share) to $352.8 million ($7.77 per share), with an average
of $251.6 million ($6.00 per share).
The data derived in the Impax Comparable Company Analysis yielded implied
equity values for the combined company including management provided synergies,
as modified by Gruntal, ranging from $189.3 million ($4.52 per share) to $417.6
million ($9.96 per share), with an average of $345.8 million ($8.25 per share).
47
<PAGE>
Gruntal applied the relevant latest twelve month multiples to the future
combined company earnings and revenues, in both cases above, to obtain
projected enterprise and equity values of the combined company in the future.
Gruntal then discounted these values to the present using a 45% discount rate.
Such values are included in the range and average values above.
Other Analysis
Historical Trading: Gruntal reviewed current and historical market closing
prices and trading data of Global's common stock over the past year. Gruntal
noted that over the 52 weeks ended July 22, 1999, the high trading price was
$3.9375, the low trading price was $1.00 and the average trading price was
$2.485.
Contribution Analysis: Gruntal compared the relative contributions of both
Global and Impax to the pro-forma combined company net income, without
accounting for any synergies. The contribution analysis, based on the modified
Impax management projections and the modified Global management projections
indicated the following:
Global's contribution % of
---------------------------
Revenue Pre-Tax Income
--------- ---------------
Projected year ended December 31, 2000 96.0% NM(1)
Projected year ended December 31, 2001 62.5% 71.2%
Projected year ended December 31, 2002 21.1% 11.2%
Projected year ended December 31, 2003 15.8% 6.8%
- ------------
(1) Pre-tax income is projected to be negative for the year ended December 31,
2000.
EPS Accretion/Dilution Analysis: In using the modified Impax management
projections and the modified Global management projections, Gruntal determined
that, excluding and including modified management provided synergies, the
merger will be dilutive to Global's earnings per share in years ended December
31, 2000 and 2001, and accretive in the year ended December 31, 2002.
Conclusion
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. The
foregoing summary does not purport to be a complete description of the analyses
performed by Gruntal. In arriving at its opinion, Gruntal considered the
results of all of its analyses as a whole and did not attribute any particular
weight to any particular analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Furthermore, selecting any portion of Gruntal's analyses, without
considering all analyses, would create an incomplete view of the process
underlying Gruntal's opinion, and could result in an incorrect conclusion. In
addition, Gruntal may have deemed various assumptions more or less probable
than other assumptions, so that the ranges of valuations resulting for any
particular analysis described above should not be taken to be Gruntal's view of
the actual value of Global common stock or preferred stock, Impax common stock
or preferred stock, or common stock or preferred stock of the combined company.
No transaction utilized in the comparable transaction analysis is
identical to the merger, and no company utilized in the comparable companies
analysis is identical to Global. In evaluating the precedent transactions and
the selected comparable companies, Gruntal made judgments and assumptions with
regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Global, such as the impact of competition on the business of Global and the
industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Impax or the industry or in
the financial markets in general. In addition, to prepare its analyses, Gruntal
may have made certain risk adjustments. Gruntal considered and may have made
certain modifications to information provided to it from Global, Impax or both
of them, such as:
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o modifying the projected impact and/or timing of certain drugs or drug
delivery systems, or removing them altogether from consideration,
o using higher discount rates than projected by Global, Impax or both of
them in conducting its analyses, to evaluate the present value of earnings
projected by Global and Impax,
o comparing the Global and Impax margins to the margins of comparable
companies in the same industry and increasing certain expenses above
management expectations, such as research and development expenses.
In performing its analyses, Gruntal made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Global. The analyses performed
by Gruntal are not necessarily indicative of actual values, which may be
significantly more or less favorable than suggested by these analyses. These
analyses were prepared solely as a part of Gruntal's analysis of the fairness
of the Global common stock and the Global Series 1 preferred stock issued in
the merger, from a financial point of view to holders of Global common stock
and were provided to Global's board in connection with the delivery of
Gruntal's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which Global might actually be sold. In addition, as described
above, Gruntal's opinion, including Gruntal's presentation to Global's board,
was one of many factors taken into consideration by Global's board in making
its determination to approve the merger. Consequently, the Gruntal analyses
described above should not be viewed as determinative of the opinion of
Global's board or the view of the management of Global with respect to the
value of Global common stock or the Series 1 preferred stock or of whether
Global's board would have been willing to agree to a different exchange ratio.
The common stock and the Global Series 1 preferred stock to be issued to the
shareholders of Impax was determined through arm's length negotiations between
Global and Impax and was approved by Global's board. The decision to enter into
the merger agreement and to accept the exchange ratio was solely that of
Global's board.
Global's board retained Gruntal based upon Gruntal's experience and
expertise. Gruntal is a nationally recognized investment banking and financial
advisory firm. Gruntal, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
distributions of listed and unlisted securities, private placements and
financial valuations for corporate purposes. In addition, in the ordinary
course of its business, Gruntal may actively trade Global common stock for
Gruntal's account and for the accounts of customers, and accordingly, may at
any time hold a long or short position in such security.
Pursuant to a letter agreement dated May 17, 1999, Global has agreed to
pay Gruntal a fee of $125,000, which is comprised of $50,000 payable to Gruntal
upon execution of the letter agreement and $75,000 payable to Gruntal at the
time Gruntal delivered its opinion. Global has also agreed to reimburse Gruntal
for its out-of-pocket expenses, including fees and disbursements of counsel.
Global must give its consent for expenses in excess of $12,500. The merger
agreement provides that Gruntal will have delivered a letter within two days of
this joint proxy statement/prospectus with respect to its affirmation of its
opinion. Global has agreed to pay Gruntal an additional $25,000 for doing so.
In the event the merger is not consummated within six months after the letter
agreement, Gruntal may receive an advisory fee equal to an additional amount,
to be mutually agreed upon between Global and Gruntal. In addition to the
foregoing compensation, Global has agreed to indemnify Gruntal for certain
liabilities and expenses arising out of the engagement and the transactions in
connection with the engagement, including certain liabilities under U.S.
federal securities laws.
Anticipated Accounting Treatment
In the proposed transaction, Global will be acquiring all of the
outstanding shares of Impax stock and the combination will be accounted for
under the purchase method of accounting. However, for financial accounting
purposes the transaction will be accounted for as a "reverse acquisition" and
Impax's historical financial statements will be the financial statements of the
post-merger combined company. Under the purchase method of accounting, Global's
results of operations will be combined with those of Impax from and
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after the acquisition date, and Global's specific tangible and identifiable
intangible assets and liabilities will be recorded in Impax's financial
statements at their respective fair values at the acquisition date. The excess
of the purchase price over the fair value of Global's specific tangible and
identifiable intangible assets and liabilities will be recorded as goodwill and
amortized over a period not expected to exceed ten years.
Material Federal Income Tax Consequences
The following general discussion summarizes the material U.S. federal
income tax consequences of the merger. The following discussion is based on the
Internal Revenue Code of 1986, as amended, the regulations promulgated
thereunder, existing administrative interpretations and court decisions, all of
which are subject to change, possibly with retroactive effect, and assumes that
the merger will be consummated in the manner described in this joint proxy
statement/prospectus and in accordance with the merger agreement (without
amendment). This discussion does not address all aspects of federal income
taxation that may be important to a stockholder in light of the stockholder's
particular circumstances. It also does not apply to those stockholders subject
to special rules, such as stockholders who are not citizens or residents of the
United States, financial institutions, tax-exempt organizations, insurance
companies, dealers in securities, stockholders who acquired their Impax common
stock pursuant to the exercise of options or similar derivative securities or
otherwise as compensation or stockholders who hold their Impax shares as part
of a straddle or conversion transaction. This discussion assumes that Impax
shareholders hold their respective shares of stock as capital assets within the
meaning of Section 1221 of the Internal Revenue Code.
It is the opinion of Fulbright & Jaworski L.L.P., counsel to Global, that
the merger will qualify as a reorganization within the meaning of section
368(a) of the Internal Revenue Code. This opinion regarding the qualification
of the merger as a reorganization is based upon, among other things,
certificates provided by officers of Global and Impax relating to various
technical requirements of the Code. Opinions of counsel are not binding on the
Internal Revenue Service or the courts. The Internal Revenue Service might not
agree with these opinions or with the discussion contained in this section, and
it could challenge the tax treatment of the merger. Assuming the merger
qualifies as a reorganization for federal income tax purposes, the merger will
have the following federal income tax consequences:
(a) Tax Consequences to Global Stockholders. Current holders of Global
common stock will not recognize any gain or loss for federal income tax
purposes as a result of the merger.
Current holders of Global Series C preferred stock whose stock is
converted into combined company common stock in the merger, and holders of
Global Series D preferred stock whose stock is converted into combined company
Series 1-A preferred stock in the merger, will not recognize gain or loss for
federal income tax purposes. The aggregate tax basis of combined company stock
which a holder receives as a result of the merger will be the same as his
aggregate tax basis in the Global preferred stock which is converted in the
merger. Also, the holding period for the combined company stock which the
preferred stockholder receives in the merger will include the period during
which he held his Global preferred stock.
(b) Tax Consequences to Impax Shareholders. Holders of Impax common stock,
Series A preferred stock, Series B preferred stock and Series C preferred stock
whose stock is converted into combined company common stock in the merger will
not recognize gain or loss for federal income tax purposes, except to the
extent that they receive cash instead of a fractional share. Holders of Impax
Series D preferred stock, whose Impax stock is converted into combined company
Series 1-B preferred stock in the merger, should not recognize gain for federal
income tax purposes, except to the extent they receive cash instead of a
fraction of a share. Counsel to Global believes that the Series 1-B preferred
stock should not be treated as "nonqualified preferred stock," and therefore
should be received by Impax Series D preferred shareholders without recognition
of gain. However, in 1997, Congress made changes to the Code which cause
recipients of preferred stock which is treated as "nonqualified preferred
stock" to recognize gain on the receipt of "nonqualified preferred stock" in a
tax-free reorganization, to the extent that the value of "nonqualified
preferred stock" received exceeds the basis of stock surrendered. "Nonqualified
preferred stock" is preferred stock which either the holder can require the
issuer to redeem, the issuer is required to redeem, the issuer has
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a right to redeem and at the time the stock is issued it is more likely than
not that the stock will be redeemed, or has a dividend rate which varies with
interest rates or other indices. For purposes of this new provision of the
Code, however, preferred stock means stock which is limited and preferred as to
dividends and does not participate in corporate growth to any significant
extent. Counsel believes that because the combined company Series 1-B preferred
stock participates in dividends on an as converted basis and is entitled on
liquidation to no less than the proceeds it would receive on an as converted
basis, it should not be treated as "nonqualified preferred stock." However,
since the Internal Revenue Service has issued no interpretations of, or
guidance on, the new provisions of the Code dealing with "non-qualified
preferred stock," it is not possible to predict with absolute certainty whether
the Internal Revenue Service would take the position that the combined company
Series 1-B preferred stock is "nonqualified preferred stock."
A former Impax shareholder who receives combined company stock without
recognition of gain as a result of the merger will have an aggregate basis in
that stock which is the same as his aggregate tax basis in the Impax stock
converted in the merger (reduced by any tax basis allocable to cash received
instead of a fraction of a share). The former Impax shareholder's holding
period for the combined company stock which he receives in the merger will
include the period during which he held the Impax stock. If an Impax
shareholder receives cash instead of a fraction of a share of the combined
company stock, the shareholder generally will recognize gain or loss for
federal income tax purposes, measured by the difference between the amount of
cash received and the portion of the tax basis of the share of Impax stock
allocable to the fraction of a share interest.
The gain or loss resulting from receipt of cash in lieu of a fractional
share will be capital gain or loss and will be a long-term capital gain or loss
if the share of Impax stock has been held for more than one year at the time
the merger is effective. Because the receipt of cash instead of a fraction of a
share of stock is treated as if the holder had received the fraction of a share
and the company then redeemed that fractional share, it is possible that in
some circumstances the receipt of cash in lieu of a fraction share interest in
the combined company could be treated as a dividend. The shareholder would then
be required to pay tax at ordinary income rates on the cash received. The Code
contains a number of complex tests for determining whether a redemption should
be treated as a dividend or as an exchange of stock resulting in capital gain,
each of which depends on the degree to which a stockholder's interest in a
company is reduced by a redemption. On the basis of the Internal Revenue
Service's position as stated in a published ruling, Revenue Ruling 76-385,
which may be relied on by taxpayers, in the case of a holder of Impax stock
whose stock interest in the combined company (relative to the total number of
combined shares outstanding) is minimal and who exercises no control over the
affairs of the combined company, cash received in lieu of a fractional share
will result in the recognition of capital gain or loss. Other stockholders
should consult their tax advisors regarding the treatment of any cash received
in lieu of a fractional share. According to the terms of the merger agreement,
the maximum amount of cash which an Impax shareholder can receive in lieu of
fractional shares, and which therefore could be treated as a dividend, is an
amount less than the value of a single combined company share at the time of
the merger.
Tax Implications to Global and Impax. No gain or loss will be recognized
for federal income tax purposes by Global or Impax as a result of the merger.
This discussion is not intended to be a complete analysis or description
of all potential federal income tax consequences of the merger. In addition,
this discussion does not address tax consequences which may vary with, or are
contingent on, individual circumstances. Moreover, this discussion does not
address any non-income tax or any foreign, state or local tax consequences of
the merger or the merger proposal, or the tax consequences of any transaction
other than the merger and the merger proposal. Accordingly, you are strongly
urged to consult with your tax advisor to determine your particular federal,
state, local or foreign income or other tax consequences resulting from the
merger.
Regulatory Approvals
Consummation of the merger is conditioned upon the receipt of all material
governmental authorizations, consents, orders and approvals, subject to waiver
of such conditions, in accordance with the terms of the merger agreement.
Although Global and Impax have agreed to use commercially reasonable efforts to
secure all such approvals, there can be no assurance regarding the timing of
such approvals or that such approvals will, in fact, be obtained.
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Appraisal Rights
Delaware Appraisal Rights.
Under Delaware law, where Global is incorporated, the holders of Global
common stock, Series C preferred stock and Series D preferred stock will be
entitled to certain "appraisal rights" in connection with the merger.
The following summarizes the appraisal rights provided by Section 262 of
the Delaware General Corporation Law. However, the summary is not complete, and
you are encouraged to review a copy of Section 262, which has been included in
this joint proxy statement/prospectus as Annex C.
Under Section 262, you will be entitled to an appraisal by the Court of
Chancery of the fair value of your shares as described below, if you:
o were a holder of shares of the common stock, Series C preferred stock or
Global Series D preferred stock on November 4, 1999,
o continue to hold such shares through the merger,
o do not vote in favor of the merger,
o deliver to Global a written demand for appraisal of your shares prior to
the special meeting for voting on the merger (a proxy or vote against the
merger will not constitute the required written demand), and
o fully comply with all the other applicable provisions of Section 262.
Persons who meet the requirements described in this paragraph are referred
to below as "dissenting stockholders."
If the merger is approved, then within ten (10) days after the effective
date of the merger, the combined company will notify each dissenting
stockholder that the merger has become effective.
If you are a dissenting stockholder you will be entitled to request and
receive from the combined company a statement setting forth (1) the aggregate
number of shares not voted in favor of the merger and for which appraisal
demands have been asserted and (2) the aggregate number of dissenting
stockholders. The combined company will mail this statement to each requesting
dissenting stockholder on or before the later of (1) 10 days following receipt
by the combined company of the written request, or (2) December 23, 1999.
Within 120 days following the effective date of the merger, either the
combined company or any dissenting stockholder may file a petition in the
Delaware Court of Chancery, demanding a determination of the value of the stock
of all dissenting stockholders. However, any dissenting stockholder may
withdraw his or her demand for appraisal and accept the terms offered under the
merger at any time within the 60 day period following the effective date of the
merger.
At the hearing, the Court will determine those persons who are entitled to
appraisal rights, and may require such persons to submit their certificates of
stock to the Register in Chancery for notation of the appraisal proceedings. If
any person fails to comply with such an instruction, the Court may dismiss the
proceedings as to such person.
After determining the persons entitled to an appraisal, the Court will
appraise the shares, determining the fair value, excluding any value arising
from the accomplishment or expectation of the merger, together with a fair rate
of interest. In determining fair value, the Court will consider all relevant
factors. In determining a fair rate of interest, the Court will consider the
rate of interest which the combined company would have had to pay to borrow
money during the appraisal proceedings.
The Court will instruct the combined company to pay the fair value of the
shares, together with interest, if any, to each dissenting stockholder upon
surrender of the certificates representing his or her stock.
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The Court may, in its sole discretion, elect to allocate the costs of the
proceedings, as it determines appropriate. If any dissenting stockholder
requests, the Court may order that the expenses incurred by such dissenting
stockholder in connection with the appraisal proceedings, including without
limitation, reasonable attorneys' and experts fees, be charged pro rata against
the value of all of the shares entitled to an appraisal.
After the merger, no dissenting stockholder will be entitled to vote his
or her stock for any purpose or to receive payment of dividends or other
distributions on the stock except dividends or distributions which were payable
prior to the merger.
If no petition for an appraisal has been filed on or before the 120th day
following the merger, or if any stockholder has withdrawn his or her demand for
appraisal and accepted the merger (within the 60 day period following the
effective date of the merger)(or thereafter with the written approval of the
combined company), then the appraisal rights of such dissenting stockholder
will cease, except that any dismissal of an appraisal proceeding requires
approval by the Court of Chancery.
If your Global stock certificate is not in your name and you wish to
exercise your appraisal rights described above, you should instruct the legal
certificate holder of such shares or obtain a proxy as to your shares. In
addition, you should cause the legal certificate holder to comply with, or you
should comply with, the other procedures required to perfect your appraisal
rights as described above.
Appraisal rights are not available (a) with respect to the sale, lease or
exchange of all or substantially all of the assets of a corporation, (b) with
respect to a merger or consolidation by a corporation the shares of which are
either listed on a national securities exchange or are held of record by more
than 2,000 holders if the stockholders receive only shares of the surviving
corporation or shares of any other corporation that are either listed on a
national securities exchange or held of record by more than 2,000 holders, plus
cash instead of fractional shares, or (c) to stockholders of a corporation
surviving a merger if no vote of the stockholders of the surviving corporation
is required to approve the merger under certain provisions of Delaware law.
Any demand, notices or other documents required to be sent to Global may
be sent to: Global Pharmaceutical Corporation, Attn: Cornel C. Spiegler, Castor
and Kensington Avenues, Philadelphia, Pennsylvania 19124.
California Dissenter Rights
Under California law, where Impax is incorporated, the holders of Impax
common stock and preferred stock will be entitled to certain "dissenter rights"
in connection with the merger. The following summary is not a complete
statement of the dissenter rights provided by Chapter 13 of the California
Corporations Code, and you are encouraged to review a copy of Chapter 13 of the
California Corporations Code, which has been included in this joint proxy
statement/prospectus as Annex D.
A holder of shares of preferred stock or common stock of Impax who does
not vote in favor of the merger, and fully complies with all the other
applicable provisions of Chapter 13 will be entitled, as a dissenting
shareholder, to require Impax to purchase any or all such holder's shares of
Impax stock for cash at their "fair market value" if the merger is consummated.
The "fair market value" of the shares will be determined as of the day
before the first announcement of the terms of the merger, but will not include
appreciation or depreciation in consequence of the merger. The board of
directors of Impax will make a good faith determination of the "fair market
value" of any shares with respect to which the procedures of Chapter 13 have
been fully satisfied. If Impax and any dissenting shareholder cannot agree on
the "fair market value" of any such shares, then, at the request of Impax or
any dissenting shareholders, a California Superior Court will determine "fair
market value." The court's determination may be more or less than the
determination made by the board of directors.
Within 10 days after shareholder approval of the merger, Impax will mail
to each shareholder who did not vote in favor of the merger a notice of such
approval. The approval notice will state the "fair market value" of dissenting
shares (as determined by Impax) and will describe the remaining procedures to
be followed to exercise dissenters' rights. The approval notice will be
accompanied by a copy of Chapter 13. The approval notice will be an offer by
Impax to purchase, at the price stated, any "dissenting shares."
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If you are a holder of Impax capital stock and you wish to exercise your
dissenter's rights with respect to any shares, you must refrain from voting in
favor of approval of the merger. However, merely not voting will not be
sufficient. You must deliver to Impax, on or before the 30th day following
Impax's mailing of the approval notice: (i) a written demand that Impax
purchase your Impax shares in cash for "fair market value" and (ii) your Impax
stock certificate.
In your written demand, you must state the number of shares which you are
demanding that Impax purchase, and you must state your determination of the
"fair market value" of such shares as of the day before the first announcement
of the terms of the merger. This written demand will be an offer by you to sell
the shares at such price. You may not withdraw your demand unless Impax
consents.
You must submit your Impax stock certificate(s) for those shares you are
offering to sell. These stock certificate(s) will be stamped with a statement
that the shares are dissenting shares or will be exchanged for certificates
which state that they represent "dissenting shares." If such certificates are
not so submitted, the shares represented thereby will lose their status as
dissenting shares.
If your Impax stock certificate(s) are not in your name, and you wish to
dissent from the merger you should instruct the legal certificate holder of
such shares or obtain a proxy as to such shares. In addition, you should cause
the legal certificate holder to comply with, or you should comply with, the
other procedures required to perfect dissenters' rights, including not voting
in favor of the merger and submitting the written demand and your stock
certificates to Impax, all as described above.
If you have complied with all the conditions referred to above, and you
and Impax agree upon the price to be paid for such shares, Impax will pay the
agreed price plus interest from the date of agreement within 30 days after you
and Impax agree upon the price. If Impax denies that you are entitled to
payment, or if Impax and you disagree as to the "fair market value" of such
shares, you may file a complaint in the Superior Court in the county of Alameda
in the State of California requesting the court to determine whether you are
entitled to payment or to determine the "fair market value" of your shares, or
both, or may intervene in any action pending on such complaint. This complaint
must be filed within six months after the date the notice of approval of the
merger was mailed to Impax shareholders. If you do not file a complaint within
the six-month period, you will cease to be entitled to require Impax to
purchase any shares. The cost of the action will be assessed or apportioned as
such court considers equitable, but if the "fair market value" exceeds the
price offered by Impax, Impax will be required to pay such costs (including, in
the court's discretion, attorney's fees, fees of expert witnesses and interest
from the date of delivery to Impax of the written demand for the repurchase of
shares and delivery of Impax stock certificate, if the value is determined to
exceed 125% of the price offered to such stockholder by Impax.)
Shareholders of a California corporation whose shares are listed on a
national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System generally do not
have such appraisal rights unless the holders of at least five percent (5%) of
the class of outstanding shares claim the right of the corporation or any law
restricts the transfer of the shares.
Please send your written demand, stock certificate(s), questions or
comments to Impax's corporate counsel: Impax Pharmaceuticals, Inc., c/o The Law
Offices of Laurie A. Miller, Esq., 3542 Oak Knoll Drive, Redwood City,
California 94062.
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THE MERGER AGREEMENT
This section of the joint proxy statement/prospectus describes material
terms of the merger agreement. We recommend that you read carefully the
complete text of the merger agreement for the precise legal terms of the merger
agreement and other information that may be important to you. The merger
agreement is included in this joint proxy statement/prospectus as Annex A.
Form of Merger
If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement, Impax will merge with and into Global. Global's
corporate existence will not be affected by the merger, but its certificate of
incorporation will be amended to increase the number of shares of common stock
Global is authorized to issue and to change the name of the combined company to
Impax Laboratories, Inc. After the merger, the corporate existence of Impax
will cease.
The combined company will have its headquarters in Hayward, California.
Consideration to be Received in the Merger
On the date the merger becomes effective, the following shares and all
rights with respect to those shares will be converted into capital stock of the
combined company as described below:
o each outstanding share of Impax common stock, Series A preferred stock
and Series B preferred stock will be converted into 3.3358 shares of
combined company common stock;
o each outstanding share of Impax Series C preferred stock will be
converted into 5.849 shares of combined company common stock;
o every 20 outstanding shares of Impax Series D preferred stock will be
converted into one share of combined company Series 1-B preferred stock;
o each outstanding share of Global Series C preferred stock will be
converted into 50 shares of combined company common stock; and
o each outstanding share of Global Series D preferred stock will be
converted into one share of combined company Series 1-A preferred stock.
We cannot predict the market price of the Global common stock on the date
the merger becomes effective. The exchange ratios are fixed in the merger
agreement. Consequently, the market value of the shares of combined company
common stock that stockholders of Impax will have the right to acquire on the
date the merger becomes effective may vary significantly from the market value
of those same shares if the merger was completed on the date of this joint
proxy statement/prospectus.
Assuming the merger is consummated, the exchange will occur by operation
of law without any action on the part of the Impax or Global stockholders.
Treasury shares held by Impax or shares of Impax held by Global will not be
converted.
Exchange of Shares
Prior to the completion of the merger, we will appoint an exchange agent.
On the date the merger becomes effective, the combined company will deposit
with the exchange agent certificates representing shares of combined company
common stock, Series 1-A preferred stock and Series 1-B preferred stock that
will be issued in exchange for certificates representing shares of Impax common
stock, Impax preferred stock, Global Series C preferred stock and Global Series
D preferred stock. Soon after the completion of the merger, the combined
company or the exchange agent will send a letter to each person who was an
Impax stockholder or a holder of Global Series C or Global Series D preferred
stock on the date the merger becomes effective. The letter will contain
instructions on how to surrender stock certificates to the exchange agent and
receive certificates for shares of the combined company. Stockholders should
not send in their stock certificates until they receive the letter from the
combined company or the exchange agent.
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The combined company will not issue any fractions of a share resulting
from the conversion. Instead, stockholders will receive cash for the value of
any fraction of a share to which they would otherwise have been entitled to
receive due to the merger. This cash payment will equal the average of the
daily closing prices for a share of Global common stock on the Nasdaq Small Cap
Market for the twenty consecutive trading days ending on the second trading day
immediately prior to completion of the merger. The cash value for fractional
shares of Series 1-B preferred stock will be based on the cash value of the
fractional common stock into which the shares of preferred stock can be
converted.
Impax stockholders and holders of Global's Series C and Series D preferred
stock will not be entitled to receive any dividends or other distributions
payable by the combined company until they exchange their stock certificates
for certificates representing shares of combined company common stock or Series
1-A or Series 1-B preferred stock, as applicable. Once they deliver their stock
certificates to the exchange agent, such holders will receive, subject to
applicable laws, any accumulated dividends and distributions, without interest.
Treatment of Impax Stock Options and Warrants
On the date the merger becomes effective, each outstanding and unexercised
option to purchase shares of Impax common stock will be converted into an
option to purchase shares of combined company common stock. The number of
shares of combined company common stock covered by such new option will be
determined by multiplying the number of shares of Impax common stock subject to
the original option by the exchange ratio. The exercise price for such option
will equal the exercise price under the original option divided by the exchange
ratio. The new option will otherwise have the same terms and conditions as the
original option to purchase Impax common stock, except that, at the combined
company's election, such new option may be re-issued under and subject to the
terms and conditions of the stock incentive plan of the combined company. In
addition, as described more fully under the Section heading "Management of the
Combined Company" later in this joint proxy statement/prospectus, all stock
options held by current directors of Global or Impax who will not continue to
serve as a director of the combined company after the merger, will be converted
into a five-year warrant to purchase an equivalent number of shares of the
combined company's common stock.
Representations and Warranties in the Merger Agreement
In the merger agreement, we make representations and warranties to each
other about our companies with respect to, among other things:
o due organization and good standing;
o capitalization, ownership of subsidiaries and other investments;
o corporate power;
o absence of any breach of organizational documents or material agreements
as a result of the contemplated transactions;
o accuracy of our filings and our financial statements;
o absence of specified changes;
o litigation and violations of law;
o information supplied for use in this joint proxy statement/prospectus;
o employee matters, labor relations, environmental matters and tax matters;
and
o required board of directors and stockholder approvals with respect to the
contemplated transactions.
No Solicitation of Transactions
We have agreed that neither we nor our employees, subsidiaries or advisors
will, directly or indirectly through another person:
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o solicit, initiate or encourage, or knowingly take any other action
designed to facilitate, any alternative transaction; or
o participate in any discussions regarding any alternative transaction.
However, this prohibition will not apply if at any time prior to receiving
stockholder approval, the Impax board of directors or the Global board of
directors, determines in good faith that the failure to provide information or
participate in negotiations or discussions would result in a reasonable
possibility that the board of directors would breach its fiduciary duties to
stockholders. In that case, a party may, in response to an unsolicited superior
proposal, furnish information with respect to it to any person pursuant to a
customary confidentiality agreement and participate in negotiations regarding
the proposal. Each party will promptly notify the other party orally and in
writing of any request for information or of any proposal in connection with an
alternative transaction, its material terms and conditions and the identity of
the person making the request or proposal.
Benefits Matters
We have agreed that the Global and Impax benefit plans that were in effect
when the merger agreement was signed will remain in effect until the merger is
completed unless we agree otherwise. In the ordinary course of business, the
combined company will arrange for standard health plans and benefits to its
employees. When the merger is completed, all employees will receive full credit
for their credited service with either company in determining the amount of,
eligibility for, and vesting of, certain benefits.
After the merger, any stock-based compensation or incentive payments that
are based on Impax common stock will be based upon the combined company common
stock in accordance with the exchange ratio.
Covenants in the Merger Agreements
The merger agreement provides that, until the merger has been completed,
we will conduct our respective businesses in the ordinary course and consistent
with past practice. We have agreed to use our commercially reasonable efforts
to:
o preserve our respective business organizations;
o retain the services and relationships with those employees and
consultants whose services are integral to the operation of the business
as presently conducted; and
o preserve our respective existing relationships with significant customers
and suppliers.
During this interim period, we have agreed that neither of us will take
certain actions without the consent of the other party. More specifically, we
have agreed:
o Issuance of Stock. In general, we each will preserve our existing
capitalization. However, both of us are permitted to issue or grant stock
options under our employee stock equity plans, in a manner consistent
with past practice and which do not exceed an aggregate of 50,000 shares.
o Acquisitions. Neither of us will merger with or acquire any business
organization or make any investment in an entity.
o Dispositions. Each of us will not sell, license, dispose of or encumber
any of our property or assets in excess of $10,000 except in ordinary
course of business.
o Incurring Indebtedness. Neither of us may incur additional indebtedness
other than pursuant to credit agreements already in existence.
o Severance, Retention and Incentive Arrangements. Neither of us may put in
place any new or increased severance or retention programs or
arrangements. This restriction does not apply to arrangements that are
required by law or are consistent with past practice, up to a maximum of
$150,000 in the aggregate.
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o Increased Compensation or Payments Under Plans. Neither of us will
increase compensation, make payments under or amend any benefit plan or
enter into or amend any employment or consulting agreement. However, we
may take actions of this type if the actions are consistent with past
practice.
o Accounting Policies. Neither of us may change its accounting policies or
procedures as in effect at December 31, 1998.
o Stock Exchange Listing. Global will not cause its common stock to cease
to be traded on the Nasdaq Small Cap Market.
o Amend Contracts. Neither of us will terminate or change the terms of any
material contract, or waive, release or assign any material rights or
claims.
o Expenditures. Neither of us will make or commit to make any expenditures
exceeding $100,000 for any single item, except as described in or as
consistent with financial budgets delivered to the other party. However,
Impax may incur expenditures up to $250,000 in the aggregate to obtain
building permits and architectural drawings in connection with
constructing a manufacturing facility at Impax's Hayward, California
facility.
o Charter Documents. Neither of us will amend our charter or bylaws.
o Stockholder Rights Plan. Neither of us will adopt any agreement or plan
that gives any stockholder or group of stockholders any rights which
could impede or restrict the merger.
o Tax Matters. Neither of us will amend our tax returns or make any
election or agreement with the IRS concerning any tax accounting matters.
o Litigation. Neither of us will initiate, compromise or settle any pending
lawsuits or arbitration proceedings.
o Dividends. Neither of us will declare or pay any dividends on or make any
other distributions in respect of its stock, or effect any stock split,
reclassification or combination.
o Acceleration of Options. Neither of us will accelerate, amend or change
the period of exercisability of options or restricted stock or purchase
any of its own outstanding stock, except as contemplated for
non-continuing directors.
o Liquidity of Funds. Neither of us will invest funds in debt securities or
other instruments, which mature more than one year after the date of
investment.
Conditions in the Merger Agreement
The merger agreement contains conditions to the obligation of Global and
Impax to complete the merger. Neither Global nor Impax will be obligated to
complete the merger unless:
o Stockholder Approval. The stockholders of Impax and Global have approved
their respective merger proposals, as described in this joint proxy
statement/prospectus;
o Legality. No federal, state or foreign statute, rule, regulation,
executive order, decree, injunction or administrative order prohibits
consummation of the merger or otherwise has the effect of making the
merger illegal;
o Regulatory Matters. We have obtained all approvals necessary to complete
the merger which, if not obtained, would have a material adverse effect
on Impax, Global or the combined company.
o Registration Statement. The registration statement relating to this joint
proxy statement/prospectus is effective, and no stop order suspending
effectiveness or proceedings seeking such a stop order is in effect;
o Nasdaq Listing. The shares of combined company common stock issuable in
the merger have been approved for listing on the Nasdaq Small Cap Market.
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In addition, Global will not be required to complete the merger unless:
o Representations and Warranties. The representations and warranties made
by Impax in the merger agreement are true and correct on the date that the
merger is completed, unless the failure to be true and correct does not,
or would not reasonably be expected to, result in a material adverse
effect on Impax or the combined company.
o Performance of Obligations. Impax has performed all material obligations
required to be performed by it in the merger agreement.
o Permits and Licenses. All permits, licenses and governmental
authorizations required to conduct Impax's business must be in effect, and
Impax has obtained any necessary approvals for the continued effectiveness
of these authorizations after the merger, except where the lack of such
authorizations will not have a material adverse effect on Impax or the
combined company.
o Dissenting Stockholders. The holders of not more than 10% of the value of
Impax's outstanding shares of common stock and preferred stock have
perfected their dissenter rights under California law. (See pages 53-54
for a description of dissenter rights.)
o Stockholders' Agreement. Key stockholders of Impax have entered into a
stockholders' agreement, which provides that certain groups of
stockholders may designate certain directors, and that all parties to the
stockholder's agreement will vote in a manner consistent to cause the
election of each parties' designated candidates.
o Fairness Opinion. Global has received an opinion from Gruntal & Co.,
L.L.C. that the consideration to be paid in the merger is fair, from a
financial point of view, to Global and its holders of common stock.
o Opinion of Counsel. Global has received the opinion from Laurie Miller,
corporate counsel to Impax, that Impax has the authority to enter into the
merger agreement and such other matters as are mutually agreed upon.
o Environmental Assessment. Global has received a satisfactory
environmental evaluation of Impax's facilities at Hayward, California.
o Consents. Impax has received all consents required for completion of the
merger under any agreement to which Impax is a party.
o Election of Directors. The stockholders of the combined company have
elected directors in accordance with the merger agreement and the
stockholders' agreement.
o Election of Officers. The combined company's directors have elected the
officers stated in the merger agreement.
o Employment Agreements. Global receives a fully signed employment
agreement between the combined company and each of Charles Hsiao, Larry
Hsu and Barry R. Edwards.
o Voting Agreements. Global receives voting agreements from certain
significant senior executive officer or director shareholders of Impax,
which provide that those shareholders will vote in favor of the merger.
o Escrow Agreement. Global receives an escrow agreement, signed by each of
the shareholders of Impax, which provides that approximately 10% of the
shares of the combined company stock to be received by Impax shareholders
as a result of the merger will be held in escrow for the purpose of
securing the indemnification obligations of these shareholders contained
in the merger agreement.
Impax will not be required to complete the merger unless:
o Representations and Warranties. The representations and warranties made
by Global in the merger agreement are true and correct on the date that
the merger is completed, unless the failure to be true and correct does
not, or would not reasonably be expected to, result in a material adverse
effect on Global or the combined company.
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o Performance of Obligations. Global has performed all material obligations
required by the merger agreement.
o Dissenting Stockholders. The holders of not more than 10% of the value of
Global's outstanding shares of common stock and preferred stock have
perfected their appraisal rights under Delaware law. (See pages 52-53 for
a description of appraisal rights.)
o Opinion of Counsel. Impax has received the opinion from Fulbright &
Jaworski L.L.P., corporate counsel to Global, that Global has the
authority to enter into the merger agreement and such other matters as are
mutually agreed upon.
o Consents. Global has received all consents required for completion of the
merger under any agreement to which Global is a party.
o Permits and Licenses. All permits, licenses, product approval
applications and governmental authorizations required to conduct Global's
business are in effect, and Global has obtained any necessary approvals to
assure that these authorizations will remain ongoing after the merger,
except where the lack of such authorizations will not have a material
adverse effect on Global or the combined company.
o Environmental Assessment. Impax has received a satisfactory environmental
evaluation of Global's facilities at Philadelphia, Pennsylvania.
o Stockholders' Agreement. Certain key stockholders of Global have entered
into a stockholders' agreement, which provides that certain groups of
stockholders may designate certain directors, and that all parties to the
stockholder's agreement will vote in a manner consistent to cause the
election of each parties' designated candidates.
o Adoption of New Equity Incentive Plan. Global's directors and
stockholders have approved an equity incentive plan with 2,400,000 shares
of Global's common stock reserved for grants.
o Election of Directors. The stockholders of the combined company will
elect its directors in accordance with the merger agreement and the
stockholders' agreement.
o Election of Officers. The combined company's directors have elected the
officers stated in the merger agreement.
o Employment Agreement. Impax receives a fully executed employment
agreement between the combined company and each of Barry R. Edwards,
Charles Hsiao and Larry Hsu.
o Adoption of the Amendment to Global's Certificate of Incorporation.
Global's directors and stockholders have approved and adopted an amendment
to Global's Certificate of Incorporation, increasing the authorized
capital stock of Global to an aggregate of 50,000,000 shares of common
stock and changing the name of Global to "Impax Laboratories, Inc."
Under the merger agreement, "material adverse effect" generally means any
change in or effect on the business of the applicable company that is or will
be materially adverse to the business, operations, properties, condition,
assets, liabilities or regulatory status of that company and its subsidiaries
taken as a whole, but does not include the effects of changes that are
generally applicable in the pharmaceutical industry, the United States economy
or the United States securities markets if the effect on Impax or Global is not
materially disproportionate relative to the effect on the other.
Stockholders' Meetings
We have agreed to hold meetings of our stockholders to vote on the merger
proposals promptly after the Securities and Exchange Commission declares this
joint proxy statement/prospectus effective. The Impax board of directors has
unanimously recommended approval of the Impax merger proposal, and the Global
board of directors has unanimously recommended approval of the Global merger
proposal. We have agreed that each of our boards of directors will not:
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o except as discussed below, withdraw or modify in a manner adverse to the
other party, its recommendation of approval;
o recommend any "alternative transaction"; or
o cause either of us to enter into any agreement related to any alternative
transaction.
However, if a board of directors receives a "superior proposal" (as
described below) and determines in good faith that the failure to do so would
result in a reasonable possibility that the board of directors would breach its
fiduciary duties to its stockholders, the board of directors may inform
stockholders that it no longer recommends approval of the merger between Global
and Impax. In such a case, this agreement can be terminated by the party
receiving the superior proposal and such party will pay the termination fees to
the other party as described below.
An "alternative transaction" is any inquiry or proposal that constitutes
or could reasonably be expected to lead to a proposal or offer to acquire all
or a substantial part of the business, property or capital stock of Global or
Impax.
A "superior proposal" means any proposal made by a third party to enter
into an alternative transaction which the board of directors determines in its
good faith judgment to be more favorable to its stockholders than the merger,
taking into account all relevant factors.
Board of Directors
Directors and Observers
For three years following completion of the merger, the election of
directors and officers will be impacted by a stockholders' agreement entered
into by certain significant stockholders of Global and Impax. Parties to the
stockholders' agreement will collectively own approximately 64% of the voting
power of the combined company after the merger. However, voting in accordance
with the stockholders' agreement is subject to each person's fiduciary duty as
an officer and/or director.
The merger agreement and the stockholders' agreement provides that upon
completion of the merger, the board of directors of the combined company will
consist of ten members. The current members of Global's board of directors will
propose the election of two directors, the current members of Impax's board of
directors will propose the election of three directors, and the current members
of the board of directors of both Global and Impax will jointly propose the
election of (1) Barry R. Edwards, Charles Hsiao and Larry Hsu, and (2) two
mutually agreeable independent directors.
The current members of the board of directors of Global will designate one
board observer and the current members of the board of directors of Impax will
designate one board observer.
You should refer to the Section entitled "Management of the Combined
Company" for a list of, and additional information about, the board nominees
and observers.
Officers
The merger agreement and the stockholders' agreement provide that from
completion of the merger until the third anniversary of the merger, the
following persons will serve as executive officers of the combined company in
the positions set forth below:
Charles Hsiao, Ph.D. Chairman and Co-Chief Executive Officer
Barry R. Edwards Co-Chief Executive Officer
Larry Hsu, Ph.D. President and Chief Operating Officer
Continued election of the above described persons will be subject to the
fiduciary duties of the then-existing members of the board of directors of the
combined company.
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Transition Planning
Charles Hsiao, Ph.D., as Chairman and Chief Executive Officer of Impax,
Larry Hsu, Ph.D., as President of Impax, and Mr. Barry R. Edwards as President
and Chief Executive Officer of Global, are responsible for coordinating all
aspects of transition planning and implementation relating to the merger. Dr.
Hsiao, Dr. Hsu and Mr. Edwards will examine various alternatives regarding the
manner in which to best organize and manage our businesses after the merger,
and coordinate policies and strategies with respect to regulatory authorities
and bodies, in all cases subject to applicable law.
Other
The merger agreement contains other covenants relating to preparation and
distribution of this joint proxy statement/prospectus, public announcements,
mutual notification of certain matters, access to information, and cooperation
regarding certain filings with governmental and other agencies and
organizations. In addition, the merger agreement contains a general covenant
requiring each of us to use commercially reasonable efforts to close the
merger, including obtaining required regulatory approvals.
Termination
The merger agreement may be terminated at any time before the date the
merger becomes effective in any of the following circumstances:
o by our mutual written consent;
o if the merger is not completed by December 31, 1999. This termination
right is not available to any party whose failure to fulfill any
obligation has been the cause of, or resulted in, the failure of any
condition to be satisfied;
o by either party if a court or governmental entity has issued an order,
decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the merger, and the order, decree,
ruling or other action has become final and nonappealable;
o by either party if the other party breaches any of its representations,
warranties, obligations or agreements contained in the merger agreement,
and that breach has not been cured within five days following receipt of
written notice of breach from the non-breaching party;
o by either party if the board of directors of the other party (1)
withdraws, materially modifies or fails to reaffirm its approval of the
merger, (2) recommends any alternative transaction with a third party, or
(3) resolves to take any such action (any of which we refer to as a
"withdrawal of approval"); or
o by either party if any of the required approvals of the stockholders of
Impax or of Global are not obtained at a stockholders meeting of either
company, including any adjournments thereof.
Termination Fees and Expenses
Global is obligated to pay to Impax a termination fee of $500,000, and to
reimburse Impax for its costs in connection with the merger, up to $500,000, if
the merger agreement is terminated:
o because Global's board of directors withdraws, or adversely modifies, its
approval of the merger, or approves or recommends an alternative
transaction with another company;
o because Global violates certain of its obligations under the merger
agreement and does not remedy the violation; or
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o because Global fails to obtain the requisite stockholder approval of the
merger if at the time of the failure there has been an alternative
transaction with another company announced which is then available.
In addition to the fees and expenses specified above, Global is obligated
to pay Impax an additional termination fee of $500,000 in the event either
party terminates the merger agreement due to Global's failure to obtain the
requisite stockholder approval for the merger.
Impax is obligated to pay to Global a termination fee of $500,000, and to
reimburse Impax for its costs in connection with the merger, up to $500,000, if
the merger agreement is terminated:
o because Impax's board of directors withdraws or adversely modifies, its
approval of the merger, or approves an alternative transaction with
another company; or
o because Impax violates certain of its obligations under the merger
agreement and does not remedy the violation.
Except as described above, we will each pay our own costs and expenses
incurred in connection with the merger agreement and the related transaction.
However, we will share equally the expenses incurred in connection with the
printing of this joint proxy statement/prospectus and the related filing fees.
Indemnification and Escrow
At the time the merger is consummated, 10% of the aggregate number of
shares of the combined company being received by the Impax shareholders in the
merger. will be deposited into an escrow account, comprised of 1,690,274 shares
of common stock of the combined company and 17,000 shares of Series 1-B
preferred stock. These shares will be deposited for the purpose of securing the
indemnification obligations of the holders of Impax stock as detailed in the
merger agreement. In addition, Global will be required to reserve 1,020,045
shares of the combined company stock in order to indemnify holders of Impax
stock to the extent required in the merger agreement.
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DESCRIPTION OF GLOBAL'S CAPITAL STOCK FOLLOWING THE MERGER
Upon the consummation of the merger, Global will be renamed Impax
Laboratories, Inc. The Global certificate of incorporation, as in effect prior
to the merger and as amended pursuant to the merger proposal approved at the
Global special meeting, will be the certificate of incorporation of the
combined company.
Authorized capital stock
As of the date of this joint proxy statement/prospectus, the authorized
capital stock of Global consists of 17 million shares of common stock and 2
million shares of preferred stock. As of August 15, 1999, there were
approximately 7,254,053 shares of Global common stock, 9,000 shares of Global
Series C preferred stock and 50,000 shares of Global Series D preferred stock
outstanding. If at the Global special meeting, the stockholders approve the
increase in the authorized capital stock of Global, the Global certificate of
incorporation will authorize the issuance of up to 50 million shares of Global
common stock, in addition to the existing authorization to issue up to 2
million shares of Global preferred stock. Global has previously filed a
certificate with the Delaware authorities designating two new classes of
preferred stock called "Series 1-A Convertible Preferred Stock," and "Series
1-B Convertible Preferred Stock" and extinguishing its existing Series A,
Series B, Series C and Series D preferred stock. This designation of the new
series of preferred stock and extinguishment of the existing series of
preferred stock becomes effective at the closing of the merger.
Global expects to issue approximately 16.9 million shares of combined
company common stock to the holders of Impax common stock, Series A preferred
stock, Series B preferred stock and Series C preferred stock in exchange for
their Impax stock. An additional 450,000 shares of combined company common
stock is expected to be issued in exchange for Global's Series C preferred
stock. The shares of Global common stock underlying Global's Series C preferred
stock were registered pursuant to Registration Statement No. 333-69395 on file
with the SEC. Based on these expected issuances, the combined company will have
approximately 24,600,000 shares of common stock outstanding after the merger
(assuming no shareholders exercise their dissenters rights and there are no
exercises of stock options or warrants). In addition, pursuant to the merger,
each 20 shares of Impax Series D preferred stock will be converted into one
share of Global Series 1-B preferred stock. Based upon this exchange rate, the
combined company will have approximately 170,000 shares of Series 1-B preferred
stock outstanding after the merger (assuming no Impax shareholders exercise
their dissenters rights). An additional 50,000 shares of Series 1-A preferred
stock will be issued in exchange for Global's Series D preferred stock.
Common stock
Subject to the rights of the holders of shares of preferred stock, holders
of shares of the combined company's (i.e., Global's) common stock:
o are entitled to receive dividends when and as declared by the Global
board from legally available funds;
o are entitled, upon any liquidation, dissolution or winding up of Global,
to a pro rata distribution of the assets and funds available for
distribution to stockholders;
o are entitled to one vote per share on all matters on which stockholders
generally are entitled to vote; and
o do not have preemptive rights to subscribe for additional shares of
Global common stock or securities convertible into shares of Global
common stock.
The holders of common stock vote together as a single class with the
holders of the preferred stock on all matters, except as otherwise provided by
law or with respect to rights specifically granted to holders of the preferred
stock (see page 65 for a listing of these rights).
The Global common stock is listed on the Nasdaq Small Cap Market under the
symbol "GLPC."
Preferred stock
The Global board has authorized two new series of preferred stock
designated as Series1-A and Series1-B preferred stock, with the rights,
preferences and privileges described below. The outstanding shares of Global
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Series D preferred stock will be converted into Series 1-A preferred stock and
the outstanding shares of Impax Series D preferred stock will be converted into
Series 1-B preferred stock. The Series 1-A preferred stock and Series 1-B
preferred stock will be identical in all respects, except for a difference in
the rate at which shares may be converted into Global common stock and,
consequently, the number of votes per share of preferred stock.
As of the closing of the merger, there will be 50,000 shares of Series 1-A
preferred stock issuable upon conversion of the Global Series D preferred stock
and 170,000 shares of Series 1-B preferred Stock issuable upon conversion of
the Impax Series D preferred stock.
Dividends. The shares of Series 1 preferred stock are entitled to receive
dividends on an as-converted basis with the outstanding shares of common stock,
payable when and as declared by the combined company's board of directors.
Liquidation preference. If there is a liquidation, dissolution or winding
up of the combined company, the holders of Series 1 preferred stock are
entitled to receive a payment on their shares before any payment may be made to
the holders of common stock. This preference payment to the preferred
stockholders is the greater of:
o $100 per share plus any accrued and unpaid dividends on the Series 1
preferred stock;
o the pro rata share of the assets of the combined company, determined as
if the shares of Series 1 preferred stock had been converted into common
stock; or
o a 12% annualized rate of return on the dollar value of their initial
investment.
Voting. Each holder of Series 1 preferred stock is entitled to that number
of votes as is equal to the number of shares of common stock into which the
preferred stock can then be converted, on all matters to be voted on by the
stockholders. In the case of Series 1-A preferred stock, each share initially
can be converted into 50 shares of common stock and so has 50 votes. In the
case of Series 1-B preferred stock, each share initially can be converted into
approximately 66.7 shares of common stock and so has approximately 66.7 votes.
The holders of the Series 1 preferred stock and the holders of the common stock
vote together as a single class, except as provided by law. In addition,
holders of the Series 1 preferred stock, as a class, have to approve certain
actions, including:
o the issuance of any class or series of stock which would rank senior to
the Series 1 preferred stock as to dividends or upon liquidation;
o the amendment of the Global certificate of incorporation or by-laws in a
way that would impair or reduce the rights of the Series 1 preferred
stock;
o the liquidation or dissolution of Global;
o any proposed transaction eliminating the public trading market for the
Global common stock;
o to redeem or repurchase any outstanding Global capital stock;
o the incurrence of debt or encumbrance of assets over $15 million; or
o the entrance by Global into any other line of business.
Election of directors. There are four major holders of the Series 1
preferred stock: China Development Industrial Bank; Chemical Company of
Malaysia Berhad; President (BVI) International Investment Holdings; and two
affiliated Fleming US Discovery funds. Each of these four holders has the right
to elect one member of the combined company's board so long as the holder
continues to own at least 40% of the Series 1 preferred stock that it held on
the effective date of the merger. A person which acquires any such 40% position
will inherit the right to elect a director of the company in place of the
original holder.
Conversion. Each share of Series 1 preferred stock is convertible into a
number of shares of combined company common stock. The number of shares of
common stock is determined by adding $100 plus the
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amount of all accrued but unpaid dividends on that share of preferred stock,
and then dividing by the then applicable conversion price of that Series 1
preferred stock. The initial conversion price for the Series 1-A preferred
stock is $2.00. The initial conversion price for the Series 1-B preferred stock
is $1.4989.
The conversion price of the Series 1 preferred stock will be adjusted for
certain events, including:
o any subdivision, combinations or reclassifications of the combined
company's common stock;
o any payment, issuance or distribution by the combined company of a stock
dividend, debt securities or assets; and
o the issuance of common stock or securities convertible into common stock
for a price per share of less than the conversion price at that time.
Up to $10 million of additional securities can be issued, as well as
issuances of shares of common stock pursuant to stock options granted under
approved stock option plans, currently outstanding warrants, or to business
partners, without the conversion price of the Series 1 preferred stock being
adjusted.
Redemption. The combined company is required to redeem, on March 31, 2004,
all of the outstanding shares of Series 1 preferred stock at a price per share
equal to $100 plus all declared but unpaid dividends. The holders of the Series
1 preferred stock can also require the redemption of their preferred stock upon
the happening of certain events, including the sale of the combined company or
its assets, the elimination of a public trading market for shares of its common
stock, or the insolvency of or bankruptcy filing by the combined company. The
redemption price can be paid, at the company's option, in cash or shares of
common stock, discounted, in the case of shares, by 10% from the then current
market price of the common stock.
Preemptive rights. The holders of Series 1 preferred stock have preemptive
rights entitling them to purchase a pro rata share of any capital stock,
including securities convertible into capital stock of the combined company,
issued by the combined company in order for the holders of Series 1 preferred
stock to retain their percentage interest in the combined company. However, the
combined company can issue shares of its capital stock under certain
circumstances without triggering the preemptive rights of the Series 1
preferred stock, including the following:
o as pro rata dividends to all holders of common stock,
o as stock options to employees, officers and directors,
o in connection with a merger, acquisition or business combination,
o for consideration of less than $500,000 in any single permitted
transaction and for less than $1,000,000 in the aggregate for all
permitted transactions, and
o up to 300,000 shares issued during the first five years in connection
with a business relationship.
Call privileges. After two years, the combined company has the right to
purchase all of the outstanding shares of Series 1 preferred stock if the
market price of a share of combined company common stock is at least equal to
the higher of:
o 300% of the applicable conversion price of the Series 1 preferred stock
at that time; or
o $6.00 per share.
In addition, the common stock must have traded on its principal market for
a period of 30 consecutive dates with an average daily volume in excess of
50,000 shares for the 30-day period. The price per share of any shares being
repurchased is $100 plus all declared but unpaid dividends.
In addition, pursuant to its certificate of incorporation, the combined
company will be authorized to issue "blank check" preferred stock. This will
enable the board of directors of the combined company, from time to time, to
create one or more new series of preferred stock in addition to the Series 1
preferred stock. The new
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series of preferred stock can have the rights, preferences, privileges and
restrictions designated by the combined company's board of directors. When, and
if, any new series of preferred stock is issued, it could affect, among other
things, the dividend, voting and liquidation rights of the combined company
common stock.
Warrants
As of the date of this joint proxy statement/prospectus, Global has
outstanding warrants to purchase 1,375,000 shares of Global common stock at
exercise prices ranging from $1.75 to $13.175 per share. In addition, Global
issued a warrant which can be exercised for 40,000 shares of Global common
stock for each $1,000,000 in gross profit earned by Global under a business
relationship with an unaffiliated entity, up to a total of 700,000 shares. This
warrant is exercisable at a price of $8.50 per share of Global common stock.
As of the date of this joint proxy statement/prospectus, Impax has
outstanding warrants to purchase 560,000 shares of Impax common stock at an
exercise price of $2.50 per share of Impax common stock. If the merger is
consummated, these warrants will be converted into warrants to purchase
1,868,048 shares of combined company common stock at an exercise price of $0.75
per share.
In addition, at the closing of the merger, the combined company will
replace the non-employee director stock options held by all current
non-employee directors of Global and Impax who will cease to be directors of
the combined company, with five-year common stock warrants. The warrants will
be exercisable, in the case of Global non-continuing directors, for the same
number of shares which could be purchased under the options (whether or not
then vested) and at the same exercise price. In the case of Impax
non-continuing directors, the warrants will be exercisable for the same number
of shares which could be purchased under the Impax options (whether or not then
vested) and at the same exercise price, both adjusted for the exchange ratio of
3.3358 shares of Global common stock for each share of Impax common stock. At
the effective time of the merger, Global expects to issue an aggregate of
355,650 warrants to these non-continuing directors, at exercise prices ranging
from $2.065 to $4.125 per share.
Transfer agent and registrar
The transfer agent and registrar for the Global common stock is
Continental Stock Transfer & Trust Company.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF IMPAX AND GLOBAL
(THE COMBINED COMPANY)
As a result of the merger, holders of shares of Impax common stock, Series
A preferred stock, Series B preferred stock and Series C preferred stock will
become holders of shares of Global (Combined Company) common stock, and holders
of shares of Impax Series D preferred stock will become holders of shares of
Global Series 1-B preferred stock. The following chart summarizes the material
differences between the rights of Impax shareholders (left column), and the
rights of Global (Combined Company) stockholders after the merger (right
column). This summary is not intended to be complete and is qualified by
reference to Delaware and California law as well as to Impax's articles of
incorporation and by-laws and Global's certificate of incorporation, including
the certificate of designations for the Series 1 preferred stock, and by-laws.
Copies of Global's certificate of incorporation and by-laws are on file with
the SEC. Copies of the amendment to Global's certificate of incorporation and
the certificate of designations for the Series 1 preferred stock are included
as Annex E and Annex F to this joint proxy statement/prospectus. Copies of
Impax's current articles of incorporation and by-laws are available by writing
to Impax at 30831 Huntwood Avenue, Hayward, California 94544, Attention:
Secretary.
Summary of Material Differences Between Current Rights of Impax Shareholders
and
Rights Those Holders Will Have Following the Merger
<TABLE>
<S> <C>
Impax Global (Combined Company)
State LawTakeover Legislation
The California Corporation Code does not provide Global is subject to Section 203 of the Delaware
for any antitakeover provisions applicable to Impax. General Corporation Law. It provides that, if a
However, it does provide for certain restrictions person acquires 15% or more of the stock of a
concerning "business combinations" which are Delaware corporation without the approval of the
discussed later in this section. board of directors of that corporation, thereby
becoming an "Interested Stockholder," that person
may not engage in certain transactions with the
corporation for three years unless:
o the board of directors approved the acquisition of
stock or the transaction prior to the time that the
person became an interested stockholder;
o the person became an interested stockholder and 85%
owner of the voting stock of the corporation in the
transaction, excluding voting stock owned by
directors who are also officers and certain employee
stock plans; or
o the transaction is approved by the board of directors
and by the affirmative vote of at least two-thirds of
the outstanding voting stock which is not owned by
the interested stockholder.
Corporate Governance
The rights of Impax shareholders are currently The rights of Global stockholders are currently
governed by California law and the charter and governed by Delaware law and the certificate of
by-laws of Impax. Upon completion of the merger, incorporation and by-laws of Global. Upon
the rights of Impax shareholders who become completion of the merger, the rights of Global
Global stockholders in the merger will be governed stockholders will continue to be governed by
by Delaware law and the Global certificate of Delaware law and the Global certificate of
incorporation (as amended) and by-laws. incorporation (as amended) and by-laws.
</TABLE>
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<TABLE>
<S> <C>
Voting Rights
Holders of Impax common stock are generally Holders of common stock are entitled to one vote
entitled to one vote for each share held at all for each share held on all matters on which
meetings of shareholders. stockholders are generally entitled to vote.
Holders of Impax preferred stock are entitled to that Holders of preferred stock are entitled to that
number of votes for each share which is equal to number of votes for each share which is equal to
the number of shares of common stock into which a the number of shares of common stock into which a
share of preferred stock could then be converted. share of preferred stock could then be converted.
Except as provided by law, the holders of Impax Generally, except as provided by law, the holders of
common stock, Series A preferred stock, Series B Global common stock and Global preferred stock
preferred stock and Series C preferred stock vote vote together and not as separate classes.
together and not as separate classes.
The approval of the Series 1 preferred stock of
Holders of Series D Preferred Stock vote as a Global, voting as a separate class, will be required
separate class. on certain actions by Global, including:
o the issuance of any class or series of stock which
would rank senior to the Series 1 preferred stock as
to dividends or upon liquidation;
o the amendment of the Global certificate of
incorporation or by-laws in a way that would impair
or reduce the rights of the Series 1 preferred stock;
o the liquidation or dissolution of Global;
o any proposed transaction eliminating the public
trading market for the Global common stock;
o to redeem or repurchase any outstanding Global
capital stock;
o the incurrence of debt or encumbrance of assets over
$15 million; or
o the entrance by Global into any other line of
business.
The California Corporations Code requires voting The Delaware General Corporation Law provides
by separate classes with respect to amendments to a that all classes of stock, even a nonvoting class of
corporation's articles of incorporation (in most stock, must vote on charter amendments that
circumstances), mergers, share exchanges, adversely affect the rights of holders of shares of
reorganizations and similar transactions. such class.
Size of the Board of Directors
Impax's by-laws provide that the number of The Global by-laws provide that the number of
directors shall not be less than six nor more than directors may not be less than three nor more than
11, with the exact number of directors to be fixed ten. The actual number of directors is determined
by approval of the board or the Impax shareholders. from time to time by resolution of the board of
The Impax board has set the number of authorized directors adopted by a majority of the entire board.
directors at nine. However, there are currently three The Global board currently consists of ten directors.
vacancies on the Impax board.
</TABLE>
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<TABLE>
<S> <C>
Election and Classification of the Board of Directors
The Impax board of directors is not classified and, The Global board of directors is not classified and,
accordingly, all members of the board are elected at accordingly, all members of the Board are elected at
the annual meeting of shareholders. Impax directors the annual meeting of stockholders.
are elected on a cumulative voting basis if at least
one shareholder has given notice of an intention to Global does not have cumulative voting for the
cumulate its votes. In an election of directors under election of directors.
cumulative voting, each share of stock normally
having one vote is entitled to a number of votes Global's certificate of incorporation provides that
equal to the number of directors to be elected. A four of the holders of the Series 1 preferred stock
shareholder may then cast all his or her votes for a will each have the right to elect one member of the
single candidate or may allocate them among as Global board of directors as long as that holder
many candidates as the shareholder may choose. owns at least 40% of the Series 1 preferred stock
that they owned at the effective time of the merger.
Removal of Directors; Filling Vacancies
Section 303(a) of the California Corporations Code In general, Global directors may be removed from
provides that any director or the entire board of office, with or without cause and at any time by the
directors may be removed, with or without cause, affirmative vote of holders of a majority of the
with the approval of a majority of the outstanding voting power of the outstanding shares entitled to
shares entitled to vote. A vacancy among the vote generally in the election of directors, voting as
directors is filled for the remaining term by a a single class. A vacancy among the directors is
majority of the remaining directors in office unless filled for the unexpired term by the vote of a
the vacancy results from the removal of a director majority of the remaining directors in office unless
by the shareholders, in which case the vacancy may the vacancy results from the removal of a director
only be filled by the approval of the shareholders. by the stockholders, in which case the vacancy may
be filled by the approval of the stockholders.
Subject to Delaware law, a director designated by a
holder of Series 1 preferred stock may be removed,
and the vacancy created can be filled, only by that
designating holder of preferred stock.
Special Meetings of Shareholders
A special meeting of the shareholders of Impax may The Global by-laws provide that special meetings of
be called by the Impax board, the Chairman of the the Global stockholders may be called by the
Board, the President or the holders of shares Chairman of Board, the President or by resolution
entitled to cast not less than 10% of the votes at of the board of directors adopted by a majority of
such meeting. the entire board; and must be called by the
Secretary upon the written request of the holders of
shares entitled to cast not less than 10% of the
votes at such meeting.
Shareholder Action by Written Consent
The Impax by-laws provide that any action which The Global by-laws provide that any action which
may be taken at any annual or special meeting of may be taken at any annual or special stockholders
shareholders may be taken by written consent. meeting may may be taken by written consent.
</TABLE>
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<TABLE>
<S> <C>
Advance Notice Provision
Impax does not have advance notice provisions. For a stockholder to properly bring business before a
stockholder meeting, the matter must be a proper
matter for stockholder action under the Delaware
General Corporation Law and the corporate secretary
must receive written notice of the stockholder's
intent to do so. Federal securities laws dictate that
the written notice must contain certain information
about the proposal, and be received by the corporate
secretary not less than 120 calendar days before the
anniversary of the date Global's proxy statement was
released in connection with the preceding year's
annual meeting, or if the date of the annual meeting
is more than 30 days before or after such anniversary
date, the notice must be received within a reasonable
time before Global begins to print and mail its proxy
materials.
Liability of Directors; Indemnification of Directors and Officers; Insurance
The California Corporations Code provides that a The Global certificate of incorporation provides that
corporation (1) has the power to indemnify a a director shall not be personallyliable to Global or
director against expenses, judgments, fines and its stockholders for monetary damages for breach of
settlements if that person acted in good faith and in fiduciary duty as a director except for liability:
a manner the person reasonably believed to be in
the best interest of the corporation and, in the case o for any breach of the director's duty of loyalty to
of a criminal proceeding, had no reasonable cause Global or its stockholders,
to believe the conduct of the person was unlawful,
and (2) has the power to indemnify, with o for acts or omissions not in good faith or which
exceptions, any person who is a party to any action involve intentional misconduct or a knowing
by or in the right of the corporation, against violation of law,
expenses actually and reasonably incurred by the
person in connection with the defense or settlement o for paying a dividend or approving a stock repurchase
of the action if the person acted in good faith and in violation of Section 174 of the Delaware General
in a manner the person believed to be in the best Corporation Law, or
interests of the corporation and its shareholders.
o for any transaction from which the director derived
The Impax by-laws provide that, subject to some an improper personal benefit.
limitations, Impax is to advance to such director or The Global certificate of incorporation also provides
officer expenses incurred in defending any such for the indemnification by Global of its present and
proceeding to the maximum extent permissible former directors and officers (and any person serving
under the California Corporations Code. as an officer, director, employee or agent of another
entity at the request of Global) to the fullest extent
authorized by the Delaware General Corporation Law or,
to the extent an amendment to the Delaware General
Corporation Law permits broader indemnification rights,
as it may be amended. Global must advance the expenses
incurred by a director or officer in defending any
proceeding; except that, if required by the Delaware
General Corporation Law, the person seeking those
advances provides an undertaking to Global to repay all
amounts so advanced if it is ultimately determined that
the person receiving those advances is not entitled to
be indemnified.
</TABLE>
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<TABLE>
<S> <C>
The Impax by-laws further provide that Impax may The Global by-laws provide that Global may
purchase and maintain insurance on behalf of any maintain insurance, at its expense, to protect itself
agent of Impax against any liability, whether or not and any other person against any liability, whether
Impax would have the power to indemnify that or not Global would have the power to indemnify
person against liability under the California that person against that liability under the Delaware
Corporations Code. General Corporation Law.
Amendment of Certificate of Incorporation
The Impax articles of incorporation may be Generally, the Global certificate of incorporation
amended by the holders of a majority of the may be changed by the affirmative vote of the
outstanding voting power of common stock and holders of a majority of the outstanding shares of
preferred stock, voting together as one class, upon common stock and preferred stock, voting together
the approval of the Impax board of directors. The as one class, upon the approval of the Global board
Impax articles of incorporation may not be of directors. The Global certificate of incorporation
amended, however, in any manner which would may not be amended without the affirmative vote of
adversely alter or change the powers, preferences or 80% of the voting power of the Series 1 preferred
special rights of the outstanding Impax preferred stock if that amendment would create a class or
stock, without the affirmative vote of a majority of series of stock which would rank senior to the
the outstanding shares of any series of preferred Series 1 preferred stock as to dividends or upon
stock affected by any amendment, voting on an as liquidation, or would otherwise impair or reduce the
coverted basis. rights of the Series 1 preferred stock.
The Delaware General Corporation Law provides
that all classes of stock, even a nonvoting class of
stock, must vote on charter amendments that
adversely affect the rights of holders of shares of
that class.
Amendment of By-laws
The Impax by-laws may be amended by the Global by-laws may be changed by the affirmative
affirmative vote or written consent of holders of a vote of the majority of shares present in person or
majority of the voting power of the outstanding by proxy at a duly held annual or special
shares of Impax common stock and preferred stock stockholder meeting, or by a vote of a majority of
entitled to vote, or by the Impax board. Except for the board.
by-laws specifying a fixed number of directors or
changing the maximum or minimum number of
directors, by-laws may be adopted by the Impax
board of directors.
</TABLE>
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<TABLE>
<S> <C>
Appraisal Rights
Under California law, a shareholder of a corporation Under Delaware law, a stockholder of a corporation
participating in certain major corporation participating in certain major corporation
transactions may, under varying circumstances, be transactions may, under varying circumstances, be
entitled to appraisal rights which would enable the entitled to appraisal rights which would enable the
shareholder to receive cash in the amount of the fair stockholder to receive cash in the amount of the fair
market value of his or her shares instead of the market value of his or her shares instead of the
consideration he or she would otherwise receive in consideration he or she would otherwise receive in
the transaction. the transaction. Under Delaware law, the fair market
value is determined exclusive of any element of
The limitations on the availability of appraisal value arising from the accomplishment or
rights under California law are different from those expectation of the transaction.
under Delaware law. Shareholders of a California
corporation whose shares are listed on a national Appraisal rights are not available (a) with respect to
securities exchange or on a list of over-the-counter the sale, lease or exchange of all or substantially all
margin stocks issued by the Board of Governors of of the assets of a corporation, (b) with respect to a
the Federal Reserve System generally do not have merger or consolidation by a corporation the shares
such appraisal rights unless the holders of at least of which are either listed on a national securities
five percent (5%) of the class of outstanding shares exchange or are held of record by more than 2,000
claim the right of the corporation or any law holders if the stockholders receive only shares of
restricts the transfer of the shares. the surviving corporation or shares of any other
corporation that are either listed on a national
securities exchange or held of record by more than
2,000 holders, plus cash instead of fractional shares,
or (c) to stockholders of a corporation surviving a
merger if no vote of the stockholders of the
surviving corporation is required to approve the
merger under certain provisions of Delaware law.
</TABLE>
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<TABLE>
<S> <C>
Business Combinations
The California Corporations Code requires that an Global is not subject to any restrictions regarding
"Interested Party" (defined below) of a corporation business combinations other than Section 203 of the
provide that corporation's shareholders with copies Delaware General Corporation Law (discussed
of a fairness opinion if the Interested Party and above).
such corporation enter into various forms of
transactions, including a merger transaction.
However, this requirement only applies to
corporations that have shares held of record by
more than 100 persons. Because Impax has less
than 100 shareholders of record, Impax is not
subject to this provision.
An "Interested Party" for purposes of the California
Corporations Code means a person who is a party
to the transaction and (1) directly or indirectly
controls the corporation, (2) is, or is directly or
indirectly controlled by, an officer or director of the
corporation or (3) is an entity in which a material
financial interest is held by any director or
executive officer of the corporation.
The California Corporations Code also provides that
contracts or transactions between a corporation and
(1) any of its directors or (2) a company in which a
director has a material financial interest are not void
or voidable if the material facts as to the transaction
and as to the director's interest are fully disclosed
and approved or ratified in good faith by a sufficient
number of the disinterested directors or a majority
of the disinterested stockholders represented and
voting at a duly held meeting, or the person
asserting the validity of the contract or transaction
sustains the burden of proving that the contract or
transaction was just and reasonable as to the
corporation at the time it was authorized, approved
or ratified.
</TABLE>
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GLOBAL PHARMACEUTICAL CORPORATION
Selected Historical Financial Information of Global
The following selected financial data for Global as of and for each of the
five years ended December 31, 1998 are derived from the audited financial
statements of Global. The selected financial data as of and for the six months
ended June 30, 1999 and 1998 are derived from the unaudited financial
statements of Global. The unaudited financial statements of Global include all
adjustments, consisting solely of normal recurring accruals, which management
considered necessary for a fair presentation of the financial position and the
results of operations for such periods. Operating results for the six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for future periods. The data should be read in conjunction with the
Global audited financial statements and related notes thereto and "Global
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this joint proxy statement/prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
For the six months ended For the year ended
June 30, December 31,
------------------------- -------------------------------------------------------------------
1999 1998 1998 1997(b) 1996(b) 1995(b) 1994(b)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue ........... $ 4,217 $ 1,918 $ 4,401 $ 427 $ -- $ -- $ --
Total operating expenses..... 2,521 2,421 4,766 6,164 5,121 4,221 1,831
Operating loss .............. (1,524) (2,406) (4,639) (5,936) (4,943) (4,221) (1,831)
Net loss .................... (1,546) (2,347) (4,615) (5,877) (4,608) (4,463) (1,988)
Net loss applicable to
common stock(a) ............ (3,020) (2,347) (4,755) (8,424) (4,608) (4,463) (1,988)
Net loss per share (basic
and diluted) ............... $ (0.43) $ (0.54) $ (1.07) $ (1.97) $ (1.08) $ (1.80) $ (0.92)
BALANCE SHEET DATA:
June 30, December 31,
------------------------- ----------------------------------------------------------------------
(in thousands) 1999 1998 1998 1997 1996 1995 1994
- ------------------------------ --------- -------- --------- -------- -------- -------- --------
Total assets ................ $ 12,494 $ 8,769 $ 8,853 $ 11,322 $ 9,440 $ 12,855 $ 3,232
Long-term debt .............. 1,876 2,050 1,967 2,129 1,197 1,280 2,559
Mandatorily redeemable
preferred stock ............ 5,900 5,843 6,354 6,335 -- -- --
Stockholders' equity
(deficit) .................. $ 1,042 $ (498) $ (2,379) $ 1,378 $ 7,351 $ 10,124 $ (616)
</TABLE>
(a) The net loss applicable to common stock includes imputed preferred stock
dividends of $1,474 for the six months ended June 30, 1999 and $0 for the
six months ended June 30, 1998 and $140 for the year ended December 31,
1998 and $2,547 for the year ended December 31, 1997.
(b) Prior to the fourth quarter of 1997, Global was considered a development
stage company.
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Global Management's Discussion and Analysis of Financial Condition and Results
of Operations
When used in this discussion, the words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
Global's business and results of operations are affected by a wide variety
of factors that could materially and adversely affect Global and its actual
results, including, but not limited to, the ability to obtain and maintain
governmental approvals on additional products, the ability to adequately fund
its operating requirements, the impact of competitive products and pricing,
product demand and market acceptance, new product development, reliance on key
strategic alliances, the availability of raw materials and the regulatory
environment. As a result of these and other factors, Global may experience
material fluctuations in future operating results on a quarterly or annual
basis (including, to the extent appropriate governmental approvals are not
obtained, the inability to manufacture and sell products), which could
materially and adversely affect its business, financial condition, operating
results, and stock price. An investment in Global involves various risks,
including those referred to above and those which are detailed from
time-to-time in Global's other filings with the Securities and Exchange
Commission.
These forward-looking statements speak only as of the date hereof. Global
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
General
Global was formed in April 1993 to acquire the manufacturing plant,
equipment and certain related assets and the ANDAs, NDAs and NADAs of Richlyn.
Richlyn operated as a generic pharmaceutical business from 1947 to 1992.
Richlyn ceased operations at this facility in 1992 as a result of failure to
comply with FDA regulations concerning cGMP.
From its inception through 1997, Global has devoted substantially all of
its efforts to improving and renovating the facility, establishing policies and
procedures to bring the facility into compliance with cGMP, and obtaining all
government approvals necessary to begin operating the facility. In July 1997,
Global was notified that, following an inspection, FDA had determined that
Global's Tetracycline Hydrochloride 250 mg capsules had been validated. The FDA
subsequently determined that sufficient data was available to assign an
expiration date to the product's label and Global commenced operations and
began shipping the product in September 1997. Since Global commenced
operations, the FDA has routinely inspected and approved the work necessary for
each of Global's product introductions. In January 1998, the FDA informed
Global that product-by-product inspections and authorizations would no longer
be required for Global's current ANDA product portfolio. Through August 15,
1999, Global has introduced to market 21 products. See "Global's Business"
later in this joint proxy statement/prospectus.
Global cannot currently predict whether its business will be seasonal in
nature, but to the extent that it manufactures and distributes products that
pertain to seasonal ailments such as allergies or colds, Global may experience
seasonal patterns in its sales and profitability. There can be no assurance
that the potential seasonality of Global's business will not have a material
adverse effect on Global. In addition, Global's revenues, and hence its
profitability, if any, may vary significantly from fiscal quarter to fiscal
quarter as well as in comparison to the corresponding quarter of the previous
year as a result, among other factors, of the timing of process validation for
particular generic drug products, the timing of any significant initial
shipments of newly approved drugs and competitive pressures from other generic
drug manufacturers who receive FDA approvals covering competing products.
In August 1997, Global signed two exclusive ten-year licensing agreements
with Eurand America Inc., an international drug company that specializes in
oral delivery. Eurand is a unit of American Home Products, one of the world's
largest research-based pharmaceutical and healthcare companies. Under the first
agreement, Eurand develops, manufactures and supplies to Global several dosages
of Pancrelipase, a pancreatic enzyme used primarily by cystic fibrosis patients
to aid in digestion using a new Eurand technology, and grants Global an
exclusive license to market and sell the products in the United States subject
to minimum sales levels. The
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second agreement provides for Eurand to supply Global with the existing Eurand
Pancrelipase 4500 USP Lipase content product, for the generic market; this
product is currently marketed as Lipram 4500. Another Eurand manufactured
product, Lipram 10,000, was introduced in June 1998.
During the six months ended June 30, 1999, Global has introduced to market
its first new ANDA approval, Minocycline HCl 100mg capsule, an antibiotic,
which is the generic equivalent of Lederle's Minocin(R).
Results of Operations
Until the quarter ended December 31, 1997, when Global became operational,
Global was considered a development stage company as defined in Statement of
Financial Accounting Standards No. 7.
The year ended December 31, 1998 was Global's first full year of
operations with $4,401,000 in revenues. Global had an accumulated deficit of
$22,591,000 at December 31, 1998.
Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998
Global's net loss applicable to common stock for the six months ended June
30, 1999, was $3,020,000 as compared to a net loss of $2,347,000 in the same
period in 1998. The increase was due primarily to a non- cash charge for
imputed stock dividends of $1,474,000 in 1999 partially offset by increased
revenues and lower unabsorbed manufacturing overhead.
The net sales for the six months ended June 30, 1999, were $4,217,000
compared to $1,918,000 in the comparable period in 1998. The increase in net
sales in 1999 was due primarily to an increase in the number of products and
customers as compared to the same period in 1998.
The cost of sales of $3,220,000 for the six months ended June 30, 1999 had
associated cost of goods sold of $2,236,000 and an unabsorbed manufacturing
overhead of $984,000 representing the under capacity utilization of the plant
and infrastructure. For the six months ended June 30, 1998, the cost of sales
of $2,255,000 had associated cost of goods sold at $912,000 and an unabsorbed
manufacturing overhead of $1,343,000.
The gross margin for the six months ended June 30, 1999, was $997,000
compared to a gross margin loss of ($337,000) in the six months ended June 30,
1998, due primarily to higher sales and higher absorption of manufacturing
overhead by the increased production.
The research and development costs for the six months ended June 30, 1999
were $997,000 compared to $1,247,000 in the six months ended June 30, 1998. The
decrease in research and development expense in the six months ended June 30,
1999 was primarily due to payments of $200,000 for development costs to Eurand
America made in the six months ended June 30, 1998, but none in the comparable
period in 1999.
The selling, general and administrative expenses were $1,524,000 for the
six months ended June 30, 1999, compared to $1,174,000 for the same period in
1998. The increase of $350,000 over 1998 was due primarily to merger-related
expenses in connection with the proposed merger with Impax and additional
selling expenses compared to the same period in 1998 including personnel,
advertising, travel and freight.
The interest expense was $94,000 for the six months ended June 30, 1999,
compared to $39,000 for the same period of 1998, due to increased levels of
borrowings, primarily for working capital purposes.
The interest income was $72,000 for the six months ended June 30, 1999
compared to $98,000 in the same period of 1998 due primarily to a decrease in
investments in cash equivalents in the first quarter of 1999.
The other income was zero for the six months ended June 30, 1999, compared
to $424,000 for the six months ended June 30, 1998, which included payments of
$417,000 for the U.S. Ranitidine profit distribution from Genpharm. There were
no U.S. Ranitidine profit distributions from Genpharm in 1999.
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The other expense was zero for the six months ended June 30, 1999,
compared to $72,000 for the six months ended June 30, 1998, representing
amounts due to a sales organization for a one-time profit sharing arrangement
for the distribution of one of Global's products.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997.
Global's net loss for the year ended December 31, 1998 was $4,615,000, as
compared to a net loss of $5,877,000 for the year ended December 31, 1997. The
decrease in the net loss was due primarily to increased revenues . Also, during
1998 Global issued Series C preferred stock which resulted in non-cash imputed
dividends which increased the net loss applicable to common stock by $140,000
or $0.03 per share to $4,755,000 or $1.07 per share.
In 1997, Global issued Series A and Series B preferred stock which
resulted in non-cash imputed dividends which increased the net loss applicable
to common stock by $2,547,000 or $0.59 per share to $8,424,000 or $1.97 per
share.
Net sales for the year ended December 31, 1998 were $4,401,000 as compared
to $427,000 for the year ended December 31, 1997. The increase in net sales of
$3,974,000 was due primarily to an increase in number of products and customers
realized in 1998 as compared to 1997. Also, Global was operational for only
three months in 1997, as compared to a full year of operations in 1998.
The increase in cost of goods sold in 1998 compared to 1997 was due to the
fact that operations did not commence until the fourth quarter of 1997. Cost of
sales of $4,681,000 for the year ended December 31, 1998 had associated cost of
goods sold of $2,064,000 and an unabsorbed manufacturing overhead of $2,617,000
representing the undercapacity utilization of the plant and infrastructure. For
the year ended December 31, 1997, cost of sales was $321,000.
Research and development costs for the year ended December 31, 1998 were
$2,229,000. There were no research and development costs in 1997. The increase
in research and development costs in 1998 as compared to 1997 was primarily due
to biostudy costs for two ANDAs, development costs to Eurand and additional
personnel expenses.
Selling, general and administrative expenses for the years ended December
31, 1998 and 1997 were $2,537,000 and $6,164,000, respectively. The decrease is
due to the significant increase in operational activity whereby certain costs
previously written off as general and administrative expenses are now allocated
to the cost of production and are reflected in cost of sales.
Interest expense was $113,000 for the year ended December 31, 1998 as
compared to $65,000 for the year ended December 31, 1997, due to additional
borrowings from the Pennsylvania Industrial Development Authority and the
Delaware River Port Authority through the Philadelphia Industrial Development
Corporation and the short-term borrowing from the General Electric Capital
Corporation Credit Facility.
Interest income was $137,000 for the year ended December 31, 1998 as
compared to $124,000 for the year ended December 31, 1997, due to an increase
in investments in cash equivalents resulting primarily from the proceeds of the
Series B preferred stock issuance.
Other income of $479,000 for the year ended December 31, 1998 primarily
was comprised of $445,000 of royalties received under the Genpharm distribution
agreements. Other income of $122,000 generated during the year ended December
31, 1997 was due primarily to an amount received from a supplier for a claim
relating to unacceptable materials purchased from the supplier.
Other expense of $72,000 for the year ended December 31, 1998 represents
costs for a nonrecurring profit sharing arrangement with a sales organization
for the distribution of one of Global's products.
Year Ended December 31, 1997 compared to Year Ended December 31, 1996.
Global's net loss for the year ended December 31, 1997 was $5,877,000, as
compared to a net loss of $4,608,000 for the year ended December 31, 1996. The
increase in the net loss was due primarily to increased payroll costs resulting
from hiring of personnel necessary to support Global's infrastructure, recent
FDA
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approvals and the "ramping up" for expected product introductions, partially
offset by minimal sales in 1997. Also, during 1997, Global issued Series A and
Series B preferred stock which resulted in non-cash imputed dividends which
increased the net loss applicable to common stock by $2,547,000 or $0.59 per
share to $8,424,000 or $1.97 per share.
Net sales were $427,000 in the fourth quarter and for the year ended
December 31, 1997. Until the fourth quarter of 1997, Global was considered a
development stage company.
Selling, general and administrative expenses were $6,164,000 in the year
ended December 31, 1997 as compared to $5,121,000 during the same period in
1996, due primarily to increased payroll costs resulting from the hiring of
personnel necessary to support Global's infrastructure, recent FDA approvals
and the "ramping up" for expected product introductions.
Interest income was $124,000 for the year ended December 31, 1997 as
compared to $375,000 earned in the comparable period in 1996, due primarily to
a decrease in investments in cash equivalents throughout the year as a result
of capital expenditure incurred in upgrading the manufacturing facility, hiring
personnel necessary to support Global's infrastructure and "ramping up" for
expected product introductions.
Interest expense was $65,000 for the year ended December 31, 1997 as
compared to interest expense of $40,000 during the same period in 1996 due to
the additional borrowings from Pennsylvania Industrial Development Authority
and the Delaware River Port Authority via Pennsylvania Industrial Development
Corporation
Other income of $122,000 generated during the year ended December 31, 1997
was due primarily to an amount received from a supplier for a claim filed by
Global in 1996 relating to unacceptable materials purchased from the supplier.
Liquidity and Capital Resources
Until Global's IPO, Global financed its activities primarily through the
issuance of promissory notes to the family that previously controlled Richlyn,
low interest borrowings, proceeds from the private placement of equity
securities, and loans from stockholders.
In December 1995, Global completed its IPO in which 1,650,000 shares of
common stock were sold by Global for net proceeds of $11,489,000. An additional
247,500 shares of common stock were sold to the underwriter of the IPO in
January 1996, for net proceeds to Global of $1,835,000.
In July 1997, Global received a $758,000 loan from PIDA bearing annual
interest of 3.75% for 15 years and a $350,000 loan from the DRPA via the PIDC
bearing annual interest of 5.00% for 10 years. These loans are secured by land,
building and building improvements. A portion of the loans funded capital
projects, with the remaining proceeds invested in interest bearing certificates
of deposit owned by Global and pledged as additional collateral.
Global completed an initial closing of approximately $1.2 million of its
Series A preferred stock in August 1997, and a subsequent closing of $150,000
in September 1997. In addition, Global completed the closing of $5 million of
its Series B preferred stock in December 1997. In connection with these
offerings, at December 31, 1997, Global incurred aggregate expenses, of
approximately $196,000, resulting in net proceeds to Global of approximately
$6.1 million. Global used the proceeds from these offerings for working capital
purposes. All the shares of Series A and Series B preferred stock have been
converted to common stock.
In July 1998, Global entered into a revolving credit facility with General
Electric Capital Corporation, providing financing to Global of up to $5 million
based on levels of accounts receivable and inventory. Amounts borrowed under
the credit facility bear interest, payable monthly, at the Index Rate plus 4%
per annum. The Index Rate is the latest rate for 30-day dealer placed
commercial paper published in the "Money Rates" section of The Wall Street
Journal. Global also pays a fee of .125% per annum on the unused available
portion of the credit line. At June 30, 1999, Global had outstanding borrowings
of $764,000 with additional availability of approximately $1,600,000 under the
credit line.
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In November 1998, Global issued 9,000 shares of Series C preferred stock
and a five year warrant to purchase 225,000 shares of common stock at an
initial exercise price equal to $4.00 per share, for proceeds of $900,000. The
proceeds were used for working capital purposes.
On March 2, 1999, Global issued 30,000 shares of Series D preferred stock
and a five year warrant to purchase 375,000 shares of common stock at an
initial exercise price equal to $4.00 per share, for aggregate proceeds of
$3,000,000. On May 18, 1999, Global issued to the same investors an additional
20,000 shares of its Series D preferred stock and a five year warrant to
purchase 250,000 shares of common stock at an initial exercise price equal to
$4.00 per share, for aggregate proceeds of $2,000,000. The proceeds of this
private placement are being used for funding research and development efforts,
working capital and general corporate needs.
The Year 2000 Issue
Global's computer system and programs were designed in recent years and
concerns related to the Year 2000 issue were addressed at the time the decision
to purchase the system was made. During 1998, management initiated a program to
prepare Global's computer systems, applications and other equipment that may
employ date sensitive embedded chips for the Year 2000. Global has been advised
by its hardware and software vendors that all databases used by current systems
are Year 2000 compliant. Global completed an inventory of all computer hardware
and software applications and successfully tested their Year 2000 compliance.
Global is in the process of addressing the Year 2000 issues with customers,
suppliers, service providers and other constituents, which is expected to be
completed shortly. Global will continue to review the information received in
response to these inquiries and to determine the need and extent of contingency
planning. During the three months ending June 30, 1999, Global contracted with
an outside firm regarding contingency support for its computer hardware system
and completed the remaining areas of its contingency planning as of October 31,
1999. At this time, Global does not believe that the Year 2000 issue represents
a material event or uncertainty or that the cost of addressing the Year 2000
issue is material to Global's business, operations or financial condition.
Risk of Global's Year 2000 Issues
Achieving Year 2000 compliance is dependent on many factors, some of which
are not completely within Global's control. There can be no assurance that
Global will be able to identify all aspects of its business that are subject to
Year 2000 problems of customers or suppliers that affect Global's business.
There also can be no assurance that Global's software vendors are correct in
their assertions that the software is Year 2000 compliant, or that Global's
estimate of the costs of systems preparation for Year 2000 compliance will
prove ultimately to be accurate. Should either Global's internal systems or
internal systems of one or more significant suppliers or customers fail to
achieve Year 2000 compliance, or Global's estimate of the costs of becoming
Year 2000 compliant prove to be materially inaccurate, Global's business and
its results of operations could be adversely affected.
New Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which established standards for reporting and display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income includes all changes in equity during a period from all transactions
other than those with stockholders, including net income, foreign currency
related items and unrealized gain or loss on certain securities. The
disclosures prescribed by this standard had no effect on Global for the year
ended December 31, 1998.
Also in 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which established guidance for
disclosure of business segment information in annual financial statements. The
statement had no impact on Global as it operates in one business segment:
generic pharmaceuticals.
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In 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This standard revises and
standardizes disclosure requirements for pension and other postretirement
benefits in annual financial statements. This statement had no impact on Global
as Global has no pension or other postretirement plans which require
disclosure.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established a new model for the
accounting and reporting of derivative and hedging transactions. The statement
amends a number of existing standards and is effective for fiscal years
beginning after June 15, 2000 (as amended by SFAS No. 137). Global is assessing
this statement, but believes it will have no impact on Global.
Also in 1998, the AICPA issued SOP 98-1, "Accounting for Internally
Developed Software," with required adoption for most companies beginning in
1999. This SOP provides guidelines for the capitalization of certain internal
software development costs. Global adopted this standard in 1999, which had no
impact on its financial results.
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Global's Business
Introduction
Global Pharmaceutical Corporation is a specialty pharmaceutical company
engaged principally in the development, manufacture and marketing of solid oral
generic prescription drugs with primary application in smaller, niche markets.
Global is headquartered at a 113,000 square-foot, state-of-the-art research and
manufacturing facility located in Philadelphia, Pennsylvania, and is
incorporated in Delaware.
Global was formed in April 1993 to acquire the manufacturing plant,
equipment and certain related assets and liabilities and the Abbreviated New
Drug Applications (referred to as ANDAs), New Drug Applications (referred to as
NDAs) and New Animal Drug Applications (referred to as NADAs) of Richlyn
Laboratories, Inc. Richlyn operated a generic pharmaceutical business from 1947
to 1992 when the facility was closed for failure to comply with Food and Drug
Administration regulations concerning cGMP.
From Global's inception through 1997, Global has devoted substantially all
of its efforts to improving and renovating the facility, establishing policies
and procedures to bring the facility into compliance with cGMP, and obtaining
all government approvals necessary to begin operating the facility. In July
1997, Global was notified that, following an inspection, the FDA had determined
that Global's Tetracycline Hydrochloride 250 mg capsules had been validated.
Global commenced operations and began shipping the product in September 1997.
During the remainder of 1997, the FDA routinely inspected and approved the work
necessary for each of Global's product introductions. In January 1998, the FDA
informed Global that product-by-product inspections and authorizations would no
longer be required for its current ANDA product portfolio.
Since the start of operations, Global has introduced to market 21
products; a table containing these products and related information is listed
in the Products and Product Development section immediately following this
introductory section.
Global's strategic policy is to develop a broad product line, targeted at
niche markets, composed of solid oral (tablets and capsules) prescription,
generic drugs, various products that require isolation during their production,
narcotic and other drug products that are heavily regulated by the United
States Drug Enforcement Agency. In August 1997, Global received approval from
the DEA to manufacture Class II through V controlled substance products. Global
also intends to seek to develop or license certain brand-name pharmaceutical
products.
In addition, Global intends to expand its line of generic products through
a combination of a research and development program that is expected to result
in new products owned by Global, as well as the licensing of additional
products owned by others. Generally, it is important that a new generic product
be approved by the FDA for marketing by, or shortly after, the patent
expiration date of the equivalent brand name drug (plus any legislatively
granted extensions) in order to gain significant market share at attractive
profit margins. As more generic products compete in the same market, which
customarily occurs increasingly over time following the brand name product's
patent expiration date (and extensions, if any), unit prices and profit margins
decrease. As the development of a new generic drug product, including its
formulation, testing and FDA approval, generally currently takes approximately
three or more years, development activities may begin several years in advance
of the patent expiration date of the brand-name drug equivalent. Consequently,
Global may select drugs for development several years in advance of their
anticipated entry to market. Global intends to enter larger, more competitive
generic markets at such times as it believe it can effectively compete in those
markets.
Positioning itself to effectuate this strategy, in January 1997, Global
entered into an agreement with Genpharm, Inc., a Canadian corporation and an
indirect subsidiary of Merck KGaA, a German corporation, pursuant to which
Global agreed to supply packaging or available capacity with respect to
Genpharm's United States Ranitidine Form I production requirements based on a
five-year cost-plus and percentage-of-profits compensation arrangement,
commencing in August 1997, when Genpharm received ANDA approval for Ranitidine
from the FDA. Ranitidine is the generic equivalent of Glaxo Wellcome plc's
patented prescription drug Zantac(R). Global received and recognized as revenue
approximately $445,000 in royalties from Genpharm for the year ended December
31, 1998.
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In addition to the packaging of Ranitidine, the Genpharm agreement
provides Global with the opportunity to develop products for the U.S. market
with the assistance of Merck KgaA. During 1998, Global filed ANDA's for two
products selected under the Genpharm agreement.
Also, in August 1997 Global signed two exclusive ten-year licensing
agreements with Eurand America, a unit of American Home Products, an
international drug company that specializes in oral drug delivery. One
agreement provides for Eurand to supply Global with a specified dosage of
Pancrelipase, a pancreatic enzyme used primarily by cystic fibrosis patients to
aid in digestion, for the generic market. The second agreement provides for
Eurand to develop and manufacture for Global, on an exclusive basis, several
Pancrelipase products using a new Eurand technology, and grants Global an
exclusive ten-year license to market and sell the products in the United States
subject to minimum sales levels. Currently, Global is marketing two products:
Lipram 4500 and Lipram 10,000.
In July 1998, Global entered into a revolving credit facility with GE
Capital Corporation, providing funding to Global of up to $5 million based on
levels of accounts receivable and inventory. Amounts borrowed under this credit
facility bear interest, payable monthly, at the Index Rate plus 4% per annum.
The Index Rate is the latest rate for 30-day, dealer-placed commercial paper
published in the "Money Rates" section of The Wall Street Journal.
In November 1998, Global issued 9,000 shares of Series C preferred stock
and a five-year warrant to purchase 225,000 shares of common stock at an
initial exercise price equal to $4.00 per share for proceeds of $900,000. On
March 2, 1999, Global issued 30,000 shares of Series D preferred stock and a
five-year warrant to purchase 375,000 shares of common stock at an initial
exercise price equal to $4.00 per share for aggregate proceeds of $3,000,000.
On May 18, 1999, Global issued to the same investors an additional 20,000 of
Series D preferred stock and a five-year warrant to purchase 250,000 shares of
common stock at an initial exercise price equal to $4.00 per share, for
aggregate proceeds of $2,000,000.
Products and Product Development
Global's policy is to develop a broad product line composed of solid oral
(tablets and capsules) prescription, generic drugs and various products that
require isolation during their production. Global also intends to seek to
develop, license or acquire certain brand-name pharmaceutical products.
Global also plans to manufacture and sell drugs that are regulated by the
DEA such as narcotics, barbiturates and certain tranquilizers, as well as
certain products that require isolated manufacturing facilities, which Global
has provided by refurbishing and equipping a part of our existing facility. DEA
regulations generally deal with the storage and dissemination of certain drugs
and related raw materials and are designed to protect the security of those
products and their dissemination against receipt by unauthorized persons.
Global believes that the DEA regulations that will be applicable to Global will
not materially increase the scope or expense of our regulatory compliance
requirements.
Global acquired from Richlyn 54 ANDAs, NDAs and NADAs and more than 100
previously marketed prescription and over-the-counter formulations including
pharmaceutical products not subject to FDA approval that were manufactured and
sold by Richlyn. Six of these ANDAs were validated and are currently marketed.
In addition, fifteen other products were introduced to market as of August 15,
1999. The following table contains a list of the twenty-one products Global
currently markets:
<TABLE>
<CAPTION>
GLOBAL PRODUCT STRENGTH BRAND PRODUCT* PRESCRIBED USE
- -------------------------------------- --------------- ---------------- ------------------------------
<S> <C> <C> <C>
Aminobenzoate Potassium Capsules 0.5 gram Potaba Anti-fibrotic
Aminobenzoate Potassium Tablets 0.5 gram Potaba Anti-fibrotic
Aminobenzoate Potassium Packets 2 gram Potaba Anti-fibrotic
Chloroquine Phosphate Tablets 250 mg Aralen Anti-malarial
Guaifenesin and Pseudoephedrine
HCl ER Tablets 600 mg/120 mg Zephrex LA Cough/cold
Hyoscyamine Oral Tablets 0.125 mg Levsin Anticholinergic/antispasmodic
Hyoscyamine Sublingual Tablets 0.125 mg Levsin Anticholinergic/antispasmodic
Hyoscyamine Extended Release Tablets 0.375 mg Levbid Anticholinergic/antispasmodic
</TABLE>
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<TABLE>
<CAPTION>
GLOBAL PRODUCT STRENGTH BRAND PRODUCT* PRESCRIBED USE
- --------------------------------------- -------------- ----------------- ------------------------
<S> <C> <C> <C>
Lipram 4500 (Pancrelipase) Capsules 4500 units Pancrease Pancreatic enzyme
replacement
Lipram 10,000 (Pancrelipase) Capsules 10,000 units Creon 10 Pancreatic enzyme
replacement
Mephobarbital Tablets CIV 32 mg Mebaral Sedative/anticonvulsant
Mephobarbital Tablets CIV 50 mg Mebaral Sedative/anticonvulsant
Mephobarbital Tablets CIV 100 mg Mebaral Sedative/anticonvulsant
Methyltestosterone Tablets CIII 10 mg Testred/Android Hormone replacement
Methyltestosterone Tablets CIII 25 mg Testred/Android Hormone replacement
Minocycline HCl Capsules 100 mg Minocin Antibiotic
Oxycodone HCl Tablets CII 5 mg Roxicodone Analgesic
Pancrelipase Tablets 8000 units Viokase Pancreatic enzyme
replacement
Promethazine HCl Tablets 25 mg Phenergan Antihistamine
Tetracycline HCl Capsules 250 mg Achromycin V Antibiotic
Tetracycline HCl Capsules 500 mg Achromycin V Antibiotic
</TABLE>
- ------------
* The brand names listed are trademarks of the various companies represented.
Global's current pipeline comprises two product applications awaiting FDA
approval, five non-ANDA products, one reintroduction of previously approved
ANDA products, a series of line extensions to the LIPRAM line of Pancrelipase
capsules which are licensed from Eurand and six additional products in various
stages of development which will require ANDA submissions. The current
development project with Eurand includes development of the second of the new
technologies previously licensed by Global. It is anticipated that in addition
to the line extensions this technology may also result in a lower cost of goods
for these products.
Raw Materials
The raw materials that will be essential to Global's business are expected
to be bulk pharmaceutical chemicals which are generally available and purchased
from numerous sources. Because the FDA requires specification of raw material
suppliers in applications for approval of drug products, if raw materials from
a specified supplier were to become unavailable, the required FDA approval of a
new supplier could cause a significant delay in the manufacture of the drug
involved. Although Global expects to specify more than one raw materials
supplier with respect to each FDA application where that is possible, some
materials are currently available from only one or a limited number of
suppliers, as a result of which Global would be subject to the special risks
that are associated with limited sources of supply. Global plans to purchase
bulk pharmaceutical chemicals pursuant to multishipment contracts, typically of
one year's duration, when Global believes advance-ordered bulk purchases are
advantageous to assure availability at a specified price. Global believes that
alternative sources could be found, or new sources would arise, should any of
Global's sole or limited source raw materials become unavailable from current
suppliers. Nevertheless, any curtailment of raw materials could be accompanied
by production or other delays as well as increased raw materials costs, with
consequent adverse effects on Global's business and results of operations.
Furthermore, as any new source of raw materials, whether domestic or foreign,
would require FDA approval, any delays in obtaining FDA approval could also
have a material adverse effect on Global's business and operating results.
Following a general trend in the pharmaceutical industry, an increasing
portion, anticipated to be a majority over time, of Global's raw material
supplies may come from foreign sources. Export and import policies of the
United States and foreign countries therefore could also materially affect the
availability and cost to Global of certain raw materials at any time or from
time to time.
Quality Control
In connection with the manufacture of drugs, the FDA requires testing
procedures to monitor the quality of the product as well as the consistency of
its formulation. Global maintains a state-of-the-art laboratory that performs,
among other things, analytical tests and measurements required to control and
release raw materials and finished products.
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Global has established quality monitoring and testing programs and
procedures designed to assure that all critical activities associated with the
production, control and distribution of Global's drug products will be
carefully controlled and evaluated throughout the process. By following a
series of systematically organized steps and procedures, Global seeks to assure
that established quality standards will be achieved and built into the product.
Global's policy is to continually seek to meet the highest quality
standards, with the goal of thereby assuring the quality, purity, safety and
efficacy of each of Global's drug products. Global believes that adherence to
high operational quality standards will also promote more efficient utilization
of personnel, materials and production capacity.
Sales and Marketing
Global markets solid oral prescription pharmaceuticals primarily directed
to the generic sector of the pharmaceutical market (also known as the
"multisource pharmaceutical market"). The distribution of these products is
primarily through the traditional pharmaceutical supply channels, including,
but not limited to, National Wholesalers Drug Association wholesalers,
warehousing drug store chains, generic distributors, managed healthcare
providers, mail-order pharmacies, hospitals and institutions, governmental
agencies, and independent pharmacies.
Presently, Global concentrates its sales and marketing efforts on the most
prolific supply-chain partners because their national presence provides access
to a greater number of customers and patients. These supply-chain partners
traditionally also support the process and help generate product demand.
As the manufacturers of cost-effective, multisource pharmaceuticals
increased their reach and overall placement of products, customers began
relying on longer-term arrangements with suppliers. Global has entered into
several multiyear, multiproduct agreements with various customers, including
chains, managed healthcare providers, governmental agencies and group
purchasing organizations. The product requirements of these contract customers
are satisfied by utilizing the traditional pharmaceutical supply channels.
Marketing efforts are expected to extend beyond the ordinary promotional
vehicles; Global plans to reach the decision makers, including physicians and
dispensing pharmacists, with campaigns designed to develop awareness of some of
Global's exclusive pharmaceutical alternatives. By increasing awareness of
these new generic entities, Global can provide customers a choice by offering
similar therapies at a fraction of the cost of brand-name products.
In many ways 1998 and 1999 were transitional years for Global. By
progressing from a development stage to a fully operational company, much of
the primary focus shifted toward gaining acceptance of Global and its product
by various customers in the pharmaceutical supply channels. To that end, Global
was successful in gaining acceptance at all of the top 10 pharmaceutical
wholesalers, several of the top 10 warehousing drug store chains, managed
healthcare providers and governmental agencies, both directly and indirectly,
through contracts. Additionally, Global has successfully entered into other new
business, including two contract development projects and two contract
packaging projects. Global plans to continue to pursue this type of new
business in order to increase utilization of Global's facility and
infrastructure. There can be no assurance that Global will be successful in the
pursuit of this business.
Competition
Competition in the generic industry is intense. Global is in competition
with numerous other companies in that industry, including major pharmaceutical
concerns and other exclusively generic manufacturers, most of whom have
significantly greater resources.
The originator of a pharmaceutical product generally markets the product
under its own brand name during the life of the product's patent and any
statutory extensions of the patent. Companies introducing a product after the
patent (and any extension) expires may market the product under a brand name
and promote it to physicians and pharmacists to create a market for the product
or may market the product under its
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generic name and rely on physicians, pharmacists and customers to specify the
lower-cost generic product. Producers of brand-name pharmaceutical products are
also involved in the generic marketplace, due to their concurrent marketing of
both generic and brand-name versions of their products after their patents have
expired.
Some of Global's competitors may choose to augment their presence in the
generic drug market through acquisitions and strategic alliances. This activity
could result in consolidation and restructuring within the generic industry and
could impair Global's ability to compete effectively or effectively limit the
number of new opportunities for Global's products.
The principal competitive factors in the generic pharmaceutical market are
the ability to introduce generic versions of products promptly after a patent
expires, price, quality of products, customer service (including maintenance of
inventories for timely delivery), breadth of product line and the ability to
identify and market niche products. Approvals for new products may have a
synergistic effect on a company's entire product line as orders for new
products are frequently accompanied by, or bring about, orders for other
products available from the same company. Price is usually the major
competitive factor with respect to a generic product, but as more generic
products enter a given market, their prices, and hence their profit margins,
decrease and competition increasingly is based primarily on quality of product
and service.
Proprietary Rights
Global does not own any patents and does not believe that patent
protection is material to Global's business. Global may in the future be
required or may desire to obtain other licenses to develop, manufacture and
market commercially viable products. There can be no assurance that any
licenses, if needed or desired by Global, will be obtainable on commercially
reasonable terms or that any licensed patents or proprietary rights will be
valid and enforceable. Further, should Global become subject to any claim that
it is violating the patent rights of another person, Global could be subject to
costly litigation and, possibly, material liability. Global carefully monitors
trademarks used by pharmaceutical companies, including product trademarks,
through regularly published and readily available sources. Further, as Global's
generic products will only be manufactured and sold by Global after their
respective brand-name product patents have expired, and as Global sells its
products under generic, chemical names, Global believes the likelihood of
infringing on the patents of others is and will continue to be remote.
Government Regulation
Industry Regulation
All pharmaceutical manufacturers are extensively regulated by the federal
government, including the FDA, the DEA and various state agencies. The Federal
Food, Drug, and Cosmetic Act, the Controlled Substances Act, the Generic Drug
Enforcement Act of 1992 and other federal statutes and regulations govern or
influence the manufacture, labeling, testing, storage, recordkeeping, approval,
advertising and promotion of Global's products. Noncompliance with applicable
requirements can result in fines, recalls, seizure of products, suspension of
production, refusal of the government to enter into supply contracts or to
approve drug applications, and criminal prosecution.
FDA approval is required before any "new drug" may be distributed in
interstate commerce. A drug that is the generic equivalent of a previously
approved prescription drug (i.e., the reference drug) also requires FDA
approval. Many over-the-counter drugs also require FDA pre-approval if the
over-the-counter drug is not covered by or does not conform with the conditions
specified in an applicable OTC Drug Product Monograph. All facilities engaged
in the manufacture of drug products must be registered with the FDA and are
subject to FDA inspection to ensure that drug products are manufactured in
accordance with cGMP.
Generally, two types of applications are used to obtain FDA approval of a
new drug. They are:
1. New Drug Application. For drug products with active ingredients or
indications not previously approved by the FDA, a prospective manufacturer
must submit a complete application which contains
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the results of clinical studies supporting the drug's safety and efficacy.
These studies, progressing from Pre-Clinical through Phase III Clinical
Testing can take from five to ten years. An NDA may also be submitted for
a drug with a previously approved active ingredient if the abbreviated
procedure discussed below is not available. Currently, FDA approval of an
NDA, on average, is estimated to take approximately 24 to 26 months after
the completion of all clinical testing.
2. Abbreviated New Drug Application. The Drug Price Competition and Patent
Term Restoration Act of 1984 (referred to as the "Drug Price Act")
established an abbreviated new drug application procedure for obtaining
FDA approval of certain generic drugs. An ANDA is similar to an NDA except
that the FDA waives the requirement for conducting clinical studies to
demonstrate the safety and effectiveness of the drug. Instead, for drugs
that contain the same active ingredient and have the same route of
administration, dosage form, strength and indication(s) as drugs already
approved for use in the United States, the FDA ordinarily only requires
bioavailability data illustrating that the generic drug formulation is
bioequivalent to the previously approved reference drug. "Bioavailability"
indicates the rate of absorption and levels of concentration of a drug in
the blood stream which are needed to produce a therapeutic effect.
"Bioequivalence" compares the bioavailability of one drug product with
another and, when established, indicates that the rate of absorption and
the levels of concentration of a generic drug in the body do not show a
significant difference from those of the previously approved equivalent
drug. According to information published by the FDA, it currently takes
approximately 18 to 20 months on average to obtain FDA approval of an ANDA
following the date of its first submission to the FDA.
The Drug Price Act created new statutory protections for approved brand
name drugs. Prior to enactment of the Drug Price Act, the FDA gave no
consideration to the patent status of a previously approved drug in deciding
whether to approve an ANDA. Under the Drug Price Act, the effective date of
approval of an ANDA can depend, under certain circumstances, on the patent
status of the brand-name drug. Additionally, the Drug Price Act, in certain
circumstances, can extend the term of certain patents to cover a drug for up to
five additional years. Any such extension is intended to compensate the patent
holder for the reduction of the effective market life of a patent due to the
time involved in federal regulatory review. With respect to certain drugs that
are not covered by patents, the Drug Price Act sets specified time periods of
two to ten years during which ANDAs for generic drugs cannot become effective
or, under certain circumstances, be filed if the equivalent brand-name drug was
approved after December 31, 1981.
Among the requirements for new drug approval is the requirement that the
prospective manufacturer's facility, production methods and recordkeeping
practices, among other factors, conform to cGMP. The cGMP must be followed at
all times when the approved drug is manufactured. In complying with the
standards set forth in the Good Manufacturing Practices regulations, the
manufacturer must expend time, money and effort in the areas of production and
quality control to ensure full technical compliance. Failure to comply can
result in possible FDA actions such as the suspension of manufacturing or
seizure of finished drug products. Global is also governed by federal, state
and local laws of general applicability, such as laws regulating working
conditions.
The Generic Drug Enforcement Act of 1992 establishes penalties for
wrongdoing in connection with the development or submission of an ANDA. In
general, the FDA is authorized to temporarily bar companies or temporarily or
permanently bar individuals from submitting or assisting in the submission of
an ANDA and to temporarily deny approval and suspend applications to market
off-patent drugs under certain circumstances. In addition to debarment, the FDA
has numerous discretionary disciplinary powers, including the authority to
withdraw approval of an ANDA or to approve an ANDA under certain circumstances
and to suspend the distribution of all drugs approved or developed in
connection with certain wrongful conduct.
Global is also subject to the Maximum Allowable Cost Regulations, which
limit reimbursements for certain multisource prescription drugs under Medicare,
Medicaid and other programs to the lowest price at which such drugs are
generally available. In many instances, only generic prescription drugs fall
within these regulations' limits. Generally, the methods of reimbursement and
fixing of reimbursement levels are under active review by federal, state and
local governmental entities as well as by private third-party reimbursers.
Global cannot predict the results of those reviews or their impact on Global's
business.
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Virtually every state as well as the District of Columbia has enacted
legislation permitting the substitution of equivalent generic prescription
drugs for brand name drugs where authorized or not prohibited by the
prescribing physician and currently 13 states mandate generic substitution in
Medicaid programs.
Environmental Laws
Global is subject to comprehensive federal, state and local environmental
laws, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Resource Conservation and Recovery Act
and the Toxic Substance Control Act, which govern, among other things, all
emissions, waste water discharge and solid and hazardous waste disposal, and
the remediation of contamination associated with generation, handling and
disposal activities. Global is subject periodically to environmental compliance
reviews by various regulatory offices.
A Phase I environmental study was conducted with respect to Global's idled
plant and operations in 1993 and certain environmental compliance issues
identified at that time, including findings of asbestos in certain areas of the
plant and underground oil storage tanks, have been addressed. Additionally,
Global monitors regularly its compliance with any applicable Environmental
Laws. There can be no assurance that future developments, administrative
actions or liabilities relating to environmental matters will not have a
material adverse effect on Global's financial condition or results of
operations.
Litigation and Product Liability
Global's operations are subject to an order issued on May 25, 1993, by the
United States District Court for the Eastern District of Pennsylvania. The
Richlyn order, among other things, permanently enjoined Richlyn from
introducing into commerce any drug manufactured, processed, packed or labeled
at Richlyn's manufacturing facility unless Richlyn met certain stipulated
conditions, including successful compliance with a validation and
recertification program as described below. Having acquired certain assets of
Richlyn, Global is obligated by the terms of the Richlyn order. The Richlyn
order also requires that Global hire and retain a person, subject to FDA
approval, who, by reason of training and expertise, is qualified to inspect
Global's drug manufacturing facilities to determine that its methods,
facilities and controls are operated and administered in compliance with cGMP.
The Richlyn order further requires that the person so retained both will
inspect Global's manufacturing facilities and Global's manner of operating them
and will examine all drug products manufactured, processed, packed and held at
Global's facility; and will certify in writing to FDA Global's compliance with
related cGMP. Global has retained an independent consultant to serve in respect
of the Richlyn order.
Additionally, Global has assumed the liabilities of Richlyn in connection
with Diethyl Stilbestrol, which was manufactured by Richlyn and many other drug
manufacturers during the late 1950s and early 1960s. DES was prescribed to
pregnant women during that period and has been alleged to cause birth defects,
in particular an increased risk of uterine cancer and sterility to female
children whose mothers took DES during their pregnancy. There have been
numerous claims brought against drug manufacturers in connection with DES.
Since 1987, Richlyn's insurers have paid approximately $136,000 on Richlyn's
and Global's behalf to settle approximately 143 DES-related suits. Global is
unaware of any other legal actions having been brought or threatened against
Richlyn or Global in connection with DES-related claims. Global believes that
all DES-related legal actions have been directed towards individual
manufacturers and have not been embodied in a class action and, as such, Global
does not expect to be held liable for DES-related claims other than claims
based on products manufactured by Richlyn. While Richlyn's insurers have in the
past defended those DES claims against Richlyn and paid settlements in
connection therewith to date, those insurers have reserved their right to
discontinue the defense of the claims and the payment of any settlements at any
time. There can be no assurance or guarantee that the insurers will defend
actions or pay claims in the future. Further, there can be no assurance that,
if those insurers fail or refuse to pay any claim, Global will have recourse
against the insurers with respect thereto. Accordingly, there can be no
assurance that Global will not be exposed to the risk of substantial monetary
judgments. Claims settlements to date have been based upon market share, and
Richlyn's share of the market during the periods in question was substantially
less than 1%. Global does not believe the Richlyn DES liabilities will have a
material adverse effect on Global's business.
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<PAGE>
Product liability claims by customers constitute a risk to all
pharmaceutical manufacturers. Global carries $10 million of product liability
insurance for its own manufactured products. Global believes that this
insurance will be adequate for its foreseeable purposes and is comparable to
product liability insurance carried by similar generic drug companies.
Global is not aware of other material pending or threatened legal actions,
private or governmental, against it.
Employees
As of October 1, 1999, Global employed approximately 76 full-time persons.
Of those employees, approximately 26 work in the quality area, 30 are in
operations, 10 are in administration, six are in product development and four
work in sales and marketing. Global may also employ part-time personnel from
time to time to meet specific demands of Global's business should they arise.
None of Global's employees are subject to collective bargaining agreements with
labor unions. Global believe that its relations with its employees, in general,
are satisfactory.
Properties
The executive offices and research, warehouse and production facilities of
Global occupy an aggregate of approximately 113,000 square feet at Castor &
Kensington Avenues in Philadelphia, Pennsylvania. Global's principal executive
offices are part of that overall facility.
Global owns its plant, which consists of three three-story brick
interconnected buildings that were constructed between 1900 and 1930. The
interior of the plant has been substantially renovated and modernized since
1993 and includes a new dust collection system and special environmental
control units for humidity and temperature. The land and the building serve as
partial collateral for two Pennsylvania Industrial Development Authority loans.
Of the total 113,000 square foot area of the plant, approximately 20,000
square feet are used for warehousing and storage operations, including high
security DEA areas and designated areas for raw material, processed goods,
labels and packaging materials; approximately 11,000 square feet are devoted to
manufacturing operations; approximately 13,700 square feet for maintenance
operations; approximately 10,000 square feet for laboratory, quality assurance
and quality control activities, including batch testing and stability testing
operations; approximately 5,000 square feet for labeling and packaging
activities; approximately 2,500 square feet for product development; and
approximately 9,000 square feet are used for administrative functions. The
unused balance of the plant, approximately 41,800 square feet, is available for
future expansion.
Global maintains an extensive equipment base, much of it new or recently
reconditioned and automated, including manufacturing equipment for the
production of tablets and capsules; packaging equipment, including fillers,
cottoners, cappers and labelers; and a well-equipped, modern laboratory. The
manufacturing equipment includes mixers and blenders for capsules and tablets,
automated capsule fillers, tablet presses, particle reduction, sifting
equipment and tablet coaters. Global also maintains a broad variety of material
handling and cleaning, maintenance and support equipment. Global owns
substantially all of its manufacturing equipment and believes that its
equipment is well maintained and suitable for its requirements.
Global maintains property and casualty and business interruption insurance
in amounts it believes are sufficient and consistent with practices for
companies of comparable size and business.
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Beneficial Ownership of Global Common Stock by Certain Stockholder and
Management
The following table sets forth information as of October 1, 1999 (except
as otherwise noted in the footnotes) regarding the beneficial ownership of
Global's capital stock of: (i) each person known by Global to own beneficially
more than five percent of the outstanding common stock, Series C preferred
stock or Series D preferred stock; (ii) each director of Global; (iii) each
executive officer named in Global's summary compensation table (included under
the heading Executive Compensation later in this joint proxy
statement/prospectus); and (iv) all directors and executive officers of Global
as a group. Except as otherwise specified, the named beneficial owner has the
sole voting and investment power over the shares listed. Unless indicated
otherwise, the address of each beneficial owner is c/o Global Pharmaceutical
Corporation, Castor & Kensington Avenues, Philadephia, PA 19124.
<TABLE>
<CAPTION>
Series C Series D
Common Stock Preferred Stock** Preferred Stock**
---------------------- -------------------- -------------------
Name and Address of No. of No. of No. of
Beneficial Owner Shares Percent Shares Percent Shares Percent
- --------------------------------------- ---------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Burr(1) ..................... 0 0 0
c/o Fleming Asset Management
320 Park Avenue
New York, NY 10022
Philip R. Chapman(2) .................. 639,453 8.8 0 0
c/o Venad Administrative Services, Inc.
342 Madison Avenue -- Suite 807
New York, NY 10173
David J. Edwards(1) ................... 0 0 0
c/o Fleming Asset Management
320 Park Avenue
New York, NY 10022
Barry R. Edwards(3) ................... 53,472 * 0 0
Gary Escandon(4) ...................... 124,894 1.7 0 0
c/o Alvaro P. Escandon, Inc.
17 Prospect Street
Highlands, NJ 07732
George F. Keane(5) .................... 58,000 * 0 0
c/o Trigen Energy Corporation
237 Mayfield Drive
Trumbull, CT 06611
Michael Markbreiter(6) ................ 3,333 * 0 0
c/o Kingdon Capital Management Corp.
152 West 57th Street
New York, NY 10019
Max L. Mendelsohn(7) .................. 179,612 2.4 0 0
John W. Rowe, M.D.(8) ................. 50,000 * 0 0
c/o Mount Sinai -- NYU
Medical Center and Health System
One Gustave L. Levy Place
New York, NY 10029
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Series C Series D
Common Stock Preferred Stock** Preferred Stock**
------------------------ -------------------- -------------------
Name and Address of No. of No. of No. of
Beneficial Owner Shares Percent Shares Percent Shares Percent
- ------------------------------------------------------ ------------ --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Udi Toledano(9) ...................................... 242,592 3.3 0 0
545 Madison Avenue
Suite 800
New York, NY 10022
Marc M. Feinberg(10) ................................. 40,136 * 0 0
Mitchell Goldberg(11) ................................ 25,000 * 0 0
Pieter J. Groenewoud(12) ............................. 39,908 * 0 0
Cornel Spiegler(13) .................................. 50,282 * 0 0
Joseph A. Storella(14) ............................... 43,667 * 0 0
Frederick R. Adler(15) ............................... 729,345 10.0 0 0
c/o Venad Management, Inc.
1520 South Ocean Boulevard
Palm Beach, FL 33480
Bear Stearns Asset Management Inc.(16) ............... 1,435,253 18.1 9,000 100 0
575 Lexington Avenue
New York, NY 10167
Robert Fleming Inc.(17) .............................. 3,125,000 30.1 0 50,000 100
Fleming US Discovery Fund III, L.P. .................. 2,693,312 27.1 0 43,093 86.2
Fleming US Discovery Offshore Fund III, L.P. ......... 431,688 5.6 0 6,907 13.8
c/o Robert Fleming, Inc.
320 Park Avenue, 11th Floor
New York, NY 10022
Kingdon Capital Management Corporation(18) ........... 1,882,353 25.9 0 0
Kingdon Offshore N.V. ................................ 1,129,412 15.5 0 0
Kingdon Associates, L.P .............................. 376,471 5.2 0 0
Kingdon Partners, L.P. ............................... 376 *
c/o Kingdon Capital Management Corp.
152 West 57th Street
New York, NY 10019
All directors and executive officers as a group (19)
(15 persons) (2) - (14) ............................. 1,550,349 0 0
</TABLE>
- ------------
* Less than one percent.
** At the option of each holder, as of October 1, 1999, each share of Series C
preferred stock and Series D preferred stock was convertible at any time
into 50 shares of Global common stock.
(1) Does not include shares beneficially owned by the Fleming entities. Messrs.
Robert L. Burr and David Edwards are employees of Fleming Asset Management,
a division of Robert Fleming, Inc. See also Note 17. See "Security
Ownership of the Combined Company" for information relating to Mr. Edwards'
beneficial ownership of the combined company. Mr. Burr will not be a
director of the combined company and will not have any beneficial ownership
of the combined company.
(2) Includes options to purchase 1,667 shares of common stock which may be
exercised within 60 days. Also includes 50,000 shares of common stock owned
by a limited partnership of which Mr. Chapman's wife is the sole general
partner and 575,350 shares of common stock held by the Frederick R. Adler
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Intangible Asset Management Trust, of which Mr. Chapman's wife serves as
trustee all of which shares Mr. Chapman disclaims beneficial ownership. Mr,
Chapman will beneficially own 639,453 shares of common stock, or less than
five percent, of the combined company. Mr. Chapman will not be a director
of the combined company.
(3) Includes options to purchase 53,472 shares of common stock which may be
exercised within 60 days. See "Security Ownership of the Combined Company"
for information relating to Mr. Edwards' beneficial ownership of the
combined company.
(4) Includes 7,500 shares of common stock owned by the Alvaro P. Escandon Inc.
Money Purchase Pension Plan dated 12/1/80, with respect to which Mr.
Escandon disclaims beneficial ownership. Also includes options to purchase
1,667 shares of common stock and a warrant to purchase 3,500 shares of
common stock which may be exercised within 60 days. Mr. Escandon will
beneficially own 124,894 shares of common stock, or less than one percent,
of the combined company. Mr. Escandon will not be a director of the
combined company.
(5) Includes options immediately exercisable for 50,000 shares of common stock.
Mr. Keane will beneficially own 58,000 shares of common stock, or less than
one percent, of the combined company. Mr. Keane will not be a director of
the combined company.
(6) Consists of options immediately exercisable for 3,333 shares of common
stock. Does not include shares beneficially owned by Kingdon Capital
Management Corporation ("KCMC"), the general partner of M. Kingdon
Offshore, N.V., Kingdon Associates, L.P. and Kingdon Partners, L.P.
(collectively, "Kingdon"), with which Mr. Markbreiter is associated. See
Note 18. See "Security Ownership of the Combined Company" for information
relating to Mr. Markbreiter's beneficial ownership of the combined company.
(7) Includes options to purchase 83,846 shares of common stock and a warrant to
purchase 3,500 shares of common stock which may be exercised within 60
days. Mr. Mendelsohn will beneficially own 179,612 shares of common stock,
or less than one percent, of the combined company. Mr. Mendelsohn will not
be a director of the combined company.
(8) Consists of options immediately exercisable for 50,000 shares of common
stock. Dr. Rowe will beneficially own 50,000 shares of common stock, or
less than one percent, of the combined company. Dr. Rowe will not be a
director of the combined company.
(9) Includes 68,568 shares of common stock owned by Mr. Toledano's wife and
22,529 shares of common stock owned by a trust for the benefit of minor
children of Mr. Toledano, all of which shares Mr. Toledano disclaims
beneficial ownership. Also includes options to purchase 1,667 shares of
common stock and a warrant to purchase 14,000 shares of common stock
exercisable within 60 days. Mr. Toledano will beneficially own 242,592
shares of common stock, or less than one percent, of the combined company.
Mr. Toledano will not be a director of the combined company.
(10) Includes options to purchase 36,000 shares of common stock which may be
exercised within 60 days. Mr. Feinberg will beneficially own 40,136 shares
of common stock, or less than one percent, of the combined company. Mr.
Feinberg will not be an officer of the combined company.
(11) Consists of options to purchase 25,000 shares of common stock which may be
exercised within 60 days. See "Security Ownership of the Combined Company"
for information relating to Mr. Goldberg's beneficial ownership of the
combined company.
(12) Includes options to purchase 36,444 shares of common stock which may be
exercised within 60 days. See "Security Ownership of the Combined Company"
for information relating to Mr. Groenewoud's beneficial ownership of the
combined company.
(13) Includes options to purchase 38,445 shares and a warrant to purchase 3,500
shares of common stock which may be exercised within 60 days. See
"Security Ownership of the Combined Company" for information relating to
Mr. Spiegler's beneficial ownership of the combined company.
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<PAGE>
(14) Includes options to purchase 38,667 shares of common stock which may be
exercised within 60 days. See "Security Ownership of the Combined Company"
for information relating to Mr. Storella's beneficial ownership of the
combined company.
(15) Includes 136,495 shares of common stock held by 1520 Partners, Ltd., a
limited partnership of which Mr. Adler is the general partner, and 575,350
shares of common stock held by Frederick R. Adler Intangible Asset
Management Trust. Mr. Adler may be deemed to be the beneficial owner of
the shares of common stock held by 1520 Partners, Ltd. and the Frederick
R. Adler Intangible Asset Management Trust, with respect to which shares
Mr. Adler disclaims beneficial ownership. Also includes a warrant to
purchase 17,500 shares of common stock which may be exercised within 60
days. Mr. Adler will beneficially own 729,345 shares of common stock, or
less than 5%, of the combined company.
(16) The source of this information is the Schedule 13G, dated March 10, 1999
filed with the Securities and Exchange Commission. Such Schedule 13G
reported that Bear Stearns Asset Management, Inc. has sole power to
dispose or direct the disposition of 1,435,253 shares which is
beneficially owned. Includes 450,000 shares of common stock which are
issuable upon the conversion of 9,000 shares of Series C preferred stock
and a warrant to purchase 225,000 shares of common stock which may be
exercised within 60 days. Bear Stearns Asset Management Inc. will
beneficially own 1,435,253 shares of common stock, or less than 5%, of the
combined company.
(17) Consists of 2,500,000 shares of common stock which are issuable upon the
conversion of 50,000 shares of Series D Preferred and warrants to purchase
an aggregate of 625,000 shares of common stock which may be exercised
within 60 days. See "Security Ownership of the Combined Company" for
information relating to the beneficial ownership of the Fleming entities
in the combined company.
(18) KCMC, the general partner of Kingdon, is deemed to be the beneficial owner
of the 1,882,353 shares of common stock held by Kingdon. See "Security
Ownership of the Combined Company" for information relating to the
beneficial ownership of the Kingdon entities in the combined company.
(19) All directors and executive officers as a group will beneficially own
1,550,349 shares of common stock, or 5.5%, of the combined company.
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Management of Global
Management
The current Global directors and executive officers ages and their
principal occupations or employment during the past five years are as follows:
<TABLE>
<CAPTION>
Name Age Position
- --------------------- ----- -------------------------------------------------------------
<S> <C> <C>
Robert L. Burr 48 Director
Philip R. Chapman 37 Director
Barry R. Edwards 43 President, Chief Executive Officer and Director
David J. Edwards 34 Director
Gary Escandon 51 Director
Marc M. Feinberg 50 Vice President -- Quality Assurance and Regulatory Affairs
George F. Keane 69 Director
Michael Markbreiter 36 Director
Max L. Mendelsohn 65 Chairman and Director
John W. Rowe, M.D. 55 Director
Cornel C. Spiegler 55 Chief Financial Officer and Vice President -- Administration
Joseph A. Storella 57 Vice President -- Operations
Udi Toledano 49 Director
</TABLE>
Robert L. Burr has been a director of Fleming Asset Management, a division
of Robert Fleming Inc., a global merchant bank, since 1995. From 1992 to 1995,
Mr. Burr was head of Private Equity at Kidder, Peabody & Co., Inc. Prior to
that time, Mr. Burr served as the Managing General Partner of Morgan Stanley
Ventures and General Partner of Morgan Stanley Venture Capital Fund L.P.; and
was a corporate lending officer with Citibank, N.A. Mr. Burr received an MBA
from Columbia University and a BA from Stanford University.
Philip R. Chapman has been a principal in Adler & Company, a venture
capital management firm, since 1991 and became a General Partner in 1995. Mr.
Chapman is the son-in-law of Frederick R. Adler, a beneficial owner of greater
than 5% of the outstanding voting shares. Prior to joining Adler & Company,
Mr.Chapman was a senior consultant with Booz Allen & Hamilton International, a
management consulting company based in London. Mr. Chapman serves as a director
of Shells Seafood Restaurants, Inc., a chain of seafood restaurants, and of
Integrated Packaging Assembly Corp., a semi-conductor packaging company, as
well as of a number of private companies. Mr. Chapman served as Executive Vice
President and President of Global during a portion of 1995.
Barry R. Edwards has been President since August 1998 and Chief Executive
Officer and a director of Global since January 1999. From 1996 to 1998, Mr.
Edwards was Vice President, Marketing and Business Development for Teva
Pharmaceuticals USA, a manufacturer of generic drugs. From 1991 to 1996, Mr.
Edwards served as Executive Director of Gate Pharmaceuticals, a division of
Teva Pharmaceuticals USA. Prior to 1991, Mr. Edwards held a number of
management functions in strategic planning, corporate development, business
development and marketing at Teva Pharmaceuticals USA.
David J. Edwards has been a Vice President at Fleming Asset Management, a
division of Robert Fleming Inc., a global merchant bank, since 1994. Prior to
that time, Mr. Edwards was an Associate with Booz Allen & Hamilton, a strategic
management consulting company based in New York. From 1987 to 1990, Mr. Edwards
was a Process Engineer with Exxon Chemical Corporation. Mr. Edwards received an
MBA from Harvard Business School and a Masters in Engineering from Cambridge
University.
Gary Escandon is President of Alvaro P. Escandon Inc., a domestic and
international supplier of home furnishing textile piece goods that he organized
in 1978. From 1991 to 1995, Mr. Escandon was President of
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<PAGE>
Refreshment Service Corp. and from 1974 to 1978, served as Director of Sales
Promotion at The Mennen Company, a manufacturer of health and beauty aids. From
1972 to 1974, Mr. Escandon served as Sales Promotion Coordinator at
Bristol-Myers Company. Mr. Escandon has served on the Board of Trustees of
Muhlenberg College since 1993.
Marc M. Feinberg has been Vice President -- Quality and Regulatory Affairs
since October 1996. Prior to joining Global, from 1995 to 1996, Mr. Feinberg
served as Vice President -- Quality Assurance and Regulatory Affairs for the
JWS Delavau Company, a contract manufacturer and packager of nutritional and
over-the-counter products. From 1989 to 1995, Mr. Feinberg held the position of
Vice President -- Quality Assurance for Packaging Coordinators, Inc., a
contract packager for the pharmaceutical industry. From 1985 to 1989, Mr.
Feinberg served as Manager, Quality Assurance for ICI Pharmaceuticals Group.
From 1972 to 1985, Mr. Feinberg served as Senior Drug Investigator for the U.S.
Food and Drug Administration.
George F. Keane has been Chairman of the Board of Trigen Energy (TGN)
since 1994. Previously, Mr. Keane was the founding chief executive officer of
The Common Fund in 1971, and of Endowment Advisers, Inc. and Endowment Realty
Investors in 1988. He served as President of these nonprofit organizations
until 1993. Now called Commonfund Group, these organizations manage over $20
billion in endowment and operating funds for more than 1,200 colleges
throughout the U.S. Mr. Keane also serves on several other boards, including as
Director of Northern Trust of Connecticut since 1991, Nicholas-Applegate
Investment Trust since 1993, the Bramwell Mutual Funds since 1994, Universal
Stainless & Alloy Products since 1994, the Universal Bond Fund since 1995, and
United Water Resources and its affiliated companies since 1995. Mr. Keane also
serves as a member of the Investment Advisory Committee for the $100 billion
New York State Common Retirement Fund, is Chairman of the Investment Committee
of the United Negro College Fund, and is Vice Chairman of his alma mater,
Fairfield University.
Michael Markbreiter has been a portfolio manager for private equity
investments for Kingdon Capital Management Corp., a manager of investment fund
since August 1995. In April 1994, Mr. Markbreiter co-founded Ram Investment
Corp., a venture capital company. From March 1993 to January 1994, Mr.
Markbreiter served as a portfolio manager for Kingdon Capital Management Corp.
From December 1989 to February 1993, Mr. Markbreiter was an analyst at Alliance
Capital Management Corp. From July 1993 to September 1989, Mr. Markbreiter was
an Executive Editor for Arts of Asia magazine. Mr. Markbreiter has served as a
Director of Alyn Corporation, an advanced materials producer, since May 1996.
Mr. Markbreiter graduated from Cambridge University with a degree in
Engineering.
Max L. Mendelsohn has been Chairman of Global since August 1998. From 1995
to 1998, Mr. Mendelsohn was President and Chief Executive Officer of Global.
From 1970 to 1990, Mr. Mendelsohn was President and Chief Executive Officer of
Barre-National, Inc., a manufacturer of liquid pharmaceutical products. From
1991 to 1995, Mr. Mendelsohn served as Vice President of Business Development
of Pharmakinetics Laboratories, Inc., a provider of clinical and analytical
services to United States and Canadian pharmaceutical companies. Mr. Mendelsohn
has been a director of the Generic Pharmaceutical Industry Association since
1987 and has served as Secretary-Treasurer of that organization since March
1997.
John W. Rowe, M.D. is President and Chief Executive Officer of The Mount
Sinai -- NYU Medical Center and Health System in New York City, where he also
serves as a Professor of Medicine and of Geriatrics and Adult Development.
Before joining Mount Sinai in 1988, Dr. Rowe was Professor of Medicine and the
founding Director of the Division on Aging at Harvard Medical School and Chief
of Gerontology at Beth Israel Hospital. He has authored over 200 scientific
publications, most of them concerning the basic biology and physiology of the
aging process, as well as several textbooks on geriatric medicine. Since 1985,
Dr. Rowe has been a director of the MacArthur Foundation Research Network on
Successful Aging. From 1987 to 1993, Dr. Rowe served on the Board of Governors
of the American Board of Internal Medicine. Since 1989, Dr. Rowe has been a
member of the Institute of Medicine of the National Academy of Sciences and
Chair, Council on Biomedical Research and Development of the New York Academy
of Medicine. Dr. Rowe has been a participant and a member of numerous medical
committees and advisory panels and is the recipient of many awards and honors
within the medical community.
Cornel C. Spiegler has been Chief Financial Officer and Vice President --
Administration since September 1995. From 1989 to 1995, Mr. Spiegler was Chief
Financial Officer and Senior Vice President of
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United Research Laboratories, Inc. and Mutual Pharmaceutical Company, Inc.,
companies engaged in the generic pharmaceutical industry. From 1973 to 1989,
Mr. Spiegler held a number of financial and operational management functions,
including Vice President and Controller of Fischer and Porter, Inc., a
manufacturer of process control equipment. From 1970 to 1973, Mr. Spiegler was
employed by the accounting firm of Arthur Andersen and Co. Mr. Spiegler is a
certified public accountant.
Joseph A. Storella has been Vice President -- Operations since May 1996.
From 1986 to 1996, Mr. Storella served as General Manager of Chelsea
Laboratories, formerly a division of Rugby-Darby Group Companies which in 1993
was purchased by Marion Merrell Dow and subsequently purchased by The Hoechst
Company. From 1977 to 1986, Mr. Storella served as Vice President -- Operations
of Analytab Products, Inc., a division of Ayerst Laboratories (which itself is
a division of American Home Products). From 1966 to 1977, Mr. Storella held a
number of operational management positions for Ayerst Laboratories.
Udi Toledano has been the President of Andromeda Enterprises, Inc., a
private investment company, since December 1993. From 1983 to December 1993, he
was the president of CR Capital Inc., a private investment company. Mr.
Toledano has served on boards of both public and private companies in various
fields including healthcare and technology. Mr. Toledano has been a director of
Universal Stainless & Alloy Products, Inc., a manufacturer of specialty steel
products, since July 1994.
None of the directors or officers are a party to any material proceedings
in which the director or officer has an interest adverse to the interests of
Global.
Executive Compensation
The following table summarizes the compensation earned by or paid to
Global's current and former President and Chief Executive Officer and its other
four most highly compensated executive officers for 1996, 1997 and 1998. We
refer to this table as the "Global Summary Compensation Table."
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------------------ -----------------
Common
Other Annual Stock
Compensation Underlying
Name and Principal Position Year Salary Bonus ($) Options (#)
- --------------------------------------------- ------ --------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Barry R. Edwards, President and Chief 1998 93,363(1) 10,000(2) 5,472(3) 62,175
Executive Officer (since January 1999)
Max L. Mendelsohn, former President 1998 160,818 1,650 18,063(4) 40,650
and Chief Executive Officer* 1997 153,578 -- 18,172(4) 65,000(10)
1996 150,001(5) --
Cornel C. Spiegler, Chief Financial Officer 1998 138,817 1,391 -- 10,870
and Vice President -- Administration 1997 135,660 --
1996 131,144 25,000(6)
Joseph A. Storella, Vice President -- 1998 135,985 1,365 10,000
Operations 1997 133,100 -- 36,000(10)
1996 78,500(7) --
Marc M. Feinberg, Vice President -- 1998 133,499 1,365
Quality Assurance and Regulatory Affairs 1997 133,100 -- 36,000(10)
1996 26,000(8) -- --
Seymour Hyden, Ph.D. Vice President -- 1998 127,760(9) 1,300
Scientific and Technical Affairs 1997 88,207(9) -- 15,003(4) 36,000(10)
</TABLE>
- ------------
* Mr. Mendelsohn served as President and Chief Executive Officer of Global
from September 1995 through January 1999.
(1) Mr. Edwards joined Global in April 1998 as Executive Vice President and
became President and Chief Executive Officer of Global in January 1999.
(2) Represents sign-on bonus.
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(3) Represents life insurance and long term disability along with gross-up tax
payments with respect to such insurance payments and $3,336 in car
allowance.
(4) Represents life insurance and long-term disability insurance along with
gross-up tax payments with respect to such insurance payments.
(5) The salary includes $28,558 that was earned by Mr. Mendelsohn in 1995 and
paid to him in 1996.
(6) Bonus earned in 1995 and paid in 1996.
(7) Mr. Storella has served as Vice President -- Operations of Global since
May 1996.
(8) Mr. Feinberg has served as Vice President -- Quality Assurance and
Regulatory Affairs since October 1996.
(9) Dr. Hyden served as Vice President -- Scientific and Technical Affairs
from March 1997 through March 1999.
(10) Represents cancellation of old options and the issuance of identical
repriced new options having an exercise price of $3.125 per share.
Option Grants in Last Fiscal Year
The following table sets forth information on option grants in the fiscal
year ended December 31, 1998 to the persons named in the Global Summary
Compensation Table included above.
<TABLE>
<CAPTION>
Number of Securities % of Total Options Exercise
Underlying Options Granted to Employees in Price Expiration
Name Granted Fiscal Year ($/SH) Date
- ------------------------------ ---------------------- ------------------------- --------- -----------
<S> <C> <C> <C> <C>
Barry R. Edwards ............. 50,000 23.3 5.00 03/25/08
12,175 5.7 2.00 11/19/08
Max L. Mendelsohn ............ 25,000 11.7 3.75 01/27/08
15,650 7.3 2.00 11/19/08
Cornel C. Spiegler ........... 10,870 5.1 2.00 11/19/08
Joseph A. Storella ........... 10,000 4.7 2.00 11/19/08
Marc M. Feinberg ............. -- -- -- --
Seymour Hyden, Ph.D. ......... -- -- -- --
</TABLE>
Aggregated option exercises in last fiscal year and fiscal year-end option
values
The following table sets forth information with respect to unexercised
stock options held at December 31, 1998 by the persons named in the Global
Summary Compensation Table included above. There were no exercises of options
to purchase Global common stock by any of these individuals during the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised in-the-Money
Options Held Options at Fiscal Year End
at Fiscal Year End (#) ($)(1)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------ ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Barry R. Edwards ............. 12,500 37,500 0 (1) 0 (1)
0 12,175 0 4,566 (2)
Max L. Mendelsohn ............ 70,000 20,000 0 (3) 0 (3)
0 15,650 0 5,869 (2)
Cornel C. Spiegler ........... 36,000 10,870 0 4,076 (2)
Joseph A. Storella ........... 31,000 15,000 0 (4) 3,750 (4)
Marc M. Feinberg ............. 26,000 10,000 0 (4) 0 (4)
Seymour Hyden, Ph.D. ......... 21,000 15,000 0 (4) 0 (4)
</TABLE>
- ------------
(1) Computed based on the difference between the closing bid price per share of
the common stock of $2.375 on December 31, 1998 and the exercise price of
$5.00.
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(2) Computed based on the difference between the closing bid price per share of
the common stock of $2.375 on December 31, 1998 and the exercise price of
$2.00.
(3) Computed based on the difference between the closing bid price per share of
the common stock of $2.375 on December 31, 1998 and the exercise prices of
$3.125 and $3.75, respectively.
(4) Computed based on the difference between the closing bid price per share of
the common stock of $2.375 on December 31, 1998 and the exercise price of
$3.125.
Employment Agreements
Barry R. Edwards has entered into a three-year employment agreement with
Global effective March 1998. Mr. Edwards' employment agreement provides for a
base annual salary of $145,000, which may be increased annually at the
discretion of the Board of Directors, as well as stock options and a customary
benefits package. Pursuant to Mr. Edwards' employment agreement, Global paid
him a $10,000 sign-on bonus in May 1998 and he is eligible to participate in an
incentive bonus program of up to 24% of his base salary in accordance with
pre-established individual, corporate and business goals. Other than the
sign-on bonus, no other incentive bonus amounts were paid in 1998. In
connection with his employment contract, Global granted Mr. Edwards an option
to purchase 50,000 shares of common stock at $5.00 per share. One-fourth of the
options vested on each of March 25, 1998 and 1999 and the remaining one-half
vests in monthly installments over the 24-month period beginning on March 25,
1999, in each case based on Mr. Edwards' continued employment during that time.
The employment agreement grants to Mr. Edwards the position of Executive Vice
President; in January 1999, Mr. Edwards became Global's President and Chief
Executive Officer. In the event the merger is completed, Mr. Edwards'
employment agreement will be superseded by a new employment agreement,
described more fully under the section "Management of the Combined Company"
appearing later in this joint proxy statement/prospectus.
Max L. Mendelsohn, Pieter J. Groenewoud and Cornel C. Spiegler have
entered into three-year employment agreements with Global for the position of
President and Chief Executive Officer; Vice President, Product Development; and
Chief Financial Officer and Vice President--Administration; respectively,
effective September 1995, May 1996, and September 1995. Messrs. Mendelsohn's,
Groenewoud's and Spiegler's employment agreements provide for a base annual
salary of $150,000, $90,000 and $125,000, respectively, which may be increased
annually at the discretion of the Board of Directors, as well as stock options
and a customary benefits package. Under Mr. Mendelsohn's employment agreement,
he may be eligible for a performance-based bonus equal to $30,000 which amount
was not earned in 1998.
At Global's option, the term of each of Messrs. Edward's, Mendelsohn's,
Groenewoud's and Spiegler's employment agreement may be extended for one
additional year. The employment agreements of Messrs. Mendelsohn, Groenewoud
and Spiegler prohibit them from (1) competing with Global for one year
following termination of employment with Global and (2) disclosing confidential
information or trade secrets in any unauthorized manner. If one of those
employees is discharged without cause (as defined in such employee's
agreement), Global will continue to pay such employee at his then current
salary for the longer of six months or the remainder of the agreed upon
employment period.
In connection with his employment agreement, Global granted Mr. Mendelsohn
an option to purchase 12,500 shares of common stock at $5.75 per share and
granted to him in December 1995 an additional option to purchase 52,500 shares
of common stock at $8.50 per share. The options vested in equal monthly
installments on the last day of each month occurring in the 36-month period
beginning September 1, 1995, subject to Mr. Mendelsohn's continued employment.
In conjunction with the repricing of all of Global's stock options, Mr.
Mendelsohn's options were cancelled effective December 19, 1997 and replaced
with identical repriced new options having an exercise price of $3.125 per
share. On January 27, 1998, Mr. Mendelsohn's employment agreement was extended
by two years through September 1, 2000 at an annual salary of $165,000 and an
option to purchase 25,000 shares of common stock at $3.75 per share was
granted. Of the 25,000 shares granted, 5,000 shares became fully vested on
January 27, 1998, 10,000 shares will become vested on September 1, 1999 and the
remaining 10,000 shares will become vested on September 1, 2000. In January
1999, Mr. Mendelsohn became the non-executive Chairman of Global and his
employment agreement was replaced by a service agreement.
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<PAGE>
In December 1995, in connection with his employment agreement, Global
granted Mr. Groenewoud an option to purchase 25,000 shares of common stock at
$8.50 per share. One-third of the option vested on October 1, 1996 and the
remaining two-thirds vested in monthly installments over the 24-month period
beginning on October 1, 1996, in each case based on Mr. Groenewoud's continued
employment during that time. In conjunction with the repricing of all of
Global's stock options, Mr. Groenewoud's options were cancelled effective
December 19, 1997 and replaced with identical repriced new options having an
exercise price of $3.125 per share. On January 27, 1998, Mr. Groenewoud was
granted an option to purchase 11,000 shares of common stock at $3.75 per share
to be vested in monthly installments through October 1, 1998.
In connection with his employment agreement, in December 1995 Global
granted Mr. Spiegler an option to purchase 36,000 shares of common stock at
$8.50 per share. One-third of the option vested on September 27, 1996 and the
remaining two-thirds vested in monthly installments over the 24-month period
beginning on September 27, 1996, in each case based on Mr. Spiegler's continued
employment during that time. In conjunction with the repricing of all of
Global's stock options, Mr. Spiegler's options were cancelled effective
December 19, 1997 and replaced with identical repriced new options having an
exercise price of $3.125 per share.
At various times during 1996 and 1997, Joseph Storella, Marc Feinberg,
Mitchell Goldberg and Seymour Hyden entered into three-year employment
agreements with Global for the position of Vice President--
Operations; Vice President--Quality Assurance and Regulatory Affairs; Vice
President--Sales and Marketing; and Vice President--Scientific and Technical
Affairs; respectively. Messrs. Storella's, Feinberg's and Goldberg's and Dr.
Hyden's employment agreements provide for a base annual salary of $130,000,
$130,000, $110,000 and $130,000, respectively, which may be increased annually
at the discretion of the Board of Directors, as well as stock options and a
customary benefits package. Under Mr. Goldberg's employment agreement, he
received a sign-on bonus of $10,000. In addition, he was eligible for certain
performance-based bonuses in 1997 in the amount of $5,000 per quarter in the
event that Global reached certain projected sales goals, which amount was to be
proportionally increased in the event that such goals are exceeded, and $10,000
per quarter in 1998 in the event that such projections were met. In January,
1998, Mr. Goldberg was paid a sales bonus of $10,000 regarding the 1997 sales
performance. In April 1998, Mr. Goldberg was paid a sales bonus of $10,000
regarding the quarter ended March 31, 1998 sales performance.
The term of each of Messrs. Storella's, Feinberg's and Goldberg's and Dr.
Hyden's employment agreement may be extended. The employment agreements of
Messrs. Storella, Feinberg and Goldberg and Dr. Hyden prohibit them from (1)
competing with Global for one year following termination of employment with
Global and (2) disclosing confidential information or trade secrets in any
unauthorized manner. If Mr. Goldberg is discharged without cause (as defined in
his agreement), Global will continue to pay Mr. Goldberg his then current
salary for the lesser of six months or the remainder of the agreed upon
employment period. If Messrs. Storella or Feinberg or Dr. Hyden is discharged
without cause (as defined in such employee's agreement), Global will continue
to pay such employee his then current salary for a period of six months.
In 1996, in connection with his employment agreement, Global granted Mr.
Storella an option to purchase 36,000 shares of common stock at $9.13 per
share. One-third of the option vested on May 20, 1997 and the remaining
two-thirds vests in monthly installments over the 24-month period beginning on
May 20, 1997, in each case based on Mr. Storella's continued employment during
that time. In conjunction with the repricing of all of Global's stock options,
Mr. Storella's options were cancelled effective December 19, 1997 and replaced
with identical repriced new options having an exercise price of $3.125 per
share.
In 1996, in connection with his employment agreement, Global granted Mr.
Feinberg an option to purchase 36,000 shares of common stock at $8.50 per
share. One-third of the option vested on October 14, 1997 and the remaining
two-thirds vests in monthly installments over the 24-month period beginning on
October 14, 1997, in each case based on Mr. Feinberg's continued employment
during that time. In conjunction with the repricing of all of Global's stock
options, Mr. Feinberg's options were cancelled effective December 19, 1997 and
replaced with identical repriced new options having an exercise price of $3.125
per share.
In 1997, in connection with his employment agreement, Global granted Mr.
Goldberg an option to purchase 36,000 shares of common stock at $8.50 per
share. One-third of the option vested on March 17,
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1998 and the remaining two-thirds vests in monthly installments over the
24-month period beginning on March 17, 1998, in each case based on Mr.
Goldberg's continued employment during that time. In conjunction with the
repricing of all of Global's stock options, Mr. Goldberg's options were
cancelled effective December 19, 1997 and replaced with identical repriced new
options having an exercise price of $3.125 per share.
In 1997, in connection with his employment agreement, Global granted Dr.
Hyden an option to purchase 36,000 shares of common stock at $8.50 per share.
One-third of the option vested on March 31, 1998 and the remaining two-thirds
vests in monthly installments over the 24-month period beginning on March 31,
1998, in each case based on Dr. Hyden's continued employment during that time.
In conjunction with the repricing of all of Global's stock options, Mr. Hyden's
options were cancelled effective December 19, 1997 and replaced with identical
repriced new options having an exercise price of $3.125 per share. Dr. Hyden
terminated his employment with Global in March 1999.
Certain Relationships and Related Transactions
Scientific Advisory Board
In March 1997, the Board of Directors authorized the formation of a
Scientific Board to be chaired by Dr. Rowe. The Scientific Advisory Board has
not held a meeting to date, but once it commences its activities, the Board of
Directors has authorized the following compensation plan: as Chairman, Dr. Rowe
would receive an initial stipend of $30,000 along with options to purchase
15,000 shares of common stock having an exercise price equal to the fair market
value on the date of the grant. Dr. Rowe would also receive an annual grant of
an option to purchase 5,000 shares of common stock as well as an option to
purchase 1,000 shares of common stock for each meeting attended, with a maximum
of four meetings per year. Each other member of the Scientific Advisory Board
would receive an option to purchase 2,000 shares of common stock on the date of
joining the Scientific Advisory Board, a stipend of $1,000 per meeting and a
grant of an option to purchase 750 shares of Common Stock for each meeting
attended, with a maximum of four meetings per year.
WHERE YOU CAN FIND MORE INFORMATION ABOUT GLOBAL
Global files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may inspect
and copy any document Global files 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. Global's SEC filings are also available to the public from the SEC's web
site on the Internet at www.sec.gov.
For further information on Global and the combined company stock being
offered, please review the registration statement, including the exhibits that
are filed with it. Statements made in this joint proxy statement/prospectus
that describe documents may not necessarily be complete. We recommend that you
review the documents that Global has filed with its registration statement to
obtain a more complete understanding of those documents.
IMPAX PHARMACEUTICALS, INC.
Selected Historical Financial Information Of Impax
The following selected financial data for Impax as of and for each of the
five years ended December 31, 1998 are derived from the audited financial
statements of Impax. The selected financial data as of and for the six months
ended June 30, 1999 and 1998 are derived from the unaudited financial
statements of Impax. The unaudited financial statements of Impax include all
adjustments, consisting solely of normal recurring accruals, which management
considered necessary for a fair presentation of the financial position and the
results of operations for such periods. Operating results for the six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for future periods. The data should be read in conjunction with the
Impax audited financial statements and related notes thereto and "Impax
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this joint proxy statement/prospectus.
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STATEMENT OF OPERATIONS DATA:
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the six months ended For the year ended
June 30, December 31,
------------------------- ----------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue(a) .......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Total operating expenses ...... 3,843 2,000 5,832 3,771 2,201 667 17
Operating loss ................ (3,843) (2,000) (5,267) (3,696) (1,991) (569) (17)
Net loss ...................... (3,628) (1,959) (5,222) (3,608) (1,893) (541) (17)
Net loss per share
(basic and diluted) .......... $ (1.69) $ (0.91) $ (2.43) $ (1.69) $ (0.89) $ (0.49) $ n/a
(a) Impax is considered a development stage company.
BALANCE SHEET DATA:
(in thousands)
June 30, December 31,
------------------------- -------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- -------- --------- -------- -------- ------- ------
Total assets .................. $ 11,888 $ 3,030 $ 3,408 $ 5,196 $ 4,792 $ 2,452 $ 192
Redeemable preferred stock..... 24,999 10,251 12,206 10,052 6,497 2,677 208
Stockholders' equity .......... $ 10,937 $ 2,694 $ 1,682 $ 4,467 $ 4,509 $ 2,363 $ 192
</TABLE>
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Impax Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Impax was founded in late-1994 by Dr. Charles Hsiao and Dr. Larry Hsu with
a corporate mission to develop, formulate and commercialize both generic and
brand name controlled-release oral pharmaceuticals. Impax's strategy is to
utilize its proprietary drug delivery technology along with its know-how to
build a portfolio of controlled-release dosage forms and to commercialize such
new products either in partnership with pharmaceutical companies or on its own.
Impax was originally organized on September 27, 1994, as a California
corporation (Impax Pharmaceuticals, Inc.). On September 1, 1995, Impax was
reorganized as a California limited liability company (Impax Pharmaceuticals,
LLC) and operated in this form through September 30, 1996. On October 1, 1996,
Impax reorganized once again assuming its current legal form as Impax
Pharmaceuticals, Inc., a California corporation.
To date, Impax has filed three ANDAs with the FDA covering generic
versions of three different branded, prescription pharmaceuticals. FDA approval
for one of these products, pentoxifylline, was received in August, 1999.
Impax currently has thirteen additional generic controlled release
products and two new controlled-release products under development. Of these
product candidates, seven are in various phases of bioequivalence studies and
eight are in formulation development.
Results of Operations
Impax has generated no revenues to date and, from inception until June 30,
1999, accumulated a deficit of $14,909,000.
Since inception, Impax has devoted substantially all of its efforts in
research and development, improving its facility, and establishing policies and
procedures to obtain the government approvals necessary to begin operations.
Impax is not currently operating; however, it received its first ANDA approval
in August 1999 and expects distribution of the product to begin in the fourth
quarter of 1999, although there can be no assurance that such distribution will
take place. Accordingly, Impax is considered a development-stage company as
defined in Statement of Financial Accounting Standards No. 7.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Impax's net loss for the year ended December 31, 1998 was $5,222,000, as
compared to $3,608,000 for the same period in 1997. The increase in net loss
was primarily due to increased research and development activities in terms of
personnel, bio-studies materials and other expenses. Research and development
expenses for the year ended December 31, 1998 were $5,127,000, as compared to
$3,255,000 for the same period in 1997.
During the year ended December 31, 1998, Impax earned other net income in
the amount of $565,000, as compared to $75,000 for the same period in 1997. The
increase in other income in 1998 was due to milestone payments under certain
collaborative research and development activities.
Liquidity and Capital Resources
Impax financed its research and development activities to date through
private placements of preferred equity. The aggregate proceeds raised by Impax
and its predecessors through private placement equity financings approximate
$25 million, as follows: Impax's predecessors raised an aggregate of $3.2
million through private placements of preferred equity during 1995 and the
first quarter of 1996. An additional $5.0 million was raised through private
placements of Series C convertible preferred stock during 1996 and 1997 and the
exercise of warrants to purchase Series A convertible preferred stock during
1998.
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In March, 1999, Impax completed a private placement of 3,400,000 shares of
its Series D convertible preferred stock in exchange for aggregate proceeds of
$17,000,000. The proceeds from the private placements are expected to be used
for research and development activities, capital expenditures, working capital
and other corporate purposes.
As of June 30, 1999, Impax had approximately $8,651,000 in cash, cash
equivalents and short-term investments.
Impax has expended, and will continue to incur substantial additional
expenditures related to its research and development activities, its capital
expenditures and working capital requirements. The Company estimates that its
current cash resources are sufficient to fund its planned operations for a
period of approximately nine months.
Additional funds are expected to be raised through subsequent equity or
debt financings, collaborative arrangements with corporate partners, or through
other sources. Impax's failure to obtain sufficient financing to obtain
necessary FDA and government approvals would adversely affect its cash flows
and operating and development plans.
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Impax's Business
Overview
Impax is engaged in the formulation and commercialization of specialty and
controlled-release oral pharmaceuticals utilizing Impax's proprietary and
non-proprietary drug delivery technologies. Pharmaceutical companies are
increasingly utilizing controlled-release drug delivery technologies to improve
drug therapy. Controlled-release pharmaceuticals are designed to reduce the
frequency of drug administration, improve the effectiveness of the drug
treatment, ensure greater patient compliance with the treatment regimen and
reduce side effects by releasing drug dosages at specific times and in specific
locations in the body.
Impax is applying its patented and non-patented drug delivery technologies
initially to the development of generic versions of selected high sales volume,
controlled-release brand name pharmaceuticals. Impax has submitted ANDAs to the
FDA covering generic versions of three different branded, prescription
pharmaceuticals. The ANDA for Pentoxyfylline ER tablets was approved in August
1999. This was Impax's first ANDA approval. Impax currently has 15 additional
controlled-release products under development.
To expedite the growth of the business and reduce Impax's overall costs,
Impax has entered into collaborative development arrangements with major
pharmaceutical companies. Impax has entered into an agreement with a major
generic drug company for the development of a generic specialty product. Under
this agreement Impax will develop a bioequivalent formulation and in return
will receive a share of any profits realized by the partner relating to the
sale of the generic specialty product.
Impax believes that the drug delivery technologies it uses for the
development of generic controlled-release pharmaceuticals also has application
to the development of brand name controlled-release pharmaceuticals. To
commercialize this opportunity, Impax plans to work with brand name
pharmaceutical companies in two basic ways:
o by developing controlled-release formulations of existing
immediate-release drugs and
o by applying its drug delivery technologies to the formulation of new
drugs under development by these pharmaceutical companies.
In addition to the potential for improving a drug's effectiveness, Impax
believes that its drug delivery technologies will provide pharmaceutical
companies with the opportunity to enhance the commercial value of their new
drug product candidates.
Additionally, Impax intends to use its technology for developing branded,
controlled-release pharmaceuticals which Impax plans to market and distribute
under its own name using its own salesforce.
Need For Controlled-Release Drug Delivery Technology
To date, most orally administered prescription pharmaceutical products
have been available only in immediate-release formulations. These formulations,
although efficacious, may at times result in unwanted side effects due to high
initial drug concentrations in the blood and may be inconvenient to patients
requiring multiple drug administrations each day. Over the last decade, new
controlled-release drug delivery technologies have been developed to eliminate
or reduce certain disadvantages of immediate-release drugs. Controlled-release
drug delivery technologies generally provide more consistent and appropriate
drug levels in the bloodstream than immediate-release dosage forms, and may
improve drug efficacy and reduce side effects by releasing drug dosages at
specific times and in specific locations in the body. These technologies also
allow for the development of more "patient-friendly" dosage forms that reduce
the frequency of drug administration, thereby offering the potential for
improved patient compliance. Controlled-release pharmaceuticals can be
especially beneficial for certain patient populations, such as the elderly, who
often require multiple medications with differing dosing regimens.
Increased Patient Compliance
With the growth of managed care organizations, patient compliance has
become a particularly important issue. Especially in chronic treatment areas
(osteoporosis, hypertension, cholesterol management) major
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pharmaceutical companies are starting to undertake large scale studies to
demonstrate that their treatment options save money for the healthcare system
by reducing surgical interventions, hospital stays and doctor visits, among
others. Controlled-release dosage forms are intended to allow patients to take
medications at reduced frequency and/or at a more convenient time.
The market for advanced drug delivery systems is large and is growing
rapidly. Impax intends to take advantage of the business opportunity presented
by an apparent market need for drugs with a superior compliance profile by both
developing new controlled-release forms of branded drugs and by formulating
controlled-release generics.
Generic Pharmaceutical Market
Generic pharmaceuticals are therapeutic equivalents of brand name drugs
for which patents or marketing exclusivity rights have expired. The market for
generic drugs has grown in recent years due to a number of factors, including
the expiration of patents on a number of brand name drugs with significant
revenues, the availability of an abbreviated testing and approval process, the
ability of the pharmacist to substitute generic drugs for brand name drugs and
increased acceptance of the quality of these drugs. In addition, reimbursement
trends affecting the pharmaceutical industry, including large volume
purchasers, preferred provider organizations and health maintenance
organizations, are increasing the demand for lower cost pharmaceuticals.
Impax's Proprietary Drug Delivery Technologies
Impax is developing and applying multiple drug delivery technologies to
control the release characteristics of a variety of orally-administered drugs.
To date, Impax has developed four distinct drug delivery technologies that are
patented or for which patent applications have been filed. Impax believes that
its technologies are relatively flexible and can be modified to apply to a
variety of pharmaceutical products.
Impax's drug delivery technologies utilize a variety of polymers and other
materials to encapsulate or entrap the active drug compound and to release the
drug at varying rates and/or at predetermined locations in the gastrointestinal
tract. In developing an appropriate drug delivery technology for a particular
drug candidate, Impax considers such factors as:
o the desired release rates of the drug;
o the physico-chemical properties of the drug;
o the physiology of the gastrointestinal tract and the manner in which the
drug will be absorbed during passage through the gastrointestinal tract;
and
o the effect of food on the absorption rate and transit time of the drug.
Impax plans to utilize all applicable non-patent infringing technology in
the development of generic products in order to get products on the market as
soon as possible. In an effort to avoid any potential infringement of the
patents on brand-name drugs, Impax works very closely with outside patent
counsel throughout the entire formulation development process for each product.
Impax has developed several proprietary controlled-release delivery
technologies covering the formulation of dosage forms with extended-release and
multiple modes of release rates. Impax has obtained one U.S. patent and has
filed two additional U.S. patent applications and various foreign patent
applications relating to its drug delivery technologies. Impax is applying
several other proprietary controlled-release drug delivery technologies in its
product development programs and continues to develop new technologies for
which it may seek patent protection. The proprietary technologies are described
below:
Timed Multiple-Action Delivery System (TMDS) -- Patent application filed.
Among a large variety of controlled release technologies available today,
most are designed for release of one active ingredient in one release profile
(typically a zero- order or single mode release). Such a release
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pattern may not be adequate for drugs in certain therapeutic categories.
Impax's proprietary delivery system allows more than one active component in a
single tablet formulation to be released in multiple profiles over time. This
innovation permits the drug to reach its therapeutic level in the bloodstream
at the most beneficial intervals and in pre-determined release modes.
Dividable Multiple-Action Delivery System (DMDS) -- Patent application filed.
DMDS is a further improvement on Impax's Multiple Action delivery system.
The invention allows the patient/physician to adjust the dosing regimen
according to clinical needs and without compromising efficacy. With the
Dividable Multiple-Action system the patient can break the tablet in half, and
each respective portion of the tablet will achieve exactly the same release
profile as the whole tablet. In contrast, the traditional controlled-release
tablet loses its "controlled" mechanism of delivery once it is broken up.
Concentric Multiple-Particulate Delivery System (CMDS) -- Patent granted.
One of the technical challenges in the development of multiple-particulate
dosage forms with a variety of active ingredients is to achieve an acceptable
uniformity and reproducibility of a product, ensuring that each of the
components is released at pre-determined time intervals and in a desirable
release profile. By applying its unique coating and formulation technology,
Impax has reduced to practice its proprietary Concentric Multiple-Particulate
delivery system.
Sustained-Release Liquid Delivery System (SLDS) -- Patent application in
preparation.
The technical barriers to formulating a liquid ingredient into a
sustained-release oral dosage form have precluded the development of
controlled-release dosage forms for most liquid drugs. The technology described
in this patent application utilizes a combination of special inactive
ingredients and processes to convert a liquid active ingredient into a solid
dosage form with sustained-release properties.
Product Development
Generic Specialty And Controlled-Release Pharmaceuticals
Impax is applying its proprietary drug delivery technologies and
formulation skills initially to the development of generic versions of selected
high sales volume, brand name pharmaceuticals, for which marketing exclusivity
or patent rights have expired or are near expiration. Impax has submitted ANDAs
to the FDA covering generic versions of three different branded, prescription
pharmaceuticals. One of the pending ANDAs, Pentoxyfylline ER tablets, was
approved in August 1999. This was Impax's first ANDA approval. Impax has 15
additional generic niche and controlled-release products under development. Of
these product candidates, seven are in various phases of bioequivalence studies
and eight are in formulation development.
Generic Pharmaceutical Development Process
When developing generic pharmaceuticals, Impax is required to prove that
the generic product candidate will exhibit IN VIVO release characteristics
equivalent to those of the brand name pharmaceutical. For a controlled-release
pharmaceutical, the drug delivery technology utilized to replicate the release
rates of the brand name pharmaceutical must do so without infringing any valid,
unexpired patents. The process by which generic products are developed for
manufacture and sale in the U.S. may be categorized into three basic stages:
o formulation development;
o bioequivalence studies;
o ANDA filing with the FDA.
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During formulation development, Impax attempts to develop its own version
of the brand name drug. In creating a formulation, Impax utilizes or adapts its
drug delivery technologies to the product candidate or develops a new drug
delivery technology for that product candidate. Impax's formulation is then
evaluated in laboratory dissolution studies to determine whether human
bioequivalence studies should be conducted.
Once a suitable formulation has been developed, human bioequivalence
studies are conducted which compare Impax's formulation to the brand name drug.
Because bioequivalence studies can be relatively expensive to perform, Impax
often conducts a pilot bioequivalence study in which it manufactures a small
batch of its product for testing in a limited number of human subjects
(typically six to twelve). If the formulation yields a blood level profile
comparable to the brand name drug, full-scale bioequivalence studies may be
performed, which require the manufacture of at least 100,000 dosage units and
usually involves 24 or more human subjects. These studies that are typically
conducted to determine the plasma concentrations of the drug in human subjects
are under fasted and fed conditions as well as under multiple dose
administration. If successful, the studies will demonstrate that the rate and
extent of absorption of the generic version is equivalent to that of the brand
name drug. If the studies demonstrate that the blood level profiles of Impax's
product are not comparable to the brand name drug, Impax will either modify its
formulation or alter the drug delivery technology employed.
After Impax's formulation has been shown to be bioequivalent to the brand
name drug, an ANDA is prepared for submission to the FDA. This ANDA includes
the results of the bioequivalence studies and other data such as laboratory
specifications for Impax's formulation, stability data, analytical data,
methods validation and manufacturing procedures and controls. See "--Government
Regulation."
Brand Name Controlled-Release Pharmaceuticals
Impax believes that the drug delivery technologies it uses for the
development of generic controlled-release pharmaceuticals will also have
application to the development of brand name controlled-release
pharmaceuticals. To develop and commercialize this opportunity, Impax is
exploring possible applications for its technologies and plans to utilize
clinical research organizations and work with brand name pharmaceutical
companies in two basic ways:
o Developing controlled-release formulations of existing immediate-release
drugs;
o Applying its drug delivery technologies to the formulation of new drugs
under development by these pharmaceutical companies.
The first category provides a way for drug manufacturers to either
increase or preserve the value of their existing immediate-release drugs. By
developing a controlled-release drug formulation, the pharmaceutical
manufacturer has the potential to improve drug efficacy and reduce the cost of
therapy by simplifying drug administration regimens. Additionally, by
developing a controlled-release formulation of an immediate-release drug, the
pharmaceutical manufacturer may be able to receive several additional years of
marketing exclusivity before generic equivalents may be approved. The second
category is of significant importance to pharmaceutical manufacturers because
drug candidates often require easy administration (e.g., one or two doses per
day instead of four to six) to become commercially acceptable or to develop
brand loyalty by patients and physicians. Furthermore, many new drug
candidates, such as proteins and peptides, that are developed by pharmaceutical
and biotechnology companies, are expected to require advanced drug delivery
technologies in order for these drugs to be administered in oral form instead
of by injection.
Development And Licensing Agreements
Impax has entered into development and licensing agreements covering
generic pharmaceuticals with one U.S. and two foreign pharmaceutical companies.
Pursuant to such agreements, the licensees typically will fund the cost of
product development and will pay Impax royalties in exchange for a license to
manufacture and market the products for a specified period in a specified
territory. Management believes that such arrangements offer a variety of
benefits, including providing an additional source of funding for product
development and affording Impax the ability to have certain of its generic
controlled-release products sold through the distribution networks of these
major pharmaceutical companies. Impax may terminate a
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development and licensing agreement if the licensee fails to market the
licensed product, in which case all rights revert to Impax. In October, 1997,
Impax entered into an agreement with a large multi-national pharmaceutical
company to apply one of the Impax technologies to that company's marketed brand
product in an attempt to develop a once-a-day version of that product. Under
terms of the agreement, Impax, using its proprietary Timed Multiple-Action
Delivery System, agreed to attempt to develop a new controlled-release form of
a patented product owned by this corporate partner. The formulation of this
product is completed.
Manufacturing
Impax currently has an approximately 36,000 square foot facility, which
includes a laboratory and pilot manufacturing facility encompassing
approximately 12,000 square feet. Impax is in the preliminary stages of
converting a portion of its existing facility into a production area, which
will be used for manufacturing commercial quantities of the generic versions of
products for which ANDAs have already been filed. Impax currently has only a
limited number of personnel experienced in the commercial manufacture of
pharmaceuticals. Accordingly, before Impax commences manufacturing its product
candidates in commercial quantities, significant expenditures and additional
personnel will be required.
Competition
The pharmaceutical industry is highly competitive and is affected by new
technologies, governmental regulations, health care legislation, availability
of financing, and other factors. Many of Impax's competitors have longer
operating histories and greater financial, marketing and other resources than
Impax.
Impax expects that it will be subject to competition from numerous other
entities that currently operate, or intend to operate, in the pharmaceutical
industry. These include companies that are engaged in the development of
controlled-release technologies and products, as well as other pharmaceutical
manufacturers that may decide to undertake in-house development of these
products. Impax is initially concentrating its efforts on generic
controlled-release pharmaceuticals. Typically, selling prices of
immediate-release generic drugs have declined and profit margins have narrowed
after generic equivalents of brand name products are first introduced and the
number of competitive products has increased. Similarly, the maintenance of
particular levels of profitability for Impax's generic controlled-release
products will depend, in large part, on Impax's ability to introduce new
products before its competitors and on the intensity of competition with
respect to existing products.
Patents And Proprietary Rights
Impax believes that patent and trade secret protection, particularly of
its drug delivery and formulation technologies, is important to its business
and that its future will depend in part on its ability to obtain patents,
maintain trade secret protection and operate without infringing the proprietary
rights of others.
Impax has been issued one U.S. patent and has additional U.S. patent
applications and various foreign patent applications relating to its drug
delivery technologies. Impax expects to apply for additional U.S. and foreign
patents in the future. The issuance of a patent is not conclusive as to its
validity or as to the enforceable scope of the claims of the patent. There is
no assurance that Impax's patents or any future patents will prevent other
companies from developing similar or functionally equivalent products or from
successfully challenging the validity of Impax's patents. Furthermore, there is
no assurance that:
o any of Impax's future processes or products will be patentable;
o any pending or additional patents will be issued in any or all
appropriate jurisdictions;
o Impax's processes or products will not infringe upon the patents of
third parties;
o Impax will have the resources to defend against charges of infringement
by or protect its own patent rights against third parties.
Impax also relies on trade secrets and proprietary knowledge, which it
generally seeks to protect by confidentiality and non-disclosure agreements
with employees, consultants, licensees and pharmaceutical companies. There can
be no assurance, however, that these agreements will not be breached, that
Impax will have adequate remedies for any breach, or that Impax's trade secrets
will not otherwise become known by competitors.
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On January 8, 1998, Impax filed an application to register its trademark
"IMPAX" with the U.S. Patent and Trademark Office. (Serial No. 75/415057.) In
September 1999, Agfa-Gevaert, a Belgium corporation, filed a notice of
opposition with the U.S. Patent and Trademark Office alleging that Impax's
"IMPAX" mark is likely to cause confusion to the consumer. Impax has not yet
filed an answer to this opposition on November 1, 1999. No discovery has been
conducted in this matter.
Impax does not believe that its use of the mark "IMPAX" will result in
confusion to the consumer. Impax's products are pharmaceuticals. The
Agfa-Gevaert's mark is used in connection with computer hardware and software,
which is used in the field of medical radiography. Impax believes that the
differences in pricing, product marketing and channels of distribution for the
different products will avoid any likelihood of confusion to the consumer.
However, the PTO may not agree with Impax, and may not allow registration of
Impax's "IMPAX" mark. If Impax is unable to register the trademark "IMPAX",
then it may no longer desire, or even be able, to use the name "Impax
Laboratories, Inc." for the combined company.
There has been substantial litigation in the pharmaceutical, biomedical
and biotechnology industries with respect to the manufacture, use and sale of
new products that are the subject of conflicting patent rights. Most of the
brand name controlled-release products of which Impax is developing generic
versions are covered by one or more patents. Under the Waxman-Hatch amendments,
when a drug developer files an ANDA for a generic drug, and the developer
believes that an unexpired patent which has been listed with the FDA as
covering that brand name product will not be infringed by the developer's
product or is invalid or unenforceable, the developer must so certify to the
FDA. That certification must also be provided to the patent holder, who may
challenge the developer's certification of non-infringement, invalidity or
unenforceability by filing a suit for patent infringement within 45 days of the
patent holder's receipt of such certification. If the patent holder files suit,
the FDA can review and approve the ANDA, but is prevented from granting final
marketing approval of the product until a final judgment in the action has been
rendered or 30 months from the date the certification was received, whichever
is sooner. Should a patent holder commence a lawsuit with respect to alleged
patent infringement by Impax, the uncertainties inherent in patent litigation
make the outcome of such litigation difficult to predict. To date, no such
actions have been commenced against Impax, although it is anticipated that
actions may be filed as Impax files additional ANDAs. The delay in obtaining
FDA approval to market Impax's product candidates as a result of litigation, as
well as the expense of such litigation, whether or not Impax is successful
could have a material adverse effect on Impax's results of operations and
financial position.
Government Regulation
All pharmaceutical manufacturers are subject to extensive regulation by
the federal government, principally the FDA, and, to a lesser extent, by state
and local governments. The Federal Food, Drug and Cosmetic Act (the "FDCA") and
other federal statutes and regulations govern or influence the development,
testing, manufacture, safety, labeling, storage, recordkeeping, approval,
advertising, promotion, sale and distribution of prescription pharmaceutical
products. Pharmaceutical manufacturers are also subject to certain
recordkeeping and reporting requirements, establishment registration and
product listing and FDA inspections.
The Waxman-Hatch amendments to the FDCA established abbreviated
application procedures for obtaining FDA approval for generic versions of brand
name prescription drugs (the "Listed Drugs") that are off-patent or whose
marketing exclusivity has expired. Approval to manufacture and market generic
drugs is obtained by filing ANDAs. As a substitute for clinical studies, the
FDA requires data demonstrating that the ANDA drug formulation is bioequivalent
to a previously approved Listed Drugs, among other requirements.
The advantage of the ANDA approval mechanism is that an ANDA applicant is
not required to conduct pre-clinical and clinical studies to demonstrate that
the product is safe and effective for its intended use. Impax has filed three
ANDAs with the FDA for generic versions of brand prescription pharmaceuticals,
and intends to file additional ANDAs to obtain approval to market its other
generic controlled-release products. No assurances exist that ANDAs will be
suitable or available for Impax's products, or that Impax's proposed products
will receive FDA approval on a timely basis, if at all.
Patent certification requirements for generic controlled-release drugs
could also result in significant delays in obtaining FDA approvals. First,
where patents covering the Listed Drugs are alleged to be invalid,
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unenforceable or not infringed, patent infringement litigation may be
instituted by the holder or holders of the brand name drug patents against
Impax. Second, the first company to file an ANDA for a given drug which is
successful in certifying that an unexpired patent covering the reference brand
name drug is invalid, unenforceable, or will not be infringed by its product,
can be awarded 180 days of market exclusivity during which the FDA may not
approve any other ANDAs for that drug. A successful certification results if
the patent owner (who must be notified of the certification) does not commence
an infringement action within 45 days of having been so notified, or, having
brought a timely infringement action, receives an adverse final court decision.
While the Waxman-Hatch amendments codify the ANDA mechanism for generic
drugs, it also fosters pharmaceutical innovation through incentives that
include market exclusivity and patent term extension. First, the Waxman-Hatch
amendments provide two distinct market exclusivity provisions that either
preclude the submission or delay the approval of an abbreviated drug
application. A five-year marketing exclusivity period is provided for new
chemical compounds, and a three-year marketing exclusivity period is provided
for applications containing new clinical investigations essential to an
approval, such as new indications or new delivery technologies. The three-year
marketing exclusivity period would be applicable to the development of a novel
drug delivery system. The marketing exclusivity provisions apply equally to
patented and non-patented drug products.
Second, the Waxman-Hatch amendments provide for patent term extensions to
compensate for patent protection lost due to time taken in conducting FDA
required clinical studies or during FDA review of data submissions. Patent term
extension may not exceed five additional years nor may the total period of
patent protection following FDA marketing approval be extended beyond 14 years.
In addition, by virtue of the Uruguay Round Agreements Act of 1994 that
ratified the General Agreement on Tariffs and Trade ("GATT"), certain brand
name drug patent terms have been extended to 20 years from the date of filing
of the pertinent patent application (which can be longer than the former
17-year patent term). This can further delay ANDA effective dates. Patent term
extensions may delay the ability of Impax to use its proprietary technology, in
the future, to market new extended release products, file section 505(b)(2)
NDAs referencing approved products (see below), and file ANDAs based on listed
drugs when those approved products or listed drugs have acquired patent term
extensions.
With respect to any drug with active ingredients not previously approved
by the FDA, a prospective manufacturer must submit a full NDA, including
complete reports of pre-clinical, clinical and other studies to prove that
product's safety and efficacy for its intended use. An NDA may also need to be
submitted for a drug with a previously approved active ingredient if, among
other things, the drug will be used to treat an indication for which the drug
was not previously approved, if the method of delivery is changed or if the
abbreviated procedure discussed above is otherwise not available. A
manufacturer intending to conduct clinical trials for a new drug compound as
part of an NDA is required first to submit an investigational new drug
application ( "IND") to the FDA containing information relating to pre-clinical
and planned clinical studies. The full NDA process is expensive and time
consuming. Controlled or extended-release versions of approved
immediate-release drugs will require the filing of an NDA. The FDA will not
accept ANDAs when the delivery system or duration of drug availability differs
significantly from the listed drug. However, the FDCA provides for NDA
submissions that may rely in whole or in part on publicly available clinical
data on safety and efficacy under section 505(b)(2) of the FDCA. Impax may be
able to rely on existing publicly available safety and efficacy data in filing
NDAs for extended-release products when such data exists for an approved
immediate-release version of the same chemical entity. However, there is no
guarantee that the FDA will accept such applications under section 505(b)(2),
or that such existing data will be publicly available or useful. Further,
utilizing the section 505(b)(2)-application process is uncertain, because
neither Impax nor the FDA has had significant experience with it. Additionally,
under the Prescription Drug User Fee Act of 1992, all NDAs require the payment
of a substantial fee upon filing, and other fees must be paid annually after
approval. No assurances exist that, if approval of an NDA is required, such
approval can be obtained in a timely manner, if at all.
Manufacturers of marketed drugs must conform to the FDA's cGMP standards
or risk sanctions such as the suspension of manufacturing or the seizure of
drug products and the refusal to approve additional
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marketing applications. The FDA conducts periodic inspections to implement
these rules. Impax's manufacturing facility has been inspected by the FDA with
regard to the ANDA submissions made and the FDA has advised Impax that it was
found to be in compliance with applicable cGMP standards. An additional
inspection will be performed by the FDA to assure successful process validation
after ANDA approval and before initiation of commercial distribution of these
products. There can be no assurance that Impax's facility will be found to be
in compliance with cGMP or other regulatory requirements. Failure to comply
could result in significant delays in the development and testing of Impax's
planned products, as well as increased costs.
Noncompliance with applicable requirements can also result in total or
partial injunctions against production and/or distribution, refusal of the
government to enter into supply contracts or to approve NDAs or ANDAs, criminal
prosecution and product recalls. The FDA also has the authority to revoke for
cause drug approvals previously granted.
Under the Generic Drug Enforcement Act, ANDA applicants (including
officers, directors and employees) who are convicted of a crime involving
dishonest or fraudulent activity (even outside the FDA regulatory context) are
subject to debarment. Debarment is disqualification from submitting or
participating in the submission of future ANDAs for a period of years or
permanently. The Generic Drug Enforcement Act also authorizes the FDA to refuse
to accept ANDAs from any company which employs or uses the services of a
debarred individual.
Products marketed outside the United States which are manufactured in the
United States are subject to certain FDA regulations, as well as regulations by
the country in which the products are to be sold.
The Prescription Drug Marketing Act ("PDMA"), which amends various
sections of the FDCA, requires, among other things, state licensing of
wholesale distributors of prescription drugs under federal guidelines that
include minimum standards for storage, handling and recordkeeping. It also
requires certain wholesale distributors, including Impax, to provide to each
wholesale distributor a statement identifying each sale of the drug before the
sale to such wholesale distributor, among other requirements. It also sets
forth civil and criminal penalties for violations of these and other
provisions. Various sections of the PDMA are still being implemented by the FDA
and the states. Nevertheless, failure to comply with the wholesale distribution
provisions and other requirements of the PDMA could have a materially adverse
effect on Impax.
Impax is governed by federal, state and local laws of general
applicability, such as laws regulating working conditions and environmental
protection. Impax is also licensed by, registered with, and subject to periodic
inspection and regulation by, the DEA and California state agencies, pursuant
to federal and state legislation relating to drugs and narcotics. Certain drugs
that Impax may develop in the future may be subject to regulations under the
Controlled Substances Act and related statutes.
Product Liability Insurance
The design, development and manufacture of Impax's products involve an
inherent risk of product liability claims. Impax has obtained product liability
insurance that covers substantially all products marketed by Impax in its
generic drug distribution operations, as well as bioequivalence studies for
controlled-release products candidates. Impax believes that its product
liability insurance is adequate for its current operations, and will seek to
increase its coverage prior to the commercial introduction of its product
candidates. There can be no assurance that the coverage limits of Impax's
insurance will be sufficient to offset potential claims. Product liability
insurance is expensive and difficult to procure and may not be available in the
future on acceptable terms or in sufficient amounts, if available at all. A
successful claim against Impax in excess of its insurance coverage could have a
material adverse effect upon Impax's results of operations and financial
condition.
Facilities
The executive offices, research and development, warehouse and a pilot
plan of Impax occupy an aggregate of approximately 36,000 square feet at 30831
Huntwood Avenue, Hayward, California. Impax leases its facility pursuant to a
five year lease expiring on June 30, 2002 and renewable for another three
years. Of
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the total 36,000 square feet, approximately 12,000 square feet are used for
research and development, 4,000 square feet are used for administrative
functions, 5,000 square feet for warehousing and the remaining 15,000 square
feet will be available for a commercial-scale manufacturing area.
Employees
As of October 1, 1999, Impax had approximately 40 full-time employees. Of
these employees, 32 are employed in research and development as formulation
scientists, analytical chemists and technical support staff and eight are in
administration. Impax may also employ part-time personnel from time to time to
meet specific demands of its business as they arise. None of Impax's employees
are subject to collective bargaining agreements with labor unions. Impax
believes that its relations with its employees, in general, is satisfactory.
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Impax Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of Impax's common stock as of October 1, 1999, by (1) each
stockholder who is known by Impax to own beneficially more than five percent
(5%) of any class of capital stock of Impax, (2) each of Impax's directors, (3)
each of the named executive officers named in the Impax summary compensation
table included under the heading "Impax Executive Compensation" later in this
joint proxy statement/prospectus, and (4) all directors and officers of Impax
as a group. Except as otherwise indicated, Impax believes that the beneficial
owners of the capital stock listed below, based on information furnished by
such owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
Series A
Common Stock Preferred Stock
---------------------- ----------------------
No. of No. of
Name and Address Shares Percent Shares Percent
- ----------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Charles Hsiao (1) ............................. 1,526,818 44.3% 1,000,000 63.3
Larry Hsu (2) ................................. 881,818 33.3 200,000 12.7
John Hsiao (3) ................................ 537,272 22.1 200,000 12.7
Chiin Hsiao Children Irrevocable Trust (4) .... 780,000 36.3 0
May Chu (5) ................................... 24,000 1.1 0
Hsu Children Irrevocable Trust (4) ............ 400,000 18.6 0
Brian Keng .................................... 0 0
Chemical Company of Malaysia (6) .............. 1,661,111 43.6 0
Wisma Sime Darby, 9th Floor
14 Jalan Raja Laut, P.O. Box 10284
Kuala Lumpur 50708
Malaysia
Mr. Oh Kim Sun (7) ............................ 1,666,111 43.7 0
c/o Chemical Company of Malaysia
Wisma Sime Darby, 9th Floor
14 Jalan Raja Laut, P.O. Box 10284
Kuala Lumpur 50708
Malaysia
President (BVI) International Investment
Holdings Ltd. (8) ............................ 1,100,000 33.9 0
c/o President Enterprises Corp.
301 Chung Cheng Road
Yeong Kang Shih
Tainan Hsien, Taiwan, ROC
Mr. Jason Lin (9) ............................. 1,100,000 33.9 0
c/o President Enterprises Corp.
301 Chung Cheng Road
Yeong Kang Shih
Tainan Hsien, Taiwan, ROC
China Development Industrial Bank (10) ........ 1,100,000 33.9 0
11th Floor, CDC Tower
125 Nanking East Rd., Sec. 5
Taipei, 10572
Taiwan, ROC
Tan Soo Bin(11) ............................... 20,600 * 0
21, Lorong Agang Openg 5
TTDI 60000
Kuala Lumpur, Malaysia
Ching-Kuo Chow (12) ........................... 0 0
Ching Yi-Chow (12) ............................ 0 0
Yuh-Ming Chow (12) ............................ 0 0
Yung-Shung Chen (13) .......................... 0 0
c/o Gree Pharm Co. Ltd.
6F-1, 133, Sec. 1, Roosevelt Road
Taipei, Taiwan ROC 100
All directors and executive officers as a
group (7 persons) ............................ 6,090,347 77.5% 1,200,000 75.9%
<PAGE>
<CAPTION>
Series B Series C Series D
Preferred Stock Preferred Stock Preferred Stock
--------------------- --------------------- ----------------------
No. of No. of No. of
Name and Address Shares Percent Shares Percent Shares Percent
- ----------------------------------------------- ---------- --------- ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Charles Hsiao (1) ............................. 0 0 0
Larry Hsu (2) ................................. 0 0 0
John Hsiao (3) ................................ 0 0 0
Chiin Hsiao Children Irrevocable Trust (4) .... 0 0 0
May Chu (5) ................................... 0 0 0
Hsu Children Irrevocable Trust (4) ............ 0 0 0
Brian Keng .................................... 0 0 0
Chemical Company of Malaysia (6) .............. 0 0 800,000 23.5
Wisma Sime Darby, 9th Floor
14 Jalan Raja Laut, P.O. Box 10284
Kuala Lumpur 50708
Malaysia
Mr. Oh Kim Sun (7) ............................ 0 491,115 94.5 800,000 23.5
c/o Chemical Company of Malaysia
Wisma Sime Darby, 9th Floor
14 Jalan Raja Laut, P.O. Box 10284
Kuala Lumpur 50708
Malaysia
President (BVI) International Investment
Holdings Ltd. (8) ............................ 0 491,115 94.5 1,100,000 32.3
c/o President Enterprises Corp.
301 Chung Cheng Road
Yeong Kang Shih
Tainan Hsien, Taiwan, ROC
Mr. Jason Lin (9) ............................. 0 0 1,100,000 32.3
c/o President Enterprises Corp.
301 Chung Cheng Road
Yeong Kang Shih
Tainan Hsien, Taiwan, ROC
China Development Industrial Bank (10) ........ 0 0 1,100,000 32.3
11th Floor, CDC Tower
125 Nanking East Rd., Sec. 5
Taipei, 10572
Taiwan, ROC
Tan Soo Bin(11) ............................... 18,600 4.3 0 0
21, Lorong Agang Openg 5
TTDI 60000
Kuala Lumpur, Malaysia
Ching-Kuo Chow (12) ........................... 100,000 23.3 0 0
Ching Yi-Chow (12) ............................ 100,000 23.3 0 0
Yuh-Ming Chow (12) ............................ 100,000 23.3 0 0
Yung-Shung Chen (13) .......................... 0 28,516 5.5 0
c/o Gree Pharm Co. Ltd.
6F-1, 133, Sec. 1, Roosevelt Road
Taipei, Taiwan ROC 100
All directors and executive officers as a
group (7 persons) ............................ 18,600 4.3% 491,115 94.5% 3,000,000 88.2%
</TABLE>
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- ------------
(1) c/o Impax Pharmaceuticals, Inc., 30831 Huntwood Avenue, Hayward, CA 94544.
Includes 150,000 shares of common stock held in trust for the benefit of
John Hsiao's children, 75,000 shares of common stock held in trust for the
benefit of Richard Hsiao's children, shares of Series A preferred stock
immediately convertible into 1,000,000 shares of common stock, options to
purchase 100,000 shares of common stock which are immediately exercisable,
and warrants immediately convertible into 200,000 shares of common stock.
(2) c/o Impax Pharmaceuticals, Inc., 30831 Huntwood Avenue, Hayward, CA 94544.
Includes shares of Series A preferred stock immediately convertible into
200,000 shares of common stock, options to purchase 100,000 shares of
common stock which are immediately exercisable, and warrants immediately
convertible into 200,000 shares of common stock.
(3) c/o Impax Pharmaceuticals, Inc., 30831 Huntwood Avenue, Hayward, CA 94544.
Includes shares of Series A preferred stock immediately convertible into
200,000 shares of common stock and warrants immediately convertible into
80,000 shares of common stock.
(4) c/o Impax Pharmaceuticals, Inc., 30831 Huntwood Avenue, Hayward, CA 94544.
(5) c/o Impax Pharmaceuticals, Inc., 30831 Huntwood Avenue, Hayward, CA 94544.
Includes options immediately exercisable for 24,000 shares of common
stock.
(6) Consists of 491,115 shares of Series C preferred stock immediately
convertible into 861,111 shares of common stock, and shares of Series D
preferred stock immediately convertible into 800,000 shares of common
stock.
(7) Includes shares of Series C preferred stock and Series D preferred stock
held by the Chemical Company of Malaysia, of which Mr. Oh is a substantial
stockholder, which shares are immediately convertible into 861,111 and
800,000 shares of common stock, respectively, and options to purchase
5,000 shares of common stock.
(8) Consists of shares of Series D preferred stock immediately convertible
into 1,100,000 shares of common stock.
(9) Consists of shares of Series D preferred stock held by President
Enterprises Corporation, of which Mr. Lin is a substantial shareholder,
which shares are immediately convertible into 1,100,000 shares of common
stock.
(10) Consists of shares of Series D preferred stock immediately convertible
into 1,100,000 shares of common stock.
(11) Includes 18,600 shares of Series B preferred stock immediately convertible
into 18,600 shares of common stock, and options immediately exercisable
for 2,000 shares of common stock.
(12) 2012 Westbrook Lane, Livermore, California 94550.
(13) Includes 28,516 shares of Series C preferred stock immediately convertible
into 50,000 shares of common stock.
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Management of Impax
Management
The current Impax directors and executive officers, age and the year in
which each became a director and thei principal occupations of employment
during the past five years are as folows:
<TABLE>
<CAPTION>
Name Age Position Held
- ------------------------------- ----- --------------------------------------
<S> <C> <C>
Charles Hsiao, Ph.D. .......... 55 Chairman and Chief Executive Officer
Larry Hsu, Ph.D. .............. 50 President and Chief Operating Officer
May Chu, M.S. ................. 48 Vice President, Analytical and QA
Oh Kim Sun .................... 51 Director
Jason Lin ..................... 56 Director
Brian Keng .................... 45 Director
Tan Soo Bin, Ph.D. ............ 52 Director
</TABLE>
Charles Hsiao, Ph.D.: Dr. Hsiao co-founded Impax in 1994, and has served
as Chairman, Chief Executive Officer and a Director since its inception. Dr.
Hsiao co-founded IVAX Corporation in 1986 with two partners. By October 1994,
when he left the Vice-Chairman position at IVAX, IVAX had become the world's
largest generic pharmaceutical company with approximately 7000 employees and $1
billion in worldwide sales. Dr. Hsiao's technical expertise is in the area of
formulation and development of oral controlled-release dosage form. Dr. Hsiao
obtained his Ph.D. in pharmaceutics from University of Illinois
Larry Hsu, Ph.D.: Dr. Hsu co-founded Impax in 1994. He has served as a
President, Chief Operating Officer and a member of the Board of Directors since
its inception. From 1980 to 1995, Dr. Hsu worked at Abbott Laboratories for 15
years. During the last four years at Abbott, Dr. Hsu was the Director of
Product Development in charge of formulation development, process engineering,
clinical lot manufacturing and production technical support of all dosage
forms, managing a staff of approximately 250 people. Dr. Hsu's technical
expertise is in the area of formulation and development of injectable products,
particularly products that require lyophilization technology, such as
anti-cancer drugs and biotechnology products. Dr. Hsu obtained his Ph.D. in
pharmaceutics from University of Michigan.
Oh Kim Sun: Mr. Oh has served as a member on the Board of Directors of
Impax since September 30, 1996. He has been employed with Chemical Company of
Malaysia Berhad ("CCM") since 1990, and currently serves as Group Executive
Director of CCM. He also holds the Chairman position with CCM Pharma, UPHA
Corporation, and Primary Health Sdn. Bhd Mr. Oh also serves as a director of
(i) Chemical Company of Malaysia Berhad, a Malaysian corporation whose stock is
listed on the Kuala Lumpur Stock Exchange, and (ii) Nortran Pharmaceuticals
Inc., a Canadian corporation, whose stock is listed on the Vancouver Stock
Exchange. Mr. Oh is a fellow member of The Institute of Chartered Accountants
of England and Wales and the Malaysian Association of Certified Public
Accountants.
Jason Lin: Mr. Lin has served as a member on the Board of Directors of
Impax since May 5, 1999. Mr. Lin has served as Chairman of President Baseball
Team Corp., a Taiwan national baseball league, for approximately ten years. He
has also served as Chairman of President Coffee Corp. in Taiwan for
approximately two years, and as Chairman of Presicarre Co. for approximately
three years.
Brian Keng: Mr. Keng has served as a member on the Board of Directors of
Impax since May 5, 1999. He has served as General Manager and First Vice
President of the Overseas Business Department of China Development Corporation
since 1995 and served in the same positions in the Corporation Planning
Department of China Development Corporation. Mr. Keng has also worked in the
Business Planning Department for China Securities Investment Trust Corporation
and worked in the Trust and Funding Departments of the International Commercial
Bank of China.
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<PAGE>
Tan Soo Bin, Ph.D.: Dr. Tan has served as a member on the Board of
Directors of Impax since May 6, 1998. From mid-1996 to date, Dr. Tan has served
as executive director of CCM Pharma Sdn Bhd, a subsidiary of CCM. From 1991
until his joining CCM Pharma Sdn Bhd, Dr. Tan was the Head of Formulation R&D
with Norton Healthcare, UK, a subsidiary of IVAX Corporation.
May Chu, M.S.: Ms. Chu joined IMPAX Pharmaceuticals in 1996, as a Vice
President, Analytical and QA. From 1985 to 1996, Ms. Chu was employed at Watson
Laboratories in the areas of Analytical and QA. Prior to joining Watson, she
worked at Rachelle Laboratories for 5 years as a research chemist. Ms. Chu
received her B.S. in chemistry from National Tsing-Hwa University in Taiwan and
M.S. degree in analytical and inorganic chemistry from University of Iowa.
Executive Compensation
The following table summarizes the compensation earned by or paid to
Impax's President and Chief Executive Officer and its other most highly
compensated executive officers who earned more than $100,000 in 1998, for 1996,
1997 and 1998. We refer to this table as the "Impax Summary Compensation
Table."
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------
Name and Principal Position Year Salary Bonus Restr. Stock Warrants
- ----------------------------- ------ ---------------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Charles Hsiao, Ph.D. 1998 $ 116,479.32 -0- -0- 200,000
Chairman, 1997 $ 136,871.53 -0- -0- -0-
Chief Executive Officer 1996 -0- -0- -0- -0-
Larry Hsu, Ph.D. 1998 $ 118,203.60 -0- -0- 200,000
President, 1997 $ 98,353.28 -0- -0- -0-
Chief Operating Officer 1996 -0- -0- -0- -0-
</TABLE>
Employment Agreements
Dr. Charles Hsiao and Dr. Larry Hsu have each entered into five year
employment agreements with Impax, which commenced effective September 30, 1996.
These employment agreements provide that each will be paid an annual salary of
$120,000 per year, subject to discretionary increases by the Board of Directors
and customary benefits. The current salaries for Dr. Hsiao and Hsu are each
$120,000 per year. Each of the employment agreements further provide that if
the executive is terminated without cause, or if executive resigns due to a
reduction in his responsibilities or a change in his reporting relationship so
that he no longer reports to the Board of Directors, then Impax will continue
to pay executive and provide his benefits package for three years following
termination. However, if the merger is approved, this employment agreement will
be superseded by the employment agreements contemplated in the merger. On April
2, 1999, each of Dr. Hsiao and Dr. Hsu were granted options to purchase 100,000
shares of Impax. Dr. Hsiao's exercise price was $2.75 per share and Dr. Hsu's
exercise price was $2.50 per share.
Employee Stock Options
The 1996 Option Plan
During September 1996, the board of directors adopted the Impax
Pharmaceuticals, Inc. 1996 Stock Option Plan (the "1996 Plan") which was
approved by Impax's stockholders on September 30, 1996. The 1996 Plan
authorizes the issuance of options to purchase up to 500,000 shares of Impax's
common stock. On May 5, 1998, the outstanding options were amended to reduce
the per share price of outstanding options to $2.50 per share and to adopt an
ascending vesting schedule.
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<PAGE>
The 1996 Plan allows the board of directors to grant stock options from
time to time to employees, consultants, officers and directors of Impax. The
board has the power to determine at the time the option is granted whether the
option will be an incentive stock option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
incentive stock option. Vesting provisions are determined by the board at the
time the options are granted. The option price for any option will be no less
than the fair market value of the common stock on the date the option is
granted.
From the period of September 1996 through October 1998, Impax's Board of
Directors granted a total of 417,000 options to a total of 25 employees and
consultants. Except as disclosed below, all options have an exercise price of
$2.50 per share. In connection with the reorganization of Impax
Pharmaceuticals, LLC, Impax assumed options granted under the Impax
Pharmaceuticals, LLC option plan for an aggregate of 18,000 shares which have
an exercise price of $1.00 per share. Additionally, Dr. Hsiao received an
option on April 12, 1999 to purchase 100,000 shares of common stock at any
exercise price of $2.75 per share.
The 1999 Equity Incentive Plan
During April 1999, the board of directors adopted the Impax
Pharmaceuticals, Inc. 1999 Equity Incentive Plan (the "1999 Pre-Merger Plan")
which was approved by Impax's stockholders during a special meeting of the
stockholders on March 22, 1999. The 1999 Pre-Merger Plan reserves for issuance
1,000,000 shares of Impax's common stock for issuance pursuant to stock option
grants, stock grants and restricted stock purchase agreements.
The 1999 Pre-Merger Plan allows the board of directors to grant stock
options or bonuses from time to time to employees, consultants, officers and
directors of Impax. The board has the power to determine at the time the option
is granted whether the option will be an incentive stock option (an option
which qualifies under Section 422 of the Internal Revenue Code of 1986) or an
option which is not an incentive stock option. Vesting provisions are
determined by the board at the time each particular stock award is granted. The
price for any stock award will be no less than the fair market value of the
common stock on the date the stock award is granted.
From the period of April 1999 through July 1999, Impax's Board of
Directors granted a total of 251,100 options to a total of 30 employees and
consultants. To date, all options granted have an exercise price of $2.50 per
share, except with respect to the option granted to Dr. Hsiao and described
below.
On April 2, 1999, Charles Hsiao, Ph.D. was granted an option to purchase
100,000 shares of common stock at an exercise price of $2.75 per share. The
shares covered by the option vest and become exercisable in accordance with the
following schedule: (i) first year -- 10%; (ii) second year -- 20%; (iii) third
year -- 30%; and (iv) fourth year -- 40%.
On April 2, 1999, Larry Hsu, Ph.D. was granted an option to purchase
100,000 shares of common stock at an exercise price of $2.50 per share. The
shares covered by the option vest and become exercisable in accordance with the
following schedule: (i) first year -- 10%; (ii) second year -- 20%; (iii) third
year -- 30%; and (iv) fourth year -- 40%.
On April 2, 1999, Oh Kim Sun was granted an option to purchase 5,000
shares of common stock at an exercise price of $2.50 per share. The shares
covered by the option vest and become exercisable in accordance with the
following schedule: (i) first year -- 10%; (ii) second year -- 20%; (iii) third
year -- 30%; and (iv) fourth year -- 40%.
On April 2, 1999, Tan Soo Bin, Ph.D. was granted an option to purchase
2,000 shares of common stock at an exercise price of $2.50 per share. The
shares covered by the option vest and become exercisable in accordance with the
following schedule: (i) first year -- 10%; (ii) second year -- 20%; (iii) third
year -- 30%; and (iv) fourth year -- 40%.
Employee Warrants
In November, 1998, the board of Impax authorized the grant of warrants to
each of Charles Hsiao, Ph.D. and Larry Hsu, Ph.D. Each warrant entitles the
holder to purchase 200,000 shares of common stock of Impax
117
<PAGE>
at $2.50 per share. These warrants are immediately exercisable and are not
subject to repurchase by Impax. The warrants expire on December 31, 2003. In
April 1999, the board of directors of Impax authorized the grant of a warrant
to Tan Soo Bin, Ph.D. This warrant entitles Dr. Tan to purchase 40,000 shares
of common stock of Impax at $2.50 per share. This warrant is exercisable
beginning October 1, 2000, and is not subject to repurchase by Impax. This
warrant expires on October 1, 2006.
Certain Transactions of Impax
Impax Acquisitions
Impax is the successor corporation to two previous California entities.
The reorganization history of Impax and its predecessors is described below.
The original entity was incorporated in California under the same name, Impax
Pharmaceuticals, Inc. on September 27, 1994. On June 6, 1995, Impax
Pharmaceuticals, LLC, a California limited liability company, acquired all of
the assets, and assumed all of the liabilities, of the former Impax
Pharmaceuticals, Inc. in a tax-free reorganization. As part of the
reorganization, the shareholders of the former Impax Pharmaceuticals, Inc. were
issued units in Impax Pharmaceuticals, LLC in the same ownership percentage
(and with comparable rights and privileges) as they held in the predecessor
corporation.
On or about September 30, 1996, Impax Pharmaceuticals, Inc., the currently
existing California corporation, acquired all of the assets, and assumed all of
the liabilities, of Impax Pharmaceuticals, LLC in a tax-free reorganization. As
part of the reorganization, the shareholders of Impax Pharmaceuticals, LLC were
issued stock in the currently existing Impax in the same ownership percentages
(and with comparable rights and privileges) as they held in the predecessor
corporations.
Anti-Dilution Protection to Series C Preferred Stock.
In the first quarter of 1999, Chemical Company of Malaysia purchased
800,000 shares of Series D preferred stock of Impax. In order to induce
Chemical Company of Malaysia to make such an investment, Impax agreed to amend
its Articles of Incorporation to adjust the ratio at which Series C preferred
stock converts into common stock of Impax from the existing 1:1 ratio to a
ratio of 1.7534:1.
Cross Licensing Agreement.
On September 30, 1996, Impax and Chemical Company of Malaysia entered into
a cross licensing agreement. This agreement grants Chemical Company of Malaysia
a right of first refusal to exclusively manufacture and sell each of Impax's
products in certain Southeast Asian countries. For each product that Chemical
Company of Malaysia accepts such a right of first refusal, it will pay a
royalty to Impax ranging from 3% to 5% of net revenues from such product,
depending on the aggregate revenues generated from such product in any year.
The cross licensing agreement also grants Impax a right of first refusal to
exclusively manufacture and market each of Chemical Company of Malaysia's
pharmaceutical products in Mexico, Canada and U.S., in exchange for royalty
payments ranging from 3% to 5%, depending upon the aggregate revenues generated
from such product in any year. To date, no activity has generated any royalty
payment rights or obligations for either party.
Convertible Promissory Notes and Warrants.
In fourth quarter 1994, Impax issued promissory notes convertible into
Impax Series A preferred stock at a conversion price of $1.00 per share and
warrants to the following persons in the amounts described below:
<TABLE>
<CAPTION>
Loan Amount Warrants for Series A
Name Not to Exceed Preferred Stock @ $1/share
---- --------------- ---------------------------
<S> <C> <C>
Charles Hsiao, Ph.D. ......... $500,000 500,000 shares
Larry Hsu, Ph.D. ............. $100,000 100,000 shares
John Hsiao(1) ................ $100,000 100,000 shares
Richard Hsiao(1) ............. $ 15,000 15,000 shares
</TABLE>
- ------------
(1) John Hsiao and Richard Hsiao are brothers of Dr. Charles Hsiao
118
<PAGE>
Each of the above referenced notes and warrants were assumed by Impax
Pharmaceuticals, LLC, a California limited liability company in connection with
the tax-free reorganization in mid-1995. On October 1, 1995, the promissory
notes for John Hsiao and Richard Hsiao were paid in full by conversion of the
outstanding amounts of $100,000 and $15,000, respectively into 100,000 and
15,000 shares of Series A Preferred Stock. Those promissory notes were
thereafter canceled.
The two remaining notes and the four warrants were subsequently assumed in
September 1996, by Impax in connection with the acquisition by Impax of all of
the assets of Impax Pharmaceuticals, LLC. On September 30, 1996, the
then-outstanding principal due under the promissory notes for Drs. Hsiao and
Hsu were converted into 399,818 and 61,819 shares of Series A preferred stock,
respectively. On June 30, 1998, the remaining outstanding balance due under the
promissory notes for Drs. Hsiao and Hsu were paid in full by conversion into
100,182 and 38,181 shares of Series A preferred stock, respectively. The two
promissory notes were then canceled.
On October 1, 1998, each of Dr. Hsiao, Dr. Hsu, John Hsiao and Richard
Hsiao fully exercised their warrants in the amounts indicated above.
TRANSACTIONS BETWEEN GLOBAL AND IMPAX
On August 11, 1999, Global and Impax entered into a Packaging Agreement
and an Exclusive Marketing Agreement relating to Impax's ANDA for
Pentoxyfylline Extended Release tablets. The Packaging Agreement provides that
Global will package all of the tablets produced by Impax, subject to compliance
with the FDA's cGMP and all other federal, state and local laws and
regulations. Global will be paid $7,600 for each batch of 8,000 units of 100
tablets and $1,600 for each batch of 800 units of 1,000 tablets. The agreement
may be terminated at any time by either party upon 180 days' written notice.
The agreement may also be terminated if the FDA revokes its approval of the
product or if the other party breaches a material term of the agreement.
Pursuant to the Exclusive Marketing Agreement, Impax has given Global the
exclusive rights to market, sell and distribute Pentoxyfylline Extended Release
tablets throughout the United States and Canada for an initial period of three
years from the date of the agreement. The agreement is renewable for additional
one-year terms and may be terminated upon the same terms as the Packaging
Agreement. Global will pay Impax 70% of the net profits which Global realizes
from the sale of the tablets. Net profits are determined by a formula set forth
in the Exclusive Marketing Agreement.
119
<PAGE>
MANAGEMENT OF THE COMBINED COMPANY
The directors and executive officers of the combined company
The executive officers and directors of the combined company are expected
to be as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------- ----- --------------------------------------------------
<S> <C> <C>
Charles Hsiao 55 Chairman, Co-Chief Executive Officer and Director
Barry R. Edwards 43 Co-Chief Executive Officer and Director
Larry Hsu 50 President, Chief Operating Officer and Director
David J. Edwards 34 Director
Brian Keng 45 Director
Jason Lin 56 Director
Michael Markbreiter 36 Director
Oh Kim Sun 51 Director
Nigel Fleming 45 Director
Cornel C. Spiegler 55 Chief Financial Officer
May Chu 48 Vice President, Quality Affairs
Mitchell Goldberg 48 Vice President, Sales
Pieter J. Groenewoud 45 Vice President, Product Development (PA Site)
Joseph A. Storella 57 Vice President, Operations
</TABLE>
- ------------
Charles Hsiao, Ph.D. co-founded Impax in 1994, and has served as Chairman,
Chief Executive Officer and a Director since its inception. Dr. Hsiao
co-founded IVAX Corporation in 1986 with two partners. By October 1994, when he
left the Vice-Chairman position at IVAX, IVAX had become the world's largest
generic pharmaceutical company with approximately 7000 employees and $1billion
in worldwide sales. Dr. Hsiao's technical expertise is in the area of
formulation and development of oral controlled-release dosage form. Dr. Hsiao
obtained his Ph.D. in pharmaceutics from University of Illinois
Barry R. Edwards has been President of Global since August 1998 and Chief
Executive Officer and a director of Global since January 1999. From 1996 to
1998, Mr. Edwards was Vice President, Marketing and Business Development for
Teva Pharmaceuticals USA, a manufacturer of generic drugs. From 1991 to 1996,
Mr. Edwards served as Executive Director of Gate Pharmaceuticals, a division of
Teva Pharmaceuticals USA. Prior to 1991, Mr. Edwards held a number of
management functions in strategic planning, corporate development, business
development and marketing at Teva Pharmaceuticals USA.
Larry Hsu, Ph.D. co-founded Impax in 1994. He has served as a President,
Chief Operating Officer and a member of the Board of Directors since its
inception. From 1980 to 1995, Dr. Hsu worked at Abbott Laboratories for 15
years. During the last four years at Abbott, Dr. Hsu was the Director of
Product Development in charge of formulation development, process engineering,
clinical lot manufacturing and production technical support of all dosage
forms, managing a staff of approximately 250 people. Dr. Hsu's technical
expertise is in the area of formulation and development of injectable products,
particularly products that require lyophilization technology, such as
anti-cancer drugs and biotechnology products. Dr. Hsu obtained his Ph.D. in
pharmaceutics from University of Michigan.
David J. Edwards has been a Vice President at Fleming Asset Management
since 1994. Prior to that time, Mr. Edwards was an Associate with Booz Allen &
Hamilton, a strategic management consulting company based in New York. From
1987 to 1990, Mr. Edwards was a Process Engineer with Exxon Chemical
Corporation. Mr. Edwards received an MBA from Harvard Business School and a
Masters in Engineering from Cambridge University.
Jason Lin has served as a member on the Board of Directors of Impax since
May 2, 1999. Mr. Lin has served as Chairman of President Baseball Team Corp., a
Taiwan national baseball league, for approximately ten years. He has also
served as Chairman of President Coffee Corp. in Taiwan for approximately two
years, and as Chairman of Presicarre Co. for approximately three years.
120
<PAGE>
Brian Keng has served as a member on the Board of Directors of Impax since
May 5, 1999. He has served as General Manager and First Vice President of the
Overseas Business Department of China Development Corporation since 1995 and
served in the same positions in the Corporation Planning Department of China
Development Corporation. Mr. Keng has also worked in the Business Planning
Department for China Securities Investment Trust Corporation and worked in the
Trust and Funding Departments of the International Commercial Bank of China.
Michael Markbreiter has been a portfolio manager for private equity
investments for Kingdon Capital Management Corp., a manager of investment fund
since August 1995. In April 1994, Mr. Markbreiter co-founded Ram Investment
Corp., a venture capital company. From March 1993 to January 1994, Mr.
Markbreiter served as a portfolio manager for Kingdon Capital Management Corp.
From December 1989 to February 1993, Mr. Markbreiter was an analyst at Alliance
Capital Management Corp. From July 1993 to September 1989, Mr. Markbreiter was
an Executive Editor for Arts of Asia magazine. Mr. Markbreiter has served as a
Director of Alyn Corporation, an advanced materials producer, since May 1996.
Mr. Markbreiter graduated from Cambridge University with a degree in
Engineering.
Oh Kim Sun has served as a member on the Board of Directors of Impax since
September 30, 1996. He has been employed with Chemical Company of Malaysia
Berhad, or CCM since 1990, and currently serves as Group Executive Director of
CCM. He also holds the Chairman position with CCM Pharma, UPHA Corporation, and
Primary Health Sdn. Bhd.. Mr. Oh also serves as a director of Chemical Company
of Malaysia Berhad, a Malaysian corporation whose stock is listed on the Kuala
Lumpur Stock Exchange, and Nortran Pharmaceuticals Inc., a Canadian
corporation, whose stock is listed on the Vancouver Stock Exchange. Mr. Oh is a
fellow member of The Institute of Chartered Accountants of England and Wales
and the Malaysian Association of Certified Public Accountants.
Nigel Fleming, Ph.D. has been Chief Financial Officer and a director of Bay
Area Psychological Testing (BAPTA) since January, 1999. Dr. Fleming co-founded
Biovision, Inc. in 1996 and served as Managing Director and a director of
Biovision from 1996 to 1999. Dr. Fleming also served as Chairman, President and
Chief Executive Officer of Agricola Technologies, Inc. from July, 1996 to the
present. In November, 1986, Dr. Fleming founded Genica Pharmaceuticals
Corporation, where he served at various times as Chairman, Chief Executive
Officer, Board Member and Vice-President -- Business Development from 1986
through 1995, when the company was sold to Athena Neurociences (now Elan
Pharmaceuticals), where Dr. Fleming was Director of Business Development for
approximately two years. Dr. Fleming obtained his Ph.D. in Clinical Biochemistry
from the University of Cambridge in England.
Cornel C. Spiegler has been Chief Financial Officer and Vice President --
Administration of Global since September 1995. From 1989 to 1995, Mr. Spiegler
was Chief Financial Officer and Senior Vice President of United Research
Laboratories, Inc. and Mutual Pharmaceutical Company, Inc., companies engaged
in the generic pharmaceutical industry. Mr. Spiegler is a certified public
accountant.
May Chu, M.S. joined Impax in 1996, as a Vice President, Analytical and
Quality Assurance. From 1985 to 1996, Ms. Chu was employed at Watson
Laboratories in the areas of Analytical and QA. Prior to joining Watson, she
worked at Rachelle Laboratories for 5 years as a research chemist.
Pieter J. Groenewoud has been with Global since October 1995, most
recently as Vice President -- Product Development. From 1992 to 1995, Mr.
Groenewoud was General Manager of Vintage Pharmaceutical Inc., a manufacturer
of generic drug pharmaceutical products.
Mitchell Goldberg has been Vice President -- Sales and Marketing of Global
since March 1997. From October 1996 until March 1997, Mr. Goldberg served as
Vice President -- Sales and Marketing from Ethex Corporation, a generic
manufacturing company. From 1985 to 1996, Mr. Goldberg held a number of sales
and marketing management positions with Schein Pharmaceutical, Inc., a generic
pharmaceutical company.
Joseph A. Storella has been Vice President -- Operations of Global since
May 1996. From 1986 to 1996, Mr. Storella served as General Manager of Chelsea
Laboratories, formerly a division of Rugby-Darby Group Companies which in 1993
was purchased by Marion Merrell Dow and subsequently purchased by The Hoechst
Company.
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<PAGE>
Board Observers
Pursuant to the merger agreement, each of Global and Impax has the right
to designate one person as a board observer of the combined company. Global has
selected Philip R. Chapman as its board observer and Impax has selected Tan Soo
Bin as its board observer.
Committees of the Board
The board of directors of the combined company will have an executive
committee, an audit committee, a compensation committee and a stock option
committee. The members of the various committees will be appointed by the board
after the effective date of the merger.
The executive committee will have all the powers of the board of directors
except that it will not be authorized to amend the certificate of incorporation
of the combined company, declare any dividends or issue shares of capital
stock.
The audit committee will review with the combined company's independent
accountants the scope and timing of their audit services, any other services
they are asked to perform, the report of independent accountants on the
combined company's financial statements following completion of their audit and
the combined company's policies and procedures with respect to internal
accounting and financial controls. In addition, the audit committee will make
an annual recommendation to the board of directors concerning the appointment
of independent accountants for the ensuing year.
The compensation committee will review and make recommendations to the
board of directors regarding the compensation and benefits of all officers of
the combined company and will review general policy matters relating to
compensation and benefits of employees of the combined company.
The stock option committee will review the stock option benefits of all
officers of the combined company and other participants in the stock option
plans of the combined company, including the 1999 Equity Incentive Plan. The
stock option committee will also review general policy matters relating to
stock options, grant stock options to officers of the combined company and
other participants in the stock option plans of the combined company and
administer the 1999 Equity Incentive Plan.
Director Compensation
Members of the board of directors of the combined company will not receive
any annual compensation for acting in their capacity as members of the board of
directors. We anticipate that we will pay our non-employee directors $500 for
each attended meeting of the board of directors. We also intend to grant each
non-employee director pursuant to the 1999 Equity Incentive Plan, options to
purchase 2,000 shares of stock annually. We also anticipate granting Nigel
Fleming and the second mutually agreed upon board member (when first selected)
additional options pursuant to the 1999 Equity Incentive Plan to purchase
10,000 shares upon the closing of the merger. All of these options will vest
ratably over three years commencing on the first anniversary of the grant date,
and will be exercisable at the fair market value on the date of grant. The
combined company will reimburse its directors and board observers for their
respective out-of-pocket expenses incurred in attending board and committee
meetings.
Executive Compensation
At the effective time of the merger, it is expected that the employment
agreements of Barry Edwards with Global and of Charles Hsiao and Larry Hsu with
Impax will terminate and each of them will enter into a new employment
agreement with the combined company.
Employment Agreements of the Combined Company
It is a condition to the closing of the merger that each of Mr. Edwards,
and Drs. Hsiao and Hsu enter into a new employment agreement with the combined
company. Each of these employment agreements is expected to be on substantially
the same terms. Mr. Edward's and Dr. Hsiao's agreements will provide that they
will serve as Co-Chief Executive Officers of the combined company and, in the
case of Dr. Hsiao, Chairman of the Board. Dr. Hsu's agreement will provide that
he will serve as President and Chief Operating Officer of the combined company.
The other material terms of these employment agreements are described below.
122
<PAGE>
Each employment agreement will be for an initial term of three years, and
will be renewed automatically for successive one-year terms unless terminated
by either party at least six months prior to the expiration of the initial term
or any renewal term. Each of the executives will receive an annual salary of
$175,000, and will be entitled to a bonus based on criteria established by the
board of the combined company. Any bonus paid to one of these three executives
must be similarly paid at the same time to the other two executives.
Any of the executives may be terminated by the combined company, either
with or without cause. The executive may terminate his own employment for any
reason, or for good reason. These terms are defined more fully in the
employment agreements. In general, cause means:
o a material breach of the provisions of the employment agreement relating
to proprietary information, trade secrets, confidentiality and
non-competition;
o a material breach of any other provision of the employment agreement that
is not remedied within 30 days of such breach;
o any act of fraud or embezzlement against the combined company; or
o any indictment of the executive for a felony or other crime that would
cause injury to the reputation of the combined company.
In general, good reason means:
o assignment of duties or a reduction in duties which is inconsistent with
the executive's position;
o a material reduction in executive's salary or benefits not agreed to by
the executive;
o a relocation that would require executive to have a commute of more than
50 miles; or
o a change in control of the combined company.
In general, a change in control is defined as:
o the acquisition by any person or entity of ownership or control of more
than 50% of the voting power of the combined company;
o a sale or disposition of assets totaling more than 50% of the value of
the combined company;
o a merger or reorganization in which the combined company's stockholders
immediately prior to the merger do not own at least 51% of the voting
power of the company after the merger;
o any transaction where the combined company's stockholders immediately
prior to the transaction do not own at least 51% of the voting power of
the company after the transaction; or
o any other transaction that the board determines would materially alter
the structure, ownership or control of the combined company.
If the executive is terminated without cause or terminates his employment
for good reason, he will be entitled to receive a payment of all accrued and
unpaid salary and benefits plus salary and benefits for the next six months or,
if less, the remainder of the term of the employment agreement.
123
<PAGE>
The executives have also agreed to keep all proprietary information of the
combined company confidential and to assign all proprietary information or
intellectual property developed by the executive during the course of his
employment to the combined company. Each executive has also agreed that during
the term of the employment agreement and for a period of two years following
the termination of his employment, he will not engage in a business competitive
with that of the combined company or entice any of the combined company's
employees to leave the employ of the combined company or entice any of the
combined company's customers, suppliers or business partners to end their
relationship with the combined company.
In addition to the terms previously described, Mr. Edwards' employment
agreement provides that he will receive an option to purchase 270,000 shares of
common stock at the prevailing market price at the time the option is granted.
It is expected that the option will be granted immediately after the merger is
completed. Global's Board of Directors, Mr. Edwards and certain persons who are
a majority of the individuals designated to become directors of the combined
company have agreed that Mr. Edwards will not receive any additional stock
options for the next three years. The shares covered by this option vest and
become exercisable on the following schedule: (i) first year -- 0%; (ii) second
year -- 10%; (iii) third year -- 40%; (iv) fourth year -- 50%.
Impax Laboratories, Inc. 1999 Equity Incentive Plan
The board of directors of Global unanimously adopted, subject to approval
of the merger proposal by Global's stockholders, the Impax Laboratories, Inc.
1999 Equity Incentive Plan, referred to in this joint proxy
statement/prospectus as the "1999 Equity Incentive Plan." The board of
directors believes that approval of the 1999 Equity Incentive Plan will serve
the best interests of the combined company and its stockholders by permitting
the combined company to establish a flexible vehicle through which the combined
company can offer equity-based compensation incentives to eligible personnel
with a view toward promoting the long-term financial success of the combined
company and enhancing stockholder value. The primary features of the plan are
summarized below. The full text of the plan is set forth in Annex G to this
joint proxy statement/prospectus and the following discussion is qualified in
its entirety by reference thereto.
The 1999 Equity Incentive Plan authorizes the grant of stock options,
stock appreciation rights, (commonly known as SARs), and stock bonus awards to
any member of the combined company's board of directors, any officer or other
employee of the combined company or its affiliates or any consultant who
performs or will perform services for the combined company or its affiliates.
In addition, each non-employee director of the combined company will receive an
automatic grant of a stock option to purchase 2,000 shares of common stock
under the plan upon his or her commencement of service as a non-employee
director of the combined company and each non-employee director will also
receive an automatic annual grant of a stock option to purchase 2,000 shares of
common stock on the day following each annual meeting of stockholders of the
combined company that occurs at least one year after his or her commencement of
service as a non-employee director. These annual grants vest ratably over a
three year period.
Subject to adjustment to reflect stock dividends and other capital
changes, the maximum number of shares of common stock which may be issued under
the 1999 Equity Incentive Plan is 2,400,000 shares. Shares subject to awards
under the 1999 Equity Incentive Plan that are canceled, expired, terminated,
forfeited, settled in cash or withheld to satisfy the applicable purchase price
or tax withholding obligations shall again be available for issuance under the
1999 Equity Incentive Plan.
Shares of common stock available for issuance under the 1999 Equity
Incentive Plan may be either authorized and unissued or held by the combined
company in its treasury. If the merger proposal is approved by the Global
stockholders at the special meeting, the 1999 Equity Incentive Plan will be
effective as of the closing of the merger and will, unless terminated earlier
by the board of directors, terminate on the tenth anniversary of that date.
Subject to adjustment to reflect stock dividends and other capital
changes, the maximum number of shares of common stock with respect to which
stock options or SARs may be granted under the 1999 Equity Incentive Plan to
any employee for any calendar year will be 300,000 shares.
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<PAGE>
The 1999 Equity Incentive Plan will, except with respect to awards to
non-employee directors, be administered by the compensation committee of the
board, consisting of at least two directors appointed by and serving at the
pleasure of the board of directors or by the board of directors itself. Subject
to the provisions of the 1999 Equity Incentive Plan, and except with respect to
awards to non-employee directors, the compensation committee will have the
authority to grant awards under the 1999 Equity Incentive Plan, to interpret
the provisions of the plan, to fix and interpret the provisions of agreements
governing awards made under the plan, to supervise the administration of the
plan, and to take such other actions as may be necessary or desirable in order
to carry out the provisions of the plan. The plan will be administered by the
board of directors with respect to awards to non-employee directors.
Pursuant to his employment agreement, Barry R. Edwards will receive an
option to purchase 270,000 shares of common stock at the prevailing market price
at the time the option is granted. It is expected that the option will be
granted immediately after consummation of the merger. We also anticipate
granting Nigel Fleming and the second mutually agreed upon board member options
pursuant to the 1999 Equity Incentive Plan to purchase 12,000 shares upon the
closing of the merger or when first elected, as applicable. All of these options
will vest ratably over three years commencing on the first anniversary of the
grant date, and will be exercisable at the fair market value on the date of
grant. Other than with respect to these options expected to be granted to Mr.
Edwards and these outside directors, as well as the automatic annual option
grants made to non-employee directors (as described below), it is not possible
at this time to determine who may be selected to receive future awards under the
1999 Equity Incentive Plan or the number of shares subject to such awards in the
future.
STOCK OPTIONS GRANTED OR TO BE GRANTED TO THE CEO AND THE FOUR OTHER MOST
HIGHLY COMPENSATED EXECUTIVE OFFICERS AND THE NON-EMPLOYEE DIRECTORS IF THE
MERGER PROPOSAL INCLUDING THE 1999 IMPAX LABORATORIES, INC. EQUITY INCENTIVE
PLAN, IS APPROVED
<TABLE>
<CAPTION>
Name and Principal Position Exercise Price Per Stock Option(1) Number of Options
- -------------------------------------------------- ------------------------------------ ------------------
<S> <C> <C>
Barry R. Edwards 270,000
Co-Chief Executive Officer
David J. Edwards 2,000
Brian Keng 2,000
Jason Lin 2,000
Michael Markbreiter 2,000
Oh Kim Sun 2,000
Nigel Fleming 12,000
Mutually agreed upon board member, to be elected 12,000
at a later date
Non-Executive Officer Director Group 34,000
Non-Executive Officer Employee Group --
</TABLE>
- ------------
(1) The exercise price per stock option is expected to be, in all instances,
the closing price of the Global common stock on the date of grant. The
non-employee directors options vest and become exercisable in equal
increments on the first three anniversaries of the date of grant.
Discretionary Stock Option and SAR Awards
Under the 1999 Equity Incentive Plan, the compensation committee may grant
stock options that are intended to qualify as "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code (commonly known as
ISOs) and stock options which do not qualify as incentive stock options
(commonly known as NQSOs). ISOs may only be granted to employees of the
combined company or its affiliates that qualify as "subsidiaries" within the
meaning of Section 424 of the Code.
The exercise price for shares covered by an ISO may not be less than 100%
of the fair market value of the common stock on the date of grant (or, in the
case of a grant to an employee who is a "10% stockholder" of the combined
company or certain subsidiaries, 110% of the fair market value). The exercise
price for shares covered by a NQSO may not be less than the par value of the
common stock on the date of grant.
All options will, unless sooner terminated, expire ten years (or, in the
case of an incentive stock option granted to a 10% stockholder, five years)
from the date of grant. The compensation committee has the discretion to
determine the vesting and other restrictions on the exercise of an option
and/or upon the disposition of stock acquired upon the exercise of an option.
Payment for shares acquired upon the exercise of an option may be made (as
determined by the compensation committee) in cash and/or such other form of
payment as may be permitted under the option agreement. The compensation
committee may grant replacement options to certain individuals who used
previously-owned shares to pay the exercise price of their options.
125
<PAGE>
The committee may award SARs, which entitle the holder, upon exercise, to
receive an amount, in cash or shares of common stock or a combination thereof
(as determined by the compensation committee) determined with reference to the
appreciation, if any, in the fair market value of common stock during the
period beginning on the date the SAR is granted and ending on the date the SAR
is exercised. SARs may be awarded in conjunction with or independent of any
stock option award. SARs granted in conjunction with a stock option award are
exercisable only at the same time and to the same extent as the related option
is exercisable and may only be exercised when the fair market value of the
common stock to which it relates exceeds the option exercise price.
The 1999 Equity Incentive Plan generally provides that, unless otherwise
determined by the compensation committee, following a participant's termination
of employment or service:
o for any reason other than the death or disability, the participant will
have 30 days to exercise all then exercisable options or SARs; and
o as the result of death or disability, the participant (or his or her
beneficiary) will have one year to exercise all then exercisable options
or SARs;
provided that, in each instance, no options or SARs may be exercised beyond the
expiration of its stated term.
Stock Bonus Awards
The 1999 Equity Incentive Plan allows the compensation committee to grant
stock bonus awards in consideration for past services actually rendered to the
combined company or its affiliates on such terms and conditions it deems
appropriate. Shares subject to a stock bonus awards may, but need not, be
subject to a vesting schedule. Generally, unless otherwise determined by the
compensation committee, any unvested shares of common stock received pursuant
to a stock bonus award shall be forfeited upon a participant's termination of
employment or service with the combined company or its affiliates.
Non-Employee Director Automatic Stock Option Awards
Under the 1999 Equity Incentive Plan, each non-employee director of the
combined company will be automatically granted a NQSO to purchase 2,000 shares
of common stock upon his or her commencement of service as a non-employee
director of the combined company. In addition, each non-employee director of
the combined company will automatically be granted a NQSO to purchase 2,000
shares of common stock under the plan on the day following each annual meeting
of stockholders of the combined company that occurs at least one year after his
or her commencement of service as a non-employee director of the combined
company. The options will have a ten-year term and an exercise price equal to
the fair market value of the common stock on the date of grant. The options
granted upon a non-employee director's commencement of service will vest as to
one-third on each anniversary of the date of grant, provided that the director
remains in service during the vesting period. The options granted to
non-employee directors on an annual basis will generally become one-third
vested on each of the first three anniversaries of the grant date.
Federal Income Tax Consequences relating to Options
An optionee will not recognize taxable income upon the grant of an option.
The holder of a NQSO will generally recognize ordinary income upon the exercise
of the option in an amount equal to the excess of the fair market value of the
common stock over the exercise price (i.e., the option spread), and the
combined company will receive a corresponding deduction, subject to the
deduction limitation under Section 162(m) of the Internal Revenue Code. Upon a
later sale of the common stock, the optionee will recognize capital gain or
loss equal to the difference between the sale price and the sum of the exercise
price plus the amount of ordinary income recognized on exercise.
126
<PAGE>
The holder of an ISO will not recognize taxable income upon the grant or
exercise of the option (although, upon exercise, the option spread is
includable as income for purposes of the alternative minimum tax). If the
common stock acquired upon exercise of an ISO is sold or otherwise disposed of
within two years from the option grant date or within one year from the
exercise date, then, in general, gain realized on the sale is treated as
ordinary income to the extent of the ordinary income that would have been
realized upon exercise if the option had been a NQSO, and the combined company
will receive a corresponding deduction, subject to the deduction limitation of
Section 162(m) of the Internal Revenue Code. Any remaining gain is treated as
capital gain. If the common stock is held for at least two years from the grant
date and one year from the exercise date and the optionee is employed by the
combined company or certain subsidiaries at all times beginning on the grant
date and ending on the date three months (or, in the case of disability, one
year) prior to the exercise date, then all gain or loss recognized upon the
sale will be capital gain or loss and the combined company will not be entitled
to a deduction. A special basis adjustment applies to reduce the gain for
alternative minimum tax purposes.
127
<PAGE>
SECURITY OWNERSHIP OF THE COMBINED COMPANY
The following table sets forth the anticipated beneficial ownership of the
combined company after giving effect to the merger, as to each person (1)
expected to be a director or executive officer of the combined company, (2)
expected to be the beneficial owner of 5% of more of the shares of the combined
company's outstanding common stock or Series 1 preferred stock after the merger
and (3) all persons expected to be executive officers and directors of the
combined company, as a group.
<TABLE>
<CAPTION>
Common Stock Series 1 Preferred Stock
--------------------------- --------------------------
Name and address of beneficial owner No. of Shares Percent No. of Shares Percent
- -------------------------------------------------- --------------- --------- --------------- --------
<S> <C> <C> <C> <C>
Barry R. Edwards(1) .............................. 53,472 * 0
Charles Hsiao(2) ................................. 5,093,159 19.9 0
Larry Hsu(3) ..................................... 2,941,568 11.5 0
Brian Keng ....................................... 0 0
Jason Lin(4) ..................................... 3,669,357 12.9 55,000 25.0
Oh Kim Sun(5) .................................... 5,557,833 20.4 40,000 18.2
David Edwards(6) ................................. 0 0
Michael Markbreiter(7) ........................... 3,333 * 0
Nigel Fleming .................................... 0 0
Cornel C. Speigler(8) ............................ 50,282 * 0
May Chu(9) ....................................... 80,059 * 0
Joseph A. Storella(10) ........................... 43,667 * 0
Pieter J. Groenewoud(11) ......................... 39,908 * 0
Mitchell Goldberg(12) ............................ 25,000 * 0
Chemical Company of Malaysia(13) ................. 5,541,154 20.3 40,000 18.2
Chiin Hsiao Children Irrevocable Trust ........... 2,601,924 10.6 0
Hsu Children Irrevocable Trust ................... 1,334,320 5.4 0
China Development Industrial Bank(14) ............ 3,669,357 12.9 55,000 25.0
Kingdon Capital Management(15) ................... 1,882,353 7.6 0
Kingdon Offshore, N.V. .......................... 1,129,412 4.6 0
Kingdon Associates, L.P. ........................ 376,471 1.5 0
Kingdon Partners, L.P. .......................... 376,470 1.5 0
President (BVI) International Investment
Holdings Ltd.(16) ............................... 3,669,357 12.9 55,000 25.0
Robert Fleming, Inc.(17) ......................... 3,125,000 11.5 50,000 22.7
Fleming US Discovery Fund III, L.P. ............. 2,693,312 10.0 43,093 19.6
Fleming US Discovery Offshore Fund III, L.P...... 431,688 1.5 6,907 3.1
Laurie A. Miller(18) ............................. 4,059,668 16.0 0
All directors and executive officers as a group
(13 persons)(1)-(12) ............................ 17,557,638 52.9% 95,000 43.2%
</TABLE>
- ------------
(1) Consists of options to purchase 53,472 shares of common stock which may be
exercised within 60 days.
(2) Includes 500,370 shares of common stock held in trust for the benefit of
John Hsiao's children, 250,185 shares of common stock held in trust for
the benefit of Richard Hsiao's children, options to purchase 333,580 which
are immediately exercisable and warrants immediately convertible into
667,160 shares of common stock. Does not include 2,601,924 shares of
common stock held in the Chiin Hsiao Children Irrevocable Trust, as to
which shares Dr. Hsiao does not have voting or dispositive power.
128
<PAGE>
(3) Includes options to purchase 333,580 shares of common stock which are
immediately exercisable and warrants immediately convertible into 667,160
shares of common stock. Does not include 1,334,320 shares of common stock
held in the Hsu Children Irrevocable Trust, as to which shares Dr. Hsu does
not have voting or dispositive power.
(4) Consists of shares of Series 1-B preferred stock held by President
Enterprises Corporation, of which Mr. Lin is a substantial shareholder,
which shares are immediately convertible into 3,669,357 shares of common
stock.
(5) Includes shares of Series 1-B preferred stock held by the Chemical Company
of Malaysia, of which Mr. Oh is a substantial stockholder, which shares are
immediately convertible into 2,668,623 shares of common stock and an option
to purchase 16,679 shares of common stock which is immediately exercisable.
(6) Mr. Edwards is an employee of Fleming Asset Management, a division of
Robert Fleming, Inc. See also Note 17.
(7) Consists of options immediately exercisable for 3,333 shares of common
stock. Does not include shares beneficially owned by Kingdon Capital
Management Corporation ("KCMC"), the general partner of M. Kingdon
Offshore, N.V., Kingdon Associates, L.P. and Kingdon Partners, L.P.
(collectively, "Kingdon"), with which Mr. Markbreiter is associated. See
Note 15.
(8) Includes options to purchase 38,445 shares and a warrant to purchase 3,500
shares of common stock which may be exercised within 60 days.
(9) Consists of options immediately exercisable for 80,059 shares of common
stock.
(10) Includes options to purchase 38,667 shares of common stock which may be
exercised within 60 days.
(11) Includes options to purchase 36,444 shares of common stock which may be
exercised within 60 days.
(12) Consists of options to purchase 25,000 shares of common stock which may be
exercised within 60 days.
(13) Includes shares of Series 1-B preferred stock immediately convertible into
2,668,623 shares of common stock.
(14) Consists of shares of Series 1-B preferred stock immediately convertible
into 3,669,357 shares of common stock.
(15) KCMC, the general partner of Kingdon, is deemed to be the beneficial owner
of the 1,882,353 shares of common stock held by Kingdon.
(16) Consists of shares of Series 1-B preferred stock immediately convertible
into 3,669,357 shares of common stock.
(17) Consists of 2,500,000 shares of common stock which are issuable upon the
conversion of 50,000 shares of Series 1-A Preferred and warrants to
purchase an aggregate of 625,000 shares of common stock which may be
exercised within 60 days.
(18) Includes options immediately exercisable for 73,387 shares of common stock
and 3,936,244 shares of common stock owned by the Chiin Hsiao Children
Irrevocable Trust and the Hsu Children Irrevocable Trust, for which Laurie
A. Miller, who is general counsel to Impax, serves as trustee, and
therefore may be deemed to beneficially own the shares held by the trust.
Ms. Miller disclaims beneficial ownership of these shares.
129
<PAGE>
STOCK EXCHANGE LISTING
It is a condition to the merger that the shares of combined company common
stock to be issued in the merger be approved for listing on the Nasdaq Small Cap
Market. The combined company intends to apply for, to the extent appropriate,
its common stock to be traded on the Nasdaq National Market after the merger is
completed.
FEDERAL SECURITIES LAWS CONSEQUENCES:
STOCK TRANSFER RESTRICTION AGREEMENTS
This joint proxy statement/prospectus does not cover any resales of shares
of the combined company common stock received by Impax stockholders, and no
person is authorized to use this joint proxy statement/prospectus in connection
with any such resale.
All shares of the combined company common stock received by Impax
shareholders in the merger will be freely transferable, except that, shares of
the combined company common stock received by people who are considered to be
"affiliates" (as that term is defined under the Securities Act of 1933) of Impax
prior to the merger may be resold by them only in transactions permitted by the
resale provisions of Rule 144 or 145 promulgated under the Securities Act of
1933 or as otherwise permitted under the Securities Act of 1933. Generally,
people who may be deemed to be affiliates of Impax include individuals or
entities that control, are controlled by, or are under common control with,
Impax and may include officers, directors and principal shareholders of Impax.
The merger agreement requires Impax to use reasonable efforts to cause its
affiliates to execute a written agreement to the effect that such people will
not offer or sell or otherwise dispose of any of the shares of the combined
company common stock issued to such people in the merger in violation of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission.
In addition, we have agreed to use all reasonable efforts to cause our
respective affiliates to execute written agreements prohibiting their
transferring Impax common stock or Global common stock (and combined company
common stock subsequent to the merger) during the period commencing 30 days
prior to the date the merger becomes effective and ending when financial
results covering at least 30 days of the combined company's operations have
been published.
EXPERTS
The financial statements of Global as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 and the
financial statements of Impax as of December 31, 1998 and for each of the two
years in the period ended December 31, 1998 included in this joint proxy
statement/prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the combined company common stock to be issued in
connection with the merger will be passed upon by Fulbright & Jaworski L.L.P.
Laurie A. Miller, who has provided legal advice to Impax and serves as its
secretary, beneficially owns, as of October 1, 1999, 15,000 shares of Series A
preferred stock of Impax, and options to purchase 22,000 shares of Impax common
stock, exercisable at $2.50 per share. As a result of and at the closing of the
merger, these securities will be converted into 50,037 shares of Global common
stock and options to purchase 73,387 shares of common stock at a price of $0.75
per share. In addition, Ms. Miller may be deemed to beneficially own 3,936,244
shares of common stock in her capacity as trustee of the Chiin Hsiao Children
Irrevocable Trust and the Hsu Children Irrevocable Trust. Ms. Miller disclaims
beneficial ownership of these shares.
130
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
--------
<S> <C>
Global Pharmaceutical Corporation
Interim Financial Statements (unaudited)
Balance Sheet at June 30, 1999 and December 31, 1998 ..................................... F-2
Statement of Operations for the six months ended June 30, 1999 and 1998 .................. F-3
Statement of Changes in Stockholders' Equity for the six months ended June 30, 1999 and
the year ended December 31, 1998 ........................................................ F-4
Statement of Cash Flows for the six months ended June 30, 1999 and 1998 .................. F-5
Notes to Interim Financial Statements .................................................... F-6
Financial Statements
Report of Independent Accountants ........................................................ F-7
Balance Sheet at December 31, 1998 and December 31, 1997 ................................. F-8
Statement of Operations for each of the three years ended December 31, 1998 .............. F-9
Statement of Changes in Stockholders' Equity (Deficit) for each of the three years ended
December 31, 1998 ....................................................................... F-10
Statement of Cash Flows for each of the three years ended December 31, 1998 .............. F-11
Notes to Financial Statements ............................................................ F-12
Impax Pharmaceuticals, Inc.
Financial Statements
Report of Independent Accountants ........................................................ F-22
Balance Sheet at December 31, 1998 and June 30, 1999 (unaudited) ......................... F-23
Statements of Operations for the period from September 27, 1994 (Date of Inception) to
June 30, 1999, the years ended December 31, 1998 and 1997 and six months ended June 30,
1999 and 1998 (unaudited) ............................................................... F-24
Statement of Cash Flows for the period from September 27, 1994 (Date of Inception) to
June 30, 1999, the years ended December 31, 1998 and 1997 and six months ended
June 30, 1999 and 1998 (unaudited) ...................................................... F-25
Statement of Changes in Shareholders' Equity from September 27, 1994 to December 31, 1998
and for the six months ended June 30, 1999 (unaudited) .................................. F-26
Notes to Financial Statements ............................................................ F-28
</TABLE>
All financial statement schedules are omitted because they are not required.
F-1
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
BALANCE SHEET
(Unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................. $ 2,602 $ 1,304
Short term investments ................................................................ 507 0
Accounts receivable ................................................................... 2,583 1,088
Inventories ........................................................................... 1,321 763
Prepaid expenses and other assets ..................................................... 118 51
--------- ---------
Total current assets ............................................................... 7,131 3,206
Property, plant and equipment, net ..................................................... 3,890 4,054
Intangible assets, net of accumulated amortization of $ 412 and $ 294 .................. 765 883
Deferred financing costs, net .......................................................... 24 26
Investments ............................................................................ 684 684
--------- ---------
Total assets ....................................................................... $ 12,494 $ 8,853
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt ..................................................... $ 168 $ 161
Notes payable ......................................................................... 764 804
Accounts payable ...................................................................... 1,149 927
Accrued expenses ...................................................................... 1,595 1,019
--------- ---------
Total current liabilities .......................................................... 3,676 2,911
Long-term debt ......................................................................... 1,876 1,967
--------- ---------
5,552 4,878
--------- ---------
Mandatorily redeemable preferred stock:
Series A mandatorily redeemable convertible Preferred Stock, 0 shares and 11,280
shares outstanding at June 30, 1999 and December 31, 1998, respectively; $.01 par
value, redeemable at $100 per share ................................................... 0 1,128
Series B mandatorily redeemable convertible Preferred Stock, 0 and 43,255 shares out-
standing at June 30, 1999 and December 31, 1998, respectively; $.01 par value,
redeemable at $100 per share .......................................................... 0 4,326
Series C mandatorily redeemable convertible Preferred Stock, 9,000 shares outstanding
at June 30, 1999 and December 31, 1998, respectively; $.01 par value, redeemable at
$100 per share ........................................................................ 900 900
Series D mandatorily redeemable convertible Preferred Stock, 50,000 and 0 shares out-
standing at June 30, 1999, and December 31, 1998, respectively; $.01 par value,
redeemable at $100 per share .......................................................... 5,000 0
--------- ---------
5,900 6,354
--------- ---------
Stockholders' equity (deficit):
Common stock, $.01 par value, 17,000,000 authorized and 7,254,053 shares issued and
outstanding at June 30, 1999, and 4,656,097 shares issued and outstanding at December
31, 1998 .............................................................................. 73 47
Additional paid-in capital ............................................................. 25,106 20,165
Accumulated deficit .................................................................... (24,137) (22,591)
--------- ---------
Total stockholders' equity (deficit) ............................................... 1,042 (2,379)
========= =========
Total liabilities and stockholders' equity (deficit) ............................... $ 12,494 $ 8,853
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF OPERATIONS
(unaudited)
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net sales .......................................... $ 4,217 $ 1,918
Cost of sales ...................................... 3,220 2,255
---------- ----------
Gross margin (loss) ................................ 997 (337)
Research and development ........................... 997 1,247
Selling, general and administrative ................ 1,524 1,174
Other operating income, net ........................ -- (352)
---------- ----------
Loss from operations ............................... (1,524) (2,406)
---------- ----------
Interest expense ................................... 94 39
Interest income .................................... (72) (98)
---------- ----------
Net loss ........................................... $ (1,546) $ (2,347)
Less: Imputed dividend on preferred stock .......... $ (1,474) $ --
---------- ----------
Net loss applicable to common stock ................ $ (3,020) $ (2,347)
========== ==========
Net loss per share (basic) ......................... $ (0.43) $ (0.54)
========== ==========
Net loss per share (diluted) ....................... $ (0.43) $ (0.54)
========== ==========
Weighted average common shares outstanding ......... 6,995,831 4,370,472
========== ==========
</TABLE>
- ------------
* The net loss per share for the six months ended June 30, 1999, includes an
aggregate preferred stock dividend of $1,005,000 to reflect the Series D
Preferred Stock at its liquidation value and of $469,000 representing the
difference between the conversion price of $2.00 per share and the market
value of the Common Stock on the date of the issuance of the Preferred
Stock.
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Common Stock Total
--------------------- Additional Stockholders'
Number of Par paid-in Accumulated equity
shares value capital deficit (deficit)
----------- ------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997 .................. 4,287 43 19,311 (17,976) 1,378
Expenses relating to issuance of Series B
Preferred Stock ............................... -- -- (23) -- (23)
Conversion of Series A and Series B Preferred
Stock ......................................... 369 4 877 -- 881
Issuance of Preferred Stock (Series C) ......... -- -- 140 -- 140
Accretion of Preferred Stock dividend
(Series C) .................................... -- -- (140) -- (140)
Net loss ....................................... -- -- -- (4,615) (4,615)
----- -- ------ ------- ------
Balances at December 31, 1998 .................. 4,656 47 20,165 (22,591) (2,379)
Conversion of Series A and Series B Preferred
Stock ......................................... 2,598 26 5,428 -- 5,454
Expenses relating to issuance of Series C and
Series D Preferred Stock ...................... -- -- (255) -- (255)
Issuance of Preferred Stock (Series D) ......... -- -- 603 -- 603
Accretion of Preferred Stock dividends
(Series D) .................................... -- -- (603) -- (603)
Net loss ....................................... -- -- -- (821) (821)
----- -- ------ ------- ------
Balances at March 31, 1999 ..................... 7,254 $ 73 $ 25,338 $ (23,412) $ 1,999
----- ---- -------- --------- --------
Expenses relating to issuance of Series D
Preferred Stock ............................... -- -- (247) -- (247)
Compensation expense on stock options to
directors ..................................... -- -- 15 -- 15
Issuance of Preferred Stock (Series D) ......... -- -- 870 -- 870
Accretion of Preferred Stock dividends
(Series D) .................................... -- -- (870) -- (870)
Net loss ....................................... -- -- -- (725) (725)
----- ---- -------- --------- --------
Balances at June 30, 1999 ...................... 7,254 $ 73 $ 25,106 $ (24,137) $ 1,042
===== ==== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $ (1,546) $ (2,347)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization ................................... 371 358
Expenses paid through issuance of warrants ...................... 0 10
Compensation expense on stock options to directors .............. 15 0
Change in assets and liabilities:
(Increase) in accounts receivable .............................. (1,495) (921)
(Increase) in inventory ........................................ (558) (183)
(Increase) in prepaid expenses and other assets ................ (65) (55)
Increase (decrease) in accounts payable and accrued expenses . 798 (104)
-------- --------
Net cash used for operating activities ....................... (2,480) (3,242)
-------- --------
Cash flows from investing activities:
Purchases of marketable securities ................................ (507) 0
Purchases of property, plant and equipment ........................ (89) (386)
-------- --------
Net cash used for investing activities ....................... (596) (386)
-------- --------
Cash flows from financing activities:
Repayments of long-term debt ...................................... (84) (80)
Repayments of notes ............................................... (40) 0
Issuance of stock and warrants:
Issuance of Preferred Stock, net of expense ..................... 4,498 (32)
-------- --------
Net cash provided by (used for) financing activities ......... 4,374 (112)
-------- --------
Net increase (decrease) in cash and cash equivalents ............... 1,298 (3,740)
-------- --------
Cash and cash equivalents, beginning of period ..................... $ 1,304 $ 4,719
-------- --------
Cash and cash equivalents, end of period ........................... $ 2,602 $ 979
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................ $ 94 $ 39
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Six Months Ended
June 30, 1999 and June 30, 1998
Note 1: The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form
10-KSB. The results of operations for the six months ended June 30, 1999, are
not necessarily indicative of the results of operations expected for the year
ending December 31, 1999.
In the opinion of management, the information contained in this report
reflects all adjustments necessary, which are of a normal recurring nature, to
present fairly the results for the interim periods presented.
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". The Company's comprehensive income (loss) for the six
months ended June 30, 1998 and 1999 is equal to its net loss for each period as
presented in the statement of operations.
Note 2: In March 1999, the Company issued 30,000 shares of Series D
Convertible Preferred Stock for aggregate proceeds of $3,000,000. After the
Company's stockholders authorized additional shares of common stock in May
1999, the Company issued 20,000 additional shares of Series D Convertible
Preferred Stock for aggregate proceeds of $2,000,000. In connection with these
transactions, the Company issued 775,000 five-year warrants at an initial
exercise price of $4.00. The fair value of the warrants, using the
Black-Scholes option pricing model, of $712,000 plus other issuance costs of
$293,000 were deducted from the gross proceeds. The difference between the net
proceeds and the Series D Preferred Stock at its liquidation value was
recognized as an imputed Preferred Stock dividend of $1,005,000 in the period
ended June 30, 1999, as from the date of issuance, the holders of Series D
Preferred Stock, at their option, are entitled to redeem any or all shares of
the preferred stock upon the occurrence of certain events, including: 1) a sale
of all or substantially all of the Company's operating assets; 2) the Company
becomes insolvent; 3) the Company goes private; or 4) a business combination
involving the Company in which the shareholders of the Company cease to own 50%
of the voting power of all classes of stock or 50% of the total equity
securities in the new entity.
At the option of the holder, each share of Series D Preferred Stock is
convertible into that number of shares of the Company's common stock as is
determined by dividing the liquidation value of $100 per share by the
conversion price. The conversion price is the lower of $2.00 per share or the
average closing sale price of the common stock for the five trading days
immediately preceding conversion. The difference between the $2.00 per share
conversion price and the market value of the common stock on the dates of the
issuance of Series D Preferred Stock was recognized as a Preferred Stock
dividend of $469,000 in the six months ended June 30, 1999.
Note 3: On July 26, 1999, the Company entered into a definitive merger
agreement with Impax Pharmaceuticals, Inc. ("Impax"), a privately held drug
delivery company located in Hayward, California. Under the terms of the
agreement, Global will acquire all of Impax's outstanding stock in exchange for
an aggregate of 31,571,274 shares of Global's common stock and preferred stock.
This transaction will be accounted for as reverse acquisition under the
purchase method of accounting with Impax deemed the acquirer. The merger is
expected to be completed in the fourth quarter of 1999, subject to approval by
stockholders and regulatory agencies, and customary closing conditions.
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Global Pharmaceutical Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Global
Pharmaceutical Corporation (the Company) at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
March 2, 1999
F-7
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
BALANCE SHEET
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 1,304 $ 4,719
Accounts receivable ........................................................ 1,088 215
Inventories ................................................................ 763 386
Prepaid expenses and other ................................................. 51 46
--------- ---------
Total current assets ..................................................... 3,206 5,366
Property, plant and equipment, net .......................................... 4,054 4,077
Intangible assets, net of accumulated amortization of $294 and $59 .......... 883 1,118
Deferred financing costs, net ............................................... 26 32
Investments ................................................................. 684 729
--------- ---------
Total assets ............................................................. $ 8,853 $ 11,322
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt .......................................... $ 161 $ 158
Notes payable .............................................................. 804 --
Accounts payable ........................................................... 927 673
Accrued expenses ........................................................... 1,019 649
--------- ---------
Total current liabilities ................................................ 2,911 1,480
Long-term debt .............................................................. 1,967 2,129
--------- ---------
4,878 3,609
--------- ---------
Commitments and contingencies (Note 13)
Mandatorily redeemable convertible Preferred Stock (Notes 10, 11 and 14):
Series A mandatorily redeemable convertible Preferred Stock,
11,280 and 13,350 shares outstanding at December 31, 1998
and 1997, respectively; $.01 par value, redeemable at
$100 per share ........................................................... 1,128 1,335
Series B mandatorily redeemable convertible Preferred Stock,
43,255 and 50,000 shares outstanding at December 31, 1998
and 1997, respectively; $.01 par value, redeemable
at $100 per share ........................................................ 4,326 5,000
Series C mandatorily redeemable convertible Preferred Stock,
9,000 shares outstanding; $.01 par value, redeemable
at $100 per share ........................................................ 900 --
--------- ---------
6,354 6,335
--------- ---------
Stockholders' equity (deficit):
Common Stock, $.01 par value, 10,000,000 authorized and
4,656,097 and 4,286,871 shares issued and outstanding
at December 31, 1998 and 1997, respectively .............................. 47 43
Additional paid-in capital ................................................. 20,165 19,311
Accumulated deficit ........................................................ (22,591) (17,976)
--------- ---------
Total stockholders' equity (deficit) ..................................... (2,379) 1,378
--------- ---------
Total liabilities and stockholders' equity (deficit) ..................... $ 8,853 $ 11,322
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF OPERATIONS
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales ........................................... $ 4,401 $ 427 $ --
Cost of sales ....................................... 4,681 321 --
---------- ---------- ----------
Gross margin (loss) ................................. (280) 106 --
Research and development expense .................... 2,229 -- --
Selling, general and administrative expense ......... 2,537 6,164 5,121
Other operating income, net ......................... (407) (122) (178)
---------- ---------- ----------
Loss from operations ................................ (4,639) (5,936) (4,943)
---------- ---------- ----------
Interest expense .................................... 113 65 40
Interest income ..................................... (137) (124) (375)
---------- ---------- ----------
Net loss ............................................ (4,615) (5,877) (4,608)
Less: Imputed dividends on
Preferred Stock* ................................... (140) (2,547) --
---------- ---------- ----------
Net loss applicable to Common Stock ................. $ (4,755) $ (8,424) $ (4,608)
========== ========== ==========
Net loss per common share (basic
and diluted)* ...................................... $ (1.07) $ (1.97) $ (1.08)
========== ========== ==========
Weighted average common
shares outstanding ................................. 4,432,016 4,286,871 4,269,967
========== ========== ==========
</TABLE>
* The net loss per share applicable to Common Stock for the year ended December
31, 1997 includes Preferred Stock dividends of $2,547,000, or $0.59 per
share, representing the difference between the per share conversion price
and the market value of the Common Stock on the dates of issuance of the
Series A and Series B Convertible Preferred Stock. The net loss per share
for the year ended December 31, 1998 includes a Preferred Stock dividend of
$140,000, or $0.03 per share, representing the difference between the fair
market value and liquidation value of the Series C Preferred Stock at
issuance date (See Note 10).
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Common stock
--------------------
Number of Par
shares value
----------- -------
<S> <C> <C>
Balances at December 31, 1995 .................................. 4,039 $ 40
Issuance of common stock in January 1996 (Note 11) ............. 248 3
Net loss ....................................................... -- --
----- ----
Balances at December 31, 1996 .................................. 4,287 43
Issuance of Preferred Stock (Series A and B) ................... -- --
Accretion of Preferred Stock dividends (Series A and B) ........ -- --
Expenses relating to issuance of Series A and Series B
Preferred Stock ............................................... -- --
Net loss ....................................................... -- --
----- ----
Balances at December 31, 1997 .................................. 4,287 43
Expenses relating to issuance of Series B Preferred
Stock ......................................................... -- --
Conversion of Series A and Series B Preferred Stock ............ 369 4
Issuance of Preferred Stock (Series C) ......................... -- --
Accretion of Preferred Stock dividend (Series C) ............... -- --
Net loss ....................................................... -- --
----- ----
Balances at December 31, 1998 .................................. 4,656 $ 47
===== ====
<CAPTION>
Total
Additional stockholders'
paid-in Accumulated equity
capital deficit (deficit)
------------ ------------- --------------
<S> <C> <C> <C>
Balances at December 31, 1995 .................................. $ 17,575 $ (7,491) $ 10,124
Issuance of common stock in January 1996 (Note 11) ............. 1,832 -- 1,835
Net loss ....................................................... -- (4,608) (4,608)
-------- --------- --------
Balances at December 31, 1996 .................................. 19,407 (12,099) 7,351
Issuance of Preferred Stock (Series A and B) ................... 2,547 -- 2,547
Accretion of Preferred Stock dividends (Series A and B) ........ (2,547) -- (2,547)
Expenses relating to issuance of Series A and Series B
Preferred Stock ............................................... (96) -- (96)
Net loss ....................................................... -- (5,877) (5,877)
-------- --------- --------
Balances at December 31, 1997 .................................. 19,311 (17,976) 1,378
Expenses relating to issuance of Series B Preferred
Stock ......................................................... (23) -- (23)
Conversion of Series A and Series B Preferred Stock ............ 877 -- 881
Issuance of Preferred Stock (Series C) ......................... 140 -- 140
Accretion of Preferred Stock dividend (Series C) ............... (140) -- (140)
Net loss ....................................................... -- (4,615) (4,615)
-------- --------- --------
Balances at December 31, 1998 .................................. $ 20,165 $ (22,591) $ (2,379)
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................... $ (4,615) $ (5,877) $ (4,608)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization ............................. 708 455 281
Expenses recognized through issuance of warrants .......... 10 101 --
Change in assets and liabilities:
(Increase) in accounts receivable. ....................... (873) (215) --
(Increase) in inventory. ................................. (377) (386) --
(Increase) decrease in prepaid expenses and other
assets ................................................. 1 3 (19)
Increase (decrease) in accounts payable and accrued
expenses . ............................................. 624 520 (467)
-------- -------- --------
Net cash used for operating activities ................. (4,522) (5,399) (4,813)
-------- -------- --------
Cash flows from investing activities:
(Purchases) of property, plant and equipment. ............... (450) (335) (2,311)
Redemption (purchases) of marketable securities ............. 45 (729) --
-------- -------- --------
Net cash used for investing activities ................. (405) (1,064) (2,311)
-------- -------- --------
Cash flows from financing activities:
Long-term debt:
Borrowings ................................................ -- 1,108 --
Payments .................................................. (159) (108) (185)
Notes payable
Borrowings ................................................ 804 -- --
Issuance of stock and warrants:
Over-allotment exercise ................................... -- -- 1,835
Issuance of Preferred Stock, net of expense ............... 867 6,138 --
-------- -------- --------
Net cash provided by financing activities. ............. 1,512 7,138 1,650
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ......... (3,415) 675 (5,474)
Cash and cash equivalents, beginning of period ............... 4,719 4,044 9,518
-------- -------- --------
Cash and cash equivalents, end of period ..................... $ 1,304 $ 4,719 $ 4,044
======== ======== ========
Supplemental disclosure of cash flow information: Cash
paid for interest. .......................................... $ 113 $ 51 $ 40
======== ======== ========
</TABLE>
For other supplemental disclosure of non-cash investing and financing
activities, see Notes 2, 3, and 10.
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Formation and Operation of the Company
Purpose
Global Pharmaceutical Corporation (the "Company") was formed in April 1993
to acquire the manufacturing plant, equipment and certain related assets and
liabilities (the "Facility") and the Abbreviated New Drug Applications
("ANDAs"), New Drug Applications ("NDAs") and New Animal Drug Applications
("NADAs") of Richlyn Laboratories, Inc. ("Richlyn"). Richlyn operated a generic
pharmaceutical business from 1947 to 1992; operations of the Facility had been
idled since September 1992 for failure to comply with Food and Drug
Administration ("FDA") regulations concerning current Good Manufacturing
Practices ("cGMP").
From its inception through 1997, the Company devoted substantially all of
its efforts to improving and renovating the Facility, establishing policies and
procedures to bring the Facility into compliance with cGMP, and obtaining all
government approvals necessary to begin operating the Facility. On July 11,
1997 the Company was notified that, following an inspection, FDA had determined
that Global's Tetracycline Hydrochloride 250 mg capsules had been validated.
The FDA subsequently determined that sufficient data was available to assign an
expiration date to the product's label and the Company commenced operations and
began shipping the product in September 1997. Since Global commenced
operations, the FDA has routinely inspected and approved the work necessary for
each of Global's product introductions. On January 29, 1998, the FDA informed
the Company that product-by-product inspections and authorizations would no
longer be required for the Company's current ANDA product portfolio. As of
March 2, 1999, the Company is shipping twenty products.
The Company was considered a development stage company as defined in
Statement of Financial Accounting Standards No. 7 until the fourth quarter of
1997 when the Company determined it had begun operations.
Funding of Activities
To date, the Company has funded its efforts to engage in the manufacture,
repackaging and sale of solid oral prescription and over-the-counter generic
drugs and dietary supplements through equity and debt financings.
In 1995, the Company completed its Initial Public Offer of Common Stock
("IPO") in which 1,650,000 shares of common stock were sold for net proceeds to
the Company of $11,488,000. In connection with the IPO, the underwriter
received an option to purchase up to 247,500 shares of common stock at $8.50
per share (the "over-allotment"). The underwriter exercised this option in
January 1996, at which time the Company sold 247,500 shares of common stock for
net proceeds of $1,835,000.
In 1997, the Company received a $758,000 loan from the Pennsylvania
Industrial Development Authority ("PIDA") at 3.75% annually fixed for 15 years
and a $350,000 loan from the Delaware River Port Authority ("DRPA") via the
Pennsylvania Industrial Development Corporation ("PIDC") at 5.00% annually
fixed for 10 years. These loans were partially used to fund capital projects,
and are secured by land, building and building improvements. From these
proceeds, at December 31, 1998, $684,000 is invested in interest bearing
certificates of deposit owned by the Company and pledged as additional
collateral for these loans.
The Company completed closings of $6,335,000 of its Series A and B
mandatorily redeemable convertible Preferred Stock in 1997 and $900,000 of its
Series C mandatorily redeemable convertible Preferred Stock in November 1998.
Also in 1998, the Company entered into a three year revolving credit
facility with GE Capital, providing funding to the Company of up to $5 million
based on levels of accounts receivable and inventory. At December 31, 1998, the
Company had outstanding borrowings of $804,000 on this facility, with $373,000
of availability.
F-12
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
1. Formation and Operation of the Company -- (Continued)
On March 2, 1999, the Company completed an initial closing of $3,000,000
of its Series D Mandatorily Redeemable Convertible Preferred Stock to Fleming
US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P.
(collectively "Flemings") (Note 14). An additional $2,000,000 of its Series D
Mandatorily Redeemable Convertible Preferred Stock to Flemings is expected to
close no later than June 30, 1999, subject to the Company's stockholders
authorization of additional shares of common stock. The Company has adequate
financing for its 1999 operational plan, even if the Company does not receive
Stockholders' approval for additional shares of common stock.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents are stated at cost which approximates market
value. Cash equivalents include only securities having a maturity of three
months or less at the time of purchase.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash, cash equivalents, investments, and
accounts receivable. The Company limits its credit risk associated with cash,
cash equivalents and investments by placing its investments with highly rated
money market funds, U.S. Government securities, treasury bills and short-term
commercial paper. The Company limits its credit risk with respect to accounts
receivable by performing ongoing credit evaluations and, when deemed necessary,
requiring letters of credit, guarantees, or collateral.
The Company has two customers which account for 38% of total sales for the
year ended December 31, 1998. At December 31, 1998, accounts receivable from
three customers represent 41% of total trade receivables. Approximately 47% of
the Company's net sales were attributable to one product family which is
supplied by a vendor under an exclusive licensing agreement.
Inventories
Inventories are stated at the lower of cost (determined on the basis of
first-in, first-out) or market. The Company considers product costs as
inventory once the Company receives FDA approval to market the related
products.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Maintenance and
repairs are charged to expense as incurred and costs of improvements and
renewals are capitalized. Costs incurred in connection with the construction or
major renovation of facilities, including interest directly related to such
projects, are capitalized as construction in progress. Depreciation is
recognized using the straight-line method based on the estimated useful lives
of the related assets.
Intangible assets
Intangible assets are comprised of ANDAs, NDAs and NADAs acquired from
Richlyn and are recorded at fair value. Amortization is recognized on a
straight-line basis over a five year period starting on October 1, 1997, when
operations commenced.
The Company complies with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". Accordingly, the carrying value of long-lived assets
and certain identifiable intangible assets are evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review
F-13
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
for recoverability, the Company compares expected future cash flows to the
carrying value of long-lived assets and identifiable intangibles. If the
expected future cash flows (undiscounted) are less than the carrying amount of
such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value.
Deferred financing costs
Deferred financing costs are amortized on a straight-line basis over the
terms of the respective debt instrument.
Investments
The Company's investments in other than cash equivalents are classified as
"held-to-maturity" based upon the nature of the investments, their ultimate
maturity date, the restrictions imposed by the PIDA and PIDC loan agreements
dated July 29, 1997 (See Note 8) and management's intention with respect to
holding these securities. Realized gains and losses are determined on the basis
of specific identification of the securities sold. At December 31, 1998, the
cost of the Company's investments approximate fair value.
Revenue recognition
Revenues, net of applicable allowances, from product sales are recognized
upon shipment of product. Royalties are recognized when the related contract
provisions are met.
Income taxes
The Company utilizes the liability method of accounting for income taxes
as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Under this method, deferred tax liabilities and
assets are recognized for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. Valuation allowances are provided on deferred tax assets for which
it is more likely than not that some portion or all of the deferred tax asset
will not be realized.
Earnings per share
The Company reports both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted average number of common shares
outstanding and all dilutive potential common shares outstanding. Because the
Company had net losses in each of the years presented, only the weighted
average of common shares outstanding have been used to calculate both basic
earnings per share and diluted earnings per share as the inclusion of the
potential common shares would be anti-dilutive. Stock options to purchase
635,997 shares in 1998 and 436,800 shares in 1997 and mandatorily redeemable
convertible preferred stock of 63,535 shares in 1998 and 63,350 shares in 1997
were outstanding but were not included in the calculation of diluted earnings
per share as their effect would be anti-dilutive.
Accounting for stock-based compensation
The Company has elected to disclose the fair value of stock options and
other stock-based compensation issued to employees as a pro forma effect on net
income in the footnotes to the Company's financial statements rather than as
compensation expense in the Statement of Operations.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingencies at the date of the financial statements and the
reported expenses during the reporting period. Differences from those estimates
are recorded in the period they become known.
Business segments
The Company operates in one business segment, and has one group of
products, generic pharmaceuticals.
The Company's revenues are derived from, and its assets are located in,
the United States.
F-14
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. Related Party Transactions
On November 8, 1995, the Company entered into an agreement ( the "Genpharm
Agreement") with Genpharm, Inc., a Canadian corporation ("Genpharm"), an
indirect subsidiary of Merck KGaA under which Merck KGaA purchased 150,000
shares of the Company's common stock. The Company also issued to Merck KGaA a
warrant to purchase 100,000 shares of common stock at an exercise price of
$2.00 per share, (the "A Warrant") and additional warrants to purchase up to
700,000 shares, at an exercise price of $8.50 per share (the IPO price per
share), whose exercise is contingent upon the gross profit (as defined in the
agreement), if any, earned by the Company under the Genpharm Agreement. In
January 1997, the Company revised its agreement with Genpharm, pursuant to
which the Company shall supply packaging, or has supplied capacity available,
with respect to Genpharm's United States Ranitidine production requirements
based on a five-year cost-plus and percentage of profits compensation
arrangement following the receipt of the requisite FDA Ranitidine approvals. In
addition to the packaging of Ranitidine, the Genpharm Agreement provides the
Company with the opportunity to develop products with the assistance of Merck
KGaA that are marketed outside the U.S. During 1998, the Company filed ANDA's
for two products previously selected.
The Company received and recognized as revenue approximately $445,000 in
royalties from Genpharm for the year ended December 31, 1998 which is included
in Other Operating Income in the accompanying Statement of Operations.
4. Inventories
Inventories consist of the following:
December 31,
----------------
1998 1997
------ -------
(dollars in
thousands)
Raw materials .......... $139 $ 44
Finished goods ......... 624 342
---- ----
$763 $386
==== ====
5. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
useful life -------------------------
(years) 1998 1997
------------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Land ................................... -- $ 53 $ 53
Building ............................... 25 212 212
Building improvements .................. 15 3,047 2,983
Production equipment ................... 10 1,309 1,097
Laboratory equipment ................... 7 746 610
Office furniture and equipment ......... 5 184 157
Construction in progress ............... -- 18 7
-------- --------
5,569 5,119
Less: Accumulated depreciation ......... (1,515) (1,042)
-------- --------
$ 4,054 $ 4,077
======== ========
</TABLE>
Depreciation expense was $473,000, $396,000 and $281,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
F-15
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
6. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- -------
(in thousands)
<S> <C> <C>
Accrued rebates and chargebacks ......................................... $ 283 $ 10
Accrued professional fees ............................................... 327 353
Accrued salaries and payroll related expenses ........................... 124 109
Accrued development cost and royalty expense (Eurand - Note 13) ......... 141 --
Other ................................................................... 144 177
------ ----
$1,019 $649
====== ====
</TABLE>
Rebates and chargebacks include reserves for price rebate programs for certain
products, chargebacks from wholesalers, and certain sales related items.
Accrued rebates and chargebacks at December 31, 1998 and 1997 represent
management's estimate of the Company's future obligation.
7. Income Taxes
Due to the Company's losses since inception, no provision for income taxes
is recorded for any period. The difference between the federal statutory tax
rate and the Company's effective income tax rate is attributable to losses and
future tax deductions for which valuation allowances have been established.
The net deferred tax balance is comprised of the tax effects of cumulative
temporary differences, as follows:
December 31,
-----------------------
1998 1997
---------- ----------
(in thousands)
Net operating losses ............................. $ 3,898 $ 1,142
Deferred start-up and organization costs ......... 4,914 6,140
Eurand development costs (Note 13) ............... 274 92
Depreciation and amortization .................... 495 304
Other ............................................ 67 --
-------- --------
Gross deferred tax assets ........................ 9,648 7,678
Deferred tax asset valuation allowance ........... (9,648) (7,678)
-------- --------
$ -- $ --
======== ========
Due to historical losses incurred by the Company and limitations on the
future use of net operating losses due to changes in the Company's ownership, a
full valuation allowance for net deferred tax assets has been provided. If the
Company achieves profitability, certain of these net deferred tax assets would
be available to offset future income taxes.
The tax effects of net operating loss carryforwards expire as follows:
2010 ......... $ 68
2012 ......... 796
2018 ......... 3,034
------
$3,898
======
F-16
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Income Taxes -- (Continued)
Deferred start-up and organization expenditures are amortized over a
60-month period ending 2003. Net operating losses created will expire over a
20-year period.
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the company may utilize in any one year include, but are not
limited to, a cumulative ownership change of more than 50%, as defined, over a
three year period.
8. Notes Payable
In July 1998, the Company entered into a three year revolving credit
facility with G.E. Capital, providing funding to the Company up to $5 million
based on the levels of accounts receivable and inventory. Amounts borrowed
under this credit facility bear interest, payable monthly, at the Index Rate
plus 4% per annum. The Index Rate is the latest rate for 30-day dealer placed
commercial paper published in the "Money Rates" section of The Wall Street
Journal. The Company also pays a fee of .125% per annum on the unused available
portion of the credit line. At December 31, 1998, the Company had borrowings of
$804,000 under this facility with $373,000 of availability.
9. Long-Term Debt
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
2% loan payable to PIDA (No. 1) in 180 monthly installments of $6,602
commencing June 1, 1994 through May 1, 2009 ........................... $ 745 $ 808
3.75% loan payable to PIDC in 84 monthly installments of $3,672 com-
mencing January 1, 1994, with a balance of $304,000 due on December
1, 2000 ............................................................... 363 393
3.75% loan payable to PIDA (No. 2) in 180 monthly installments of $5,513
commencing September 1, 1997, through August 1, 2012 .................. 707 745
5% loan payable to DRPA in 120 monthly installments of $3,712 com-
mencing September 1, 1997, through August 1, 2007 ..................... 313 341
------ ------
2,128 2,287
Less: Current portion of long-term debt. ............................... (161) (158)
------ ------
$1,967 $2,129
====== ======
</TABLE>
The PIDC loan is secured by the Company's equipment. The PIDA (No. 1) loan
is secured by land, building and building improvements. The PIDC (No. 2) loan
and the DRPA loan are secured by land, building and building improvements, and
additional collateral of $684,000, invested in interest bearing certificates of
deposit owned by the Company.
The PIDA, PIDC/DRPA loans contain financial and non-financial covenants,
including certain covenants regarding levels of employment which were not
effective until the Company commenced operations. The Company received a waiver
with respect to a non-financial covenant at December 31, 1998, and is in
compliance with all other loan covenants.
Scheduled maturities of long-term debt as of December 31, 1998 are as
follows, in thousands:
1999 ....................... $ 161
2000 ....................... 472
2001 ....................... 144
2002 ....................... 148
2003 ....................... 153
Thereafter ................. 1,050
------
Total ................... $2,128
======
F-17
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
10. Mandatorily Redeemable Convertible Preferred Stock
The Company has authorized 2,000,000 shares of preferred stock, $.01 par
value per share (the "Preferred Stock"). The Company issued 72,350 shares of
Preferred Stock of which 63,535 and 63,350 were outstanding at December 31,
1998 and 1997, respectively, and are classified as Mandatorily Redeemable
Preferred Stock. The remaining authorized but unissued shares could be issued
with or without mandatorily redeemable features.
The Company's Board of Directors authorized and designated 60,000, 50,000,
9,000 and 50,000 shares of Preferred Stock as Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred, respectively, with all
shares priced at $100 per share. In 1997, the Company issued 13,350 shares of
Series A and 50,000 shares of Series B Preferred Stock to accredited investors
for 1,335,000 and $5,000,000, respectively.
At the option of the holder, each share of Series A Preferred and Series B
Preferred Stock is convertible into that number of shares of the Company's
common stock as is determined by dividing the liquidation value of $100 per
share by the conversion price. At December 31, 1998, the conversion price was
the lower of $2.75 per share or the average closing sale price of the common
stock for the five trading days immediately preceding conversion but in no
event less than $2.00 per share. The difference between the $2.75 per share
conversion price and the market value of the common stock on the dates of the
issuance of Preferred Stock was recognized as a Preferred Stock dividend of
$2,547,000 in 1997.
In November 1998, the Company issued 9,000 shares of Series C Preferred
Stock and a five year warrant to purchase 225,000 shares of common stock at an
initial exercise price equal to $4.00 per share for proceeds of $900,000. The
Company allocated these proceeds by determining the fair value of the warrants
as being $140,000 using the Black-Scholes option-pricing model, with $760,000,
being allocated to Preferred Stock. The Company then recognized a $140,000
Preferred Stock Dividend to reflect the Series C Preferred Stock at its
liquidation value.
At the option of the holder, each share of Series C Preferred Stock is
convertible into that number of shares of the Company's common stock as is
determined by dividing the liquidation value by the conversion price. The
conversion price is the lower of $2.00 per share or the average closing sale
price of the common stock for the five trading days immediately preceding
conversion but in no event less than $0.75 per share. In the event the Company,
within eighteen months from the Series C Preferred Stock initial closing,
issues and sells not less than an aggregate of $1 million of additional shares
of common stock (or securities convertible into common stock) for a
consideration per share of common stock of less than $2.00 the conversion price
will be reduced to a price equal to the consideration per share for which the
additional shares are sold.
Except as required by law, holders of the shares of Series A , Series B,
Series C and Series D Preferred Stock vote on an as-converted basis, as a
single class with all other stockholders of the Company. Holders of Series D
Preferred also have certain voting rights with respect to major corporate
transactions or reorganization.
Each share of Preferred Stock is entitled to a liquidation preference
equal to $100 per share before any distributions to holders of common stock,
and Series A, B, C and D Preferred Stock are not entitled to dividends unless
declared on common stock. The holders of Series C and Series D Preferred Stock
are entitled to a liquidation preference over the holders of Series A Preferred
and Series B Preferred Stock. From the date of issuance, the holders of Series
A, Series B, Series C and Series D Preferred Stock, at their option, are
entitled to redeem any or all shares of the preferred stock upon the occurrence
of certain events, including: 1) a sale of all or substantially all of the
Company's operating assets; 2) the Company becomes insolvent; 3) the Company
goes private; or 4) a business combination involving the Company in which the
shareholders of the Company cease to own 50% of the voting power of all
classes of stock or 50% of the total equity securities in the new entity.
The Company has the option to redeem outstanding shares of the Preferred
Stock by paying the liquidation value for each share, provided that the closing
sale price of the common stock is seven dollars or more per share in the case
of Series C Preferred Stock and at least five times the conversion price, in
the case of Series D Preferred Stock, for a consecutive twenty day trading
period. Each holder of Preferred Stock shall
F-18
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
10. Mandatorily Redeemable Convertible Preferred Stock -- (Continued)
be entitled to redeem any or all shares in the event that the Company breaches
or fails to comply with its obligations under the respective Certificates of
Designations or the Stock Purchase Agreements, to the extent that the breach or
failure is material to or had a material adverse effect on the Company, and is
not cured within thirty days.
11. Stockholders' Equity (Deficit)
Common Stock
In 1995, the Company completed its IPO in which 1,650,000 shares of common
stock were sold for net proceeds to the Company of $11,488,000. In connection
with the IPO, the underwriter received an option to purchase up to 247,500
shares of common stock at $8.50 per share. The underwriter exercised this
option in January 1996, at which time the Company sold 247,500 shares of common
stock for net proceeds of $1,835,000.
During 1998, 2,070 shares of Series A Preferred Stock and 6,745 shares of
Series B Preferred Stock were converted into 90,544 shares and 278,682 shares
of common stock, respectively. The conversion price ranged from $2.00 to $2.75
per share. Through March 2, 1999, the remaining 11,280 and 43,255 shares of
Series A and Series B Preferred Stock were converted to common stock (Note 14).
12. Stock Options
The Company's 1995 Stock Incentive Plan was adopted by the Company's Board
of Directors for the purpose of securing for the Company and its stockholders
the benefits arising from the ownership of Company stock options by
non-employee directors and key employees who are expected to contribute to the
Company's future growth and success.
In December 1997, the Company's Board of Directors approved the repricing
of 426,800 outstanding options to $3.125 per share, the market value of common
stock on that date. As a result, all outstanding options were effectively
rescinded and reissued at an exercise price of $3.125 per share. No
compensation expense was recognized as a result of the repricing as the
exercise price was equal to the market price on the date of reissue. Options
vest over a three to four year period and have a maximum term of ten years. The
weighted average fair value of options granted during 1998, 1997 and 1996 was
$2.15, $2.03 and $3.37, respectively. The fair value of each option was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: (i) no expected dividend yield in 1998, 1997
and 1996, (ii) expected stock price volatility of 72.36%, 50% and 30% in 1998,
1997 and 1996 respectively, (iii) weighted average risk free interest rate of
5.33%, 5.89% and 6% in 1998, 1997 and 1996, respectively, and (iv) expected
life of options of five years in 1998, 1997 and 1996.
Stock option transactions were:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ---------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1 ..... 436,800 $ 3.13 297,700 $ 8.53 236,000 $ 8.07
Granted .............................. 225,563 $ 3.50 159,700 $ 7.42 111,700 $ 8.87
Canceled ............................. (26,366) $ 3.27 (20,600) $ 8.64 (50,000) $ 7.13
Rescinded ............................ -- $ -- (426,800) $ 8.23 -- $ --
Reissued ............................. -- $ -- 426,800 $ 3.13 -- $ --
Options outstanding at December
31 .................................. 635,997 $ 3.26 436,800 $ 3.13 297,700 $ 8.53
Options exercisable at December
31 .................................. 351,617 188,016 75,306
Options available for grant at
December 31 ......................... 114,003 113,200 252,300
</TABLE>
F-19
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
12. Stock Options -- (Continued)
Had compensation cost for the Company's 1998, 1997 and 1996 grants for
stock-based compensation plans been recognized under the provisions of SFAS
123, the Company's net loss, and net loss per common share for 1998, 1997 and
1996 would approximate the pro forma amounts below (in thousands, except for
per share data):
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
-------------------------- -------------------------- ---------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
------------- ----------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net loss ................. ($ 4,755) ($ 5,474) ($ 8,424) ($ 8,871) ($ 4,608) ($ 4,817)
Net loss per common share ($ 1.07) ($ 1.22) ($ 1.97) ($ 2.07) ($ 1.08) ($ 1.13)
</TABLE>
The pro forma results may not be representative of the effect on reported
operations for future years.
At December 31, 1998, 635,997 options are outstanding with an exercise
price of $3.26, and a weighted average remaining contractual life of 7.58
years.
13. Commitments and Contingencies
Richlyn Order
The Company is in compliance with a May 25, 1993 order, which was entered
by the United States District Court for the Eastern District of Pennsylvania
(the "Richlyn Order"). The Richlyn Order, among other things, permanently
enjoined Richlyn from introducing into commerce any drug manufactured,
processed, packed or labeled at its manufacturing facility unless it met
certain stipulated conditions. The Company, as a purchaser of the Richlyn
facility, remains obligated by the terms of the Richlyn Order. After the
merger, the combined company will continue to be subject to the 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 cGMP before the products can be marketed. Global was informed in
January 1998 that product by product inspection was no longer required for
Global to manufacture and sell products.
The order against Richlyn also requires that Global hire and retain a
person, subject to FDA approval, who is qualified to inspect its drug
manufacturing facilities to determine that its methods, facilities and controls
are operated and administered in compliance with cGMP. This person must examine
all drug products manufactured, processed, packed and held at Global's facility
and certify in writing to the FDA Global's compliance with related cGMP.
Product liability and insurance
The Company assumed the liabilities of Richlyn in connection with Diethyl
Stilbestrol ("DES"), which was manufactured by Richlyn during the late 1950's
and early 1960's. DES was prescribed to pregnant women during that period and
has been alleged to cause birth defects. There have been numerous claims
brought against drug manufacturers in connection with DES. Since 1987,
Richlyn's insurers have paid approximately $136,000 on Richlyn's and the
Company's behalf to settle approximately 143 DES-related suits. While Richlyn's
insurers have in the past defended those DES claims against Richlyn and paid
all settlements in connection therewith to date, the insurers have reserved
their right to discontinue the defense of the claims and the payment of
settlements at any time. Claims settlements to date have been based upon market
share, and Richlyn's share of the market during the periods in question was
less than 1%. While there can be no assurance as to the ultimate resolution of
these matters, in the opinion of Management, based on the advice of legal
counsel, the ultimate liabilities resulting from such lawsuits and claims will
not materially adversely affect the financial position, operating results or
cash flow of the Company.
Eurand America Agreement
The Company is committed to payments of $100,000 for the development and
supply of product batches necessary for clinical studies under the license and
supply agreement entered into with Eurand America in
F-20
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
13. Commitments and Contingencies -- (Continued)
1997 to develop a gastro-protected pancrelipase product, subject to Eurand's
performance in accordance with terms and conditions of the agreement. Annual
minimum royalty payments will also become payable upon shipment of the product.
The Company has $100,000 and $41,000 accrued for milestone payments and royalty
payments, respectively, at December 31, 1998.
14. Subsequent Events
From January 1, 1999 through March 2, 1999, 11,280 and 43,255 shares of
Series A and Series B Preferred Stock with liquidation values of $1,128,000 and
$4,326,000, respectively, were converted into 2,598,000 shares of Common Stock
at conversion prices ranging from $2.00 to $2.24 per share.
On March 2, 1999, the Company issued 30,000 shares of Mandatorily
Redeemable Convertible Series D Preferred Stock and a five year warrant to
purchase 375,000 shares of common stock at an initial exercise price equal to
$4.00 per share for aggregate proceeds of $3,000,000. The Company has
determined the fair value of the warrants as being $322,500, using the
Black-Scholes option pricing model, and the fair value of the Preferred Stock
as being $2,677,500. In the first quarter of fiscal 1999, the Company will
recognize a $322,500 Preferred Stock dividend to reflect the Series D Preferred
Stock at its liquidation value. An additional $2,000,000 of its Series D
Preferred Stock is expected to be issued to the same investors prior to June
30, 1999 subject to the Company's stockholders authorization of additional
shares of common stock.
At the option of the holder, each share of Series D Preferred Stock is
convertible into that number of shares of the Company's common stock as is
determined by dividing the liquidation value by the conversion price. The
conversion price is the lower of $2.00 per share or $1.20 per share if the
second closing of Series D Preferred Stock does not occur by June 30, 1999. The
difference between the conversion price and the market value of the common
stock on the date of the issuance of Preferred Stock will be recognized as a
Preferred Stock dividend of $281,000 in the first quarter of fiscal 1999. In
the event the Company, within eighteen months from the Series D initial
closing, issues and sells not less than an aggregate of $1 million of
additional shares of common stock (or securities convertible into common stock)
for a consideration per share of less than $2.00, the conversion price will be
reduced to a price equal to the consideration per share for which additional
shares are sold.
At the option of the investors, the Company will pay liquidation value to
the investors if the following occur: 1) a sale of all or substantially all of
the Company's operating assets, 2) the Company becomes insolvent, 3) the
Company goes private, or 4) a business combination involving the Company in
which the shareholders of the Company cease to own 50% of the voting power of
all classes of stock or 50% of the total equity securities in the new entity.
Subject to certain specified exceptions, the holders of Series D Preferred
Stock have the preemptive right to maintain current ownership of the Company in
future equity offerings.
F-21
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Impax Pharmaceuticals, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of Impax
Pharmaceuticals, Inc. (the Company) (a company in the development stage) at
December 31, 1998 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
August 6, 1999
F-22
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 589 $ 370
Short-term investments ................................................ 8,062 --
Prepaid expenses and other ............................................ 278 41
--------- ---------
Total current assets ................................................ 8,929 411
Property and equipment, net ............................................ 2,850 2,970
Other assets ........................................................... 109 27
--------- ---------
Total assets ....................................................... $ 11,888 $ 3,408
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Advances from shareholders ............................................ $ -- $ 80
Accounts payable ...................................................... 378 909
Accounts payable -- related party ..................................... -- 93
Accrued expenses ...................................................... 53 124
--------- ---------
Total current liabilities .......................................... 431 1,206
Accrued compensation ................................................... 520 520
--------- ---------
951 1,726
--------- ---------
Commitments and contingencies (Note 8)
Shareholders' equity:
Redeemable Convertible Preferred Stock:
Series A, no par value, 1,600 shares authorized, 1,580
shares issued and outstanding at June 30, 1999 and December
31, 1998 (Liquidation value: $1,580) ............................... 1,580 1,580
Series B, no par value, 500 shares authorized, 429 shares issued
and outstanding (Liquidation value: $2,143) at June 30, 1999;
410 shares issued and outstanding (Liquidation value: $2,050)
at December 31, 1998 ............................................... 2,143 2,050
Series C, no par value, 600 shares authorized, 520 shares
issued and outstanding (Liquidation value: $4,559) at June 30,
1999 and December 31, 1998 ......................................... 4,276 4,276
Series D Subscriptions .............................................. -- 4,300
Series D, no par value, 3,400 shares authorized, 3,400
shares issued and outstanding (Liquidation value: $17,000) ......... 17,000 --
Common Stock, no par value, 15,000 shares authorized,
2,147 shares issued and outstanding at June 30, 1999 and
December 31, 1998 .................................................. 335 335
Additional paid-in capital ............................................ 2,227 422
Unearned compensation ................................................. (1,715) --
Accumulated deficit during development stage .......................... (14,909) (11,281)
--------- ---------
Total shareholders' equity ......................................... 10,937 1,682
--------- ---------
Total liabilities and shareholders' equity ......................... $ 11,888 $ 3,408
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
IMPAX PHARMACEUTICALS, INC. AND PREDECESSOR
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
September 27,
1994 (Date of For the Six Months
inception) to Ended June 30, Year Ended December 31,
June 30, ------------------------- -------------------------
1999 1999 1998 1998 1997
--------------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development ........... $ 14,193 $ 3,303 $ 1,730 $ 5,127 $ 3,255
Sales and marketing ................ 202 110 -- 92 --
General and administrative ......... 1,936 430 270 613 516
Other operating income
(expense), net ................... 948 -- -- 565 75
--------- -------- -------- -------- --------
Net loss from operations: (15,383) (3,843) (2,000) (5,267) (3,696)
Interest income ..................... 474 215 41 45 88
--------- -------- -------- -------- --------
Net loss ............................ $ (14,909) $ (3,628) $ (1,959) $ (5,222) $ (3,608)
========= ======== ======== ======== ========
Net loss per share:
Basic and diluted .................. $ (8.26) $ (1.69) $ (0.91) $ (2.43) $ (1.69)
========= ======== ======== ======== ========
Weighted average shares
outstanding ...................... 1,805 2,147 2,142 2,145 2,139
========= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
September 27, For the Six Months
1994 (Date of Ended June 30,
Inception) to ----------------------------
June 30, 1999 1999 1998
--------------- ------------ --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (14,909) $ (3,628) $(1,959)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation .......................................... 1,562 328 255
Loss on disposal of assets ............................ 24 -- 24
Accretion on short-term investments ................... (63) (63) --
Grant of stock options to non-employees ............... 73 -- --
Non-cash compensation charge (warrants and
options) ............................................ 350 90 --
Amortization of discount on credit notes .............. 89 -- --
Changes in operating assets and liabilities:
Receivables, deposits and prepaid expenses........... (387) (319) (1)
Accounts payable, other liabilities and
accrued expenses ................................... 1,045 (602) (125)
--------- -------- ---------
Net cash used in operating activities ............. (12,216) (4,194) (1,806)
--------- -------- ---------
Cash flows from investing activities:
Purchases of short term investments ..................... (14,210) (9,010) --
Sales and maturities of short term investments .......... 6,211 1,011 --
Purchase of property and equipment ...................... (4,436) (208) (1,250)
--------- -------- ---------
Net cash provided by (used in) investing
activities ....................................... (12,435 (8,207) (1,250)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from revolving credit notes from share-
holders ................................................ 715 -- 138
Proceeds from issuance of equity in predecessor ......... 2,511 -- --
Proceeds from issuance of Series A Preferred Stock
upon exercise of warrants .............................. 715 -- 60
Proceeds from issuance of Series C Preferred Stock....... 4,276 -- --
Proceeds from issuance of Series D Preferred Stock
Subscriptions .......................................... 4,300 -- --
Proceeds from issuance of Series D Preferred Stock. 12,700 12,700 --
Proceeds from issuance of Common Stock .................. 23 -- --
Proceeds from advances from shareholders ................ 965 -- --
Repayments of advances from shareholders ................ (965) (80) --
--------- -------- ---------
Net cash provided by financing activities 25,240 12,620 198
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents ..... 589 219 (2,858)
Cash and cash equivalents, beginning of period ........... -- 370 3,248
--------- -------- ---------
Cash and cash equivalents, end of period ................. $ 589 $ 589 $ 390
--------- -------- ---------
<PAGE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (5,222) $ (3,608)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation .......................................... 509 298
Loss on disposal of assets ............................ 24 --
Accretion on short-term investments ................... -- --
Grant of stock options to non-employees ............... 11 --
Non-cash compensation charge (warrants and
options) ............................................ 260 --
Amortization of discount on credit notes .............. 12 25
Changes in operating assets and liabilities:
Receivables, deposits and prepaid expenses........... (32) (27)
Accounts payable, other liabilities and
accrued expenses ................................... 905 421
-------- --------
Net cash used in operating activities ............. (3,533) (2,891)
-------- --------
Cash flows from investing activities:
Purchases of short term investments ..................... -- --
Sales and maturities of short term investments .......... -- 3,300
Purchase of property and equipment ...................... (1,591) (1,150)
-------- --------
Net cash provided by (used in) investing
activities ....................................... (1,591) 2,150
-------- --------
Cash flows from financing activities:
Proceeds from revolving credit notes from share-
holders ................................................ 138 --
Proceeds from issuance of equity in predecessor ......... -- --
Proceeds from issuance of Series A Preferred Stock
upon exercise of warrants .............................. 715 --
Proceeds from issuance of Series C Preferred Stock....... -- 556
Proceeds from issuance of Series D Preferred Stock
Subscriptions .......................................... 1,300 3,000
Proceeds from issuance of Series D Preferred Stock. -- --
Proceeds from issuance of Common Stock .................. 13 10
Proceeds from advances from shareholders ................ 373 282
Repayments of advances from shareholders ................ (293) (282)
-------- --------
Net cash provided by financing activities 2,246 3,566
-------- --------
Net increase (decrease) in cash and cash equivalents ..... (2,878) 2,825
Cash and cash equivalents, beginning of period ........... 3,248 423
-------- --------
Cash and cash equivalents, end of period ................. $ 370 $ 3,248
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
IMPAX PHARMACEUTICALS, INC. AND PREDECESSOR
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 27, 1994 (DATE OF INCEPTION)
THROUGH JUNE 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Pedecessor
Amount
------------
<S> <C>
Inception (September 27, 1994) to
September 30, 1996:
Issuance of equity in predeccessor
entities from inception
(September 27, 1994) through
December 31, 1995 ....................... $ 3,010
Losses in predecessor entities
from inception though
December 31, 1995 ....................... (557)
Issuance of equity in predecessor
equity from January 1, 1996
through September 30, 1996 .............. 230
Losses in predecessor entity
from January 1, 1996 through
September 30, 1996 ...................... (1,238)
---------
Balance of net equity before
reorganization at September 30, 1996 ...... 1,445
Equity transfer to Impax
Pharmaceuticals, Inc. in a
reorganization on September 30, 1996...... (1,445)
---------
Balance at September 30, 1996 .............. --
October 1, 1996 to December 31, 1996
Issuance of Series C Preferred
Stock for cash at $8.76 per
share, net of issuance costs of $274 ..... --
Net loss from October 1, 1996
to December 31, 1996 ..................... --
---------
Balance at December 31, 1996 ............... --
<CAPTION>
Convertible Redeemable Preferred Stock
--------------------------------------------------------------------------------
Series A Series B Series C Series D
Shares Amount Shares Amount Shares Amount Shares Amount
-------- -------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception (September 27, 1994) to
September 30, 1996:
Issuance of equity in predeccessor
entities from inception
(September 27, 1994) through
December 31, 1995 ....................... -- $ -- -- $ -- -- $ -- -- $--
Losses in predecessor entities
from inception though
December 31, 1995 ....................... -- -- -- -- -- -- -- --
Issuance of equity in predecessor
equity from January 1, 1996
through September 30, 1996 .............. -- -- -- -- -- -- -- --
Losses in predecessor entity
from January 1, 1996 through
September 30, 1996 ...................... -- -- -- -- -- -- -- --
----- ------ ----- ------- ----- ------- ----- ------
Balance of net equity before
reorganization at September 30, 1996 ...... -- -- -- -- -- -- -- --
Equity transfer to Impax
Pharmaceuticals, Inc. in a
reorganization on September 30, 1996...... 727 727 410 2,050 -- -- -- --
----- ------ ----- ------- ----- ------- ----- ------
Balance at September 30, 1996 .............. 727 727 410 2,050 -- -- -- --
October 1, 1996 to December 31, 1996
Issuance of Series C Preferred
Stock for cash at $8.76 per
share, net of issuance costs of $274 ..... -- -- -- -- 456 3,720 -- --
Net loss from October 1, 1996
to December 31, 1996 ..................... -- -- -- -- -- -- -- --
----- ------ ----- ------- ----- ------- ----- ------
Balance at December 31, 1996 ............... 727 727 410 2,050 456 3,720 -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Convertible
Redeemable
Preferred Stock
----------------- Deficit
Series D Accumulated
Preferred Stock Additional During the
Subscription Common Stock Paid-in Development
Amount Shares Amount Capital Stage Total
----------------- -------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Inception (September 27, 1994) to
September 30, 1996:
Issuance of equity in predeccessor
entities from inception
(September 27, 1994) through
December 31, 1995 ....................... $-- -- $ -- $ -- $ -- $ 3,010
Losses in predecessor entities
from inception though
December 31, 1995 ....................... -- -- -- -- -- (557)
Issuance of equity in predecessor
equity from January 1, 1996
through September 30, 1996 .............. -- -- -- -- -- 230
Losses in predecessor entity
from January 1, 1996 through
September 30, 1996 ...................... -- -- -- -- -- (1,238)
----- ------ ----- ------- ----- ------- ----- ------
Balance of net equity before
reorganization at September 30, 1996 ...... -- -- -- -- -- 1,445
Equity transfer to Impax
Pharmaceuticals, Inc. in a
reorganization on September 30, 1996...... -- 2,136 312 151 (1,795) --
----- ------ ----- ------- ----- ------- ----- ------
Balance at September 30, 1996 .............. -- 2,136 312 151 (1,795) 1,445
October 1, 1996 to December 31, 1996
Issuance of Series C Preferred
Stock for cash at $8.76 per
share, net of issuance costs of $274 ..... -- -- -- -- -- 3,720
Net loss from October 1, 1996
to December 31, 1996 ..................... -- -- -- -- (656) (656)
----- ------ ----- ------- ----- ------- ----- ------
Balance at December 31, 1996 ............... -- 2,136 312 151 (2,451) 4,509
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-26
<PAGE>
IMPAX PHARMACEUTICALS, INC. AND PREDECESSOR
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD FROM SEPTEMBER 27, 1994 (DATE OF INCEPTION) THROUGH JUNE 30,
1999
(in thousands)
<TABLE>
<CAPTION>
Predecessor
Amount
-------------
<S> <C>
Balance at December 31, 1996 ............ -- $
January 1, 1997 to December 31, 1997:
Issuance of Series C Preferred Stock
for cash at $8.76 per share net of
issuance costs of $4................... --
Proceeds from Series D Stock
Subscriptions ......................... --
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share..................... --
Net loss ............................... --
-----
Balance at December 31, 1997 ............ --
January 1, 1998 to December 31, 1998:
Issuance of Series A Preferred Stock
upon exercise of warrants for cash
at $1.00 per share..................... --
Issuance of Series A Preferred Stock
upon conversion of revolving
credit notes .......................... --
Proceeds from Series D Stock
Subscriptions ......................... --
Issuance of Common Stock upon
exercise of stock options for cash
at $2.50 per share..................... --
Grant of stock options to
non-employees ......................... --
Intrinsic value of warrants issued ..... --
Net loss ............................... --
-----
Balance at December 31, 1998 ............ --
January 1, 1999 to June 30, 1999
(unaudited):
Issuance of Series B Preferred Stock
in exchange for amounts payable
to Board member ....................... --
Issuance of Series D Preferred Stock
for cash at $5.00 per share............ --
Intrinsic value of options issued ...... --
Net loss ............................... --
-----
Balance at June 30, 1999 ................ -- $
=====
<CAPTION>
Convertible Redeemable Preferred Stock
--------------------------------------------------------------------------------
Series A Series B Series C Series D
Shares Amount Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ............ 727 $ 727 410 $2,050 456 $3,720 -- $ --
January 1, 1997 to December 31, 1997:
Issuance of Series C Preferred Stock
for cash at $8.76 per share net of
issuance costs of $4................... -- -- -- -- 64 556 -- --
Proceeds from Series D Stock
Subscriptions ......................... -- -- -- -- -- -- -- --
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share..................... -- -- -- -- -- -- -- --
Net loss ............................... -- -- -- -- -- -- -- --
----- ------ ----- ------ ------ ------ ----- -------
Balance at December 31, 1997 ............ 727 727 410 2,050 520 4,276 -- --
January 1, 1998 to December 31, 1998:
Issuance of Series A Preferred Stock
upon exercise of warrants for cash
at $1.00 per share...................... 715 715 -- -- -- -- -- --
Issuance of Series A Preferred Stock
upon conversion of revolving
credit notes .......................... 138 138 -- -- -- -- -- --
Proceeds from Series D Stock
Subscriptions ......................... -- -- -- -- -- -- -- --
Issuance of Common Stock upon
exercise of stock options for cash
at $2.50 per share..................... -- -- -- -- -- -- -- --
Grant of stock options to
non-employees ......................... -- -- -- -- -- -- -- --
Intrinsic value of warrants issued ..... -- -- -- -- -- -- -- --
Net loss ............................... -- -- -- -- -- -- -- --
----- ------ ----- ------ ------ ------ ----- -------
Balance at December 31, 1998 ............ 1,580 1,580 410 2,050 520 4,276 -- --
January 1, 1999 to June 30, 1999
(unaudited):
Issuance of Series B Preferred Stock
in exchange for amounts payable
to Board member ........................ -- -- 19 93 -- -- -- --
Issuance of Series D Preferred Stock
for cash at $5.00 per share............. -- -- -- -- -- -- 3,400 17,000
Intrinsic value of options issued ...... -- -- -- -- -- -- -- --
Net loss ............................... -- -- -- -- -- -- -- --
----- ------ ----- ------ ------ ------ ----- -------
Balance at June 30, 1999 ................ 1,580 $1,580 429 $2,143 520 $4,276 3,400 $17,000
===== ====== ===== ====== ====== ====== ===== =======
<CAPTION>
Convertible
Redeemable
Preferred Stock
----------------- Deficit
Series D Accumulated
Preferred Stock Additional During the
Subscription Common Stock Paid-In Unearned Development
Amount Shares Amount Capital Compensation Stage
----------------- -------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ............ $ -- 2,136 $312 $ 151 -- $ (2,451)
January 1, 1997 to December 31, 1997:
Issuance of Series C Preferred Stock
for cash at $8.76 per share net of
issuance costs of $4................... -- -- -- -- -- --
Proceeds from Series D Stock
Subscriptions ......................... 3,000 -- -- -- -- --
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share..................... -- 6 10 -- -- --
Net loss ............................... -- -- -- -- -- (3,608)
--------- ----- ---- ------ -- ---------
Balance at December 31, 1997 ............ 3,000 2,142 322 151 -- (6,059)
January 1, 1998 to December 31, 1998:
Issuance of Series A Preferred Stock
upon exercise of warrants for cash
at $1.00 per share..................... -- -- -- -- -- --
Issuance of Series A Preferred Stock
upon conversion of revolving
credit notes .......................... -- -- -- -- -- --
Proceeds from Series D Stock
Subscriptions ......................... 1,300 -- -- -- -- --
Issuance of Common Stock upon
exercise of stock options for cash
at $2.50 per share..................... -- 5 13 -- -- --
Grant of stock options to
non-employees ......................... -- -- -- 11 -- --
Intrinsic value of warrants issued ..... -- -- -- 260 -- --
Net loss ............................... -- -- -- -- -- (5,222)
--------- ----- ---- ------ -------- ---------
Balance at December 31, 1998 ............ 4,300 2,147 335 422 -- (11,281)
January 1, 1999 to June 30, 1999
(unaudited):
Issuance of Series B Preferred Stock
in exchange for amounts payable
to Board member ....................... -- -- -- -- -- --
Issuance of Series D Preferred Stock
for cash at $5.00 per share............ (4,300) -- -- -- -- --
Intrinsic value of options issued ...... -- -- -- 1,805 (1,715) --
Net loss ............................... -- -- -- -- -- (3,628)
--------- ----- ---- ------ -------- ---------
Balance at June 30, 1999 ................ $ -- 2,147 $335 $2,227 $ (1,715) (14,909)
========= ===== ==== ====== ======== =========
<PAGE>
<CAPTION>
Total
-----------
<S> <C>
Balance at December 31, 1996 ............ $ 4,509
January 1, 1997 to December 31, 1997:
Issuance of Series C Preferred Stock
for cash at $8.76 per share net of
issuance costs of $4................... 556
Proceeds from Series D Stock
Subscriptions ......................... 3,000
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share..................... 10
Net loss ............................... (3,608)
--------
Balance at December 31, 1997 ............ 4,467
January 1, 1998 to December 31, 1998:
Issuance of Series A Preferred Stock
upon exercise of warrants for cash
at $1.00 per share..................... 715
Issuance of Series A Preferred Stock
upon conversion of revolving
credit notes .......................... 138
Proceeds from Series D Stock
Subscriptions ......................... 1,300
Issuance of Common Stock upon
exercise of stock options for cash
at $2.50 per share..................... 13
Grant of stock options to
non-employees ......................... 11
Intrinsic value of warrants issued ..... 260
Net loss ............................... (5,222)
--------
Balance at December 31, 1998 ............ 1,682
January 1, 1999 to June 30, 1999
(unaudited):
Issuance of Series B Preferred Stock
in exchange for amounts payable
to Board member ........................ 93
Issuance of Series D Preferred Stock
for cash at $5.00 per share............. 12,700
Intrinsic value of options issued ...... 90
Net loss ............................... (3,628)
--------
Balance at June 30, 1999 ................ $ 10,937
========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-27
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of operations
Impax Pharmaceuticals, Inc. is engaged in the development of generic and
branded pharmaceutical products. The Company is currently in a research and
development phase with its first product expected to receive Food and Drug
Administration ("FDA") approval in 1999. The Company's revenue to date has come
from certain licensing and joint development agreements but remains
insignificant in relation to the Company's total operations. Accordingly, the
Company is considered a development stage company as defined in Statement of
Financial Accounting Standards (SFAS) No. 7.
Organization and history
The Company was originally organized on September 27, 1994 as a California
corporation (Impax Pharmaceuticals, Inc.). Actual operations commenced in the
first quarter of 1995. On September 1, 1995, the Company was reorganized as a
California limited liability company (Impax Pharmaceuticals, LLC) and operated
in this form through September 30, 1996. On October 1, 1996, the Company
reorganized once again assuming its current legal form as Impax
Pharmaceuticals, Inc., a California corporation.
Funding of activities
To date, the Company has funded its research and development efforts
entirely through equity financing. This includes $12,539,743 raised through
December 31, 1998 and an additional $12,700,000 raised in the first quarter of
1999.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation
Certain statements including the cumulative statement of operations, the
cumulative statement of cash flows and the statement of shareholders' equity,
include activity of the Company's predecessor entities, Impax Pharmaceuticals,
Inc., and/or Impax Pharmaceuticals, LLC (See Note 1). The activity of these
predecessor entities is included in these financial statements in order to
present the history of a development stage company from its inception as
required by SFAS No. 7.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Short-term investments
The Company classifies all short-term investments as available-for-sale in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The Company
places its short-term investments primarily in treasury bills. At December 31,
1998, there were no short-term investments.
Concentration of credit risk and other risks and uncertainties
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and short-term
investments. Products developed by the Company may require approvals
F-28
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
or clearances from the Food and Drug Administration ("FDA") or other
international regulatory agencies prior to commercialized sales. There can be
no assurance that the Company's products will receive any of the required
approvals or clearances. If the Company was denied approval or clearance or
such approval was delayed, it may have a material adverse impact on the
Company.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally five to seven years, or the lease term of the respective assets.
Long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". SFAS 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
Other income
The Company has contracts in which it performs research and development on
behalf of third parties. Under the terms of the contracts, the Company receives
milestone payments from those third parties and recognizes these payments as
other income upon completion of the specified milestone.
Income taxes
The Company utilizes the liability method of accounting for income taxes
as set forth in SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax liabilities and assets are recognized for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. Valuation allowances are provided on deferred
tax assets for which it is more likely than not that some portion or all will
not be realized.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation".
Comprehensive income
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement establishes standards for the reporting
and display of comprehensive income and its components. Comprehensive income is
defined to include all changes in equity during a period except those resulting
from investments by owner and distributions to owners. Since inception, the
Company has not had significant transactions that are required to be reported
in other comprehensive income. Comprehensive income (loss) for each period
presented is equal to the net loss for each period as presented in the
Statements of Operations.
Business segments
The Company operates in one business segment, the pharmaceutical industry.
Computation of basic and diluted net loss per share
The Company adopted SFAS No. 128, "Earnings Per Share" and the Securities
and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB No. 98")
effective December 31, 1997. Accordingly, all prior periods have been restated.
Basic and diluted net loss per share are computed using the weighted average
number of shares of common stock outstanding. No additional shares are
considered to be outstanding for either computation under the provisions of SAB
No. 98.
F-29
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
Stock options to purchase 286,500 shares of common stock at prices ranging
from $1.00 to $8.77 per share were outstanding at December 31, 1998, but were
not included in the computation of diluted net loss per share because they
anti-dilutive. The Company had 2,510,000 shares of convertible Preferred Stock
outstanding at December 31, 1998, which were excluded in the computation of
diluted net loss per share as they were anti-dilutive. Warrants to purchase
520,000 shares of common stock at $2.50 per share were outstanding at 1998 but
were not included in the computation of diluted net loss per share because they
were anti-dilutive. The aforementioned stock options, preferred stock and
warrants could potentially dilute earnings per share in future.
Recent accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities". This statement establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS No. 133 will be
effective for the year beginning January 1, 2001. The adoption of SFAS No. 133
is not expected to have a material effect on the Company's results of
operations, financial position or cash flows.
NOTE 3 -- SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
Period from
September 27, For the Six
1994 (date of Months Year Ended
inception) to Ended June 30, December 31,
June 30, -------------- ---------------
1999 1999 1998 1998 1997
--------------- ------ ------ ------ -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental cash flow information:
Cash paid for income taxes ........................... $ 24 $ -- $ -- $ 8 $ 8
---- ---- ---- ---- ----
Supplemental noncash financing activities:
Conversion of revolving credit notes for
Series A preferred stock ........................... $715 $ -- $ -- $138 $ --
---- ---- ---- ---- ----
Conversion of accounts payable to Board
Member to Series B preferred stock ................. $ 93 $ 93 $ -- $ -- $ --
---- ---- ---- ---- ----
Issuance of warrants and options at below market. $350 $ 90 $ -- $260 $ --
---- ---- ---- ---- ----
</TABLE>
<PAGE>
NOTE 4 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
December 31,
1998
-------------
<S> <C>
Property and equipment, net
Equipment ............................................... $ 3,071
Furniture and fixtures .................................. 212
Leasehold improvements .................................. 857
--------
4,140
Less: Accumulated depreciation and amortization ......... (1,170)
--------
$ 2,970
========
</TABLE>
Depreciation expense in 1997 and 1998 was $298,000 and $509,000, respectively.
December 31,
1998
-------------
Accrued liabilities:
Payroll and related expenses ......... $ 8
Other ................................ 116
----
$124
====
F-30
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 5 -- RELATED PARTY TRANSACTIONS:
The Company was advanced $373,000 in fiscal 1998 from certain
shareholders. A total amount of $293,000 was repaid prior to year end and the
remaining balance was paid in January 1999.
As of December 31, 1998, the Company had accrued $520,000 of compensation
payable to four key employees in recognition of past services rendered. The
amount is due at the Company's discretion on or before November 1, 2001.
As of December 31, 1998, the Company had $93,000 payable to a related
party, one of the Company's Board Members, for commissions due from assisting
the Company obtaining equity financing.
In April 1997, the Company paid $150,000 for a 15% interest in, and loaned
an additional $100,000 to, a California pharmaceutical research and development
company. As part of its investment, the Company is entitled to certain
exclusive licensing rights. The investment has been accounted for as purchased
research and development and has been expensed. The loan is unlikely to be
repaid and has been written off to general and administrative expenses.
NOTE 6 -- INCOME TAXES:
No provision for income taxes is recorded for any period due to the
Company's losses during the development stage. The difference between the
federal statutory tax rate and the Company's effective income tax rate is
attributable to losses and future tax deductions for which no tax benefits have
been recognized.
Deferred tax assets consist of the following (in thousands):
December 31,
1998
-------------
Net operating losses ........................... $ 2,708
Depreciation and amortization .................. (100)
Research and development credit ................ 716
--------
Total deferred tax assets .................... 3,324
Deferred tax asset valuation allowance ......... (3,324)
--------
$ --
========
Due to historical losses incurred by the Company, a full valuation
allowance for net deferred tax assets has been provided. If the Company
achieves profitability, certain of these net deferred tax assets would be
available to offset future income taxes.
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not
limited to, a cumulative ownership change of more than 50%, as defined, over a
three year period.
F-31
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 6 -- INCOME TAXES: -- (Continued)
The Company has loss carryforwards totaling approximately $7,840,000 to
offset against future Federal taxable income and approximately $8,065,000 to
offset against future California taxable income. The carryforwards will expire
as follows (in thousands):
Year Ending December 31, Federal California
- -------------------------- --------- -----------
2004 ..................... $ -- $8,065
2011 ..................... 590 --
2012 ..................... 3,160 --
2018 ..................... 4,090 --
------ ------
$7,840 $8,065
====== ======
The Company also has research expenditures tax credits totaling
approximately $530,000 to offset against future Federal tax and approximately
$290,000 to offset future California tax. The credits have no expiration date.
NOTE 7 -- BORROWINGS:
Revolving credit note
The Company had revolving credit notes with four of the Company's
shareholders. These facilities originally allowed for total borrowings of
$715,000 and bear interest at 7% per annum. During 1997 and the first six
months of 1998 there was $138,000 available under these facilities. At June 30,
1998 the $138,000 was borrowed and shortly thereafter the facilities were
cancelled. All of the borrowings were converted into Series A preferred stock.
In addition, the Company issued 715,000 warrants to purchase preferred stock in
connection with these facilities (see Note 9)
NOTE 8 -- COMMITMENTS:
Leases
The Company leases office space under a noncancelable operating lease that
expires in 2002. Rent expense for the year ended December 31, 1997 and 1998 was
$132,000 and $165,000, respectively. The terms of the facility lease provide
for rental payments on a graduated scale. The Company recognizes rent expense
on a straight-line basis over the lease period, and has accrued for rent
expense incurred but not paid.
Future minimum lease payments under the noncancelable operating lease are
as follows (in thousands):
Year Ended Operating
December 31, Leases
- ------------ ----------
1999 ........................................... $155
2000 ........................................... 165
2001 ........................................... 165
2002 ........................................... 83
----
Total minimum lease payments ................... $568
====
NOTE 9 -- SHAREHOLDERS' EQUITY:
Redeemable Convertible Preferred Stock
Payments for Series D Preferred Stock received prior to issuance is
reflected in the financial statements as Series D Preferred Stock
Subscriptions. The balances at December 31, 1997 and 1998 were $3,000,000 and
$4,300,000, respectively. See Note 12 for final closing of Series D in 1999.
F-32
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 9 -- SHAREHOLDERS' EQUITY: -- (Continued)
On September 30, 1996, the Company acquired the net assets of Impax
Pharmaceuticals, LLC in exchange for the issuance of 2,136,362 shares of Common
Stock, 726,637 shares of Series A Preferred Stock and 410,000 shares of Series
B Preferred Stock.
The holders of Preferred Stock have various rights and preferences as
follows:
Voting
Each share of Series A, B, C and D has voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and
votes together as one class with the Common Stock.
As long as at least 400,000 shares of Redeemable Convertible Preferred
Stock remain outstanding, the Company must obtain approval from a majority of
the holders of Redeemable Convertible Preferred Stock in order to alter the
Articles of Incorporation as related to Redeemable Convertible Preferred Stock,
change the authorized number of shares of Redeemable Convertible Preferred
Stock, repurchase any shares of Common Stock other than shares subject to the
right of repurchase by the Company, change the authorized number of Directors,
authorize a dividend for any class or series other than Redeemable Convertible
Preferred Stock, create a new class of stock or effect a merger, consolidation
or sale of assets where the existing shareholders retain less than 50% of the
voting stock of the surviving entity.
Dividends
Holders of Series A, B, C and D Redeemable Convertible Preferred Stock are
entitled to receive noncumulative dividends at the per annum rate of $0.01,
$0.05, $0.0877 and $0.50 per share, respectively, when and if declared by the
Board of Directors. No dividends on Convertible Redeemable Preferred Stock or
Common Stock have been declared by the Board from inception through December
31, 1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Convertible Redeemable Preferred Stock own
less than 51% of the resulting voting power of the surviving entity, the
holders of Series A, B C and D Redeemable Convertible Preferred Stock are
entitled to receive an amount of $1.00, $5.00, $8.76 and $5.00 per share,
respectively, plus any declared but unpaid dividends prior to and in preference
to any distribution to the holders of Common Stock. The remaining assets, if
any, shall be distributed and shared pro rata among all holders of capital
stock of the Company on a basis which assumes conversion of all outstanding
Preferred Stock into Common Stock. Should the Company's legally available
assets be insufficient to satisfy the liquidation preferences, the funds will
be distributed ratably in proportion to the respective amounts which would be
payable on the shares held by them if the respective preference amounts were
paid in full.
Conversion
Each share of Series A, B, C and D Redeemable Convertible Preferred Stock
is convertible, at the option of the holder, according to a conversion ratio,
subject to adjustment for dilution. Each share of Series A, B and D Redeemable
Convertible Preferred Stock automatically converts on a 1 to 1 basis into the
number of shares of Common, Series C converts on a 1 to 1.7534 basis. Automatic
conversion should occur upon the closing of a public offering of Common Stock
at a per share price of at least $5.00 per share with gross proceeds of at
least $5,000,000.
F-33
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 9 -- SHAREHOLDERS' EQUITY: -- (Continued)
Redemption
On or at any time after September 30, 2005, for Series A, B, C and D, the
Company may, at any time, at the option of the Board of Directors, redeem in
whole or in part any shares of Series A, B, C and D by paying in cash, $1.00,
$5.00, $8.767 and $5.00 per share, respectively, plus all declared but unpaid
dividends if any.
Warrants for Redeemable Convertible Preferred Stock
In connection with issuing revolving credit notes in July 1995 (see Note
7) to the Company's founders, the Company issued warrants to purchase 715,000
shares of Series A Redeemable Convertible Preferred Stock for $1.00 per share.
There were no warrants outstanding at December 31, 1998. Using the
Black-Scholes pricing model, the Company determined that the fair value of the
warrants was $369,000 at the date of grant. A total of $89,000 was amortized
and the remaining amount of $280,000 was treated as issuance costs based on the
conversions of the debt to Series A reedemable convertible preferred stock.
Common Stock
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 15,000,000 shares of no par value Common Stock.
Warrants for Common Stock
In connection with a deferred compensation agreement in 1998 with the
Company's founders, the Company issued warrants to purchase 520,000 shares of
Common Stock for $2.50 per share. Such warrants are outstanding at December 31,
1998 and expire in 2003. The Company determined that the intrinsic value of the
warrants at the date of grant was $260,000 and has charged this amount to
expense in 1998 in accordance with APB No. 25.
NOTE 10 -- STOCK OPTION PLANS:
In September 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. The Company has reserved 500,000
shares of Common Stock for issuance under the Plan. To date, options granted
generally vest from three to five years.
On September 30, 1996, as part of its acquisition of the assets of Impax
Pharmaceuticals, LLC, the Company agreed to exchange option agreements entitled
holders to acquire Common or Preferred Units of the LLC for options entitled
these same holders to acquire equivalent amounts of common and Preferred Stock
in the Company. Accordingly, on September 30, 1996, the Company reflected
options granted to prior members of the LLC covering 113,000 shares.
Effective June 1, 1998, the Company's Board of Directors approved the
re-pricing of all outstanding options to $2.50 per share, the fair market value
of common stock on that date. As a result, all outstanding options at June 1,
1998 were effectively rescinded and re-issued at an exercise price of $2.50 per
share.
F-34
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 10 -- STOCK OPTION PLANS: -- (Continued)
A summary of the status of the Company's stock option plan as of December
31, 1998, 1997 and 1996 and changes during the year ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ---------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
September 30, 1996 ........................ -- $ -- -- $ -- 113,000 $4,009
Options outstanding at
January 1 ................................. 143,500 6,496 156,000 5,320 -- --
Granted ................................. 174,500 5,686 22,500 8,767 43,000 8,767
Exercised ............................... (5,000) 2,500 (6,000) 1,667
Cancelled ............................... (26,500) 2,500 (29,000) 2,931
Rescinded ............................... (195,500) 8,339 -- -- -- --
Reissued ................................ 195,500 2,500 -- -- -- --
-------- ------- -------
Options outstanding at December 31 ......... 286,500 2,458 143,500 6,496 156,000 5,320
-------- ------- -------
Options exercisable at December 31 ......... 54,700 -- 32,000 -- 4,000 --
-------- ------- -------
Options available for grant at December 31. 202,500 -- 350,500 -- 344,000 --
-------- ------- -------
</TABLE>
At December 31, 1998, options outstanding had a weighted average remaining
contractual life of 8.72 years.
Fair value disclosures
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below (in thousands):
Year Ended December 31,
---------------------------
1998 1997
------------ ------------
Net loss:
As reported ......... $ (5,222) $ (3,608)
-------- --------
Pro forma ........... $ (5,668) $ (3,657)
-------- --------
Year Ended December 31,
-------------------------
1998 1997
----------- -----------
Net loss per common share:
As reported ............. $(2.43) $(1.69)
------ ------
Pro forma ............... $(2.64) $(1.71)
------ ------
The pro forma results may not representative of the effect on reported
operations for future years.
Of the $446,000 pro forma increase in net loss for 1998, $388,000 is
attributable to a re-pricing of outstanding stock options and $58,000 is due to
normal amortization.
F-35
<PAGE>
IMPAX PHARMACEUTICALS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 10 -- STOCK OPTION PLANS: -- (Continued)
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes pricing method with the following assumptions:
dividend yield at 0%; weighted average expected option term of five years; risk
free interest rate of 6.50% to 6.93% and 5.01% to 5.95% for the year ended
December 31, 1997 and 1998, respectively. The weighted average fair value of
options granted during 1997 and 1998 was $4.33 and $1.51, respectively.
NOTE 11 -- EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by the
Board of Directors. There were no contributions under this plan for the year
ended December 31, 1997 and 1998, respectively.
NOTE 12 -- SUBSEQUENT EVENTS:
In March 1999 the Company issued 3,400,000 shares of its Redeemable
Convertible Preferred Stock at $5.00 per share for a total of $17,000,000. The
rights and preferences for Series D are stated in Note 9.
In July 1999, the Company announced the signing of a merger agreement with
Global Pharmaceutical Corporation. Global will acquire all of the Company's
outstanding shares in exchange for shares of Global's common and preferred
shares.
In April 1999, the Company granted 250,700 options to employees to
purchase common stock for $2.50 per share. As a result of the grant the Company
recorded $1,805,000 of unearned compensation in accordance with APB No. 25.
$90,000 of the unearned compensation was amortized to expense during the period
ended June 30, 1999. The Company amortizes unearned compensation over the
vesting period of the underlying option.
F-36
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
July 26, 1999
by and between
GLOBAL PHARMACEUTICAL CORPORATION
and
IMPAX PHARMACEUTICALS, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
SECTION 1.01 Effective Time ............................................................ A-1
SECTION 1.02 Closing ................................................................... A-1
SECTION 1.03 Effects of the Merger ..................................................... A-1
SECTION 1.04 Directors ................................................................. A-1
SECTION 1.05 Officers .................................................................. A-2
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Seller Capital Stock ........................................ A-2
SECTION 2.02 Conversion of Buyer Capital Stock ......................................... A-3
SECTION 2.03 Dissenting Shares ......................................................... A-4
SECTION 2.04 Exchange of Certificates .................................................. A-4
SECTION 2.05 Conversion of Options ..................................................... A-6
SECTION 2.06 Conversion of Warrants .................................................... A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 3.01 Organization of Seller .................................................... A-7
SECTION 3.02 Seller Capital Structure; Irrevocable Proxy and Voting Agreement .......... A-8
SECTION 3.03 Authority; No Conflict; Required Filings and Consents ..................... A-8
SECTION 3.04 Financial Statements ...................................................... A-9
SECTION 3.05 No Undisclosed Liabilities ................................................ A-10
SECTION 3.06 Absence of Certain Changes or Events ...................................... A-10
SECTION 3.07 Taxes ..................................................................... A-10
SECTION 3.08 Ownership of Properties; Condition of Property ............................ A-12
SECTION 3.09 Agreements, Contracts and Commitments ..................................... A-12
SECTION 3.10 Litigation ................................................................ A-12
SECTION 3.11 Employee Benefit Plans .................................................... A-13
SECTION 3.12 Salaries .................................................................. A-14
SECTION 3.13 Personnel Agreements, Plans and Arrangements .............................. A-14
SECTION 3.14 Customers ................................................................. A-15
SECTION 3.15 Interest of the Companies in Customers, etc. .............................. A-15
SECTION 3.16 Books and Records ......................................................... A-15
SECTION 3.17 Insurance Policies ........................................................ A-15
SECTION 3.18 Bank Accounts ............................................................. A-15
SECTION 3.19 Compliance With Laws ...................................................... A-15
SECTION 3.20 Accounting and Tax Matters ................................................ A-16
SECTION 3.21 Registration Statement; Proxy Statement/Prospectus ........................ A-16
SECTION 3.22 Labor Matters ............................................................. A-16
SECTION 3.23 Year 2000 Compliance ...................................................... A-16
SECTION 3.24 Legal Compliance .......................................................... A-17
SECTION 3.25 Environmental and Safety Matters .......................................... A-18
SECTION 3.26 Conduct of the Businesses ................................................. A-20
SECTION 3.27 Intellectual Property ..................................................... A-20
SECTION 3.28 Products Liability ........................................................ A-21
SECTION 3.29 No Existing Discussions ................................................... A-21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
SECTION 3.30 Anti-Takeover Laws ............................................. A-21
SECTION 3.31 No Misrepresentation ........................................... A-21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 4.01 Organization of Buyer .......................................... A-22
SECTION 4.02 Buyer Capital Structure ........................................ A-22
SECTION 4.03 Authority; No Conflict; Required Filings and Consents .......... A-23
SECTION 4.04 SEC Filings; Financial Statements .............................. A-24
SECTION 4.05 No Undisclosed Liabilities ..................................... A-24
SECTION 4.06 Absence of Certain Changes or Events ........................... A-24
SECTION 4.07 Taxes .......................................................... A-24
SECTION 4.08 Agreements, Contracts and Commitments .......................... A-26
SECTION 4.09 Litigation ..................................................... A-26
SECTION 4.10 Compliance With Laws ........................................... A-26
SECTION 4.11 Accounting and Tax Matters ..................................... A-27
SECTION 4.12 Registration Statement; Proxy Statement/Prospectus ............. A-27
SECTION 4.13 Year 2000 Compliance ........................................... A-27
SECTION 4.14 [Reserved ...................................................... A-27
SECTION 4.15 Legal Compliance ............................................... A-27
SECTION 4.16 Environmental and Safety Matters ............................... A-29
SECTION 4.17 Intellectual Property .......................................... A-30
SECTION 4.18 Products Liability ............................................. A-30
SECTION 4.19 Ownership of Properties; Condition of Property ................. A-31
SECTION 4.20 Employee Benefit Plans ......................................... A-31
SECTION 4.21 Salaries ....................................................... A-32
SECTION 4.22 Personnel Agreements, Plans and Arrangements ................... A-32
SECTION 4.23 Customers ...................................................... A-33
SECTION 4.24 Interest of the Companies in Customers, etc. ................... A-33
SECTION 4.25 Books and Records .............................................. A-33
SECTION 4.26 Insurance Policies ............................................. A-33
SECTION 4.27 Bank Accounts .................................................. A-33
SECTION 4.28 Labor Matters .................................................. A-33
SECTION 4.29 Conduct of the Businesses ...................................... A-34
SECTION 4.30 Anti-Takeover Laws ............................................. A-34
SECTION 4.31 Opinion of Financial Advisor ................................... A-34
SECTION 4.32 No Existing Discussions ........................................ A-34
SECTION 4.33 No Misrepresentation ........................................... A-34
ARTICLE V
CONDUCT OF BUSINESS
SECTION 5.01 Covenants of Seller ............................................ A-35
SECTION 5.02 Covenants of Buyer ............................................. A-36
SECTION 5.03 Cooperation .................................................... A-38
SECTION 5.04 Confidentiality ................................................ A-38
SECTION 5.05 Notices of Certain Events ...................................... A-38
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 No Solicitation by Seller ...................................... A-38
SECTION 6.02 No Solicitation by Buyer ....................................... A-39
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
SECTION 6.03 Proxy Statement/Prospectus; Registration Statement .................. A-39
SECTION 6.04 Access to Information ............................................... A-39
SECTION 6.05 Stockholder Meetings ................................................ A-40
SECTION 6.06 Legal Conditions to Merger .......................................... A-40
SECTION 6.07 Public Disclosure ................................................... A-41
SECTION 6.08 Reorganization ...................................................... A-41
SECTION 6.09 Board of Directors and Officers ..................................... A-41
SECTION 6.10 Affiliate Agreements ................................................ A-41
SECTION 6.11 Nasdaq SmallCap Market Listing ...................................... A-42
SECTION 6.12 Stock Plans ......................................................... A-42
SECTION 6.13 Certain Employee Benefit Plan Obligations ........................... A-42
SECTION 6.14 Indemnification, Exculpation and Insurance .......................... A-42
SECTION 6.15 Brokers or Finders .................................................. A-43
SECTION 6.16 Comfort Letters from Seller's Accountants ........................... A-43
SECTION 6.17 Comfort Letter from Buyer's Accountants ............................. A-43
SECTION 6.18 Control of Operations ............................................... A-43
SECTION 6.19 Seller Tax Returns After Closing .................................... A-43
SECTION 6.20 Seller's Voting Proxies ............................................. A-43
SECTION 6.21 Conversion Letters .................................................. A-43
ARTICLE VII
CONDITIONS TO MERGER
SECTION 7.01 Conditions to Each Party's Obligation To Effect the Merger .......... A-44
SECTION 7.02 Additional Conditions to Obligations of Buyer ....................... A-44
SECTION 7.03 Additional Conditions to Obligations of Seller ...................... A-46
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01 Termination ......................................................... A-47
SECTION 8.02 Effect of Termination ............................................... A-48
SECTION 8.03 Fees and Expenses ................................................... A-48
SECTION 8.04 Amendment ........................................................... A-49
SECTION 8.05 Extension; Waiver ................................................... A-49
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 General ............................................................. A-49
SECTION 9.02 Certain Definitions ................................................. A-50
SECTION 9.03 The Seller Stockholder's Indemnification Obligations ................ A-50
SECTION 9.04 Limitation on Indemnification Obligations ........................... A-51
SECTION 9.05 Cooperation ......................................................... A-51
SECTION 9.06 Subrogation ......................................................... A-52
SECTION 9.07 Indemnification Claims Procedures ................................... A-52
SECTION 9.08 Seller Stockholder Agent ............................................ A-53
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Survival of Representations, Warranties and Agreements .............. A-53
SECTION 10.02 Notices ............................................................. A-53
SECTION 10.03 Interpretation ...................................................... A-54
SECTION 10.04 Counterparts ........................................................ A-54
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
SECTION 10.05 Entire Agreement; No Third Party Beneficiaries .......... A-54
SECTION 10.06 Governing Law ........................................... A-54
SECTION 10.07 Assignment .............................................. A-54
SECTION 10.08 Severability ............................................ A-54
SECTION 10.09 Enforcement ............................................. A-55
SECTION 10.10 No Rule of Construction ................................. A-55
SECTION 10.11 Attorney's Fees ......................................... A-55
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A -- Agreement of Merger
Exhibit B -- Amended and Restated Certificate of Incorporation
Exhibit C -- List of Seller Stockholders
Exhibit D -- Escrow Agreement
Exhibit E -- Irrevocable Proxy and Voting Agreement
Exhibit F -- Affiliate Agreement
Exhibit G -- Stockholders' Agreement
Exhibit H -- Hsiao Employment Agreement
Exhibit I -- Hsu Employment Agreement
Exhibit J -- Edwards Employment Agreement
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of July 26, 1999,
by and among GLOBAL PHARMACEUTICAL CORPORATION, a Delaware corporation
("Buyer"), and IMPAX PHARMACEUTICALS, INC., a California corporation
("Seller").
WHEREAS, the Boards of Directors of Buyer and Seller deem it advisable and
in the best interests of each corporation and its respective stockholders that
Buyer and Seller combine in order to advance the long-term business interests
of Buyer and Seller;
WHEREAS, the combination of Buyer and Seller shall be effected by the
terms of this Agreement and in accordance with the General Corporation Law of
the State of Delaware (the "GCL") and the California Corporations Code
("California Code") through a merger of Seller into Buyer, as a result of which
the stockholders of Seller will become stockholders of Buyer (the "Merger");
and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 Effective Time. Subject to the provisions of this Agreement,
Seller and Buyer shall duly execute originals of (i) the Agreement of Merger in
the form attached hereto as Exhibit A, (the "Agreement of Merger"); and (ii)
such Certificates of merger or related documents, in such form as is required
by the applicable provisions of the GCL and the California Code ("Certificates
of Merger"). The Merger shall be consummated when a duly executed and certified
copy of the Agreement of Merger, if required, along with the Certificates of
Merger, have been filed with the Department of State of the State of Delaware
and the Secretary of State of the State of California in accordance with the
GCL and the California Code. When used in this Agreement, the "Effective Time"
shall mean such time as is the latest of such filings to occur.
SECTION 1.02 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., Eastern Standard Time, on a date to be specified by the
parties (the "Closing Date"), which shall be no later than the second business
day after satisfaction or waiver of the conditions set forth in Article VII
hereof (other than the conditions with respect to the documents to be delivered
at the Closing), at the offices of Fulbright & Jaworski L.L.P., 666 Fifth
Avenue, New York, NY 10103, unless another date, place or time is agreed to in
writing by the parties.
SECTION 1.03 Effects of the Merger. At the Effective Time (i) the separate
corporate existence of Seller shall cease and Seller shall be merged with and
into Buyer (Seller is sometimes referred to below as the "Constituent
Corporation" and Buyer following the Merger is sometimes referred to below as
the "Surviving Corporation"), (ii) the Certificate of Incorporation of Buyer in
effect immediately prior to the Effective Time shall be amended and restated in
full, substantially as set forth in Exhibit B to this Agreement, and shall be
the Certificate of Incorporation of the Surviving Corporation, unless and until
further amended as provided by law and such Certificate of Incorporation; (iii)
the Bylaws of Buyer as in effect immediately prior to the Effective Time shall
be the Bylaws of the Surviving Corporation; and (iv) the corporate headquarters
for the Surviving Corporation shall be moved to 30831 Huntwood Avenue, Hayward,
California 94544. The Merger shall have the effects set forth in the GCL and
the California Code.
SECTION 1.04 Directors. The respective directors of the Seller and Buyer
shall resign immediately prior to the Effective Time and the initial directors
of the Surviving Corporation shall be elected in accordance with Section 6.09
hereof and shall hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, from the Effective Time
until their respective successors are duly elected or appointed and qualified.
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SECTION 1.05 Officers. The respective officers of the Seller and Buyer
shall resign immediately prior to the Effective Time and the initial officers
of the Surviving Corporation shall be appointed by the initial directors of the
Surviving Corporation (elected in accordance with Sections 1.04 and 6.09
hereof) and shall hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, from the Effective Time
until their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Seller Capital Stock. As of the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
shares of the common stock of Seller ("Seller Common Stock"), or of any shares
of Series A Preferred Stock of Seller ("Seller Series A"), Series B Preferred
Stock of Seller ("Seller Series B"), Series C Preferred Stock ("Seller Series
C") and Series D Preferred Stock of Seller ("Seller Series D") (collectively
referred to as "Seller Preferred Stock," and, together with the Seller Common
Stock, the"Seller Stock"):
(a) Exchange Multiplier for Seller Common Stock, Seller Series A and Seller
Series B. Subject to Section 2.04, each issued and outstanding share of
Seller Common Stock, Seller Series A and Seller Series B (other than any
shares of Seller Common Stock, Seller Series A and Seller Series B which
are held by shareholders who are dissenting shareholders pursuant to
Sections 1300 through 1312 of the California Code) shall be converted
into the right to receive 3.3358 (the "Seller Common Exchange
Multiplier") fully paid and non-assessable shares of Buyer's Common
Stock, $.01 par value per share ("Buyer Common Stock").
All such shares of Seller Common Stock, Seller Series A and Seller Series
B when so converted shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive the shares
of Buyer Common Stock and any cash in lieu of fractional shares of Buyer
Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.04, without
interest.
(b) Exchange Multiplier for Seller Series C. Subject to Section 2.04, each
issued and outstanding share of Seller Series C (other than any shares
of Seller Series C which are held by shareholders who are dissenting
shareholders pursuant to Sections 1300 through 1312 of the California
Code) shall be converted into the right to receive 5.8490 (the "Seller C
Exchange Multiplier") fully paid and non-assessable shares of Buyer
Common Stock.
All such shares of Seller Series C when so converted shall no longer be
outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Buyer Common Stock and any cash in lieu of
fractional shares of Buyer Common Stock to be issued or paid in
consideration therefor upon the surrender of such certificate in
accordance with Section 2.04, without interest.
(c) Exchange Multiplier for Seller Series D. Subject to Section 2.04, each
issued and outstanding share of Seller Series D (other than any shares
of Seller Series D which are held by shareholders who are dissenting
shareholders pursuant to Sections 1300 through 1312 of the California
Code) shall be converted into the right to receive 0.05 (the "Seller
Preferred Exchange Multiplier") fully paid and non-assessable shares of
Buyer's Series 1 Convertible Preferred Stock, $.01 par value per share
("Buyer Series 1 Preferred Stock"), having the designations, rights and
preferences set forth in the Amended and Restated Certificate of
Incorporation referred to in Section 1.03(ii) hereof and set forth as
Exhibit B hereto.
All such shares of Seller Series D when so converted shall no longer be
outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Buyer Series 1 Preferred Stock and any
cash in lieu of fractional shares of Buyer Series 1 Preferred Stock to be
issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 2.04, without interest.
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(d) Adjustments to Conversion. The Seller Common Exchange Multiplier,
Seller C Exchange Multiplier and Seller Preferred Exchange Multiplier
(collectively, the "Seller Exchange Multipliers") shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities
convertible into Buyer Common Stock, Buyer Preferred Stock (as
hereinafter defined) or Seller Common Stock or Seller Preferred Stock),
reorganization, recapitalization or other like change with respect to
Buyer Common Stock, Seller Common Stock, Seller Preferred Stock or Buyer
Preferred Stock occurring after the date hereof and prior to the
Effective Time.
Buyer Common Stock and Buyer Series 1 Preferred Stock shall collectively
be referred to herein as "Buyer Stock."
SECTION 2.02 Conversion of Buyer Capital Stock. As of the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
shares of the Series C Convertible Preferred Stock, $.01 par value per share,
of Buyer (the "Buyer Series C Preferred") or the Series D Convertible Preferred
Stock, $.01 par value per share, of Buyer (the "Buyer Series D Preferred" and,
together with the Buyer Series C Preferred, the "Buyer Preferred Stock"):
(a) Cancellation of Treasury Stock. All shares of Buyer Stock that are
owned directly or indirectly by Buyer as treasury stock shall be
cancelled and retired and shall cease to exist and no stock of Buyer or
other consideration shall be delivered in exchange therefor.
(b) Exchange Multiplier for Buyer Series C Preferred. Subject to Section
2.04, each issued and outstanding share of Buyer Series C Preferred
(other than shares to be cancelled in accordance with Section 2.02(a)
and any shares of Buyer Series C Preferred which are held by
shareholders who are dissenting shareholders pursuant to Section 262 of
the Delaware GCL) shall be converted into the right to receive fifty
(50) (the "Buyer Series C Exchange Multiplier") fully paid and
non-assessable shares of Buyer Common Stock (subject to anti-dilution
protection as set forth in the Certificate of Designations, Rights and
Preferences of the Buyer Series C Preferred).
All such shares of Buyer Series C Preferred when so converted shall no
longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing
any such shares shall cease to have any rights with respect thereto,
except the right to receive the shares of Buyer Common Stock and any cash
in lieu of fractional shares of Buyer Common Stock to be issued or paid
in consideration therefor upon the surrender of such certificate in
accordance with Section 2.04, without interest.
(c) Exchange Multiplier for Buyer Series D Preferred. Subject to Section
2.04, each issued and outstanding share of Buyer Series D Preferred
(other than shares to be cancelled in accordance with Section 2.02(a)
and any shares of Buyer Preferred Stock which are held by shareholders
who are dissenting shareholders pursuant to Section 262 of the Delaware
GCL) shall be converted into the right to receive one (the "Buyer Series
D Exchange Multiplier") fully paid and non-assessable shares of Buyer
Series 1 Preferred Stock.
All such shares of Buyer Series D Preferred when so converted shall no
longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing
any such shares shall cease to have any rights with respect thereto,
except the right to receive the shares of Buyer Series 1 Preferred Stock
and any cash in lieu of fractional shares of Buyer Series 1 Preferred
Stock to be issued or paid in consideration therefor upon the surrender
of such certificate in accordance with Section 2.04, without interest.
(d) Adjustments to Conversion. The Buyer Series C Exchange Multiplier and
Buyer Series D Exchange Multiplier shall be adjusted to reflect fully
the effect of any stock split, reverse split, stock dividend (including
any dividend or distribution of securities convertible into Buyer Common
Stock, Buyer Preferred Stock, Seller Common Stock or Seller Preferred
Stock), reorganization, recapitalization or other like change with
respect to Buyer Common Stock, Seller Common Stock, Seller Preferred
Stock or Buyer Preferred Stock occurring after the date hereof and prior
to the Effective Time.
All shares of Buyer Common Stock that are outstanding as of the Effective Time
shall remain outstanding.
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SECTION 2.03 Dissenting Shares. Notwithstanding anything to the contrary
contained in this Agreement, in the event appraisal rights are available to the
holders of Buyer Stock, Buyer Preferred Stock or Seller Stock pursuant to
applicable law, any shares of Buyer Stock, Buyer Preferred Stock or Seller
Stock held by a person who objects to the Merger and who complies with all of
the provisions of applicable law concerning the rights of such person to
dissent from the Merger and to require appraisal of such person's shares of
Buyer Stock, Buyer Preferred Stock or Seller Stock, as the case may be (the
"Dissenting Shares"), shall not be converted into the right to receive shares
of Buyer Stock pursuant to Sections 2.01 and 2.02 of this Agreement but shall
become the right to receive such consideration as may be determined to be due
to the holder of such Dissenting Shares pursuant to applicable law; provided,
however, that the Dissenting Shares held by a person at the Effective Time who
shall, after the Effective Time, withdraw the demand for appraisal or lose the
right to appraisal, in either case pursuant to applicable law, shall be deemed
to have converted, as of the Effective Time, his or her shares of Buyer Stock,
Buyer Preferred Stock or Seller Stock, as the case may be, into shares of Buyer
Stock pursuant to Sections 2.01 and 2.02 of this Agreement.
SECTION 2.04 Exchange of Certificates. The procedures for exchanging
outstanding shares of Seller Common Stock, Seller Preferred Stock and Buyer
Preferred Stock for Buyer Common Stock and Buyer Series 1 Preferred Stock
pursuant to the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Buyer shall deposit with a bank
or trust company designated by Buyer and Seller (the "Exchange Agent"),
for the benefit of the holders of shares of Seller Stock and Buyer
Preferred Stock for exchange in accordance with this Section 2.04,
through the Exchange Agent, (i) certificates representing the shares of
Buyer Stock (such shares of Buyer Stock, together with cash in lieu of
fractional shares and any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Sections 2.01 and 2.02, less shares of Buyer Stock deposited
in the Escrow, as set forth below, in exchange for outstanding shares of
Seller Stock and Buyer Preferred Stock and (ii) cash, as required, in an
amount sufficient to make payments of cash in lieu of fractional shares,
if any, required pursuant to Section 2.04(e).
(b) Subject to the provisions of Section 2.03, as of the Effective Time, all
holders of Seller Stock (the "Seller Stockholders," who are listed on
Exhibit C attached hereto, which shall be updated at the Closing) shall
be required to deposit an aggregate of 1,690,274 shares of Buyer Common
Stock and 17,000 shares of Buyer Series 1 Preferred Stock to be received
by them in the Merger into an escrow account (the "Escrow"), which shares
shall be held and distributed in accordance with the terms of an Escrow
Agreement (the "Escrow Agreement") to be entered into by and among Buyer,
the Seller Stockholders, the Seller Stockholder Agent (as defined herein)
and the Exchange Agent or such other party as the parties may mutually
agree upon, as escrow agent (the "Escrow Agent"), in substantially the
form attached hereto as Exhibit D.
(c) As of the Effective Time, Buyer shall deposit or cause to be deposited
with the Escrow Agent certificates (issued in the name of the Escrow
Agent or its nominee) representing the Buyer Common Stock deposited in
the Escrow and Buyer Series 1 Preferred Stock deposited in the Escrow
(together, the "Escrow Shares"), for the purpose of securing the
indemnification obligations of the Seller Stockholders set forth in this
Agreement. The Escrow Shares shall be held by the Escrow Agent under the
Escrow Agreement pursuant to the terms thereof and shall be disbursed in
accordance with the terms of the Escrow Agreement. The adoption of this
Agreement and the approval of the Merger by the Seller Stockholders shall
constitute approval of the Escrow Agreement and of all of the
arrangements relating thereto, including without limitation the placement
of the Escrow Shares in escrow and the appointment of the Seller
Stockholder Agent (as defined herein). Any shares of Buyer Stock or other
equity securities issued or distributed by Buyer (including shares issued
upon a stock split) ("New Shares") in respect of Buyer Stock in the
Escrow which have not been released from the Escrow shall be added to the
Escrow and become a part thereof. New Shares issued in respect of Buyer
Stock which have been released from the Escrow shall not be added to the
Escrow, but shall be distributed to the holders thereof. When and if cash
dividends on Buyer Stock in the Escrow shall be declared and paid, they
shall not be added to the Escrow, but shall be paid to those on whose
behalf such Buyer Stock is held who, at the Effective Time, held Seller
Stock. Each Seller Stockholder shall have voting rights with respect
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to the shares of Buyer Stock contributed to the Escrow on behalf of such
Seller Stockholder (and on any voting securities added to the Escrow in
respect of such shares of Buyer Stock) so long as such shares of Buyer
Stock or other voting securities are held in the Escrow. As the record
holder of such shares, the Escrow Agent shall vote such shares in
accordance with the instructions of the Seller Stockholders having the
beneficial interest therein and shall promptly deliver copies of all
proxy solicitation materials to such Seller Stockholders. Buyer shall
show the Buyer Stock contributed to the Escrow Fund as issued and
outstanding on its balance sheet.
(d) Exchange Procedures. Promptly after the Effective Time, Buyer shall
instruct the Exchange Agent and the Exchange Agent shall mail to each
holder of record of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Seller Stock and
Buyer Preferred Stock (the "Certificates") whose shares of Seller Stock
and Buyer Preferred Stock were converted pursuant to Sections 2.01 and
2.02 into the right to receive shares of Buyer Stock (i) a letter of
transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Exchange Agent, and shall be in such form and
have such other provisions as Buyer and Seller may reasonably specify)
and (ii) instructions for effecting the surrender of the Certificates in
exchange for certificates representing shares of Buyer Stock (plus cash
in lieu of fractional shares, if any, of Buyer Stock as provided below).
Upon surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be mutually appointed by Buyer and
Seller, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole shares of Buyer
Stock which such holder has the right to receive pursuant to the
provisions of this Article II after taking into account all the shares of
Seller Stock or Buyer Preferred Stock then held by such holder under all
such Certificates so surrendered, and the Certificate so surrendered
shall immediately be cancelled. In the event of a transfer of ownership
of Seller Stock or Buyer Preferred Stock which is not registered in the
transfer records of Seller, or Buyer, as the case may be, a certificate
representing the proper number of shares of Buyer Stock may be issued to
a transferee if the Certificate representing such Seller Stock or Buyer
Preferred Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.04, each Certificate shall
be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the certificate representing shares
of Buyer Stock and cash in lieu of any fractional shares of Buyer Stock
as contemplated by this Section 2.04.
(e) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to
Buyer Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of
Buyer Stock to which such holder is entitled until the holder of record
of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing
whole shares of Buyer Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Buyer Stock to which such holder
is entitled pursuant to subsection (g) below and the amount of dividends
or other distributions with a record date after the Effective Time which
would otherwise have been previously paid with respect to such whole
shares of Buyer Stock and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Buyer Stock.
(f) No Further Ownership Rights in Seller Stock. All shares of Buyer Stock
issued upon the surrender for exchange of Certificates in accordance with
the terms hereof (including any cash paid pursuant to subsection (c) or
(g) of this Section 2.04) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Seller Stock or
Buyer Preferred Stock, as the case may be, and from and after the
Effective Time there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Seller
Stock or Buyer Preferred Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are
presented
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to the Surviving Corporation for any reason, they shall be cancelled and
exchanged as provided in this Section 2.04.
(g) No Fractional Shares. No certificate or scrip representing fractional
shares of Buyer Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any other rights of a stockholder of Buyer.
Notwithstanding any other provision of this Agreement, each holder of
shares of Seller Stock or Buyer Preferred Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a
share of Buyer Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Buyer
Stock multiplied by the Average Stock Price.
"Average Stock Price" means the average of the daily closing prices of
Buyer Common Stock on the Nasdaq SmallCap Market for the twenty
consecutive trading days ending on the second trading day immediately
prior to the Closing Date. With regard to the Buyer Preferred Stock, the
"Average Stock Price" shall be determined by multiplying the number of
shares of Buyer Common Stock issuable upon conversion of each share of
Buyer Preferred Stock by the Average Stock Price for the Buyer Common
Stock.
(h) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Seller or Buyer, as the case
may be, for 180 days after the Effective Time shall be delivered to
Buyer, upon demand, and any stockholders of Seller or Buyer, as the case
may be, who have not previously complied with this Section 2.04 shall
thereafter look only to Buyer for payment of their claim for such Buyer
Stock, any cash in lieu of fractional shares of Buyer Stock and any
dividends or distributions with respect to Buyer Stock.
(i) No Liability. To the extent permitted by applicable law, neither Buyer
nor Seller shall be liable to any holder of shares of Seller Stock, Buyer
Preferred Stock or Buyer Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or
similar law.
(j) Withholding Rights. Each of Buyer and the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Seller Stock or
Buyer Preferred Stock such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code, or
any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by Surviving Corporation or Buyer, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Seller Stock
or Buyer Preferred Stock in respect of which such deduction and
withholding was made by Surviving Corporation or Buyer, as the case may
be.
(k) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and the posting
by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made
against it with respect to such Certificate (unless such requirement to
post a bond shall be waived by the Surviving Corporation), the Exchange
Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Buyer Stock and any cash in lieu of fractional
shares, and unpaid dividends and distributions on shares of Buyer Stock
deliverable in respect thereof pursuant to this Agreement.
SECTION 2.05 Conversion of Options. At the Effective Time, each option
granted by Seller to purchase shares of Seller Common Stock ("Seller Stock
Option") which is outstanding and unexercised immediately prior thereto shall
cease to represent a right to acquire shares of Seller Common Stock and shall
be converted automatically into an option to purchase the number of whole
shares of Buyer Common Stock (rounded down, if applicable) equal to the number
of whole shares of Seller Common Stock subject to such option multiplied by the
Seller Common Exchange Multiplier, at a price per share of Buyer Common Stock
equal to (i) the exercise
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price for the shares of Seller Common Stock purchasable pursuant to such Seller
Stock Option immediately prior to the Effective Time divided by (ii) the Seller
Common Exchange Multiplier, and shall otherwise be subject to the terms of the
Seller Employee Plans (as defined in Section 3.11) pursuant to which such
options were issued and the agreements evidencing grants thereunder or, at the
option of the Surviving Corporation, may as otherwise be contained in any Buyer
Option Plan. Subject to the foregoing, the adjustment provided herein with
respect to any options which are "incentive stock options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") shall
be and is intended to be effected in a manner which is consistent with Section
424(a) of the Code. Subject to the adjustments noted herein, the duration and
other terms of the option shall be the same as the original option except that
all references to (i) Seller Common Stock shall be deemed to be references to
Buyer Common Stock and (ii) the Company shall be deemed to be references to
Buyer. Further, any and all vesting or performance requirements or conditions
affecting any outstanding restricted stock, performance stock, stock option,
stock appreciation right, phantom stock, bonus, award, right, grant or any
other arrangement with any director or employee of Seller shall be based on the
terms of the respective Seller Employee Plan and the agreements evidencing
grants thereunder or, at the option of the Surviving Corporation, may as
otherwise be contained in any Buyer Option Plan. This Section 2.05 is intended
to be for the benefit of holders of options to purchase the Common Stock of
Seller.
SECTION 2.06 Conversion of Warrants. At the Effective Time, each warrant
granted by Seller to purchase shares of Seller Common Stock ("Seller Warrant)"
which is outstanding and unexercised immediately prior thereto shall cease to
represent a right to acquire shares of Seller Common Stock and shall be
converted automatically into a warrant to purchase the number of whole shares
of Buyer Common Stock (rounded down as applicable) equal to the number of whole
shares of Seller Common Stock subject to such warrant multiplied by the Seller
Common Exchange Multiplier, at a price per share of Buyer Common Stock equal to
(i) the exercise price for the shares of Seller Common Stock purchasable
pursuant to such Seller Warrant immediately prior to the Effective Time divided
by (ii) the Seller Common Exchange Multiplier, and shall otherwise be subject
to the terms of the agreements evidencing grants of such Seller Warrants and
shall thereupon be assumed by Buyer. Subject to the adjustments noted herein,
the duration and other terms of the warrant shall be the same as the original
warrant except that all references to (i) Seller Common Stock shall be deemed
to be references to Buyer Common Stock and (ii) the Company or Seller shall be
deemed to be references to the Surviving Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that the statements contained in
this Article III are true and correct, except as set forth herein and in the
disclosure schedules delivered by Seller to Buyer on or before the date of this
Agreement (the "Seller Disclosure Schedules"). The Seller Disclosure Schedules
shall be arranged in individual schedules corresponding to the numbered
paragraphs set forth below and the disclosure in any schedules shall qualify
other schedules in this Article III only to the extent that it is reasonably
apparent from a reading of such disclosure that it also qualifies or applies to
such other schedules. Without limiting the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate
to disclose an exception to a representation or warranty made herein (unless
the representation or warranty concerns the existence of the document or the
other item itself).
SECTION 3.01 Organization of Seller. Seller, which is a corporation is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on the business, properties,
financial condition or results of operations of Seller taken as a whole (a
"Seller Material Adverse Effect"); provided, however, that for purposes of this
Agreement, the following events, shall not be taken into account in determining
whether there has been or would be a "Seller Material Adverse Effect" on or
with respect to Seller taken as a whole: (A) changes, events or occurrences in
the United States securities markets which are not specific to Seller, (B)
changes, events or occurrences in the world economy which are not specific to
the Seller, (C) the existence of this Agreement or the transactions
contemplated hereby or the announcement thereof, (D) any changes in generally
accepted
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accounting principles ("GAAP") and (E) changes, events or occurrences relating
to the pharmaceutical industry in general, and not specifically to Seller.
Except as set forth on Schedule 3.01, Seller does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture or
other business association or entity, excluding securities in any publicly
traded company held for investment by Seller and comprising less than five
percent (5%) of the outstanding stock of such company. Except as set forth on
Schedule 3.01, the Seller does not own or control (directly or indirectly), or
own or hold any right to acquire, any stock, partnership interest, joint
venture interest, equity participation or other security or interest in any
other entity, corporation, partnership, trust or any other business
association.
SECTION 3.02 Seller Capital Structure; Irrevocable Proxy and Voting
Agreement. (a) The authorized capital stock of Seller consists of (i)
15,000,000 shares of Seller Common Stock, and (ii) 15,000,000 shares of Seller
Preferred Stock. The Seller Preferred Stock has been designated into the
following series: 1,600,000 shares of Seller Series A, 500,000 shares of Seller
Series B, 600,000 shares of Seller Series C and 3,400,000 shares of Seller
Series D. As of June 30, 1999, (i) 2,147,362 shares of Seller Common Stock,
1,580,000 shares of Seller Series A, 428,600 shares of Seller Series B, 519,631
shares of Seller Series C, and 3,400,000 shares of Seller Series D were issued
and outstanding, all of which are validly issued, fully paid and nonassessable,
and (ii) no shares of Seller Common Stock or Seller Preferred Stock were held
in the treasury of Seller. Schedule 3.02 shows (i) the ownership of the Seller
Stock and (ii) the number of shares of Seller Common Stock reserved for future
issuance pursuant to stock options and warrants granted and outstanding as of
the date hereof, and the plans under which such options were granted, if
applicable (collectively, the "Seller Stock Plans"). All shares of Seller Stock
subject to issuance as specified above are duly authorized and, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, shall be validly issued, fully paid and nonassessable. There are
no bonds, debentures, notes or other indebtedness of Seller having the right to
vote (or convertible into securities having the right to vote) on any matters
on which shareholders of Seller may vote. There are no obligations, contingent
or otherwise, of Seller to repurchase, redeem or otherwise acquire any shares
of Seller Common Stock, Seller Preferred Stock, or to provide funds to or make
any material investment (in the form of a loan, capital contribution or
otherwise) in any other entity.
(b) Except as set forth on Schedule 3.02 or as reserved for future grants
of options under Seller Stock Plans, there are no equity securities of any
class of Seller, or any security exchangeable or convertible into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth on Schedule 3.02, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which Seller is a party or by which Seller is bound (including
under letters of intent, whether binding or nonbinding) obligating Seller to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity interests of Seller or obligating
Seller to grant, extend, accelerate the vesting of, otherwise modify or amend
or enter into any such option, warrant, equity security, call, right,
commitment or agreement except under Seller Stock Plans. Schedule 3.02 sets
forth a complete list of all outstanding warrants of the Seller and Seller has
provided to Buyer true and correct copies of each of such warrants. To the
knowledge of Seller, there are no voting trusts, proxies or other voting
agreements or understandings with respect to the shares of capital stock or
other equity interests of Seller.
(c) No consent of the holders of any stock options granted pursuant to
Seller Stock Plans ("Seller Stock Options") is required in connection with the
conversion of the Seller Stock Options into options to acquire Buyer Common
Stock in accordance with Section 2.05.
(d) On or prior to the date hereof, the Seller shall have delivered to the
Buyer an irrevocable proxy and voting agreement (the "Irrevocable Proxy and
Voting Agreement") substantially in the form of Exhibit E hereto executed by
the following stockholders of Seller: Dr. Larry Hsu, Dr. Charles Hsiao,
Chemical Company of Malaysia Berhad, President (BVI) International Investment
Holdings Ltd., and China Development Industrial Bank Inc.
SECTION 3.03 Authority; No Conflict; Required Filings and Consents. (a)
Seller has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and all agreements, documents, certificates or
instruments being delivered pursuant to or in connection with the transactions
contemplated by this Agreement (the "Transaction
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Documents") and the consummation of the transactions contemplated hereby by
Seller have been duly authorized by all necessary corporate action on the part
of Seller, subject only to the approval of the Merger by Seller's stockholders
under Section 1101 of the California Code; the vote of Seller's stockholders
required to approve this Agreement and the Merger is (i) a majority of the
outstanding shares of Seller Common Stock, (ii) a majority of the outstanding
shares of Seller Series A, Seller Series B and Seller Series C, voting together
as one class, and (iii) a majority of the outstanding shares of Seller Series
D, each on the record date for the Seller Meeting (as defined in Section 3.21),
at which a quorum is present. This Agreement has been duly executed and
delivered by Seller and constitutes the valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles (the "Bankruptcy and Equity Exception").
(b) The execution and delivery of this Agreement by Seller does not, and
the consummation of the transactions contemplated hereby will not, (i) conflict
with, or result in any violation or breach of, any provision of the Articles of
Incorporation or Bylaws of Seller, (ii) result in any violation or breach of,
or constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Seller is a party or by which it or any of its properties
or assets may be bound, or (iii) conflict with, violate, or cause the
termination of any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Seller or any
of its properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which are not, individually or in the aggregate, reasonably likely to have a
Seller Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") or
person or entity is required by or with respect to Seller in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except as set forth in Schedule 3.03 hereto
or for (i) the filing of the Certificate of Merger with the Department of State
of the State of California, (ii) the filing of the Proxy Statement (as defined
in Section 3.21 below) with the Securities and Exchange Commission (the "SEC")
in accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the laws of any foreign country and (iv) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not materially interfere with the operations of any
material facility of Seller or otherwise be reasonably likely to have a Seller
Material Adverse Effect.
SECTION 3.04 Financial Statements. Schedule 3.04 contains the following
financial statements for the Seller: audited balance sheets and statements of
operations, stockholders' equity and cash flows as of, and for the fiscal years
ended, December 31, 1996, 1997 and 1998, and compiled balance sheet, statement
of operations, stockholder's equity and cash flow statement as of, and for the
three month period ended March 31, 1999. The materials included and to be
included in Schedule 3.04 hereto are sometimes collectively referred to herein
as the "Financial Statements." The compiled balance sheet of Seller as of March
31, 1999 is referred to herein as the "Seller Balance Sheet."
Each of the Financial Statements is true, complete and correct in all
material respects, consistent with the books and records of the Seller and in
accordance with generally accepted accounting principles consistently applied
(except as may be indicated in the notes thereto) and fairly presents the
Seller's financial condition, assets, liabilities and retained earnings as of
their respective dates and the statements of operations, stockholders' equity
and cash flows for the periods related thereto, except that the interim
compiled Financial Statements lack footnote disclosure, and were or are subject
to normal and recurring year-end adjustments, which were not or are not
expected to be material in amount. The statements of operations included or to
be included in the Financial Statements do not contain any material items of
special or non-recurring income or other income not earned in the ordinary
course of business except as expressly specified on Schedule 3.04 as attached
hereto on the date hereof.
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SECTION 3.05 No Undisclosed Liabilities. Except as set forth on the Seller
Balance Sheet or on Schedule 3.05 and except for normal or recurring
liabilities incurred since March 31, 1999, in the ordinary course of business
consistent with past practices, Seller does not have any liabilities, either
accrued, contingent or otherwise (whether or not required to be reflected in
financial statements in accordance with GAAP), and whether due or to become
due, which individually or in the aggregate are reasonably likely to have a
Seller Material Adverse Effect.
SECTION 3.06 Absence of Certain Changes or Events. Since the date of the
Seller Balance Sheet, Seller has conducted its businesses only in the ordinary
course and in a manner consistent with past practice and, since such date,
there has not been (i) any change in the financial condition, results of
operations, business or properties of Seller, that has had, or is reasonably
likely to have, a Seller Material Adverse Effect; (ii) any damage, destruction
or loss (whether or not covered by insurance) with respect to Seller that has
had, or is reasonably likely to have, a Seller Material Adverse Effect; (iii)
any material change by Seller in its accounting methods, principles or
practices to which Buyer has not previously consented in writing; (iv) any
revaluation by Seller of any of its assets that has had, or is reasonably
likely to have, a Seller Material Adverse Effect; or (v) any other action or
event that would have required the consent of Buyer pursuant to Section 5.01 of
this Agreement had such action or event occurred after the date of this
Agreement.
SECTION 3.07 Taxes. (a) For purposes of this Agreement, the following
terms shall have the following meanings:
(i) "Affiliated Group" shall mean any affiliated group within the meaning
of Section 1504 of the Code or any similar group defined under a similar
provision of state, local or foreign law, including, but not limited to, any
combined, consolidated or unitary group.
(ii) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(iii) "IRS" shall mean the Internal Revenue Service.
(iv) "Tax" or "Taxes" shall mean any and all federal, state, local,
foreign and other taxes, levies, fees, imposts, duties and charges of whatever
kind (including any interest, penalties or additions to the tax imposed in
connection therewith or with respect thereto), including, without limitation,
taxes imposed on, or measured by, income, franchise, profits, or gross
receipts, and also ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, employment,
social security, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premium, windfall profits,
transfer, gains taxes, and custom duties. Taxes shall include any liability for
Taxes as a successor-in-interest or transferee of another entity, or by reason
of liability for Taxes pursuant to Treasury Regulation Section 1.1502-6 or any
analogous or similar state, local or foreign law or regulation.
(v) "Tax Return" shall mean returns, reports, information statements, and
other documentation (including any additional or supporting material) filed or
maintained, or required to be filed or maintained, in connection with the
calculation, determination, assessment or collection of any Tax.
(b) Except as set forth on Schedule 3.07:
(i) All Tax Returns required to be filed by or on behalf of Seller have
been properly prepared and duly and timely filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make
such filings), and all such Tax Returns were true, complete and correct in all
material respects.
(ii) All Taxes payable by or on behalf of Seller or in respect of its
income, assets or operations (including interest and penalties) have been fully
and timely paid, and adequate reserves or accruals for Taxes have been provided
in Seller's books and records with respect to any period for which Tax Returns
have not yet been filed or for which Taxes are not yet due and owing.
(iii) Seller has not executed or filed with any taxing authority any
agreement, waiver or other document or arrangement extending or having the
effect of extending the period for assessment or collection of Taxes
(including, but not limited to, any applicable statute of limitation), and no
power of attorney with respect to any Tax matter is currently in force.
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(iv) Seller has complied in all material respects with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes
and has duly and timely withheld from employee salaries, wages and other
compensation and has paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws.
(v) Buyer has received complete copies of (A) all U.S. federal, state and
foreign income or franchise Tax Returns of Seller relating to the taxable
periods beginning after December 31, 1994 and (B) any audit report issued
within the last three years relating to Taxes due from or with respect to
Seller, or its income, assets or operations.
(vi) No claim has been made by a taxing authority in a jurisdiction where
Seller does not file Tax Returns such that it is or may be subject to taxation
by that jurisdiction.
(vii) All deficiencies asserted or assessments made as a result of
examinations by any taxing authority of the Tax Returns of or covering or
including Seller have been fully paid, and there are no other audits or
investigations by any taxing authority or proceedings in progress, nor has
Seller or any of its shareholders received any written notice from any taxing
authority that it intends to conduct such an audit or investigation. No issue
has been raised in writing by a U.S. federal, state, local or foreign taxing
authority in any current or prior examination which, by application of the same
or similar principles, could reasonably be expected to result in a proposed
deficiency for any subsequent taxable period.
(viii) Neither Seller, nor any other person on behalf of Seller has (A)
filed a consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned by
Seller, (B) agreed to or is required to make any adjustments pursuant to
Section 481(a) of the Code or any similar provision of state, local or foreign
law by reason of a change in accounting method initiated by Seller or has any
knowledge that the Internal Revenue Service has proposed any such adjustment or
change in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of Seller, or has otherwise taken any
action that would have the effect of deferring any liability for Taxes from any
taxable period ending on or before the Closing to any taxable period ending
thereafter, (C) executed or entered into closing agreement pursuant to Section
7121 of the Code or any predecessor provision thereof or any similar provision
of state, local or foreign law with respect to Seller, or (D) requested any
extension of time within which to file any Tax Return, which Tax Return has
since not been filed.
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(ix) No property owned by Seller is (A) property required to be treated
as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (B)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1)
of the Code or (C) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(x) Seller is not a party to any tax sharing or similar agreement or
arrangement (whether or not written) pursuant to which it will have any
obligation to make any payments after the Closing.
(xi) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment of
any amount that would not be deductible by Buyer or any of its Affiliates by
reason of Section 280G of the Code.
(xii) Seller has substantial authority for the treatment of or has
disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give rise to
a substantial understatement of federal income tax within the meaning of
Section 6662(d) of the Code.
(xiii) Seller is not subject to any private letter ruling of the Internal
Revenue Service or comparable rulings of other taxing authorities.
(xiv) There are no liens as a result of any unpaid Taxes upon any of the
assets of Seller.
(xv) All material Tax elections of Seller are set forth on Schedule 3.07.
Seller has no elections in effect for U.S. federal income tax purposes under
Sections 108, 168, 338, 441, 463, 1017, 1033 or 4977 of the Code.
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(xvi) Seller has never been a member of any Affiliated Group for tax
purposes. Seller has no liability for Taxes of any person under section
1.1502-6 of the Treasury regulations under the Code (or any similar provision
of state, local or foreign law), as a transferee or successor or otherwise.
Seller does not own any interest in any entity that is treated as a partnership
for U.S. federal income tax purposes or would be treated as a pass-through or
transparent entity for any tax purpose.
(xvii) Seller has not been a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(xviii) Seller does not have a permanent establishment in any foreign
country, as defined in any applicable Tax treaty or convention.
SECTION 3.08 Ownership of Properties; Condition of Property. (a) Schedule
3.08 contains a true and complete list of all real property leased by Seller
pursuant to leases providing for the occupancy of facilities (collectively
"Seller Material Lease(s)") and the location of the premises. With respect to
each such Seller Material Lease and except as set forth on the Schedule 3.08:
(i) the lease is legal, valid, binding, enforceable against Seller subject to
the Bankruptcy and Equity Exception, and in full force and effect; (ii) the
lease will continue to be legal, valid, binding, enforceable and in full force
and effect immediately following the Closing in accordance with the terms
thereof as in effect prior to the Closing; (iii) neither Seller nor, to the
knowledge of Seller, any other party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification or
acceleration thereunder; and (iv) Seller has not assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold; except, in the case of clauses (i) through (iv) that
the same is not reasonably likely to have a Seller Material Adverse Effect.
Seller does not own any real property.
(b) All machinery, equipment and other tangible assets used by the Seller
are in fair or good operating condition and repair, reasonable wear and tear
excepted, are usable in the ordinary course of business and are adequate and
suitable for the uses to which they are being put, except where the failure to
be in such condition or so usable and suitable would not have a Seller Material
Adverse Effect. None of such items requires any repairs or replacement except
for maintenance in the ordinary course of business or such other repairs or
replacements which are not material, individually or in the aggregate, in
nature or cost. All such assets and property are located at the 30831 Huntwood
Avenue premises in Hayward, California or as otherwise identified on Schedule
3.08 hereto.
(c) The Seller is not contemplating any capital expenditure in excess of
$100,000 individually or in the aggregate which has not been disclosed to Buyer
in writing.
SECTION 3.09 Agreements, Contracts and Commitments. The Seller has not
entered into and is not bound by any material contract, agreement, relationship
or commitment, written or oral, including without limitation any obligations
for money borrowed or under leases, other than those identified on Schedule
3.09 hereto (the "Seller Material Contracts"); true, correct and complete
copies of all Seller Material Contracts previously have been furnished to
Buyer. Except as set forth on Schedule 3.09, the Seller is not in default, and
no event has occurred which with the giving of notice or the passage of time or
both would constitute a default by the Seller or, to the best of Seller's
knowledge, any other party under any Seller Material Contract or any other
material obligation owed by the Seller and, to the best of Seller's knowledge,
no event has occurred which with the giving of notice or the passage of time or
both would constitute a default by any other party to any such Seller Material
Contract or obligation. Except as set forth on Schedule 3.09, the continuation,
validity and effectiveness of all Seller Material Contracts will in no way be
affected by the transactions contemplated hereby; and there are no negotiations
pending to revise the terms of any such Seller Material Contracts. Except as
set forth on Schedule 3.09, the Seller is not party to or bound by any
contract, agreement, relationship or commitment, whether or not deemed
material, which in any way restricts or purports to restrict the ability of
Seller to acquire any property or assets or conduct their respective business
or provide services to any person or entity anywhere in the world.
SECTION 3.10 Litigation. Except as set forth on Schedule 3.10, there is no
claim, counter-claim, action, suit, order, proceeding or investigation pending
or to the knowledge of the Seller, threatened against or involving the Seller,
or pending or, to the knowledge of the Seller, threatened against any of the
respective officers,
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directors or key employees of the Seller with respect to business activities on
behalf of the Seller with respect to or affecting the Seller, its accounts,
business, properties, assets or rights, or relating to the transactions
contemplated hereby, before any court, agency, regulatory, administrative or
other governmental body or officer or before any arbitrator, nor, to the
knowledge of the Seller, is there any reasonable basis for any such claim,
action, suit, proceeding or governmental, administrative or regulatory
investigation. The Seller is not directly subject to or affected by any order,
judgment, decree or ruling of any court or governmental agency. The Seller has
not received any written opinion or memorandum of legal advice from legal
counsel to the effect that any of them are exposed to any liability which may
be material to the business, prospects, results of operations, financial
condition or assets of the Seller. Except as set forth on Schedule 3.10, the
Seller is not engaged in any legal action to recover monies due it or for
damages sustained by it, and none of the assets of the Seller nor any of its
business practices are in any manner, directly or indirectly, affected by
injunction of any court or governmental, administrative or regulatory agency,
body or officer.
SECTION 3.11 Employee Benefit Plans. (a) Schedule 3.11 sets forth all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, equity, incentive, deferred compensation, supplemental
retirement, change in control, retiree health or welfare, fringe, dependent
care, flexible spending or severance plans, programs or agreements, for the
benefit of, or relating to, any current or former employee, director or
independent contractor of Seller or any entity which is, or has been, a member
(an "ERISA Affiliate") of (i) a controlled group of corporations, (ii) a group
of trades or businesses (whether or not incorporated) under common control with
Seller, or (iii) an affiliated service group, all within the meaning of Section
414 of the Code or Section 4001(a)(14) of ERISA, of which includes the Seller
(together, the "Seller Employee Plans").
(b) With respect to each Seller Employee Plan, Seller has delivered to
Buyer, a true and correct copy of (i) the most recent annual report (Form 5500)
filed with the IRS (and the related financial statement), (ii) such Seller
Employee Plan and any amendments or summary plan descriptions with respect
thereto, (iii) each trust agreement and group annuity contract, if any,
relating to such Seller Employee Plan, (iv) the most recent actuarial report or
valuation relating to a Seller Employee Plan subject to Title IV of ERISA, and
(v) the most recent determination letter issued by the Internal Revenue
Service, as well as any other determination letter, private letter ruling,
opinion letter or prohibited transaction exemption issued by the Internal
Revenue Service or the Department of Labor within the last six years and any
application therefor which is currently pending.
(c) Except as set forth on Schedule 3.11, neither the Seller, nor any of
its ERISA Affiliates (i) has ever maintained or been obligated to contribute to
a single employer, multiple employer or multi-employer pension plan (within the
meaning of Section 3(2) of ERISA) which is or was covered by Title IV of ERISA
or by Section 302 of ERISA or 412 of the Code, and (ii) has incurred or may
incur any direct or indirect liability under Title IV of ERISA or Section 302
of ERISA or Section 412 of the Code. With respect to the Seller Employee Plans,
individually and in the aggregate, no event has occurred, and there exists no
condition or set of circumstances in connection with which Seller could be
subject to any liability that is reasonably likely to have a Seller Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Seller Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted,
in either case, in accordance with GAAP, on the financial statements of Seller.
(e) The Seller and its ERISA Affiliates have complied in all respects with
the provisions of Section 4980B of the Code with respect to each Seller
Employee Plan which is a group health plan within the meaning of Section
5001(b)(1) of the Code. Seller does not maintain or contribute to, nor is it
obligated under any plan, contract, policy or arrangement providing health or
death benefits (whether or not insured) to current or former employees or other
personnel beyond the termination of their employment or other services.
(f) Except as set forth on Schedule 3.11 and except as provided for in
this Agreement, Seller is not a party to any oral or written (i) agreement with
any current or former officer or other key employee of Seller, the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Seller of the nature contemplated by this
Agreement, (ii) agreement with any current or former officer
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of Seller providing any term of employment or compensation guarantee extending
for a period longer than eighteen months from the date hereof and for the
payment of compensation in excess of $100,000 per annum, or (iii) agreement or
plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting or funding of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement.
(g) There are no pending or, to Seller's knowledge, threatened claims,
actions, suits, termination proceedings, or investigations by any Governmental
Entity against or involving any Seller Benefit Plan. Any Seller Benefit Plan
intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to that effect (which
has not been revoked) and nothing has occurred since the date of the most
recent determination letter that would adversely affect such qualification.
SECTION 3.12 Salaries. Schedule 3.12 contains a true, complete and correct
list setting forth (i) the names, job descriptions/titles, current compensation
rate (including but not limited to salary, commission and bonus compensation),
date of hire, vacation accrual rate of all individuals presently employed by
the Seller indicating whether they are employed on a salaried, hourly or
piecework basis, and (ii) the names and total annual compensation for all
independent contractors who render services on a regular basis to the Seller
whose current annual compensation is or is expected to be in excess of $20,000.
Except as set forth on Schedule 3.12, there has been no increase in the
compensation of any of the foregoing individuals or independent contractors
since June 30, 1999. There has not been any promise by the Seller to the
employees listed on Schedule 3.12 orally or in writing of any bonus or increase
in compensation, whether or not legally binding, except for increases in the
ordinary course of business consistent with past compensation practices of the
Seller. Except as set forth on Schedule 3.12, the Seller has not made any
prepayments of salaries, bonuses or any other amounts due to any of its
employees or former employees. All obligations to employees, whether for
salaries, commissions, bonuses, vacation or otherwise, which are required to be
accrued on the Financial Statements in accordance with generally accepted
accounting principles consistently applied have been accrued on the Financial
Statements in accordance with generally accepted accounting principles
consistently applied.
SECTION 3.13 Personnel Agreements, Plans and Arrangements. Except as
listed in Schedule 3.13, the Seller is not a party to or obligated with respect
to any (a) outstanding contracts with current or former employees, agents,
consultants, advisers, salespeople, sales representatives, distributors, sales
agents, independent contractors, or dealers, or (b) collective bargaining
agreements or contracts with any labor or trade union, employee bargaining
agency or other representative of employees or any employee benefits provided
for by any such agreement, true, correct and complete copies of which
previously have been furnished to Buyer. No strike, picketing, slow-down, work
stoppage, lock-out, union organizational activity or other similar occurrence
has occurred or is pending or, to the knowledge of the Seller, is threatened
against the Seller. Except as disclosed on Schedule 3.13, the Seller has
complied in all material respects with all applicable laws relating to the
employment of labor, including but not limited to provisions thereof relating
to wages, hours, vacation pay, equal opportunity, collective bargaining and the
payment, deduction and remittance of all amounts required to be deducted and/or
remitted in respect of wages and salaries and of other Taxes and such
deductions are consistent with past practices and in accordance with generally
accepted accounting principles consistently applied and consistent with the
Financial Statements and either remitted same to the legally constituted
authorities entitled to receive payment thereof or has reserved for same in its
accounts and an amount of cash equal to the amount of such reserve has been set
aside for payment thereof. Seller is not liable for any arrears of wages or any
taxes or penalties with respect to the foregoing. Seller has not entered into
and is not obligated to enter into any agreement relating to the payment of
vacation pay to any employee, and Seller does not have any obligation to any
employees to provide them with pay for vacation time other than as required by
generally applicable provisions of law. Seller has not received notice from any
employee of the Seller that any such employee is terminating his or her
employment with the Seller, nor to the best knowledge of the Seller does any
employee intend to terminate his or her employment with the Seller as a result
of the transactions contemplated hereby. There are no administrative charges or
court complaints pending or, to the knowledge of the Seller, threatened against
the Seller concerning alleged employment discrimination or any other matters
relating to the employment of labor. No trade union, counsel of trade unions,
employee bargaining agency or affiliated bargaining agent (i) holds bargaining
rights with respect to any of the employees of the Seller by way of
certification, interim certification,
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voluntary recognition, designation or successor right, (ii) has applied to be
certified as the bargaining agent of the employees of the Seller, or (iii) has
applied to have Seller declared a related employer pursuant to the provision of
applicable law. Except as set forth in Schedule 3.13, to the knowledge of the
Seller, no claim, injunction, fact, event or condition exists which would give
rise to a material claim by any employee or former employee (including
dependents and spouses thereof and other individuals covered thereunder) of the
Seller under any workers compensation laws, regulations, requirements or
programs.
SECTION 3.14 Customers. Schedule 3.14 is a complete list by dollar volume
of billings (within the fiscal year ended December 31, 1998) of the Sellers'
customers. Except as set forth on Schedule 3.14, since December 31, 1998, none
of the customers who individually represent greater than 5% of the Seller's
billings has canceled or otherwise terminated, or, to the knowledge of the
Seller, threatened to cancel or otherwise terminate, its relationship with the
Seller or materially reduced, or to the knowledge of the Seller, threatened to
materially reduce, its business with the Seller. Seller has not received any
notice and has no knowledge or reason to believe that any customer who
individually represents more than 5% of either Seller's annual billings intends
to cancel or otherwise modify its relationship with Seller on account of the
transactions contemplated hereby or otherwise.
SECTION 3.15 Interest of the Companies in Customers, etc. Except as set
forth in Schedule 3.15, Seller does not have any direct or indirect interest in
any competitor, supplier or customer of the Seller or in any person from whom
or to whom the Seller leases any real or personal property or in any other
person with whom the Seller has any business relationship. Schedule 3.15 also
describes, (i) all management, administrative, computer, telephone or other
services provided by any of the Seller's Affiliates, and all such services
provided by the Seller to any of such persons and entities, and (ii) all other
contracts, agreements, arrangements or transactions (including the purchase and
sale of inventory, supplies and other goods) between either Seller, on the one
hand, and any of such individuals or entities on the other hand, currently in
effect, including, without limitation any agreement or arrangement relating to
indebtedness to or from any of such individuals or entities, in each case
setting forth the terms thereof if not effected on an arm's-length basis.
SECTION 3.16 Books and Records. All the books, records and accounts of
Seller are in all material respects accurate and complete, accurately reflect
in all material respects, all matters normally entered into the books, records
or accounts maintained by similar businesses, are in all material respects in
accordance with all laws, regulations and rules applicable to the Seller and
accurately present and reflect in all material respects all of the transactions
described therein. The Seller has accounting controls sufficient to ensure that
its transactions are in all material respects executed in accordance with its
management's general or specific authorization.
SECTION 3.17 Insurance Policies. Schedule 3.17 is a correct and complete
list and description, including policy numbers, of all insurance policies owned
or held by the Seller or otherwise covering the Seller, its employees or
assets. Such policies are in full force and effect, and the Seller is not in
default under any of them. To the knowledge of the Seller, such insurance is of
the kind and in the amount not less than customarily obtained by corporations
or other entities of established reputation engaged in the same or similar
business and similarly situated. Seller has not received any notices of
non-renewal, cancellation or intent to cancel, not renew or increase premiums
or deductibles with respect to such insurance policies nor, to the knowledge of
the Seller, is there any basis for any such action. Schedule 3.17 also contains
a list of all pending claims with any insurance company (other than health,
medical and dental insurance claims of employees) and any instances within the
previous three years of a denial of coverage of the Seller by any insurance
company.
SECTION 3.18 Bank Accounts. Schedule 3.18 contains a complete and correct
list of each bank and brokerage firm in which the Seller has an account or safe
deposit box, the number of each such account or box and the names of all
persons authorized to draw thereon or to have access thereto.
SECTION 3.19 Compliance With Laws. Seller has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation or any judgment, decree
or order of any Governmental Entity with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Seller Material Adverse Effect. Seller has
in effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises,
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notices, permits and rights ("Approvals") necessary for it to own lease or
operate its properties and assets and to carry on its business as now conducted
and there has occurred no default under any such Approval, or failure to obtain
such Approval, which would in the aggregate have a Seller Material Adverse
Effect.
SECTION 3.20 Accounting and Tax Matters. To its knowledge, after
consulting with its tax advisors, neither Seller nor any of its Affiliates (as
defined in Section 6.10) has taken or agreed to take any action which would
prevent the Merger from constituting a transaction qualifying as a
reorganization under 368(a) of the Code.
SECTION 3.21 Registration Statement; Proxy Statement/Prospectus. The
information to be supplied by Seller for inclusion in the proxy statement and
registration statement on Form S-4 pursuant to which shares of Buyer Common
Stock issued in the Merger will be registered under the Securities Act (the
"Registration Statement"), shall not at the time the Registration Statement is
filed with the SEC and at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information supplied by Seller for inclusion in the proxy statement/prospectus
to be sent to the stockholders of Seller in connection with the meeting of
Seller's stockholders to consider this Agreement and the Merger (the "Seller
Meeting") (the " Proxy Statement") shall not, on the date the Proxy Statement
is first mailed to stockholders of Seller, at the time of the Seller Meeting
and at the Effective Time, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made in the Proxy Statement not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Seller Meeting which has become false or misleading. If at any
time prior to the Effective Time any event relating to Seller or any of its
Affiliates, officers or directors should be discovered by Seller which should
be set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement, Seller shall promptly inform Buyer. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder, except that
no representation is made by Seller with respect to statements made or
incorporated by reference therein based on information supplied by Buyer
specifically for inclusion or incorporation by reference in the Proxy
Statement.
SECTION 3.22 Labor Matters. Seller is not a party to or otherwise bound by
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor, as of the date
hereof, is Seller the subject of any material proceeding asserting that Seller
has committed an unfair labor practice or is seeking to compel it to bargain
with any labor union or labor organization nor, as of the date of this
Agreement, is there pending or, to the knowledge of Seller, threatened, any
material labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving Seller.
SECTION 3.23 Year 2000 Compliance. The computer systems of Seller
(including, without limitation, all software, hardware, workstations and
related components, automated devices, embedded chips and other date sensitive
equipment such as security systems, alarms, elevators and HVAC systems) are
Year 2000 Compliant or will be Year 2000 Compliant by September 30, 1999,
except to the extent that any failure to be Year 2000 Compliant, either
individually or in the aggregate, would not have a Seller Material Adverse
Effect. The term "Year 2000 Compliant" as used herein means that the computer
systems are (i) capable of recognizing, processing, managing, representing,
interpreting, and manipulating correctly date related data for dates earlier
and later than January 1, 2000, including, but not limited to, calculating,
comparing, sorting, storing, tagging and sequencing, without resulting in or
causing logical or mathematical errors or inconsistencies in any user-interface
functionalities or otherwise, including data input and retrieval, data storage,
data fields, calculations, reports, processing, or any other input or output,
(ii) have the ability to provide data recognition for any data element without
limitation (including, but not limited to, date-related data represented
without a century designation, date-related data whose year is represented by
only two digits and date fields assigned special values), (iii) have the
ability to automatically function into and beyond the year 2000 without human
intervention and without any change in operations associated with the advent of
the year 2000, (iv) have the ability to correctly interpret data, dates and
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time into and beyond the year 2000, (v) have the ability not to produce
noncompliance in existing information, nor otherwise corrupt such data into and
beyond the year 2000, (vi) have the ability to correctly process after January
1, 2000 data containing dates before that date, and (vii) have the ability to
recognize all "leap years," including February 29, 2000.
Seller does not believe that the lack of ability of its computer systems
to properly interface with internal and external applications and systems of
third parties with whom the Seller exchanges data electronically (including
without limitation customers, clients, suppliers, service providers,
subcontractors, processors, converters, shippers, warehousemen, outsources,
data processors, regulatory agencies and banks) will have a Seller Material
Adverse Effect.
SECTION 3.24 Legal Compliance. (a) Seller's manufacturing, distribution
and marketing practices are in compliance in all material respects with all
applicable federal and state 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) Seller possesses all material FDA new drug applications, abbreviated
new drug applications, and new animal drug applications as are currently
legally required and are necessary for the conduct of its business as now being
conducted, a list of which is attached hereto as Schedule 3.24, true and
correct copies of which have been provided to the Buyer by the Seller.
(c) Seller has not used 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). Neither the Seller, nor its respective officers, employees,
agents or affiliates, has been convicted of any crime or engaged in any conduct
for which debarment is mandated by 21 U.S.C. ss. 335a(a) or authorized by 21
U.S.C. ss. 335a(b).
(d) Seller is in substantial compliance with all Federal and state laws
applicable to the manufacture, processing, packing, testing and sale of
pharmaceutical products to the extent such laws are applicable to it, all rules
and regulations of the FDA and the DEA to the extent such rules and regulations
are applicable to it, and each new drug application ("NDA") and abbreviated new
drug application ("ANDA") in which Seller has sold any product on or after
March 31, 1999, except where the failure to be in such compliance would not
have a Seller Material Adverse Effect. All manufacturing operations conducted
by or for the benefit of the Seller have been and are being conducted in
substantial compliance with the current Good Manufacturing Practice regulations
set forth in 21 C.F.R. Parts 210 and 211.
(e) As to each drug of the Seller for which a NDA or ANDA has been
approved by the FDA, which drugs are described on Schedule 3.24, the applicant
and all persons performing operations covered by the application are in
substantial compliance with 21 U.S.C. ss.ss. 355 or 357, 21 C.F.R. parts 314 or
430 et. seq., respectively, and all terms and conditions of the application,
except where the failure to be in such compliance would not have a Seller
Material Adverse Effect.
(f) The Seller is in substantial compliance with all applicable
registration and listing requirements set forth in 21 U.S.C. ss. 360 and 21
C.F.R. Part 207. To the extent required, the Seller has obtained registrations
from the DEA and are in substantial compliance with all such registrations and
all applicable regulations promulgated by the DEA.
(g) Neither the Seller, nor its officers, employees, or agents have made
an untrue statement of material fact or fraudulent statement to the FDA or the
DEA, failed to disclose a material fact required to be disclosed to the FDA or
the DEA, or committed an act, made a statement, or failed to make a statement
that could reasonably be expected to provide a basis for the FDA to invoke its
policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and
Illegal Gratuities," set forth in 56 Fed. Reg 46191 (September 10, 1991).
(h) The Seller has made available to Buyer copies of any and all notices
of inspectional observations (FD 483's), establishment inspection reports,
warning letters and any other documents received from or issued by the FDA or
the DEA within the last three years that indicate or suggest lack of compliance
with the FDA or the DEA regulatory requirements by the Seller, or persons
covered by product applications or otherwise performing services for the
benefit of the Seller.
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(i) Seller has not received any written notice that the FDA or the DEA has
commenced, or threatened to initiate, any action to withdraw its approval or
request the recall of any product of the Seller or commenced or threatened to
initiate, any action to enjoin production at any facility owned or used by the
Seller or any of the Seller's facilities, commenced or threatened to initiate
the withdrawal of approval of any NDA, ANDA or new animal drug application
("NADA") or any establishment or other registration or commenced or threatened
to initiate any civil penalty, seizure or criminal action.
(j) As to each article of drug or consumer product currently manufactured
and/or distributed by the Seller, which products are described on Schedule
3.24, such article is not adulterated or misbranded within the meaning of the
FDCA, 21 U.S.C. ss.ss. 301c et. seq.
(k) As to each drug referred to in (b), the Seller, and its officers,
employees, agents and affiliates have included or caused to be included in the
application for such drug, where required, the certification described in 21
U.S.C. ss. 335a(k) (1) and the list described in 21 U.S.C. ss. 335a(k)(2), and
such certification and such list was in each case true and accurate when made
and remained true and accurate thereafter.
(l) Seller represents and warrants that all testing it has conducted or
has had conducted for it by third parties complies in all respects with the
requirements of Good Clinical Practice, Informed Consent, and all requirements
relating to protection of human subjects found in 21 C.F.R. ss. 50, and that
all nonclinical laboratory testing complies with the requirements of 21 C.F.R.
ss. 58.
(m) As to each application or abbreviated application submitted to, but
not approved by, the FDA, and not withdrawn by the Seller, or applicants acting
on its behalf as of the date of this Agreement, the Seller has complied in all
material respects with the requirements of 21 U.S.C. ss.ss. 355 and 357 and 21
C.F.R. Parts 312, 314 and 430 et. seq. and has provided, or will provide, all
additional information and taken, or will take, all additional action requested
by the FDA in connection with the application.
SECTION 3.25 Environmental and Safety Matters.
Except as set forth on Schedule 3.25,
(a) Except as would not have an Environmental Material Adverse Effect, as
hereinafter defined, Seller has operated in compliance with all applicable
limitations, restrictions, conditions, standards, prohibitions, requirements
and obligations of Environmental Laws and related orders of any court or other
governmental authority;
(b) Except as would not have an Environmental Material Adverse Effect,
there are not any existing, pending or, to the knowledge of the Seller,
threatened actions, suits, claims, investigations, inquiries or proceedings by
or before any court or any other governmental entity directed against the
Seller that pertain or relate to (1) any remedial obligations under any
applicable Environmental Law, (2) violations by Seller of any Environmental
Law, (3) personal injury or property damage claims relating to a release,
discharge or disposal of Hazardous Materials or other Environmental Conditions,
or (4) response, removal, or remedial costs under the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"), the
Resource Conservation and Recovery Act ("RCRA"), or any similar state laws;
(c) With respect to permits and licenses, (1) all licenses, permits,
consents, or other approvals required under Environmental Laws that are
necessary to the operations of the Seller have been obtained and are in full
force and effect and the Seller is unaware of any basis for revocation or
suspension of any such licenses, permits, consents or other approvals; (2) to
the best of the Seller's knowledge, no Environmental Laws impose any obligation
upon Buyer, as a result of any transaction contemplated hereby, requiring prior
notification to any governmental entity of the transfer of any permit, license,
consent, or other approval which is necessary to the operations of Seller's
properties and Assets; and (3) except as would not have an Environmental
Material Adverse Effect, Seller has conducted its operations in compliance with
such permits, licenses, consents, or approvals, and at the production levels or
emission levels specified in such permits, licenses, consents, or approvals;
(d) To the knowledge of the Seller, no portion of any of the properties
owned or operated by Seller is listed on the National Priorities List ("NPL")
or the Comprehensive Environmental Response, Compensation, and Liability
Information System ("CERCLIS") list under CERCLA, or any similar ranking or
listing under any state law;
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(e) To the knowledge of Seller, all Hazardous Materials generated by the
Seller have been transported by carriers, or stored, treated and disposed of by
treatment, storage and disposal facilities, authorized or maintaining valid
permits under all applicable Environmental Laws;
(f) To the knowledge of Seller, no person has disposed or released any
Hazardous Materials on, at, or under the properties owned or operated by
Seller, except in compliance with laws, or except as would not have an
Environmental Material Adverse Effect;
(g) Seller is not aware of any Environmental Remediation Costs that are
required or are planned to be expended relating to the operations of Seller for
which Seller reasonably anticipates payment or accrual; and
(h) Except as would not have an Environmental Material Adverse Effect, no
facts or circumstances exist which could reasonably be expected to result in
any liability to the Seller with respect to the current or past business and
operations of the Seller in connection with (i) any release, transportation or
disposal of any Hazardous Materials, or (ii) any action taken or omitted that
was not in full compliance with or was in violation of any applicable
Environmental Law.
The following terms shall have the meanings indicated below:
"Environmental Condition" or "Environmental Conditions" means any
pollution, contamination, degradation, damage or injury caused by, related to,
arising from, or in connection with the generation, handling, use, treatment,
storage, transportation, disposal, discharge, release, or emission of any
"Hazardous Materials."
"Environmental Law" or "Environmental Laws" means all health, safety, and
environmental laws, rules, regulations, statutes, ordinances, decrees or orders
of any governmental entity relating to (i) the control of any potential
pollutant or protection of the air, water or land, (ii) solid, gaseous or
liquid waste generation, handling, treatment, storage, disposal or
transportation, and (iii) exposure to hazardous, toxic or other substances
alleged to be harmful, and includes without limitation, (1) the terms and
conditions of any license, permit, approval, or other authorization by any
governmental entity, and (2) judicial, administrative, or other regulatory
decrees, judgments, and orders of any governmental entity. The term
"Environmental Laws" shall include, but not be limited to the following
statutes and the regulations promulgated thereunder: the Clean Air Act, 42
U.S.C. ss. 7401 et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq., RCRA,
42 U.S.C. ss. 6901 et seq., the Superfund Amendments and Reauthorization Act,
42 U.S.C. ss. 11011 et seq., the Toxic Substances Control Act, 15 U.S.C.
ss. 2601 et seq., the Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq.,
the Safe Drinking Water Act, 42 U.S.C. ss. 300f et seq., CERCLA, 42 U.S.C.
ss. 9601 et seq., and any state, county, or local regulations similar thereto.
"Environmental Liabilities" means any and all liabilities,
responsibilities, claims, suits, losses, costs (including remediation, removal,
response, abatement, clean-up, investigative, and/or monitoring costs and any
other related costs and expenses), other causes of action recognized now or at
any later time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, pre-judgment and post-judgment interest, attorney fees and
other legal fees (a) pursuant to any agreement, order, notice, requirement,
responsibility, or directive (including directives embodied in Environmental
Laws), injunction, judgment or similar documents (including settlements)
arising out of or in connection with any Environmental Laws, or (b) pursuant to
any claim by a governmental entity or other person or entity for personal
injury, property damage, damage to natural resources, remediation, or similar
costs or expenses incurred or asserted by such entity or person pursuant to
common law or statute.
"Environmental Material Adverse Effect" shall mean any Environmental
Liabilities that are reasonably expected to exceed $50,000 per occurrence, or
$100,000 in the aggregate.
"Environmental Remediation Costs" shall mean all costs and expenses
relating to activities or actions to (i) clean up or remove Hazardous Materials
from the environment, (ii) prevent or minimize the movement, leaching, or
migration of Hazardous Materials into the environment, (iii) mitigate the
release or threatened release of Hazardous Materials into the environment, or
the injury or damage from such release, or (iv) comply with the requirements of
any Environmental Laws or permits. Environmental Remediation Costs include,
without limitation, costs and expenses payable in connection with the foregoing
for legal, engineering, or other related services; for investigation, testing,
sampling, and monitoring; for boring, excavation, and construction; for
removal, modification or replacement of equipment or facilities; for labor and
material; and for proper storage, treatment or disposal of Hazardous Materials.
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"Hazardous Materials" means any (i) toxic or hazardous materials or
substances; (ii) solid wastes, including asbestos, polychlorinated biphenyls,
mercury, buried contaminants, chemicals, flammable or explosive materials;
(iii) radioactive materials; (iv) petroleum wastes and spills or releases of
petroleum products; and (v) any other chemical, pollutant, contaminant,
substance or waste that is regulated by any governmental entity under any
Environmental Law.
SECTION 3.26 Conduct of the Businesses. Except as set forth on Schedule
3.26, since March 31, 1999, the Seller has conducted its businesses only in the
ordinary course of business consistent with past custom and practice, and has
incurred no liabilities or obligations whatsoever other than in the ordinary
course of business consistent with past custom and practice and there has been
no material adverse change in the respective assets, condition (financial or
otherwise), results of operations, employee or customer relations, business
activities or business prospects of the Seller nor does the Seller know of any
such change which is threatened, nor has there been any damage, destruction or
loss materially adversely affecting any of the respective assets, or the
business condition (financial or otherwise), results of operations, prospects
or activities of the Seller, whether or not covered by insurance. Without
limitation of the foregoing and except as set forth on Schedule 3.26, since
March 31, 1999, the Seller has not:
(a) voluntarily or involuntarily sold, transferred, abandoned, surrendered,
subjected to a lien or otherwise disposed of any assets or property
rights except in the ordinary course of business consistent with past
custom or practice;
(b) changed any accounting principles, methods or practices utilized by
them or changed any of their depreciation rates or amortization policies
or rates;
(c) made any loan or advance to any party in excess of $5,000 other than in
the ordinary course of business;
(d) issued, redeemed or purchased any stock, bond or corporate security or
declared or made any payment or distribution on or with respect to their
capital stock;
(e) incurred debt, liabilities, or obligations of any nature, whether
accrued, absolute, contingent, direct, indirect, perfected or otherwise,
and whether due or to become due, except debt, liabilities or
obligations incurred, and liabilities under contracts entered into, in
the ordinary course of business consistent with past custom and
practice;
(f) waived any rights of substantial value; or
(g) entered into any other material transaction, or committed to any of the
foregoing.
SECTION 3.27 Intellectual Property. Except as set forth on Schedule 3.27:
(a) the Seller owns and possesses all right, title and interest in and to, or
has a valid license to use, all of the Seller Proprietary Rights (as
defined below) necessary for the operation of the business as presently
conducted and none of such Seller Proprietary Rights have been abandoned
by the Seller;
(b) no claim by any third party contesting the validity, enforceability, use
or ownership of any such Seller Proprietary Rights has been made, is
currently outstanding or is threatened, and to the knowledge of the
Seller there is no reasonable basis for any such claim;
(c) neither the Seller nor any registered agent of the Seller has received
any notice of, nor is the Seller aware of any reasonable basis for an
allegation of, any infringement or misappropriation by, or conflict with,
any third party with respect to such Seller Proprietary Rights, nor has
the Seller, or any registered agent received any claim of infringement or
misappropriation of or other conflict with any Seller Proprietary Rights
of any third party;
(d) to the knowledge of the Seller, the Seller has not infringed,
misappropriated or otherwise violated any proprietary rights of any third
parties, and the Seller is not aware of any infringement,
misappropriation or conflict which will occur as a result of the
continued operation of the Seller as presently operated and as
contemplated to be operated or as a result of the consummation of the
transactions contemplated hereby; and
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(e) all employees who have contributed to or participated in the conception
and/or development of all or any part of the Seller Proprietary Rights
which are not licensed to the Seller from a third party either (1) have
been party to a "work-for-hire" arrangement or agreement with the
Seller, in accordance with applicable federal and state law, that has
accorded the Seller's full, effective, exclusive, and original ownership
of all tangible and intangible property thereby arising, or (2) have
executed appropriate instruments of assignment in favor of the Seller as
assignee that have conveyed to the Seller full, effective and exclusive
ownership of all tangible and intangible property thereby arising.
(f) the Seller Proprietary Rights are to the knowledge of the Seller valid
and subsisting and were procured honestly and in good faith.
Specifically, Seller represents that as to all patents and patent
applications and all copyright registrations that there has been no
inequitable conduct and that Seller has fulfilled its duty of candor and
good faith to the Patent and Trademark Office.
As used herein, the term "Seller Proprietary Rights" means all proprietary
information of the Seller, including all patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not
reduced to practice), all trademarks, service marks, trade dress, trade names,
corporate names, domain names, copyrights, all trade secrets, confidential
information, ideas, formulae, compositions, know-how, processes and techniques,
drawings, specifications, designs, logos, plans, improvements, proposals,
technical and computer data, documentation and software, financial, business
and marketing plans, and related information and all other proprietary,
industrial or intellectual property rights relating to the business of the
Seller.
The consummation of the transactions contemplated by this Agreement will
not adversely affect the right of the Surviving Corporation to continue to use
the Seller Proprietary Rights. To the extent that registration of any
Proprietary Right is useful or required by law, such Seller Proprietary Right
has been duly and validly registered or filed, and any fees that are necessary
to maintain in force any Seller Proprietary Rights or registrations thereof
have been paid. Schedule 3.27 sets forth a list and description of the
copyrights, trademarks, service marks, trade dress and trade names used or held
by the Seller and, where appropriate, the date, serial or registration number,
and place of any registration thereof.
SECTION 3.28 Products Liability. Seller has not received any written
notice relating to, nor does the Seller have knowledge of any facts or
circumstances which could reasonably give rise to, any claim involving any
product manufactured, produced, distributed or sold by or on behalf of the
Seller resulting from an alleged defect in design, manufacture, materials or
workmanship, or any alleged failure to warn, or from any breach of implied
warranties or representations, other than notices or claims that have been
settled or resolved by the Seller prior to the date of this Agreement.
SECTION 3.29 No Existing Discussions. As of the date hereof, Seller has
terminated all discussions or negotiations with any third party with respect to
a Seller Acquisition Proposal (as defined in Section 6.01(a)).
SECTION 3.30 Anti-Takeover Laws. Seller has taken or at or prior to the
Closing will have taken, all actions necessary such that no "fair price",
"business combination", "control share acquisition", or similar statute will be
applicable to the transactions contemplated by this Agreement.
SECTION 3.31 No Misrepresentation. None of the representations and
warranties of the Seller set forth in this Agreement or any of the Transaction
Documents contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the knowledge of the Seller, there is no material fact or
information which has not been disclosed to Buyer in writing which materially
adversely affects or could reasonably be anticipated to materially adversely
affect the business, condition (financial or otherwise), property or assets of
the Seller or the ability of the Seller to consummate the transactions
contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements contained in
this Article IV are true and correct, except as set forth herein in the
disclosure schedule delivered by Buyer to Seller on or before the date of this
Agreement (the "Buyer Disclosure Schedules"). The Buyer Disclosure Schedules
shall be arranged in individual
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schedules corresponding to the numbered paragraphs contained in this Article IV
and the disclosure in any schedules shall qualify other schedules in this
Article IV only to the extent that it is reasonably apparent from a reading of
such disclosure that it also qualifies or applies to such other schedules.
Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate
to disclose an exception to a representation or warranty made herein (unless
the representation or warranty concerns the existence of the document or the
other item itself).
SECTION 4.01 Organization of Buyer. Buyer is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, properties, financial condition or results of
operations of Buyer (a "Buyer Material Adverse Effect"); provided, however,
that for purposes of this Agreement, the following events shall not be taken
into account in determining whether there has been or would be a "Buyer
Material Adverse Effect" on or with respect to Buyer: (A) changes, events or
occurrences in the United States securities markets which are not specific to
Buyer, (B) changes, events or occurrences in the world economy which are not
specific to the Buyer, (C) the existence of this Agreement or the transactions
contemplated hereby or the announcement thereof, (D) any changes in GAAP, and
(E) changes, events or occurrences relating to the pharmaceutical industries in
general, and not specifically to Buyer. The Buyer does not own or control
(directly or indirectly), or own or hold any right to acquire, any stock,
partnership interest, joint venture interest, equity participation or other
security or interest in any other entity, corporation, partnership, trust or
any other business association. Except as set forth in the Buyer SEC Reports
(as defined in Section 4.04(a)) filed prior to the date hereof and with respect
to acquisitions of third parties of which Buyer advises Seller after the
closing thereof, Buyer does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any corporation, partnership, joint venture or other business
association, or entity, excluding securities in any publicly traded company
held for investment by Buyer and comprising less than five percent (5%) of the
outstanding stock of such company.
SECTION 4.02 Buyer Capital Structure. (a) The authorized capital stock of
Buyer consists of (i) 17,000,000 shares of Common Stock, par value $.01 per
share ("Buyer Common Stock"), (ii) 60,000 shares of Series A Convertible
Preferred Stock, par value $.01 per share ("Buyer Series A Preferred"), (iii)
50,000 shares of Series B Convertible Preferred Stock, par value $.01 per share
("Buyer Series B Preferred"), (iv) 9,000 shares of Series C Convertible
Preferred Stock, par value $.01 per share ("Buyer Series C Preferred"), (v)
50,000 shares of Series D Convertible Preferred Stock, par value $.01 per share
("Buyer Series D Preferred"). It is intended that prior to the Effective Time,
Buyer will file the amendment and restatement to its Certificate of
Incorporation referred to in Section 1.03 (ii) hereof, creating authorized
capital of 320,000 shares of Series 1 Convertible Preferred Stock, par value
$.01 per share ("Buyer Series 1 Preferred Stock"). As of June 30, 1999, there
were 7,254,053 shares of Buyer Common Stock, 9,000 shares of Buyer Series C
Preferred and 50,000 shares of Buyer Series D Preferred issued and outstanding,
all of which issued and outstanding shares are validly issued, fully paid and
nonassessable, and (ii) no shares of currently issued Common Stock of Buyer,
Buyer Series A Preferred, Buyer Series B Preferred, Buyer Series C Preferred
and Buyer Series D Preferred were held in the treasury of Buyer. Buyer Series A
Preferred, Buyer Series B Preferred, Buyer Series C Preferred, Buyer Series D
Preferred and Buyer Series 1 Preferred Stock are sometimes hereinafter
collectively referred to as "Buyer Preferred Stock Series". Schedule 4.02 shows
the ownership of the Buyer Common Stock and Buyer Preferred Stock Series by
officers, directors and all shareholders who own more than five percent (5%) of
the outstanding stock of the Seller. 832,837 shares of Buyer Common Stock are
reserved for future issuance pursuant to stock options granted and outstanding
as of June 30, 1999 under Buyer's 1995 Stock Incentive Plan (the "Buyer Stock
Plan"), 1,375,000 shares of Buyer Common Stock are reserved for future issuance
under warrants granted and outstanding as of June 30, 1999 ("Buyer Warrants")
and 2,950,000 shares of Buyer Common Stock are reserved for future issuance
upon conversion of outstanding shares of Buyer Series C Preferred and Buyer
Series D Preferred. No material change in such capitalization has occurred
between June 30, 1999 and the date of this Agreement. All shares of Buyer
Common Stock subject to issuance as specified above are duly authorized and,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, shall be validly issued, fully paid and
nonassessable. There are no bonds, debentures, notes or other indebtedness of
Buyer
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having the right to vote (or convertible into securities having the right to
vote) on any matters on which shareholders of Buyer may vote. The shares of
Buyer Common Stock and Buyer Series 1 Preferred Stock to be issued in the
Merger will, when issued in accordance with the terms of this Agreement, be
validly issued, fully paid and nonassessable. Except with respect to the Buyer
Series 1 Preferred Stock, 9,000 shares of Buyer Series C Preferred and 50,000
shares of Buyer Series D Preferred, there are no obligations, contingent or
otherwise, of Buyer to repurchase, redeem or otherwise acquire any shares of
Buyer Common Stock or Buyer Preferred Stock Series, or to provide funds or to
make any material investment (in the form of a loan, capital contribution or
otherwise) in any other entity.
(b) Except as set forth in this Section 4.02 or as reserved for future
grants of options under the Buyer Stock Plan, there are no equity securities of
any class of Buyer, or any security exchangeable into or exercisable or
convertible for such equity securities, issued, reserved for issuance or
outstanding. There are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which Buyer is a party or by
which such entity is bound (including under letters of intent, whether binding
or nonbinding) obligating Buyer to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of Buyer or other
equity interest of Buyer or obligating Buyer to grant, extend, accelerate the
vesting of, otherwise modify or amend or enter into any such option, warrant,
equity security, call, right, commitment or agreement except under the Buyer
Stock Plan or Buyer Warrants, or in connection with acquisitions. To the
knowledge of Buyer, there are no voting trusts, proxies or other voting
agreements or understandings with respect to the shares of capital stock of
Buyer or other equity interests of Buyer.
SECTION 4.03 Authority; No Conflict; Required Filings and Consents. (a)
Buyer has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Buyer subject only to the approval of
the Merger by Buyer's stockholders under the GCL; the vote of Buyer's
stockholders required to approve this Agreement and the Merger is a majority of
the outstanding shares of Buyer Common Stock and Buyer Preferred Stock Series
voting as a single class and a majority of the outstanding shares of Buyer
Series D Preferred voting as a single class on the record date for the Buyer
Meeting (as defined below) at which a quorum is present. This Agreement has
been duly executed and delivered by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement by Buyer does not, and
the consummation of the transactions contemplated by this Agreement will not,
(i) conflict with, or result in any violation or breach of, any provision of
the Certificate of Incorporation or Bylaws of Buyer, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Buyer is a party or by which any of its
properties or assets may be bound, or (iii) conflict with, violate, or cause
the termination of any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Buyer or any
of its properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which are not, individually or in the aggregate, reasonably likely to have a
Buyer Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or person or entity is
required by or with respect to Buyer in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except as set forth on Schedule 4.03 or for (i) the filing of the
Registration Statement with the SEC in accordance with the Securities Act, (ii)
the filing of the Certificate of Merger with the Department of State of the
State of Delaware, (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the laws of any foreign country, (iv) the approval by
the Nasdaq SmallCap Market of the listing of the shares of Buyer Common Stock
to be issued in the transactions contemplated by this Agreement, and (v) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not interfere with the operation of any facility of
Buyer or otherwise be reasonably likely to have a Buyer Material Adverse
Effect.
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SECTION 4.04 SEC Filings; Financial Statements. (a) Since the date of its
initial public offering, Buyer has filed all forms, reports and documents,
including the exhibits thereto, required to be filed by Buyer with the SEC
under the Securities Act or the Exchange Act (these forms, reports and
documents are referred to collectively as "Buyer SEC Reports"). The Buyer SEC
Reports (i) at the time filed complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Buyer SEC Reports or necessary in
order to make the statements in such Buyer SEC Reports, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any related
notes) contained in the Buyer SEC Reports is true, complete and correct in all
material respects, and complied as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC) and fairly presented the consolidated financial position of Buyer
as of the dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The unaudited
balance sheet of Buyer as of March 31, 1999 is referred to herein as the "Buyer
Balance Sheet."
SECTION 4.05 No Undisclosed Liabilities. Except as disclosed in the Buyer
SEC Reports or in press releases that have been made public by Buyer and are
available at Nasdaq's website at http://www.nasdaq.com ("Buyer Releases") filed
prior to the date hereof, and except for normal or recurring liabilities
incurred since March 31, 1999 in the ordinary course of business consistent
with past practices, Buyer does not have any liabilities, either accrued,
contingent or otherwise (whether or not required to be reflected in financial
statements in accordance with GAAP), and whether due or to become due, which
individually or in the aggregate, are reasonably likely to have a Buyer
Material Adverse Effect.
SECTION 4.06 Absence of Certain Changes or Events. Except as disclosed in
the Buyer SEC Reports filed prior to the date hereof or Buyer Releases, since
the date of the Buyer Balance Sheet, Buyer has conducted its businesses only in
the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (i) any change in the financial condition,
results of operations, business or properties of Buyer that has had, or is
reasonably likely to have, a Buyer Material Adverse Effect; (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to Buyer
that has had, or is reasonably likely to have, a Buyer Material Adverse Effect;
(iii) any material change by Buyer in its accounting methods, principles or
practices to which Seller has not previously consented in writing; (iv) any
revaluation by Buyer of any of its assets that has had, or is reasonably likely
to have, a Buyer Material Adverse Effect; or (v) any other action or event that
would have required the consent of Seller pursuant to Section 5.02 of this
Agreement had such action or event occurred after the date of this Agreement.
SECTION 4.07 Taxes. Except as set forth on Schedule 4.07:
(a) All Tax Returns required to be filed by or on behalf of Buyer have
been properly prepared and duly and timely filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make
such filings), and all such Tax Returns were true, complete and correct in all
material respects.
(b) All Taxes payable by or on behalf of Buyer or in respect of its
income, assets or operations (including interest and penalties) have been fully
and timely paid, and adequate reserves or accruals for Taxes have been provided
in Buyer's books and records with respect to any period for which Tax Returns
have not yet been filed or for which Taxes are not yet due and owing.
(c) Buyer has not executed or filed with any taxing authority any
agreement, waiver or other document or arrangement extending or having the
effect of extending the period for assessment or collection of Taxes
(including, but not limited to, any applicable statute of limitation), and no
power of attorney with respect to any Tax matter is currently in force.
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(d) Buyer has complied in all material respects with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes and has
duly and timely withheld from employee salaries, wages and other compensation
and has paid over to the appropriate taxing authorities all amounts required to
be so withheld and paid over for all periods under all applicable laws.
(e) Seller has received complete copies of (A) all U.S. federal, state and
foreign income or franchise Tax Returns of Buyer relating to the taxable
periods beginning after December 31, 1994 and (B) any audit report issued
within the last three years relating to Taxes due from or with respect to
Buyer, or its income, assets or operations.
(f) No claim has been made by a taxing authority in a jurisdiction where
Buyer does not file Tax Returns such that it is or may be subject to taxation
by that jurisdiction.
(g) All deficiencies asserted or assessments made as a result of
examinations by any taxing authority of the Tax Returns of or covering or
including Buyer have been fully paid, and there are no other audits or
investigations by any taxing authority or proceedings in progress, nor has
Buyer received any written notice from any taxing authority that it intends to
conduct such an audit or investigation. No issue has been raised in writing by
a U.S. federal, state, local or foreign taxing authority in any current or
prior examination which, by application of the same or similar principles,
could reasonably be expected to result in a proposed deficiency for any
subsequent taxable period.
(h) Neither Buyer, nor any other person on behalf of Buyer has (A) filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by Buyer, (B)
agreed to or is required to make any adjustments pursuant to Section 481(a) of
the Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by Buyer or has any knowledge that the
Internal Revenue Service has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of Buyer, or has otherwise taken any action that would
have the effect of deferring any liability for Taxes from any taxable period
ending on or before the Closing to any taxable period ending thereafter, (C)
executed or entered into closing agreement pursuant to Section 7121 of the Code
or any predecessor provision thereof or any similar provision of state, local
or foreign law with respect to Buyer, or (D) requested any extension of time
within which to file any Tax Return, which Tax Return has since not been filed.
(i) No property owned by Buyer is (A) property required to be treated as
being owned by another Person pursuant to the provisions of Section 168(f)(8)
of the Internal Revenue Code of 1954, as amended and in effect immediately
prior to the enactment of the Tax Reform Act of 1986, (B) constitutes
"tax-exempt use property" within the meaning of Section 168(h)(1) of the Code
or (C) is "tax-exempt bond financed property" within the meaning of Section
168(g) of the Code.
(j) Buyer is not a party to any tax sharing or similar agreement or
arrangement (whether or not written) pursuant to which it will have any
obligation to make any payments after the Closing.
(k) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment of
any amount that would not be deductible by Buyer or any of its Affiliates by
reason of Section 280G of the Code.
(l) Buyer has substantial authority for the treatment of or has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6662(d) of the Code.
(m) Buyer is not subject to any private letter ruling of the Internal
Revenue Service or comparable rulings of other taxing authorities.
(n) There are no liens as a result of any unpaid Taxes upon any of the
assets of Buyer.
(o) All material Tax elections of Buyer are set forth on Schedule 4.07.
Buyer has no elections in effect for U.S. federal income tax purposes under
Sections 108, 168, 338, 441, 463, 1017, 1033 or 4977 of the Code.
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(p) Buyer has never been a member of any Affiliated Group for tax
purposes. Buyer has no any liability for Taxes of any person under section
1.1502-6 of the Treasury regulations under the Code (or any similar provision
of state, local or foreign law), as a transferee or successor or otherwise.
Buyer does not own any interest in any entity that is treated as a partnership
for U.S. federal income tax purposes or would be treated as a pass-through or
transparent entity for any tax purpose.
(q) Buyer has not been a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.
(r) Buyer does not have a permanent establishment in any foreign country,
as defined in any applicable Tax treaty or convention.
SECTION 4.08 Agreements, Contracts and Commitments. Except as delivered to
Seller or as set forth on Schedule 4.08, there are no contracts, agreements or
commitments that are required to be filed as an exhibit under subheading (10) -
Material Contracts of Item 601 of Regulation S-B of the federal securities laws
and the rules and regulations thereunder. The Buyer has not entered into and is
not bound by any material contract, agreement, relationship or commitment,
written or oral, including without limitation, any obligations for money
borrowed or under leases other than those identified on Schedule 4.08 ("Buyer
Material Contracts"). Buyer is not in default, and no event has occurred which
with the giving of notice or the passage of time or both would constitute a
default by the Buyer or, to the best of Buyer's knowledge, any other party
under any Buyer Material Contract or any other material obligation owed by
Buyer and, to the best of Buyer's knowledge, no event has occurred which with
the giving of notice or the passage of time or both would constitute a default
by any other party to any such Buyer Material Contract or obligation. Each
Buyer Material Contract that has not expired, by its terms is in full force and
effect, and no party to any of the Buyer Material Contracts will have the right
to terminate such contract as a result of the transactions contemplated by this
Agreement. Except for employment agreements, none of the Buyer Material
Contracts is currently being renegotiated in any material respect, and Buyer
has no knowledge that any Buyer Material Contract will be subject to a
voluntary or regulatory ordered renegotiation within 12 months after the date
of this Agreement. Buyer is not party to or bound by any contract, agreement,
relationship or commitment, whether or not deemed material, which in any way
restricts or purports to restrict the ability of Buyer to acquire any property
or assets or conduct its business or provide services to any person or entity
anywhere in the world.
SECTION 4.09 Litigation. Except as set forth on Schedule 4.09, there is no
claim, counter-claim, action, suit, order, proceeding or investigation pending
or to the knowledge of the Buyer, threatened against or involving the Buyer, or
pending or, to the knowledge of the Buyer, threatened against any of its
officers, directors or key employees of the Buyer with respect to business
activities on behalf of the Buyer with respect to or affecting the Buyer, its
accounts, business, properties, assets or rights, or relating to the
transactions contemplated hereby, before any court, agency, regulatory,
administrative or other governmental body or officer or before any arbitrator,
nor, to the knowledge of the Buyer, is there any reasonable basis for any such
claim, action, suit, proceeding or governmental, administrative or regulatory
investigation. The Buyer is not directly subject to or affected by any order,
judgment, decree or ruling of any court or governmental agency. The Buyer has
not received any written opinion or memorandum of legal advice from legal
counsel to the effect that any of them are exposed to any liability which may
be material to the business, prospects, results of operations, financial
condition or assets of the Buyer. Except as set forth on Schedule 4.09, the
Buyer is not engaged in any legal action to recover monies due it or for
damages sustained by it, and none of the assets of the Buyer nor any of their
respective business practices are in any manner, directly or indirectly,
affected by injunction of any court or governmental, administrative or
regulatory agency, body or officer.
SECTION 4.10 Compliance With Laws. Buyer has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation or any judgment, decree
or order of any Governmental Entity with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Buyer Material Adverse Effect. Buyer has
all Approvals necessary for it to own, lease or operate its properties and to
carry on its business as now conducted and there has occurred no default under
any such Approval, or failure to obtain such Approval, which would in the
aggregate have a Buyer Material Adverse Effect.
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SECTION 4.11 Accounting and Tax Matters. To its knowledge, after
consulting with its tax advisors, neither Buyer nor any of its Affiliates has
taken or agreed to take any action which would prevent the Merger from
constituting a transaction qualifying as a reorganization under Section 368(a)
of the Code.
SECTION 4.12 Registration Statement; Proxy Statement/Prospectus. The
information in the Registration Statement (except for information supplied by
Seller for inclusion in the Registration Statement, as to which Buyer makes no
representation) shall not at the time the Registration Statement is filed with
the SEC and at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Buyer for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to stockholders of Seller, at the time of
the Seller Meeting, or to the stockholders of Buyer in connection with the
meeting of Buyer's stockholders to consider this Agreement and Plan of Merger
(the "Buyer Meeting") and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Seller Meeting or Buyer Meeting which has
become false or misleading. If at any time prior to the Effective Time any
event relating to Buyer or any of its Affiliates, officers or directors should
be discovered by Buyer which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Buyer shall
promptly inform Seller. The Registration Statement will comply as to form in
all material respects with the requirements of the Securities Act and the rules
and regulations promulgated thereunder, except that no representation is made
by Buyer with respect to statements made or incorporated by reference therein
based on information supplied by Seller specifically for inclusion or
incorporation by reference in the Registration Statement.
SECTION 4.13 Year 2000 Compliance. The computer systems of Buyer
(including, without limitation, all software, hardware, workstations and
related components, automated devices, embedded chips and other date sensitive
equipment such as security systems, alarms, elevators and HVAC systems) are
Year 2000 Compliant or will be Year 2000 Compliant by September 30, 1999,
except to the extent that any failure to be Year 2000 Compliant, either
individually or in the aggregate, would not have a Buyer Material Adverse
Effect. The term "Year 2000 Compliant" as used herein means that the computer
systems are (i) capable of recognizing, processing, managing, representing,
interpreting, and manipulating correctly date related data for dates earlier
and later than January 1, 2000, including, but not limited to, calculating,
comparing, sorting, storing, tagging and sequencing, without resulting in or
causing logical or mathematical errors or inconsistencies in any user-interface
functionalities or otherwise, including data input and retrieval, data storage,
data fields, calculations, reports, processing, or any other input or output,
(ii) have the ability to provide data recognition for any data element without
limitation (including, but not limited to, date-related data represented
without a century designation, date-related data whose year is represented by
only two digits and date fields assigned special values), (iii) have the
ability to automatically function into and beyond the year 2000 without human
intervention and without any change in operations associated with the advent of
the year 2000, (iv) have the ability to correctly interpret data, dates and
time into and beyond the year 2000, (v) have the ability not to produce
noncompliance in existing information, nor otherwise corrupt such data into and
beyond the year 2000, (vi) have the ability to correctly process after January
1, 2000 data containing dates before that date, and (vii) have the ability to
recognize all "leap years," including February 29, 2000.
The computer systems of Buyer have the ability to properly interface and
will continue to properly interface with internal and external applications and
systems of third parties with whom Buyer exchanges data electronically
(including without limitation customers, clients, suppliers, service providers,
subcontractors, processors, converters, shippers, warehousemen, outsources,
data processors, regulatory agencies and banks) whether or not they have
achieved Year 2000 Compliance.
SECTION 4.14 [Reserved].
SECTION 4.15 Legal Compliance. (a) Buyer's manufacturing, distribution and
marketing practices are in compliance in all material respects with all
applicable federal and state laws, rules, regulations, orders, licenses,
judgments, writs, injunctions, decrees or demands, including, without
limitation, laws and regulations administered by the FDA and the DEA.
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(b) Buyer possesses all material FDA new drug applications, abbreviated
new drug applications, and new animal drug applications as are currently
legally required and are necessary for the conduct of its business as now being
conducted, a list of which is attached hereto as Schedule 4.15(b), true and
correct copies of which have been provided to the Seller by the Buyer.
(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 Buyer.
(d) Buyer has not used 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). Neither the Buyer, nor its officers, employees, agents or
affiliates, has been convicted of any crime or engaged in any conduct for which
debarment is mandated by 21 U.S.C. ss. 335a(a) or authorized by 21 U.S.C.
ss. 335a(b).
(e) Buyer is in substantial compliance with all Federal and state laws
applicable to the manufacture, processing, packing, testing and sale of
pharmaceutical products to the extent such laws are applicable to it, all rules
and regulations of the FDA and the DEA to the extent such rules and regulations
are applicable to it, and each NDA and ANDA in which Buyer has sold any product
on or after March 31, 1999, except where the failure to be in such compliance
would not have a Buyer Material Adverse Effect. All manufacturing operations
conducted by or for the benefit of the Buyer have been and are being conducted
in substantial compliance with the current Good Manufacturing Practice
regulations set forth in 21 C.F.R. Parts 210 and 211
(f) As to each drug of the Buyer for which a NDA or ANDA has been approved
by the FDA, which drugs are described on Schedule 4.15(f), the applicant and
all persons performing operations covered by the application are in substantial
compliance with 21 U.S.C. ss.ss. 355 or 357, 21 C.F.R. parts 314 or 430 et.
seq., respectively, and all terms and conditions of the application, except
where the failure to be in such compliance would not have a Buyer Material
Adverse Effect.
(g) The Buyer is in substantial compliance with all applicable
registration and listing requirements set forth in 21 U.S.C. ss. 360 and 21
C.F.R. Part 207. To the extent required, the Buyer has obtained registrations
from the DEA and is in substantial compliance with all such registrations and
all applicable regulations promulgated by the DEA.
(h) Neither the Buyer nor its officers, employees, or agents have made an
untrue statement of material fact or fraudulent statement to the FDA or the
DEA, failed to disclose a material fact required to be disclosed to the FDA or
the DEA, or committed an act, made a statement, or failed to make a statement
that could reasonably be expected to provide a basis for the FDA to invoke its
policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and
Illegal Gratuities," set forth in 56 Fed. Reg 46191 (September 10, 1991).
(i) The Buyer has made available to Seller copies of any and all notices
of inspectional observations (FD 483's), establishment inspection reports,
warning letters and any other documents received from or issued by the FDA or
the DEA within the last three years that indicate or suggest lack of compliance
with the FDA or the DEA regulatory requirements by the Buyer or persons covered
by product applications or otherwise performing services for the benefit of the
Buyer.
(j) The Buyer has not received any written notice that the FDA or the DEA
has commenced, or threatened to initiate, any action to withdraw its approval
or request the recall of any product of the Buyer or commenced or threatened to
initiate, any action to enjoin production at any facility owned or used by the
Buyer or any of the Buyer's facilities, commenced or threatened to initiate the
withdrawal of approval of any NDA, ANDA or NADA or any establishment or other
registration or commenced or threatened to initiate any civil penalty, seizure
or criminal action.
(k) As to each article of drug or consumer product currently manufactured
and/or distributed by the Buyer, which products are described on Schedule
4.15(k), such article is not adulterated or misbranded within the meaning of
the FDCA, 21 U.S.C. ss.ss. 301c et. seq.
(l) As to each drug referred to in (b), the Buyer, and its officers,
employees, agents and affiliates have included or caused to be included in the
application for such drug, where required, the certification described in 21
U.S.C. T335a(k) (1) and the list described in 21 U.S.C. ss. 335a(k)(2), and
such certification and such list was in each case true and accurate when made
and remained true and accurate thereafter.
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(m) Buyer represents and warrants that all testing it has conducted or has
had conducted for it by third parties complies in all respects with the
requirements of Good Clinical Practice, Informed Consent, and all requirements
relating to protection of human subjects found in 21 C.F.R. ss. 50, and that
all nonclinical laboratory testing complies with the requirements of 21 C.F.R.
ss. 58.
(n) As to each application or abbreviated application submitted to, but
not approved by, the FDA, and not withdrawn by the Buyer, or applicants acting
on its behalf as of the date of this Agreement, the Buyer has complied in all
material respects with the requirements of 21 U.S.C. ss.ss. 355 and 357 and 21
C.F.R. Parts 312, 314 and 430 et. seq. and has provided, or will provide, all
additional information and taken, or will take, all additional action requested
by the FDA in connection with the application.
SECTION 4.16 Environmental and Safety Matters.
Except as set forth on Schedule 4.16,
(a) Except as would not have an Environmental Material Adverse Effect,
Buyer has operated in compliance with all applicable limitations, restrictions,
conditions, standards, prohibitions, requirements and obligations of
Environmental Laws and related orders of any court or other governmental
authority;
(b) Except as would not have an Environmental Material Adverse Effect,
there are not any existing, pending or, to the knowledge of the Buyer,
threatened actions, suits, claims, investigations, inquiries or proceedings by
or before any court or any other governmental entity directed against the Buyer
that pertain or relate to (1) any remedial obligations under any applicable
Environmental Law, (2) violations by Buyer of any Environmental Law, (3)
personal injury or property damage claims relating to a release, discharge or
disposal of Hazardous Materials or other Environmental Conditions, or (4)
response, removal, or remedial costs under CERCLA, RCRA, or any similar state
laws;
(c) With respect to permits and licenses, (1) all licenses, permits,
consents, or other approvals required under Environmental Laws that are
necessary to the operations of the Buyer have been obtained and are in full
force and effect and the Buyer is unaware of any basis for revocation or
suspension of any such licenses, permits, consents or other approvals; (2) to
the best of the Buyer's knowledge, no Environmental Laws impose any obligation
upon Buyer, as a result of any transaction contemplated hereby, requiring prior
notification to any governmental entity of the transfer of any permit, license,
consent, or other approval which is necessary to the operations of the Buyer's
properties and Assets; and (3) except as would not have an Environmental
Material Adverse Effect, Buyer has conducted its operations in compliance with
such permits, licenses, consents, or approvals, and at the production levels or
emission levels specified in such permits, licenses, consents, or approvals;
(d) To the knowledge of the Buyer, no portion of any of the properties
owned or operated by Buyer is listed on the NPL or the CERCLIS list under
CERCLA, or any similar ranking or listing under any state law;
(e) To the knowledge of Buyer, all Hazardous Materials generated by the
Buyer have been transported by carriers, or stored, treated and disposed of by
treatment, storage and disposal facilities, authorized or maintaining valid
permits under all applicable Environmental Laws;
(f) To the knowledge of Buyer, no person has disposed or released any
Hazardous Materials on, at, or under the properties owned or operated by Buyer,
except in compliance with laws, or except as would not have an Environmental
Material Adverse Effect;
(g) Buyer is not aware of any Environmental Remediation Costs that are
required or are planned to be expended relating to the operations of Buyer for
which Buyer reasonably anticipates payment or accrual; and
(h) Except as would not have an Environmental Material Adverse Effect, no
facts or circumstances exist which could reasonably be expected to result in
any liability to the Buyer with respect to the current or past business and
operations of the Buyer in connection with (i) any release, transportation or
disposal of any Hazardous Materials, or (ii) any action taken or omitted that
was not in full compliance with or was in violation of any applicable
Environmental Law.
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SECTION 4.17 Intellectual Property. Except as set forth on Schedule 4.17:
(a) the Buyer owns and possesses all right, title and interest in and to,
or has a valid license to use, all of the Buyer Proprietary Rights (as
defined below) necessary for the operation of the business as presently
conducted and none of such Buyer Proprietary Rights have been abandoned
by the Buyer;
(b) no claim by any third party contesting the validity, enforceability,
use or ownership of any such Buyer Proprietary Rights has been made, is
currently outstanding or is threatened, and to the knowledge of the
Buyer there is no reasonable basis for any such claim;
(c) neither the Buyer nor any registered agent of the Buyer has received
any notice of, nor is the Buyer aware of any reasonable basis for an
allegation of, any infringement or misappropriation by, or conflict
with, any third party with respect to such Buyer Proprietary Rights, nor
has the Buyer, or any registered agent received any claim of
infringement or misappropriation of or other conflict with any Buyer
Proprietary Rights of any third party;
(d) to the knowledge of the Buyer, the Buyer has not infringed,
misappropriated or otherwise violated any Buyer Proprietary Rights of
any third parties, and the Buyer is not aware of any infringement,
misappropriation or conflict which will occur as a result of the
continued operation of the Buyer as presently operated and as
contemplated to be operated or as a result of the consummation of the
transactions contemplated hereby; and
(e) all employees who have contributed to or participated in the conception
and/or development of all or any part of the Buyer Proprietary Rights
which are not licensed to the Buyer from a third party either (1) have
been party to a "work-for-hire" arrangement or agreement with the Buyer,
in accordance with applicable federal and state law, that has accorded
the Buyer's full, effective, exclusive, and original ownership of all
tangible and intangible property thereby arising, or (2) have executed
appropriate instruments of assignment in favor of the Buyer as assignee
that have conveyed to the Buyer full, effective and exclusive ownership
of all tangible and intangible property thereby arising.
(f) The Buyer Proprietary Rights are to the knowledge of the Buyer valid
and subsisting and were procured honestly and in good faith.
Specifically, Buyer represents that as to all patents and patent
applications and all copyright registrations that there has been no
inequitable conduct and that Buyer has fulfilled its duty of candor and
good faith to the Patent and Trademark Office.
As used herein, the term "Buyer Proprietary Rights" means all proprietary
information of the Buyer, including all patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not
reduced to practice), all trademarks, service marks, trade dress, trade names,
corporate names, domain names, copyrights, all trade secrets, confidential
information, ideas, formulae, compositions, know-how, processes and techniques,
drawings, specifications, designs, logos, plans, improvements, proposals,
technical and computer data, documentation and software, financial, business
and marketing plans, and related information and all other proprietary,
industrial or intellectual property rights relating to the business of the
Buyer.
The consummation of the transactions contemplated by this Agreement will
not adversely affect the right of Buyer or the Surviving Company to continue to
use the Buyer Proprietary Rights. To the extent that registration of any
Proprietary Right is useful or required by law, such Proprietary Right has been
duly and validly registered or filed, and any fees that are necessary to
maintain in force any Buyer Proprietary Rights or registrations thereof have
been paid. Schedule 4.17 sets forth a list and description of the copyrights,
trademarks, service marks, trade dress and trade names used or held by the
Buyer and, where appropriate, the date, serial or registration number, and
place of any registration thereof.
SECTION 4.18 Products Liability. The Buyer has not received any written
notice relating to, nor does the Buyer have knowledge of any facts or
circumstances which could reasonably give rise to, any claim involving any
product manufactured, produced, distributed or sold by or on behalf of the
Buyer resulting from an alleged defect in design, manufacture, materials or
workmanship, or any alleged failure to warn, or from any breach of implied
warranties or representations, other than notices or claims that have been
settled or resolved by the Buyer prior to the date of this Agreement.
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SECTION 4.19 Ownership of Properties; Condition of Property. (a) Schedule
4.19 contains a true and complete list of all real property owned or leased by
Buyer pursuant to leases providing for the occupancy of facilities
(collectively "Buyer Material Lease(s)") and the location of the premises. With
respect to each such Buyer Material Lease: (i) the lease is legal, valid,
binding, enforceable against Buyer subject to the Bankruptcy and Equity
Exception, and in full force and effect; (ii) the lease will continue to be
legal, valid, binding, enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior
to the Closing; (iii) neither Buyer nor, to the knowledge of Buyer, any other
party to the lease or sublease is in breach or default, and no event has
occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification or acceleration thereunder; and
(iv) Buyer has not assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in the leasehold or subleasehold; except, in the
case of clauses (i) through (iv) that the same is not reasonably likely to have
a Buyer Material Adverse Effect.
(b) All machinery, equipment and other tangible assets used by the Buyer
are in fair or good operating condition and repair, reasonable wear and tear
excepted, are usable in the ordinary course of business and are adequate and
suitable for the uses to which they are being put, except where the failure to
be in such condition or so usable and suitable would not have a Buyer Material
Adverse Effect.
(c) The Buyer is not contemplating any capital expenditure in excess of
$100,000 individually or in the aggregate which has not been disclosed to
Seller in writing.
SECTION 4.20 Employee Benefit Plans. (a) Schedule 4.20 sets forth all
employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus,
stock option, stock purchase, equity, incentive, deferred compensation,
supplemental retirement, change in control, retiree health or welfare, fringe,
dependent care, flexible spending or severance plans, programs or agreements,
for the benefit of, or relating to, any current or former employee, director or
independent contractor of Buyer or any entity which is, or has been, a member
(an "ERISA Affiliate") of (i) a controlled group of corporations, (ii) a group
of trades or businesses (whether or not incorporated) under common control with
Buyer, or (iii) an affiliated service group, all within the meaning of Section
414 of the Code or Section 4001(a) (14) of ERISA, of which includes the Buyer
(together, the "Buyer Employee Plans").
(b) With respect to each Buyer Employee Plan, Buyer has delivered to
Seller, a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS (and the related financial statement), (ii) such Buyer
Employee Plan and any amendments or summary plan descriptions with respect
thereto, (iii) each trust agreement and group annuity contract, if any,
relating to such Buyer Employee Plan, (iv) the most recent actuarial report or
valuation relating to a Buyer Employee Plan subject to Title IV of ERISA, and
(v) the most recent determination letter issued by the Internal Revenue
Service, as well as any other determination letter, private letter ruling,
opinion letter or prohibited transaction exemption issued by the Internal
Revenue Service or the Department of Labor within the last six years and any
application therefor which is currently pending.
(c) Except as set forth on Schedule 4.20, neither the Buyer, nor any of
its ERISA Affiliates (i) has ever maintained or been obligated to contribute to
a single employer, multiple employer or multi-employer pension plan (within the
meaning of Section 3(2) of ERISA) which is or was covered by Title IV of ERISA
or by Section 302 of ERISA or 412 of the Code, and (ii) has incurred or may
incur any direct or indirect liability under Title IV of ERISA or Section 302
of ERISA or Section 412 of the Code. With respect to the Buyer Employee Plans,
individually and in the aggregate, no event has occurred, and there exists no
condition or set of circumstances in connection with which Buyer could be
subject to any liability that is reasonably likely to have a Buyer Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Buyer Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted,
in either case, in accordance with GAAP, on the financial statements of Buyer.
(e) The Buyer and its ERISA Affiliates have complied in all respects with
the provisions of Section 4980B of the Code with respect to each Buyer Employee
Plan which is a group health plan within the meaning of Section 5001(b)(1) of
the Code. Buyer does not maintain or contribute to, nor is it obligated under
any plan, contract, policy or arrangement providing health or death benefits
(whether or not insured) to current or former employees or other personnel
beyond the termination of their employment or other services.
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(f) Except as set forth on Schedule 4.20 and except as provided for in
this Agreement, Buyer is not a party to any oral or written (i) agreement with
any current or former officer or other key employee of Buyer, the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Buyer of the nature contemplated by this
Agreement, (ii) agreement with any current or former officer of Buyer providing
any term of employment or compensation guarantee extending for a period longer
than eighteen months from the date hereof and for the payment of compensation
in excess of $100,000 per annum, or (iii) agreement or plan, including any
stock option plan, stock appreciation right plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting or funding of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(g) There are no pending or, to Buyer's knowledge, threatened claims,
actions, suits, termination proceedings, or investigations by any Governmental
Entity against or involving any Buyer Benefit Plan. Any Buyer Benefit Plan
intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to that effect (which
has not been revoked) and nothing has occurred since the date of the most
recent determination letter that would adversely affect such qualification.
SECTION 4.21 Salaries. Schedule 4.21 contains a true, complete and correct
list setting forth (i) the names, job descriptions/titles, current compensation
rate (including but not limited to salary, commission and bonus compensation)
and date of hire of all individuals presently employed by the Buyer indicating
whether they are employed on a salaried, hourly or piecework basis, and (ii)
the names and total annual compensation for all independent contractors who
render services on a regular basis to the Buyer whose current annual
compensation is or is expected to be in excess of $20,000. Except as set forth
on Schedule 4.21, there has been no increase in the compensation of any of the
foregoing individuals or independent contractors since June 30, 1999. Since
June 30, 1999, there has not been any promise by the Buyer to the employees
listed on Schedule 4.21 orally or in writing of any bonus or increase in
compensation, whether or not legally binding, except for increases in the
ordinary course of business consistent with past compensation practices of the
Buyer or in accordance with contracts and bonus programs in effect on the date
hereof. Except as set forth on Schedule 4.21, the Buyer has not made any
prepayments of salaries, bonuses or any other amounts due to any of its
employees or former employees. All obligations to employees, whether for
salaries, commissions, bonuses, vacation or otherwise, which are required to be
accrued on the Financial Statements in accordance with generally accepted
accounting principles consistently applied have been accrued on the Financial
Statements in accordance with generally accepted accounting principles
consistently applied.
SECTION 4.22 Personnel Agreements, Plans and Arrangements. Except as
listed in Schedule 4.22, the Buyer is not a party to or obligated with respect
to any (a) outstanding contracts with current or former employees, agents,
consultants, advisers, salespeople, sales representatives, distributors, sales
agents, independent contractors, or dealers, or (b) collective bargaining
agreements or contracts with any labor or trade union, employee bargaining
agency or other representative of employees or any employee benefits provided
for by any such agreement, true, correct and complete copies of which
previously have been furnished to Buyer. No strike, picketing, slow-down, work
stoppage, lock-out, union organizational activity or other similar occurrence
has occurred or is pending or, to the knowledge of the Buyer, is threatened
against the Buyer. Except as disclosed on Schedule 4.22, the Buyer has complied
in all material respects with all applicable laws relating to the employment of
labor, including but not limited to provisions thereof relating to wages,
hours, vacation pay, equal opportunity, collective bargaining and the payment,
deduction and remittance of all amounts required to be deducted and/or remitted
in respect of wages and salaries and of other Taxes and such deductions are
consistent with past practices and in accordance with generally accepted
accounting principles consistently applied and consistent with the Financial
Statements and either remitted same to the legally constituted authorities
entitled to receive payment thereof or has reserved for same in its accounts
and an amount of cash equal to the amount of such reserve has been set aside
for payment thereof. Buyer is not liable for any arrears of wages or any taxes
or penalties with respect to the foregoing. Buyer has not entered into and is
not obligated to enter into any agreement relating to the payment of vacation
pay to any employee, and Buyer does not have any obligation to any employees to
provide them with pay for vacation time other than as required by generally
applicable provisions of law. Buyer has not received notice from any employee
of the Buyer that any such employee is terminating his or her employment with
the Buyer, nor to the best knowledge of the Buyer does any employee
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intend to terminate his or her employment with the Buyer as a result of the
transactions contemplated hereby. There are no administrative charges or court
complaints pending or, to the knowledge of the Buyer threatened against the
Buyer concerning alleged employment discrimination or any other matters
relating to the employment of labor. No trade union, counsel of trade unions,
employee bargaining agency or affiliated bargaining agent (i) holds bargaining
rights with respect to any of the employees of the Buyer by way of
certification, interim certification, voluntary recognition, designation or
successor right, (ii) has applied to be certified as the bargaining agent of
the employees of the Buyer, or (iii) has applied to have Buyer declared a
related employer pursuant to the provision of applicable law. Except as set
forth in Schedule 4.22, to the knowledge of the Buyer, no claim, injunction,
fact, event or condition exists which would give rise to a material claim by
any employee or former employee (including dependents and spouses thereof and
other individuals covered thereunder) of the Buyer under any workers
compensation laws, regulations, requirements or programs.
SECTION 4.23 Customers. Schedule 4.23 is a complete list of the Buyers'
customers. Except as set forth on Schedule 4.23, since December 31, 1998, none
of the customers who individually represent greater than 5% of the Buyer's
billings has canceled or otherwise terminated, or, to the knowledge of the
Buyer, threatened to cancel or otherwise terminate, its relationship with the
Buyer or materially reduced, or to the knowledge of the Buyer, threatened to
materially reduce, its business with the Buyer. Buyer has not received any
notice and has no knowledge or reason to believe that any customer who
individually represents more than 5% of either Buyer's annual billings intends
to cancel or otherwise modify its relationship with Buyer on account of the
transactions contemplated hereby or otherwise.
SECTION 4.24 Interest of the Companies in Customers, etc. Except as set
forth in Schedule 4.24, Buyer does not have any direct or indirect interest in
any competitor, supplier or customer of the Buyer or in any person from whom or
to whom the Buyer leases any real or personal property or in any other person
with whom the Buyer has any business relationship. Schedule 4.24 also
describes, (i) all management, administrative, computer, telephone or other
services provided by any of the Buyer's Affiliates, and all such services
provided by the Buyer to any of such persons and entities, and (ii) all other
contracts, agreements, arrangements or transactions (including the purchase and
sale of inventory, supplies and other goods) between either Buyer, on the one
hand, and any of such individuals or entities on the other hand, currently in
effect, including, without limitation any agreement or arrangement relating to
indebtedness to or from any of such individuals or entities, in each case
setting forth the terms thereof if not effected on an arm's-length basis.
SECTION 4.25 Books and Records. All the books, records and accounts of
Buyer are in all material respects accurate and complete, accurately reflect in
all material respects, all matters normally entered into the books, records or
accounts maintained by similar businesses, are in all material respects in
accordance with all laws, regulations and rules applicable to the Buyer and
accurately present and reflect in all material respects all of the transactions
described therein. The Buyer has accounting controls sufficient to ensure that
its transactions are in all material respects executed in accordance with its
management's general or specific authorization.
SECTION 4.26 Insurance Policies. Schedule 4.26 is a correct and complete
list and description, including policy numbers, of all insurance policies owned
or held by the Buyer or otherwise covering the Buyer, its respective employees
or assets. Such policies are in full force and effect, and the Buyer is not in
default under any of them. To the knowledge of the Buyer, such insurance is of
the kind and in the amount not less than customarily obtained by corporations
or other entities of established reputation engaged in the same or similar
business and similarly situated. Buyer has not received any notices of
non-renewal, cancellation or intent to cancel, not renew or increase premiums
or deductibles with respect to such insurance policies nor, to the knowledge of
the Buyer, is there any basis for any such action. Schedule 4.26 also contains
a list of all pending claims with any insurance company (other than health,
medical and dental insurance claims of employees) and any instances within the
previous three years of a denial of coverage of the Buyer by any insurance
company.
SECTION 4.27 Bank Accounts. Schedule 4.27 contains a complete and correct
list of each bank and brokerage firm in which the Buyer has an account or safe
deposit box, the number of each such account or box and the names of all
persons authorized to draw thereon or to have access thereto.
SECTION 4.28 Labor Matters. Buyer is not a party to or otherwise bound by
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor, as of the
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date hereof, is Buyer the subject of any material proceeding asserting that
Buyer has committed an unfair labor practice or is seeking to compel it to
bargain with any labor union or labor organization nor, as of the date of this
Agreement, is there pending or, to the knowledge of Buyer, threatened, any
material labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving Buyer.
SECTION 4.29 Conduct of the Businesses. Except as set forth on Schedule
4.29, since March 31, 1999, the Buyer has conducted its businesses only in the
ordinary course of business consistent with past custom and practice, and has
incurred no liabilities or obligations whatsoever other than in the ordinary
course of business consistent with past custom and practice and there has been
no material adverse change in the respective assets, condition (financial or
otherwise), results of operations, employee or customer relations, business
activities or business prospects of the Buyer nor does the Buyer know of any
such change which is threatened, nor has there been any damage, destruction or
loss materially adversely affecting any of the respective assets, or the
business condition (financial or otherwise), results of operations, prospects
or activities of the Buyer, whether or not covered by insurance. Without
limitation of the foregoing and except as set forth on Schedule 4.29, since
March 31, 1999, the Buyer has not:
(a) voluntarily or involuntarily sold, transferred, abandoned, surrendered,
subjected to a lien or otherwise disposed of any assets or property
rights except in the ordinary course of business consistent with past
custom or practice;
(b) changed any accounting principles, methods or practices utilized by
them or changed any of their depreciation rates or amortization
policies or rates;
(c) made any loan or advance to any party in excess of $5,000 other than in
the ordinary course of business;
(d) issued, redeemed or purchased any stock, bond or corporate security or
declared or made any payment or distribution on or with respect to
their capital stock;
(e) incurred debt, liabilities, or obligations of any nature, whether
accrued, absolute, contingent, direct, indirect, perfected or
otherwise, and whether due or to become due, except debt, liabilities
or obligations incurred, and liabilities under contracts entered into,
in the ordinary course of business consistent with past custom and
practice;
(f) waived any rights of substantial value; or
(g) entered into any other material transaction, or committed to any of the
foregoing.
SECTION 4.30 Anti-Takeover Laws. Buyer has taken or at or prior to the
Closing will have taken, all actions necessary such that no "fair price",
"business combination", "control share acquisition", or similar statute will be
applicable to the transactions contemplated by this Agreement.
SECTION 4.31 Opinion of Financial Advisor. The financial advisor of Buyer
has delivered to the Board of Directors of Buyer an opinion dated the date of
approval by such Board of Directors of the terms hereof to the effect that the
Seller Exchange Multipliers in the Merger are fair to the holders of Buyer
Common Stock from a financial point of view.
SECTION 4.32 No Existing Discussions. As of the date hereof, Buyer has
terminated all discussions or negotiations with any third party with respect to
a Buyer Acquisition Proposal (as defined in Section 6.02(a)).
SECTION 4.33 No Misrepresentation. None of the representations and
warranties of the Buyer set forth in this Agreement or any of the Transaction
Documents contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. To the knowledge of the Buyer, there is no material fact or
information which has not been disclosed to Seller in writing which materially
adversely affects or could reasonably be anticipated to materially adversely
affect the business, condition (financial or otherwise), property or assets of
the Buyer or the ability of the Buyer to consummate the transactions
contemplated hereby.
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ARTICLE V
CONDUCT OF BUSINESS
SECTION 5.01 Covenants of Seller. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Seller agrees as to itself (except to the extent that
Buyer shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, use all reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, and others having business dealings with it. Except as
expressly contemplated by this Agreement, Seller shall not, without the written
consent of Buyer:
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock;
(b) Accelerate, amend or change the period of exercisability of options or
restricted stock or authorize cash payments in exchange for any such
options except as required by the terms of any employee stock plans or
any related agreements in effect as of the date of this Agreement,
purchase any shares of Seller Stock; provided, however, that the
outstanding options of any and all directors of Seller which will not be
directors of the Surviving Corporation shall be converted as of the
Effective Time into five-year warrants to purchase shares of Buyer
Common Stock equal to the number of whole shares of Seller Common Stock
subject to such option multiplied by the Seller Common Exchange
Multiplier, at a price per share of Buyer Common Stock equal to (i) the
exercise price for the shares of Seller Common Stock purchasable
pursuant to such Seller Stock Option immediately prior to the Effective
Time divided by (ii) the Seller Common Exchange Multiplier;
(c) Issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
other than (i) the grant of options consistent with past practices to
existing or new employees and directors, which options represent in the
aggregate the right to acquire no more than 50,000 shares (net of
cancellations) of Seller Common Stock, or (ii) the issuance of shares of
Seller Common Stock pursuant to the exercise of options and warrants
outstanding on the date of this Agreement;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets (other than inventory and other
items in the ordinary course of business);
(e) Sell, lease, license, mortgage or otherwise encumber or otherwise
dispose of any of its material properties or assets in an amount in
excess of $10,000 except as required to carry on Seller's business in
the usual, regular and ordinary course and as set forth on Schedule
5.01(e);
(f) Except to the extent required under applicable law, and except for
amendments as may be requested by the Internal Revenue Service in
connection with a determination letter request, (i) increase or agree to
increase the compensation payable or to become payable to its officers
or employees, except for increases in salary or wages of employees in
accordance with past practices, (ii) grant any additional severance or
termination pay to, or enter into any employment or severance agreements
with, any employees or officers, except to the extent consistent with
past practice, (iii) enter into any collective bargaining agreement, or
(iv) establish, adopt, enter into or amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, trust, fund, policy or arrangement for the benefit of any
directors,
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officers or employees or pay any bonuses except for bonuses paid pursuant
to the Seller's spot bonus plan or FDA submission bonus plan, in each
case which are consistent in nature and amount with Seller's past
practice or in accordance with contracts in effect on the date hereof and
which in no event shall exceed $150,000 in the aggregate;
(g) Amend or propose to amend its charter or bylaws;
(h) Incur any indebtedness for borrowed money other than pursuant to credit
agreements in effect as of the date hereof or indebtedness in the form
of deferred purchase price;
(i) Initiate, compromise, or settle any material litigation or arbitration
proceeding;
(j) Except in the ordinary course of business, modify, amend or terminate
any Seller Material Contract or waive, release or assign any material
rights or claims;
(k) Make any Tax election, settle or compromise any Tax liability or amend
any Tax return;
(l) Change its methods of accounting as in effect at December 31, 1998;
(m) Make or commit to make any capital expenditures that exceed the capital
forecast furnished by Seller to Buyer;
(n) Make any cash disbursement exceeding $100,000 for any single item or
related series of items except as expressly set forth in Schedule
5.01(n) or except as consistent with the capital forecast furnished by
Seller to Buyer provided, however, that Seller shall be entitled to
incur such reasonable expenditures up to $250,000 in the aggregate as
shall be required to obtain building permits and architectural drawings
and to conduct preliminary work in connection with the construction of
a manufacturing facility at its current facility;
(o) Invest funds in debt securities or other instruments in each case
maturing more than one year after the date of investment;
(p) Adopt, implement or amend any stockholder rights plan that could have
the effect of impeding or restricting the consummation of the
transactions contemplated hereby; or
(q) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (p) above.
SECTION 5.02 Covenants of Buyer. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Buyer agrees as to itself (except to the extent that
Seller shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, use all reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, and others having business dealings with it. Except as
expressly contemplated by this Agreement, Buyer shall not without the written
consent of Seller:
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock;
(b) Accelerate, amend or change the period of exercisability of options or
restricted stock or authorize cash payments in exchange for any such
options except as required by the terms of any employee stock plans or
any related agreements in effect as of the date of this Agreement or,
purchase any shares of Buyer Stock; provided, however, that the
outstanding options of any and all directors of Buyer which will not be
directors of the Surviving Corporation shall be converted into
five-year warrants to purchase an equal number of shares of Buyer
Common Stock at an equal exercise price;
(c) Issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or
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options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
other than (i) the grant of options consistent with past practices to
existing or new employees and directors, which options represent in the
aggregate the right to acquire no more than 50,000 shares (net of
cancellations) of Buyer Common Stock, or (ii) the issuance of shares of
Buyer Common Stock pursuant to the exercise of options and warrants
outstanding on the date of this Agreement;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets (other than inventory and other
items in the ordinary course of business);
(e) Sell, lease, license, mortgage or otherwise encumber or otherwise
dispose of any of its material properties or assets in an amount in
excess of $10,000 except as required to carry on Buyer's business in
the usual, regular and ordinary course;
(f) Except to the extent required under applicable law, and except for
amendments as may be requested by the Internal Revenue Service in
connection with a determination letter request, (i) increase or agree
to increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of
employees in accordance with past practices, (ii) grant any additional
severance or termination pay to, or enter into any employment or
severance agreements with, any employees or officers, except to the
extent consistent with past practice, (iii) enter into any collective
bargaining agreement, or (iv) establish, adopt, enter into or amend any
bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees or
pay any bonuses except for bonuses based on the performance of Buyer
and its employees during the Buyer's fiscal year ended December 31,
1999 which are consistent in nature and amount with Buyer's bonus
payments for its prior year or in accordance with contracts or specific
bonus programs in effect on the date hereof and which in no event shall
exceed $150,000 in the aggregate;
(g) Amend or propose to amend its charter or bylaws, except as contemplated
by this Agreement;
(h) Incur any indebtedness for borrowed money other than pursuant to credit
agreements in effect as of the date hereof or indebtedness in the form
of deferred purchase price;
(i) Initiate, compromise, or settle any material litigation or arbitration
proceeding;
(j) Except in the ordinary course of business, modify, amend or terminate
any Buyer Material Contract or waive, release or assign any material
rights or claims;
(k) Make any Tax election, settle or compromise any Tax liability or amend
any Tax return;
(l) Change its methods of accounting as in effect at December 31, 1998;
(m) Make or commit to make any capital expenditures that exceed the capital
forecast furnished by Buyer to Seller;
(n) Make any cash disbursement exceeding $100,000 for any single item or
related series of items except as expressly set forth in Schedule
5.02(n) or except as consistent with the capital forecast furnished by
Buyer to Seller;
(o) Invest funds in debt securities or other instruments in each case
maturing more than one year after the date of investment;
(p) Adopt, implement or amend any stockholder rights plan that could have
the effect of impeding or restricting the consummation of the
transactions contemplated hereby; or
(q) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (p) above.
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SECTION 5.03 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Buyer and Seller shall confer
on a regular and frequent basis with one or more representatives of the other
party to report on the general status of ongoing operations and shall promptly
provide the other party or its counsel with copies of all filings made by such
party with any Governmental Entity in connection with this Agreement, the
Merger and the transactions contemplated hereby and thereby.
SECTION 5.04 Confidentiality. The parties acknowledge that Buyer and
Seller have previously executed a Confidentiality Agreement dated as of May 13,
1998 (the "Confidentiality Agreement"), which Confidentiality Agreement will
continue in full force and effect in accordance with its terms, except as
expressly modified herein.
SECTION 5.05 Notices of Certain Events. Each of Buyer and Seller shall
give prompt notice to the other of (i) any notice or other communication from
any person alleging that the consent of such person is or may be required in
connection with the Merger; (ii) any notice of other communication from any
Governmental Entity in connection with the Merger; and (iii) any actions,
suits, claims, investigations or proceedings commenced or, to its knowledge,
threatened against, relating to or involving or otherwise affecting the Buyer
or Seller that relate to the consummation of the Merger.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 No Solicitation by Seller. (a) Seller shall not, directly or
indirectly, through any officer, director, employee, financial advisor,
representative or agent of such party solicit, initiate, or encourage
(including by the way of furnishing non-public information) any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer to acquire all or any Substantial part of the business or
properties of the Seller or any Substantial part of the capital stock of the
Seller whether by merger, consolidation, business combination, purchase of
Substantial assets, tender offer or otherwise, whether for cash, securities or
any other consideration or combination thereof, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as a "Seller Acquisition Proposal");
provided, however, that if the Board of Directors of Seller determines in good
faith, based on the advice of outside counsel and of an investment banker, that
failure to do so would be reasonably likely to constitute a breach of its
fiduciary duties to Seller's stockholders under applicable law, Seller, in
response to a written Seller Acquisition Proposal that (i) was unsolicited or
that did not otherwise result from a breach of this section, and (ii) is more
favorable, as determined by the Board of Directors in good faith, than the
transaction contemplated by this Agreement (a "Seller Superior Proposal"), may
(x) furnish information with respect to Seller to the person who made such
Seller Acquisition Proposal pursuant to a customary confidentiality agreement
and (y) participate in negotiations regarding such Seller Acquisition Proposal.
The term "Substantial" as used in this Section 6.01 means (i) 10% or more of
the capital stock of Seller or (ii) the assets of Seller representing 10% or
more of the consolidated assets of Seller as set forth on the Seller Balance
Sheet or generating 10% or more of Seller's consolidated revenue, operating
profit or net income for the period ended March 31, 1999.
The Board of Directors of Seller shall not (1) withdraw or modify, in a
manner adverse to Buyer, its approval or recommendation of this Agreement or
the Merger unless there is a Seller Superior Proposal outstanding, (2) approve
or recommend, or propose to approve or recommend, a Seller Acquisition Proposal
that is not a Seller Superior Proposal or (3) cause Seller to enter into any
letter of intent, agreement in principle or other agreement with respect to a
Seller Acquisition Proposal unless, in the case of (3), the Board of Directors
of Seller (x) shall have determined in good faith, based on the advice of
outside counsel, that failure to do so would be reasonably likely to constitute
a breach of its fiduciary duties to Seller's stockholders under applicable law,
(y) shall then terminate this Agreement pursuant to the termination provisions
of Section 8.01 and (z) shall then pay to Buyer the fees and expenses set forth
in Section 8.03.
(b) Seller shall notify Buyer immediately after receipt by Seller (or its
advisors) of any Seller Acquisition Proposal or any request for information in
connection with a Seller Acquisition Proposal or for access to the properties,
books or records of Seller by any person or entity that informs Seller that it
is considering making, or has made, a Seller Acquisition Proposal. Such notice
shall be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact.
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SECTION 6.02 No Solicitation by Buyer. (a) Buyer shall not, directly or
indirectly, through any officer, director, employee, financial advisor,
representative or agent of such party solicit, initiate, or encourage
(including by the way of furnishing non-public information) any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer to acquire all or any Substantial part of the business or
properties of the Buyer or any Substantial part of the capital stock of the
Buyer, whether by merger, consolidation, business combination, purchase of
Substantial assets, tender offer or otherwise, whether for cash, securities or
any other consideration or combination thereof, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as a "Buyer Acquisition Proposal");
provided, however, that if the Board of Directors of Buyer determines in good
faith, based on the advice of outside counsel and of an investment banker, that
failure to do so would be reasonably likely to constitute a breach of its
fiduciary duties to Buyer's stockholders under applicable law, Buyer, in
response to a written Buyer Acquisition Proposal that (i) was unsolicited or
that did not otherwise result from a breach of this section, and (ii) is more
favorable, as determined by the Board of Directors in good faith, than the
transaction contemplated by this Agreement (a "Buyer Superior Proposal"), may
(x) furnish non-public information with respect to Buyer to the person who made
such Buyer Acquisition Proposal pursuant to a customary confidentiality
agreement and (y) participate in negotiations regarding such Buyer Acquisition
Proposal. The term "Substantial" as used in this Section 6.02 means (i) 10% or
more of the capital stock of Buyer or any Subsidiary or (ii) the assets of
Buyer representing 10% or more of the assets of Buyer as set forth on the Buyer
Balance Sheet or generating 10% or more of Buyer's revenue, operating profit or
net income for the period ended March 31, 1999.
The Board of Directors of Buyer shall not (1) withdraw or modify, in a
manner adverse to Buyer, its approval or recommendation of this Agreement or
the Merger unless there is a Buyer Superior Proposal outstanding, (2) approve
or recommend, or propose to approve or recommend, a Buyer Acquisition Proposal
that is not a Buyer Superior Proposal or (3) cause Buyer to enter into any
letter of intent, agreement in principle or other agreement with respect to a
Buyer Acquisition Proposal unless, in the case of (3), the Board of Directors
of Buyer (x) shall have determined in good faith, based on the advice of
outside counsel, that failure to do so would be reasonably likely to constitute
a breach of its fiduciary duties to Buyer's stockholders under applicable law,
(y) shall then terminate this Agreement pursuant to the termination provisions
of Section 8.01 and (z) shall then pay to Seller the fees and expenses set
forth in Section 8.03.
(b) Buyer shall notify Seller immediately after receipt by Buyer (or its
advisors) of any Buyer Acquisition Proposal or any request for information in
connection with a Buyer Acquisition Proposal or for access to the properties,
books or records of Buyer by any person or entity that informs Buyer that it is
considering making, or has made, a Buyer Acquisition Proposal. Such notice
shall be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact.
SECTION 6.03 Proxy Statement/Prospectus; Registration Statement. As
promptly as practical after the execution of this Agreement, Buyer and Seller
shall prepare and file with the SEC the Proxy Statement, and Buyer shall
prepare and file with the SEC the Registration Statement, in which the Proxy
Statement will be included as a prospectus, provided that Buyer may delay the
filing of the Registration Statement until the Proxy Statement is cleared by
the SEC. Buyer and Seller shall use all reasonable efforts to cause the
Registration Statement to become effective as soon after such filing as
practicable. Buyer and Seller shall make all necessary filings with respect to
the Merger under the Securities Act, the Exchange Act, applicable state blue
sky laws and the rules and regulations thereunder. Buyer and Seller shall mail
the Proxy Statement to their respective shareholders as soon as possible after
the Registration Statement is declared effective.
SECTION 6.04 Access to Information. Upon reasonable notice, Seller and
Buyer shall each afford to the officers, employees, accountants, counsel and
other representatives of the other, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records. During such period, (i) Buyer shall furnish
promptly to the Seller (a) a copy of each report, schedule, registration
statement and document filed or received by it during such period pursuant to
the requirements of federal securities laws and (b) all other information
concerning its business, properties and personnel as Seller may reasonably
request and (ii) Seller shall furnish promptly to Buyer (a) all information
relating to commitments, contracts, titles and financial and operating data or
otherwise pertaining to the business and affairs of Seller and (b) all other
information concerning its business, properties and personnel as Buyer may
reasonably
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request. Unless otherwise required by law, the parties will hold any such
information which is nonpublic in confidence in accordance with the
Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 6.04 or otherwise shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
SECTION 6.05 Stockholder Meetings. (a) The Seller, acting through its
Board of Directors, shall, subject to and according to applicable law and its
Articles of Incorporation and Bylaws, promptly and duly call, give notice of,
convene and hold as soon as practicable following the date on which the
Registration Statement becomes effective the Seller Meeting for the purpose of
voting to approve and adopt this Agreement and the Merger (the "Seller Voting
Proposal"). The Board of Directors of the Seller shall (i) recommend approval
and adoption of the Seller Voting Proposal by the stockholders of the Seller
and include in the Proxy Statement such recommendation and (ii) take all
reasonable and lawful action to solicit and obtain such approval; provided,
however, that the Board of Directors of Seller may withdraw such recommendation
as permitted by Section 6.01.
(b) The Buyer, acting through its Board of Directors, shall, subject to
and according to applicable law and its Certificate of Incorporation and
Bylaws, promptly and duly call, give notice of, convene and hold as soon as
practicable following the date on which the Registration Statement becomes
effective the Buyer Meeting for the purpose of voting to approve and adopt this
Agreement and the Merger (the "Buyer Voting Proposal"). The Board of Directors
of the Buyer shall (i) recommend approval and adoption of the Buyer Voting
Proposal by the stockholders of the Buyer and include in the Proxy Statement
such recommendation and (ii) take all reasonable and lawful action to solicit
and obtain such approval; provided, however, that the Board of Directors of
Buyer may withdraw such recommendation as permitted by Section 6.02. In
connection with seeking, and subject to, Buyer Stockholder Approval of the
Merger, Buyer shall seek approval of its stockholders to amend and restate its
Certificate of Incorporation as set forth in Exhibit B hereto and (ii) approve
the new Equity Incentive Plan referred to in Section 7.03(h) hereof.
SECTION 6.06 Legal Conditions to Merger. (a) Seller and Buyer shall use
their respective best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary and
proper under applicable law to consummate and make effective the transactions
contemplated hereby as promptly as practicable, (ii) obtain from any
Governmental Entity or any other third party any consents, licenses, permits,
waivers, approvals, authorizations, or orders required to be obtained or made
by Seller or Buyer in connection with the authorization, execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
including, without limitation, the Merger, and (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act, and any other applicable federal or
state securities laws and (B) any other applicable law. Seller and Buyer shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party and
its advisors prior to filing and, if requested, to discuss and, if appropriate,
accept all reasonable additions, deletions or changes suggested in connection
therewith. Seller and Buyer shall use their respective best efforts to furnish
to each other all information required for any application or other filing to
be made pursuant to the rules and regulations of any applicable law (including
all information required to be included in the Proxy Statement and the
Registration Statement) in connection with the transactions contemplated by
this Agreement.
(b) Buyer and Seller agree to cooperate and to use their respective best
efforts to obtain any government clearances or approvals required for Closing
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Sherman
Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act,
as amended, and any other Federal, state or foreign law or, regulation or
decree designed to prohibit, restrict or regulate actions for the purpose or
effect of monopolization or restraint of trade (collectively "Antitrust Laws"),
to respond to any government requests for information under any Antitrust Law,
and to contest and resist any action, including any legislative, administrative
or judicial action, and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Order") that restricts, prevents or prohibits the consummation
of the Merger or any other transactions contemplated by this Agreement under
any Antitrust Law. The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in connection
with any analyses, appearances, presentations, memoranda, briefs, arguments,
opinions and proposals made or submitted by or on behalf of any
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party hereto in connection with proceedings under or relating to any Antitrust
Law. Buyer and Seller shall mutually direct any proceedings or negotiations
with any Governmental Entity relating to any of the foregoing, and shall afford
each other a reasonable opportunity to participate therein. Notwithstanding
anything to the contrary in this Section 6.06, neither Seller nor Buyer shall
be required to (i) divest any of their respective businesses, product lines or
assets, or to take or agree to take any other action or agree to any
limitation, or (ii) take any action under this Section 6.06 if the United
States Department of Justice or the United States Federal Trade Commission
authorizes its staff to seek a preliminary injunction or restraining order to
enjoin consummation of the Merger.
(c) Each of Seller and Buyer shall give any notices to third parties, and
use their reasonable efforts to obtain any third party consents related to or
required in connection with the Merger that are (A) necessary to consummate the
transactions contemplated hereby, (B) disclosed or required to be disclosed in
the Seller Disclosure Schedules or the Buyer Disclosure Schedules, as the case
may be, or (C) required to prevent a Seller Material Adverse Effect or a Buyer
Material Adverse Effect from occurring prior to or after the Effective Time.
SECTION 6.07 Public Disclosure. Buyer and Seller shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except
as, in the reasonable judgment of the Board of Directors of either Buyer or
Seller, may be required by law or the rules and regulations of Nasdaq.
SECTION 6.08 Reorganization. Buyer and Seller shall each use its best
efforts to cause the Merger to be treated as a tax-free reorganization within
the meaning of Section 368(a) of the Code.
SECTION 6.09 Board of Directors and Officers. The Seller and Buyer agree
that in connection with the Merger, at the Effective Time the Surviving
Corporation's Board of Directors will be expanded to consist of ten members. As
set forth in the Stockholder's Agreement, in connection with seeking
Stockholder Approval of the Merger, the current members of the board of
directors of the Buyer will propose the election of two directors (the "Buyer
Designees"), the current members of the board of directors of the Seller will
propose the election of three directors (the "Seller Designees") and the
current members of the boards of directors of both Buyer and Seller shall
propose the election of Barry R. Edwards, Charles Hsiao and Larry Hsu (the
"Inside Directors"). The current members of the board of directors of Buyer
shall designate one board observer and the current members of the board of
directors of Seller shall designate one board observer (together, the "Board
Observers") and the current members of the boards of directors of both Buyer
and Seller shall propose the election of two persons mutually agreeable to
Buyer and Seller which shall be independent directors (the "Independent
Directors"). All such Buyer Designees, Seller Designees, Inside Directors and
Independent Directors, to the extent elected, shall be elected effective as of
the Effective Time. In addition to the foregoing, promptly following the
Effective Time, the Board of Directors of the Surviving Corporation will elect
the following persons as officers of the Surviving Corporation: (i) Charles
Hsiao, Ph.D., as its Chairman of the Board and Co-Chief Executive Officer; (ii)
Mr. Barry R. Edwards, as its Co-Chief Executive Officer; and (iii) Larry Hsu,
Ph.D., as its President and Chief Operating Officer. Additionally, a Scientific
and Medical Advisory Committee will be established to provide advice regarding
new product concepts.
SECTION 6.10 Affiliate Agreements. Upon the execution of this Agreement,
Seller will provide Buyer with a list of those persons who are, in Seller's
reasonable judgment, "affiliates" of Seller, respectively, within the meaning
of Rule 145 promulgated under the Securities Act ("Rule 145") (each such person
who is an "affiliate" of Seller within the meaning of Rule 145 is referred to
as an "Affiliate"). Seller shall provide Buyer such information and documents
as Buyer shall reasonably request for purposes of reviewing such list and shall
notify Seller in writing regarding any change in the identity of its Affiliates
prior to the Closing Date. Seller shall have delivered or caused to be
delivered to Buyer, prior to or promptly following the execution of this
Agreement, from each of its Affiliates, an executed Affiliate Agreement, in
substantially the form appended hereto as Exhibit F (collectively, the
"Affiliate Agreements"). Buyer shall be entitled to place appropriate legends
on the certificates evidencing any Buyer Common Stock to be received by such
Affiliates of Seller pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Buyer
Common Stock, consistent with the terms of the Affiliate Agreements (provided
that such legends or stop transfer instructions shall be removed, two years
after the Effective Date, upon the request of any stockholder that is not then
an Affiliate of Buyer).
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SECTION 6.11 Nasdaq SmallCap Market Listing. Buyer shall use its best
efforts to cause the shares of Buyer Common Stock to be issued in the Merger to
be listed on the Nasdaq SmallCap Market, subject to official notice of
issuance, on or prior to the Closing Date.
SECTION 6.12 Stock Plans and Warrants. (a) As soon as practicable after
the Effective Time, Buyer shall deliver to the participants in the Seller Stock
Plans appropriate notice setting forth such participants' rights pursuant
thereto and the grants pursuant to the Seller Stock Plans shall continue in
effect on the same terms and conditions (subject to the adjustments required by
Section 2.05 after giving effect to the Merger).
(b) Buyer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery under
Seller Stock Plans assumed in accordance with Section 2.05. As soon as
practicable after the Effective Time, Buyer shall file a registration statement
on Form S-8 (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Buyer Common Stock subject to
such options and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding.
(c) Buyer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery upon
exercise of the warrants referred to in the provisos of Sections 5.01(b) and
5.02(b) hereof. As soon as practicable after the Effective Time, Buyer shall
file a registration statement on Form S-3 (or any successor or other
appropriate forms), or another appropriate form with respect to the shares of
Buyer Common Stock subject to such warrants and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such warrants remain outstanding.
SECTION 6.13 Certain Employee Benefit Plan Obligations. Buyer and Seller
shall continue to provide their respective standard health plans and benefits
(including medical insurance, life insurance and disability plans) available to
their respective employees until after the Closing Date, and in the ordinary
course of business, the Surviving Company shall arrange for standard health
plans and benefits to its employees.
SECTION 6.14 Indemnification, Exculpation and Insurance. (a) Buyer agrees
that all rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time now existing in favor of
the current or former directors, officer, employees or agents of Seller as
provided in their respective Articles or Certificates of Incorporation or
by-laws (or comparable organizational documents) and any indemnification
agreements or arrangements of Seller shall be assumed by Buyer, shall survive
the Merger and shall continue in full force and effect, without amendment, for
six years after the Effective Time; provided, however, that all rights to
indemnification in respect of any claim asserted or made within such period
shall continue until the final disposition of such claim. Buyer shall pay any
expenses of any indemnified person under this Section 6.14 in advance of the
final disposition of any action, proceeding or claim relating to any such act
or omission to the fullest extent permitted under applicable law upon receipt
from the applicable indemnified person to whom advances are to be advanced of
any undertaking to repay such advances required under applicable law, but only
to the extent any such indemnified person would otherwise have been entitled to
such advance payments from Seller in the absence of the transactions
contemplated hereby. Buyer shall cooperate in the defense of any such matter.
In addition, from and after the Effective Time, directors or officers of Seller
who become directors or officers of Buyer will be entitled to the same
indemnity rights and protections as are afforded to other directors and
officers of Buyer.
(b) In the event that either of the Surviving Corporation or Buyer or any
of their respective successors or assigns (i) consolidates with or merges with
or into any other person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in each
such case, proper provision will be made so that the successors and assigns of
Buyer or the Surviving Corporation, as applicable, will assume the obligations
thereof set forth in this Section 6.14.
(c) The provisions of this Section 6.14 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to , and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
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(d) For six years after the Effective Time, Buyer or the Surviving
Corporation shall maintain in effect the Buyer's current directors' and
officers' liability insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who are currently covered by the
Buyers' directors' and officers' liability insurance policy on terms with
respect to such coverage and amount no less favorable in the aggregate to
Buyer's directors and officers currently covered by such insurance than those
of such policy in effect on the date hereof; provided that the Surviving
Corporation may substitute therefor policies containing terms with respect to
coverage and amount no less favorable to such directors or officers.
(e) Buyer and Seller shall cause the Surviving Corporation or any
successor thereto to comply with their respective obligations under this
Section 6.14.
SECTION 6.15 Brokers or Finders. Each of Buyer and Seller represents, as
to itself and its Affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement and the parties
shall hold each other harmless with respect to any such fee which may be
asserted in the future.
SECTION 6.16 Letters from Seller's Accountants. Seller shall use best
efforts to cause to be delivered to Buyer and Seller a letter of
PricewaterhouseCoopers LLP, Seller's independent auditors, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to Buyer, in form reasonably satisfactory to
Buyer and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement.
SECTION 6.17 Letter from Buyer's Accountants. Buyer shall use best efforts
to cause to be delivered to Seller and Buyer a letter of PricewaterhouseCoopers
LLP, Buyer's independent auditors, dated a date within two business days before
the date on which the Registration Statement shall become effective and
addressed to Seller, in form reasonably satisfactory to Seller and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
SECTION 6.18 Control of Operations. Nothing contained in this Agreement
shall give Buyer, directly or indirectly, the right to control or direct the
operations of the Seller prior to the Effective Time. Nothing contained in this
Agreement shall give Seller, directly or indirectly, the right to control or
direct the operations of Buyer prior to the Effective Time. Prior to the
Effective Time, each of Buyer and Seller shall exercise, consistent with the
terms and conditions of this Agreement, complete control and supervision over
its respective operations.
SECTION 6.19 Seller Tax Returns After Closing. The Surviving Corporation
shall be responsible for the preparation and filing of any Tax Return that is
required to be filed after the Closing and that includes the operations, assets
or activities of Seller for Tax periods ending on or prior to the Closing. To
the extent not adequately accrued or reserved for on the books and records of
Seller, the Stockholders shall pay to Buyer the amount of such Taxes of Seller
with respect to such periods no later than fifteen (15) days prior to the date
payment for such Taxes are due.
SECTION 6.20 Seller's Voting Proxies. Concurrently with the execution and
delivery of this Agreement, Seller shall deliver to Buyer Irrevocable Proxy and
Voting Agreements substantially in the form attached hereto as Exhibit E,
evidencing approval of this Agreement, and the Merger contemplated herein,
signed by at least (i) a majority of the outstanding shares of Seller Common
Stock, (ii) a majority of the outstanding shares of Seller Series A, Seller
Series B and Seller Series C, voting together as one class, and (iii) a
majority of the outstanding shares of Seller Series D.
SECTION 6.21 Conversion Letters. Concurrently with the execution and
delivery of this Agreement:
(a) Buyer shall have received a copy of a letter from the holders of at
least a majority of the Seller Series A, Seller Series B, Seller Series
C and Seller Series D agreeing to convert at the Effective Time each
respective class of stock in accordance with the terms of this
Agreement; and
(b) Seller shall have received a copy of a letter from the holders of at
least a majority of the Buyer Series C Preferred and Buyer Series D
Preferred Stock agreeing to convert at the Effective Time each
respective class of stock in accordance with the terms of this
Agreement.
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ARTICLE VII
CONDITIONS TO MERGER
SECTION 7.01 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approvals. (i) The Seller Voting Proposal shall have been
approved and adopted by the affirmative vote of the holders of (1) a
majority of the shares of Seller Common Stock, (2) a majority of the
shares of Seller Series A, Seller Series B and Seller Series C, voting
together as one class, and (3) a majority of the shares of Seller
Series D, all as outstanding on the record date for the Seller Meeting,
at which a quorum is present and (ii) the Buyer Voting Proposal shall
have been approved and adopted by the affirmative vote of the holders
of a majority of the shares of Buyer Common Stock and Buyer Preferred
Stock, voting as a single class, and the holders of a majority of the
Series D Preferred Stock, voting as a class, all as outstanding on the
record date for the Buyer Meeting, at which a quorum is present. Buyer
shall have adopted, and shall have received Stockholder Approval of the
adoption of, the Equity Incentive Plan referred to in Section 7.03(h)
hereof and the amended and restated Certificate of Incorporation
attached hereto as Exhibit B.
(b) Approvals. Other than the filing provided for by Section 1.01, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods, including those
imposed by any Governmental Entity, the failure of which to file,
obtain or occur is reasonably likely to have a Buyer Material Adverse
Effect or Seller Material Adverse Effect shall have been filed, been
obtained or occurred.
(c) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order.
(d) No Injunctions. No Governmental Entity or federal, state or foreign
court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay,
decree, judgment or injunction (each an "Order") or statute, rule,
regulation which is in effect and which has the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger.
(e) Nasdaq SmallCap Market Listing. The shares of Buyer Common Stock to be
issued in the Merger shall have been approved for listing on the Nasdaq
SmallCap Market, subject only to official notice of issuance.
SECTION 7.02 Additional Conditions to Obligations of Buyer. The
obligations of Buyer to effect the Merger are subject to the satisfaction of
each of the following conditions, any of which may be waived in writing
exclusively by Buyer:
(a) Representations and Warranties. The representations and warranties of
Seller set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, except for, (i) changes
contemplated by this Agreement and (ii) where the failures to be true
and correct (without giving effect as to any limitation as to
"materiality" or "Seller Material Adverse Effect"), individually or in
the aggregate, have not had and are not reasonably likely to have a
Seller Material Adverse Effect or a material adverse effect upon the
ability of Seller to consummate the transactions contemplated hereby;
and Buyer shall have received a certificate signed on behalf of Seller
by the President and the Chief Financial Officer of Seller to such
effect.
(b) Performance of Obligations of Seller. Seller shall have performed in
all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date; and Buyer shall
have received a certificate signed on behalf of Seller by the President
and the Chief Financial Officer of Seller to such effect.
(c) Permits and Licenses. All permits, licenses, product approval
applications and other governmental authorizations required for Buyer
to conduct Seller's business in the same manner as conducted prior
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to the Effective Time and as contemplated to be conducted subsequent to
the Merger shall be in full force and effect, and any necessary
approvals for the continued effectiveness of such permits, licenses,
applications and authorizations subsequent to the Effective Time shall
have been obtained; except where the lack of such permits, licenses,
applications and other governmental authorizations or approvals for
same shall not have, individually or in the aggregate, a Seller
Material Adverse Effect.
(d) Dissenting Shareholders. The holders of not more than 10% of the
outstanding aggregate value of the Seller Common Stock and Seller
Preferred Stock (value based on the number of shares of Buyer Common
Stock such holders would have received upon the consummation of the
Merger) shall have perfected dissenter's rights under applicable law.
(e) Stockholder's Agreement. The Seller Stockholders set forth on Schedule
7.02(e) hereto and the persons set forth on Schedule 7.02(e) hereto
shall have entered into a Stockholders' Agreement, substantially in the
form of Exhibit G hereto, pursuant to which such persons will agree to
vote their shares of Buyer Stock in favor of the election as directors
of the Surviving Corporation of (i) the Buyer Designees, (ii) the
Seller Designees, (iii) the Inside Directors, and (iv) the Outside
Directors, as well as the appointment of the Board Observers, for a
period of three years after the Effective Date.
(f) Fairness Opinion. Buyer shall have received from Gruntal & Co. L.L.C.
("Gruntal") an opinion, dated within two business days of the date of
the Proxy Statement, to the effect that, as of the date thereof, the
consideration to be paid in the Merger is fair, from a financial point
of view, to Buyer and the stockholders of Buyer, and Gruntal shall not
have withdrawn such opinion on or prior to the Closing Date.
(g) Irrevocable Proxy and Voting Agreements. The Irrevocable Proxy and
Voting Agreements shall be in full force and effect.
(h) General Corporate Opinion. Buyer shall have received the written
opinion of Law Offices of Laurie Miller, counsel to Seller, as to the
due organization of Seller and the corporate authority of Seller to
enter into this Agreement and that the shares of Seller Stock to be
acquired in the Merger have been duly authorized, validly issued and
are fully paid and non-assessable shares of the capital stock of Seller
and such other matters as shall be mutually agreed upon between Buyer
and Seller.
(i) Environmental Assessment. Buyer shall have received a satisfactory
Phase I Environmental Report on Seller's Hayward, California premises,
dated June 9, 1997.
(j) Consents. Buyer shall have received all consents required for the
consummation of the Merger under any agreement, contract or license
described in any exhibit or schedule hereto or referred to herein, or
for the continued enjoyment by the Surviving Corporation of the
benefits of any such agreement, contract or license after the Merger,
shall have been obtained. With respect to any contract or agreement,
the assignment of which by its terms requires prior consent of the
parties thereto, if such consent is not obtained prior to the Closing
Date, and if Buyer waives, in its sole discretion, the requirement that
such consent be obtained prior to the Closing Date, the Seller shall
deliver to Buyer written documentation setting forth arrangements for
the transfer of the economic benefits of such contract or agreement to
Company as of the Effective Time under terms and conditions acceptable
to Buyer.
(k) Election of Directors. The stockholders of the Surviving Corporation
shall have elected the directors in accordance with Section 6.09 hereof
and the Stockholder's Agreement.
(l) Election of Officers. Buyer shall have received the written consent of
the Board of Directors of the Surviving Corporation, electing the
officers designated in Section 6.09 hereof.
(m) Hsiao Employment Agreement. Buyer shall have received a copy of an
Employment Agreement, between the Surviving Corporation and Dr. Charles
Hsiao, substantially in the form attached hereto as Exhibit H, duly
executed by each of the Surviving Corporation and Dr. Hsiao.
(n) Hsu Employment Agreement. Buyer shall have received a copy of an
Employment Agreement, between the Surviving Corporation and Dr. Larry
Hsu, substantially in the form attached hereto as Exhibit I, duly
executed by each of the Surviving Corporation and Dr. Hsu.
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(o) Edwards Employment Agreement. Buyer shall have received a copy of an
Employment Agreement, between the Surviving Corporation and Barry R.
Edwards, substantially in the form attached hereto as Exhibit J, duly
executed by each of the Surviving Corporation and Mr. Edwards.
(p) Escrow Agreements. Buyer shall have received executed Escrow Agreements
from the Escrow Agent and each of the Seller Stockholders,
substantially in the form attached hereto as Exhibit D.
SECTION 7.03 Additional Conditions to Obligations of Seller. The
obligation of Seller to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by Seller:
(a) Representations and Warranties. The representations and warranties of
Buyer set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations
speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, except for, (i) changes contemplated by
this Agreement and (ii) where the failures to be true and correct
(without giving effect as to any limitation as to "materiality" or
"Buyer Material Adverse Effect", individually or in the aggregate, have
not had and are not reasonably likely to have a Buyer Material Adverse
Effect or a material adverse effect upon the ability of Buyer to
consummate the transactions contemplated hereby; and Seller shall have
received a certificate signed on behalf of Buyer by the Chief Executive
Officer and the Chief Financial Officer of Buyer to such effect.
(b) Performance of Obligations of Buyer. Buyer shall have performed in all
material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and Seller shall have
received a certificate signed on behalf of Buyer by the chief executive
officer and the chief financial officer of Buyer to such effect.
(c) Permits and Licenses. All permits, licenses, product approval
applications and governmental authorization required for Buyer to
conduct Seller's business in the same manner as conducted prior to the
Effective Time and as contemplated to be conducted subsequent to the
Merger shall be in full force and effect, and any necessary approvals
for the continued effectiveness of such permits, licenses, applications
and authorizations subsequent to the Effective Time shall have been
obtained; except where lack of such permits, licenses, applications and
other governmental authorizations or approvals for same shall not have,
individually or in the aggregate, a Seller Material Adverse Effect.
(d) Dissenting Shareholders. The holders of not more than 10% of the
outstanding aggregate value of the Buyer Common Stock and Buyer
Preferred Stock (value based in the case of Buyer Preferred Stock on
the number of shares of Buyer Common Stock such holders would have
received upon the consummation of the Merger) shall have perfected
dissenter's rights under applicable law.
(e) General Corporate Opinion. Seller shall have received the written
opinion of Fulbright & Jaworski L.L.P., counsel to Buyer, as to the due
organization of Buyer and the corporate authority of Buyer to enter
into this Agreement and that the shares of Buyer Common Stock to be
issued in the Merger have been duly authorized, validly issued and are
fully paid and non-assessable shares of the capital stock of Buyer and
such other matters as shall be mutually agreed upon between Buyer and
Seller.
(f) Stockholder's Agreement. The stockholders of Buyer set forth on
Schedule 7.03(f) hereto shall have entered into a Stockholder's
Agreement, substantially in the form of Exhibit G hereto, pursuant to
which such persons will agree to vote their shares of Buyer Stock in
favor of the election as directors of the Surviving Corporation of (i)
the Buyer Designees, (ii) the Seller Designees, (iii) the Inside
Directors, and (iv) the Outside Directors, as well as the appointment
of the Board Observers, for a period of three years after the Effective
Date.
(g) Consents. Seller shall have received all consents required for the
consummation of the Merger under any agreement, contract or license
described in any exhibit or schedule hereto or referred to herein, or
for the continued enjoyment by the Surviving Corporation of the
benefits of any such agreement, contract or license after the Merger,
shall have been obtained. With respect to any contract or agreement,
the assignment of which by its terms requires prior consent of the
parties thereto, if such consent is not obtained prior to the Closing
Date, and if Buyer waives, in its sole discretion, the requirement that
such
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consent be obtained prior to the Closing Date, the Buyer shall deliver
to Seller written documentation setting forth arrangements for the
transfer of the economic benefits of such contract or agreement to
Company as of the Effective Time under terms and conditions acceptable
to Buyer.
(h) Adoption of New Equity Plan. Buyer's Board of Directors, and its
shareholders shall have duly adopted an Equity Incentive Plan, mutually
agreeable to Buyer and Seller, with 3,000,000 shares of Buyer's Common
Stock reserved for issuance thereunder, and Seller shall have received
an officer's certificate from Buyer, duly signed by the President and
Chief Executive Officer of Buyer to such effect.
(i) Election of Directors. The stockholders of the Surviving Corporation
shall have elected the directors in accordance with Section 6.09 hereof
and the Stockholder's Agreement.
(j) Election of Officers. Seller shall have received the written consent of
the Board of Directors of the Surviving Corporation, electing the
officers designated in Section 6.09 hereof.
(k) Hsiao Employment Agreement. Seller shall have received a copy of an
Employment Agreement, between the Surviving Corporation and Dr. Charles
Hsiao, substantially in the form attached hereto as Exhibit H, duly
executed by each of the Surviving Corporation and Dr. Hsiao.
(l) Hsu Employment Agreement. Seller shall have received a copy of an
Employment Agreement, between the Surviving Corporation and Dr. Larry
Hsu, substantially in the form attached hereto as Exhibit I, duly
executed by each of the Surviving Corporation and Dr. Hsu.
(m) Edwards Employment Agreement. Seller shall have received a copy of an
Employment Agreement, between the Surviving Corporation and Barry R.
Edwards, substantially in the form attached hereto as Exhibit J, duly
executed by each of the Surviving Corporation and Mr. Edwards.
(n) Environmental Assessment. Seller shall have received a Phase I
Environmental Report on Buyer's Philadelphia, Pennsylvania premises
showing no Environmental Conditions which would be reasonably likely to
have a Buyer Material Adverse Effect.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.01(b) through 8.01(g),
by written notice by the terminating party to the other party), whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of Seller or Buyer:
(a) by mutual written consent of Buyer and Seller; or
(b) by either Buyer or Seller if the Merger shall not have been consummated
by November 30, 1999 (the "Outside Date") (provided that the right to
terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date); or
(c) by either Buyer or Seller if a court of competent jurisdiction or other
Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each
case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger; or
(d) by (i) Buyer or Seller if at the Seller Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Seller in favor of the Seller Voting Proposal shall not have been
obtained or (ii) by Buyer or Seller if at the Buyer Meeting (including
any adjournment or postponement), the requisite vote of the
stockholders of Buyer in favor of the Buyer Voting Proposal shall not
have been obtained (provided that the right to terminate this Agreement
under this Section 8.01(d) shall not be available to any party seeking
termination who at the time is in breach of or has failed to fulfill
its obligations under this Agreement); or
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(e) (i) by Buyer, if (aa) the Board of Directors of Seller shall have
withdrawn or modified its recommendation of this Agreement or the
Merger; (bb) after the receipt by Seller of a Seller Acquisition
Proposal, Buyer requests in writing that the Board of Directors of
Seller reconfirm its recommendation of this Agreement or the Merger and
the Board of Directors of Seller fails to do so within 10 business days
after its receipt of Buyer's request; (cc) the Board of Directors of
Seller shall have recommended to the stockholders of Seller a Seller
Acquisition Proposal; (dd) a tender offer or exchange offer for 10% or
more of the outstanding shares of Seller Common Stock is commenced
(other than by Buyer or an Affiliate of Buyer) and the Board of
Directors of Seller recommends that the stockholders of Seller tender
their shares in such tender or exchange offer; or (ee) for any reason
Seller fails to call and hold the Seller Meeting by the Outside Date;
or
(ii) by Seller, if (aa) the Board of Directors of Buyer shall have
withdrawn or modified its recommendation of this Agreement or the
Merger; (bb) after the receipt by Buyer of a Buyer Acquisition
Proposal, Seller requests in writing that the Board of Directors of
Buyer reconfirm its recommendation of this Agreement or the Merger and
the Board of Directors of Buyer fails to do so within 10 business days
after its receipt of Seller's request; (cc) the Board of Directors of
Buyer shall have recommended to the stockholders of Buyer a Buyer
Acquisition Proposal; (dd) a tender offer or exchange offer for 10% or
more of the outstanding shares of Buyer Common Stock is commenced
(other than by Buyer or an Affiliate of Buyer) and the Board of
Directors of Buyer recommends that the stockholders of Buyer tender
their shares in such tender or exchange offer; or (ee) for any reason
Buyer fails to call and hold the Buyer Meeting by the Outside Date; or
(f) by Buyer or Seller, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party set
forth in this Agreement, which breach (i) causes the conditions set
forth in Section 7.02(a) or (b) (in the case of termination by Buyer)
or 7.03(a) or (b) (in the case of termination by Seller) not to be
satisfied, and (ii) shall not have been cured within 5 days following
receipt by the breaching party of written notice of such breach from
the other party; or
(g) by Seller if the Board of Directors of Seller shall have withdrawn or
modified its recommendation of this Agreement or the Merger because it
has accepted a Seller Superior Proposal and Seller has paid Buyer's
expenses pursuant to Section 8.03(b); or
(h) by Buyer if the Board of Directors of Buyer shall have withdrawn or
modified its recommendation of this Agreement or the Merger because it
has accepted a Buyer Superior Proposal and Buyer has paid Seller's
expenses pursuant to Section 8.03(c).
SECTION 8.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Buyer or
Seller, or their respective officers, directors, stockholders or Affiliates,
except as set forth in Sections 5.04 and 8.03; provided that any such
termination shall not limit liability for any wilful breach of this Agreement;
and provided further that the provisions of Sections 5.04 and 8.03 of this
Agreement and the Confidentiality Agreement shall remain in full force and
effect and survive any termination of this Agreement.
SECTION 8.03 Fees and Expenses. (a) Except as set forth in this Section
8.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Seller and Buyer shall share equally all fees and expenses, other than
attorneys' fees, incurred with respect to the printing and filing of the Proxy
Statement (including any related preliminary materials) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements.
(b) Seller shall pay Buyer up to $500,000 as reimbursement for expenses of
Buyer actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, fees and
expenses of Buyer's counsel, accountants and financial advisors, but excluding
any discretionary fees paid to such financial advisors), upon the termination
of this Agreement by Buyer pursuant to (i) Section 8.01(e) (i); (ii) Section
8.01(b) as a result of the failure to satisfy the condition set forth in
Section 7.02(a); (iii) Section 8.01(f), as a result of Seller's breach of any
representation, warranty, covenant or agreement; or (iv) Section 8.01(g).
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(c) Buyer shall pay Seller up to $500,000 as reimbursement for expenses of
Seller actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to fees and expenses
of Seller's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Seller pursuant to (i) 8.01(e)(ii); (ii) Section 8.01(b) as a
result of the failure to satisfy the condition set forth in Section 7.03(a);
(iii) Section 8.01(f), as a result of Buyer's breach of any representation,
warranty, covenant or agreement; or (iv) Section 8.01(h).
(d) In addition to the expenses specified above, Seller shall pay Buyer a
termination fee of $500,000 upon the earliest to occur of the following events:
(i) the termination of this Agreement by Buyer pursuant to Section
8.01(e)(i) or by Seller pursuant to
Section 8.01(g); or
(ii) the termination of this Agreement by Buyer pursuant to Section
8.01(f) after a willful breach by Seller of this Agreement, provided at the
time of such breach, Seller shall have received a Seller Acquisition
Proposal.
(e) In addition to the expenses specified above, Buyer shall pay Seller a
termination fee of $500,000 upon the earliest to occur of the following events:
(i) the termination of this Agreement by Seller pursuant to Section
8.01(e)(ii) or by Buyer pursuant to Section 8.01(h);
(ii) the termination of this Agreement by Seller pursuant to Section
8.01(f) after a willful breach by Buyer of this Agreement, provided at the
time of such breach, Buyer shall have received a Buyer Acquisition
Proposal; or
(iii) the termination of the Agreement by Seller pursuant to Section
8.01(d) as a result of the failure to receive the requisite vote for
approval of the Buyer Voting Proposal by the stockholders of Buyer at the
Buyer Meeting if, at the time of such failure, there shall have been
announced a Buyer Acquisition Proposal relating to Buyer which shall not
have been absolutely and unconditionally withdrawn and abandoned.
(f) In addition to the fees and expenses specified above, Buyer shall pay
Seller a termination fee of $500,000 in the event of termination of this
Agreement by Buyer or Seller pursuant to Section 8.01(d)(ii).
(g) The expenses and fees, if applicable, payable pursuant to Section
8.03(b), 8.03(c), or 8.03(d) shall be paid within ten (10) business days after
the first to occur of the events described in Section 8.03(b), 8.03(c), or
8.03(d); provided that in no event shall Buyer or Seller, as the case may be,
be required to pay the expenses and fees, if applicable, to the other, if,
immediately prior to the termination of this Agreement, the party to receive
the expenses and fees, if applicable, was in material breach of its obligations
under this Agreement.
SECTION 8.04 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection
with the Merger by the stockholders of Seller or of Buyer, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 8.05 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 General. From and after the Closing, the parties shall
indemnify each other as provided in this Article IX. For the purposes of this
Article IX, each party shall be deemed to have remade all of its
representations and warranties contained in this Agreement at the Closing with
the same effect as if originally made
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at the Closing; provided, however, that the Seller Disclosure Schedules and the
Buyer Disclosure Schedules may be updated at the Closing by Buyer or Seller, as
the case may be, and the indemnity provided hereunder shall be applicable with
respect to the matters set forth therein, as so updated. No disclosure
contained in the updated Seller Disclosure Schedules or the Buyer Disclosure
Schedules, as the case may be, shall be deemed a waiver of Buyer's or the
Seller's representations and warranties made on the date hereof with respect to
the conditions to closing set forth in Sections 7.01, 7.02 and 7.03 hereof;
provided, however, that any updates contained in the Seller Disclosure
Schedules or the Buyer Disclosure Schedules that were permitted pursuant to
Section 9.01 hereof shall not give either party the right to terminate this
Agreement pursuant to Article VIII hereof.
SECTION 9.02 Certain Definitions. As used in this Article IX, the
following terms shall have the indicated meanings:
(a) "Damages" shall mean all liabilities, assessments, levies, losses,
fines, penalties, damages, costs and expenses, including, without
limitation, reasonable fees and expenses of attorneys, accountants and
other professionals, actually sustained or incurred by an Indemnified
Party in connection with the defense or investigation of any claim
(after giving effect to any insurance proceeds actually received by an
Indemnified Party and it being understood that to the extent any such
Damages have been reserved for by the Seller or Buyer on the Financial
Statements or the Interim Financial Statements in accordance with GAAP,
the amount of such reserve shall be deducted from the Damages sustained
by a Buyer Indemnitee or Seller Indemnitee, as the case may be).
(b) "Indemnified Party" shall mean a party hereto who is entitled to
indemnification from another party hereto pursuant to this Article IX.
(c) "Indemnifying Party" shall mean a party hereto who is required to
provide indemnification under this Article IX to another party hereto.
(d) "Third Party Claims" shall mean any claims for Damages which are
asserted or threatened by a party other than the parties hereto, their
successors and permitted assigns, against any Indemnified Party or to
which an Indemnified Party is subject.
SECTION 9.03 (a) The Seller Stockholder's Indemnification Obligations.
Each of the Seller Stockholders shall jointly and severally indemnify, save and
keep the Surviving Corporation, each of its subsidiaries (if any) and their
respective successors and permitted assigns (each a "Buyer Indemnitee" and
collectively the "Buyer Indemnitees") harmless against and from all Damages
sustained or incurred by any Buyer Indemnitee, as a result of or arising out
of: (i) any inaccuracy in or breach of any representation and warranty made by
the Seller to the Buyer herein or in any Transaction Documents; (ii) any breach
by the Seller, or the Seller Stockholders' Agent of, or failure of the Seller,
or the Seller Stockholders' Agent to comply with, any of the covenants or
obligations under this Agreement or the Transaction Documents to be performed
by the Seller or the Seller Stockholders' Agent (including without limitation
the Seller Stockholders' obligations under this Article IX); (iii) any and all
Environmental Liabilities arising out of or in connection with: (aa) any and
all Environmental Conditions, known or unknown, existing on or prior to the
Closing Date on, at, or underlying any properties owned or operated by the
Seller, (bb) any acts or omissions of the Sellers relating to the operation of
the business on or prior to the Closing Date resulting in a violation or
alleged violation of Environmental Laws, or (cc) the on-site or off-site
handling, storage, treatment or disposal of any Hazardous Materials generated
by the Seller on or prior to the Closing Date; and (iv) except to the extent of
the reserve for Taxes established on the books and records of Seller, any and
all Taxes that may be imposed upon or assessed against Buyer or any of its
Affiliates with respect to Taxes of Seller for any Pre-Closing Period.
(b) The Buyer Indemnification Obligations. The Surviving Corporation shall
indemnify, save and keep the Seller Stockholders and their respective
successors and permitted assigns (each a "Seller Indemnitee" and collectively
the "Seller Indemnitees") harmless against and from all Damages sustained or
incurred by any Seller Indemnitee, as a result of or arising out of: (i) any
inaccuracy in or breach of any representation and warranty made by the Buyer to
the Seller herein or in any Transaction Documents; (ii) any breach by the Buyer
of, or failure of the Buyer to comply with, any of the covenants or obligations
under this Agreement or the Transaction Documents to be performed by the Buyer
(including without limitation the Buyer's obligations under this Article IX);
(iii) any and all Environmental Liabilities arising out of or in connection
with: (aa) any and all
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Environmental Conditions, known or unknown, existing on or prior to the Closing
Date on, at, or underlying any properties owned or operated by the Buyer, (bb)
any acts or omissions of the Buyers relating to the operation of the business
on or prior to the Closing Date resulting in a violation or alleged violation
of Environmental Laws, or (cc) the on-site or off-site handling, storage,
treatment or disposal of any Hazardous Materials generated by the Buyer on or
prior to the Closing Date; and (iv) except to the extent of the reserve for
Taxes established on the books and records of Buyer, any and all Taxes that may
be imposed upon or assessed against Seller or any of its Affiliates with
respect to Taxes of Buyer for any Pre-Closing Period.
(c) For purposes of calculating the Tax liabilities pursuant to Section
9.03(a)(iv) and 9.03(b)(iv), (i) the allocation of Taxes for a Straddle Period
between the Pre-Closing Period and the Post- Closing Period shall be made on
the basis of an interim Closing of the books as of the end of the Closing Date;
(ii) any Tax resulting from any transaction undertaken pursuant to or
contemplated by this Agreement is attributable to the Pre-Closing Period; and
(iii) in the case of any franchise Taxes based on capitalization, debt or
shares of stock authorized, issued and outstanding and ad valorem Taxes,
attributable to a Straddle Period, the portion of such Taxes attributable to
the Pre-Closing Period shall be the pro rata portion of the amount of such
Taxes based on the number of days in the period ending on the Closing Date. For
purposes of this Agreement, (x) "Pre-Closing Period" means a taxable period or
portion thereof that ends on or prior to the Closing Date. If a taxable period
begins on or prior to the Closing Date and ends after the Closing Date, then
the portion of the taxable period that ends on (and includes) the Closing Date
shall constitute a Pre-Closing Period; (y) "Post-Closing Period" means any
taxable period or portion thereof that is not a Pre-Closing Period; and (z)
"Straddle Period" means a taxable period beginning on or prior to the Closing
Date and ends after the Closing Date.
SECTION 9.04 Limitation on Indemnification Obligations; Offset;
Reservation of Stock. (a) All representations and warranties contained in this
Agreement shall survive the Closing for a period of eighteen months from the
Effective Date (the "Survival Period"). A claim by a Buyer Indemnitee or Seller
Indemnitee for indemnification under this Article IX must be asserted within
the Survival Period.
(b) Notwithstanding anything to the contrary contained herein, (i) an
Indemnified Party shall only be entitled to indemnification pursuant to Section
9.03 hereof once such Indemnified Party's aggregate claims for indemnification
exceed $100,000, but after such claims exceed such amount, such Indemnified
Party shall be entitled to seek indemnification for all indemnification claims
from the first dollar of Damages; (ii) the indemnification obligations of the
Seller Stockholders pursuant to Section 9.03(a) hereof shall be limited to the
amount deposited by the Seller Stockholders into the Escrow and the Buyer
Indemnities shall not be entitled to pursue any claims for indemnification
against the Seller Stockholders directly or personally and the sole recourse of
the Buyer Indemnities shall be to make claims against the Escrow in accordance
with the terms of the Escrow Agreement; and (iii) the indemnification
obligations of the Surviving Corporation pursuant to Section 9.03(b) hereof
shall be limited to 1,020,405 shares of Common Stock of the Surviving
Corporation, and the Seller Indemnities shall not be entitled to pursue any
claims for indemnification against the Surviving Corporation except pursuant
to, and the sole recourse of the Seller Indemnities shall be to make claims in
accordance with, the terms of this Article IX.
(c) Any claim by the Buyer Indemnitees against the Seller Stockholders for
recovery of indemnifiable damages shall be paid to the Surviving Corporation in
accordance with the terms of the Escrow Agreement. Any such payment shall be
based on the value of the Escrow Shares, based on the Average Value of such
shares on the date of the final determination of the claim. "Average Value"
shall mean the average of the daily closing prices of Buyer Common Stock on the
Nasdaq Small Cap Market for the ten consecutive trading days ending on the
second trading day immediately prior to the date of the final determination of
the claim.
(d) Any claim by the Seller Indemnities against the Buyer for recovery of
indemnifiable damages shall be payable only in shares of Buyer Common Stock.
The Buyer hereby agrees that it will keep 1,020,405 shares of its Buyer Common
Stock (the "Reserved Shares") reserved and available in order to indemnify the
Seller Indemnitees to the extent required pursuant to this Article IX. In the
event that any Reserved Shares are issued, they shall be issued at a price
equal to the Average Value (as defined in subparagraph (c) above) of such
shares on the date of the final determination of the indemnification claim.
SECTION 9.05 Cooperation. Subject to the provisions of Section 9.07, the
Indemnified Party shall have the right, at its own expense to participate in
the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
Claim.
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SECTION 9.06 Subrogation. The Indemnifying Party shall not be entitled to
require that any action be brought against any other person before action is
brought against it hereunder by the Indemnified Party and shall not be
subrogated to any right of action until it has paid in full or successfully
defended against the Third Party Claim for which indemnification is sought.
SECTION 9.07 Indemnification Claims Procedures. (a) Promptly following the
receipt of notice by an Indemnified Party of a Third Party Claim which the
Indemnified Party believes may result in a demand against the Escrow or the
Reserved Shares, as the case may be, the Indemnified Party shall notify the
Indemnifying Party (which may be the Seller Stockholder Agent, in the case of
notification to the Seller Indemnitees) of such claim in accordance with the
provisions of the Escrow Agreement. The party receiving the notice of the Third
Party Claim shall notify the other party hereto of such Third Party Claim. The
failure to give such notice shall not relieve the Indemnifying Party of its
obligations under this Agreement except to the extent that the Indemnifying
Party is substantially prejudiced as a result of the failure to give such
notice. Within fifteen (15) business days after receipt of the notice by the
Indemnifying Party pursuant to the preceding sentence, the Indemnifying Party
shall notify the Indemnified Party whether it elects to control the defense of
the Third Party Claim and whether it believes, in good faith, that it has
justifiable cause to contest its obligation to indemnify the Indemnified Party
in respect to the claims asserted therein (and if so, the justification
therefor). If the Indemnifying Party elects to undertake the defense of such
Third Party Claim, it shall do so at its own expense with counsel of its own
choosing, without prejudice to the right of the Indemnifying Party thereafter
to contest its obligation to indemnify the Indemnified Party in respect to the
claims asserted therein. If the Indemnifying Party elects not to defend the
Third Party Claim or fails to pursue such Third Party Claim diligently, the
Indemnified Party shall have the right to undertake, conduct and control the
defense of such Third Party Claim through counsel of its own choosing. If the
Indemnified Party elects to undertake and control the defense in accordance
with this Section 9.07, the Indemnified Party may defend against such claim or
litigation in such manner as it may deem appropriate, including, but not
limited to, settling such claim or litigation, after giving notice of the same
to the Indemnifying Party, on such terms as the Indemnified Party may deem
appropriate. In any action by the Indemnified Party seeking indemnification
from the Indemnifying Party in accordance with the provisions of this Section
9.07(a), the Indemnifying Party shall not be entitled to question the manner in
which the Indemnified Party defended such claim or litigation or the amount of
or nature of any such settlement. Notwithstanding the foregoing, the
Indemnifying Party shall not forfeit its right to contest its obligation to
indemnify hereunder by not defending the party who may be entitled to such
indemnification. The party that litigates or contests the Third Party Claim
shall keep the other party fully advised of the progress and disposition of
such claim.
(b) In the event the Indemnifying Party elects not to undertake the
defense of the Third Party Claim or fails to pursue diligently the defense of
such a claim and the Indemnified Party litigates or otherwise contests or
settles the Third Party Claim, then, provided that a final determination has
been made that the Indemnified Party is entitled to indemnification hereunder,
the Indemnifying Party shall promptly reimburse the Indemnified Party for all
amounts paid to settle such claim or all amounts paid in satisfaction of a
judgment against the Indemnified party in contesting such claim and in
providing its right to indemnification hereunder, all in accordance with the
provisions of this Article IX. Notwithstanding the foregoing, no settlement of
any Third Party Claim without the prior written consent of the Indemnifying
Party shall be determinative of the validity of any claim that the Indemnified
Party is entitled to indemnification hereunder.
(c) No Third Party Claim will be settled by the Indemnifying Party without
the prior written consent of the Indemnified Party, which consent will not be
unreasonably withheld; provided, however, that if such claim asserts that the
Indemnifying Party is jointly and severally liable and the Indemnified Party
shall be fully released from all liability relating to such third Party Claim
in connection with such settlement, the Indemnifying Party shall not be
required to obtain the consent of the Indemnified Party. If, however, the
Indemnified party refuses to consent to a bona fide offered settlement which
the Indemnifying party wishes to accept, the Indemnified Party may continue to
pursue such Third Party Claim free of any participation by the Indemnifying
Party, at the sole expense of the Indemnified Party. In such event, the
Indemnifying Party shall pay to the Indemnified Party the amount of the offer
of settlement which the Indemnified Party refused to accept, plus the costs and
expenses incurred by the Indemnified Party prior to the date the Indemnifying
Party notifies the Indemnified Party of the offer of settlement, all in
accordance with the terms of this Article IX, and, upon the payment or receipt
of such
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amount, as the case may be, the Indemnifying Party shall have no further
liability with respect to such Third Party Claim. The Indemnifying party shall
be entitled to recover from the Indemnified Party any additional expenses
incurred by such Indemnifying Party as a result of the decision of the
Indemnified Party to pursue the matter.
(d) The Seller Stockholders and Seller hereby acknowledge and agree that
the Seller Stockholders will control the Surviving Corporation after the
Merger. Such parties further acknowledge and agree that the indemnification
rights set forth in Section 9.03(a) shall be for the benefit of all
stockholders of the Buyer and the Surviving Corporation and the duties and
responsibilities of the foregoing parties with respect to the Surviving
Corporation are to act in the best interest of all shareholders of the
Surviving Corporation.
SECTION 9.08 Seller Stockholder Agent. (a) In the event that the Merger is
approved, effective upon such vote, and without further act of any Seller
Stockholder, a committee (the "Committee") consisting of Dr. Larry Hsu and Dr.
Charles Hsiao shall be appointed as agents and attorneys-in-fact (collectively,
the "Seller Stockholder Agent") for each Seller Stockholder (except such Seller
Stockholders, if any, as shall have perfected their dissenter rights under
applicable law). The Seller Stockholder Agent, for and on behalf of Seller
Stockholders, shall have the power to take any and all actions required to be
taken by the Seller Stockholders pursuant to this Agreement or the Escrow
Agreement including, without limitation, the power to give and receive notices
and communications, to enter into and perform the Escrow Agreement, to make
claims for indemnification against Buyer, to authorize delivery to Buyer of
Buyer Common Stock or Preferred Stock or other property from the Escrow Fund in
satisfaction of claims by Buyer, to object to such deliveries, to agree to
negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary appropriate or in the judgment of
Seller Stockholder Agent for the accomplishment of the foregoing. The Seller
Stockholder Agent shall act by unanimous vote or unanimous written action or
consent of the members of the Committee. Effective upon the approval of this
Agreement by the Seller Stockholders, the Seller Stockholders individually
shall have no power or authority to take any actions against Buyer or otherwise
pursuant to this Agreement or the Escrow Agreement, and all actions of the
Seller Stockholders, whether pursuant to this Agreement or the Escrow
Agreement, must be taken solely by the Seller Stockholder Agent.
(b) Buyer shall have no liability of any kind to any Seller Stockholder as
a result of or arising out of any action taken or not taken by the Seller
Stockholder Agent at any time under this Agreement or the Escrow Agreement and
each Seller Stockholder hereby releases Buyer from any such liability. Buyer
may conclusively rely, without any obligation of investigation or inquiry of
any kind, on any action taken by the Seller Stockholder Agent as having been
fully authorized and approved by all necessary action by each Seller
Stockholder (except such Seller Stockholders, if any, as shall have perfected
their dissenter rights under applicable law).
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements of Buyer and Seller in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive for a period of eighteen months following the Effective Time. The
Confidentiality Agreements shall survive the execution and delivery of this
Agreement.
SECTION 10.02 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) or by Federal Express to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Buyer, to
Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, PA 19124
Attn: President
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with a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
Attn: Sheldon G. Nussbaum, Esq.
(b) if to Seller, to
Impax Pharmaceuticals, Inc.
30831 Huntwood Avenue
Hayward, CA 94544
Attn: President
with a copy to:
Law Offices of Laurie Miller
1735 E. Bayshore Road, Suite 29A
Redwood City, CA 94063
Attn: Laurie A. Miller, Esq.
SECTION 10.03 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 10.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 10.05 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as specifically provided in Section 9.01
(with respect to Sections 2.01, 2.02, 2.03, 6.10, 6.11, 6.13, 6.14, 6.21 and
this Article X) are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder; provided that the
Confidentiality Agreements shall remain in full force and effect until the
Effective Time. Each party hereto agrees that, except for the representations
and warranties contained in this Agreement, neither Seller nor Buyer makes any
other representations or warranties, and each hereby disclaims any other
representations and warranties made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement
or the transactions contemplated hereby, notwithstanding the delivery or
disclosure to the other or the other's representatives of any documentation or
other information with respect to any one or more of the foregoing.
SECTION 10.06 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard
to any applicable conflicts of law.
SECTION 10.07 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties provided that Buyer may assign its rights
hereunder to a Subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
SECTION 10.08 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
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SECTION 10.09 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of California or in any California state court, this being
in addition to any other remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any court of the United States located in the State of
California or of any California state court in the event any dispute arises out
of this Agreement or the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, and (c) agrees that it
will not bring any action relating to this Agreement in any court other than a
court of the United States located in the State of California or a California
state court.
SECTION 10.10 No Rule of Construction. The parties agree that, because all
parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language
in favor of or against any party by reason of that party's role in drafting
this Agreement.
SECTION 10.11 Attorney's Fees. In the event that any action or proceeding,
including arbitration, is commenced by either party hereto for the purpose of
enforcing any provision of this Agreement, the successful or prevailing party
shall recover reasonable attorney's fees and other costs incurred in such
action or proceeding.
IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
IMPAX PHARMACEUTICALS, INC.
By:/s/ Charles Hsiao
-----------------------------------
Name: Charles Hsiao
Title: Chairman and CEO
GLOBAL PHARMACEUTICAL CORPORATION
By:/s/ Barry R. Edwards
-----------------------------------
Name: Barry R. Edwards
Title: President and CEO
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AMENDMENT No. 1
TO THE AGREEMENT AND PLAN OF MERGER
Amendment (No. 1), dated as of November 8, 1999, to the AGREEMENT AND
PLAN OF MERGER, dated as of July 26, 1999 (the "Merger Agreement"), by and
among GLOBAL PHARMACEUTICAL CORPORATION, a Delaware corporation ("Buyer") and
IMPAX PHARMACEUTICALS, INC., a California corporation (the "Seller"). All
capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Merger Agreement.
WHEREAS, pursuant to Section 8.01(b) of the Merger Agreement, the parties
agreed that the Merger Agreement could be terminated at the election of either
party in the event that the Merger shall not have been consummated by November
30, 1999 (the "Outside Date"); and
WHEREAS, the parties have agreed that in order to have adequate time to
complete the Merger, the Outside Date will be extended to December 31, 1999;
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter contained, the parties hereto agree as follows:
1. Section 8.01(b) shall be amended to change the Outside Date to December
31, 1999.
2. Except as modified by this Amendment, the Merger Agreement shall remain
in full force and effect.
3. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
4. This Amendment shall be governed by and construed in accordance with
the internal laws of the State of New York applicable to agreements made and to
be performed entirely within such State.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as
of the date set forth above.
IMPAX PHARMACEUTICALS, INC.
By:/s/ Larry Hsu
--------------------------------
Name: Larry Hsu
Title: President
GLOBAL PHARMACEUTICAL CORPORATION
By:/s/ Barry R. Edwards
--------------------------------
Name: Barry R. Edwards
Title: President and CEO
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ANNEX B
GRUNTAL & CO., L.L.C.
One Liberty Plaza
New York, NY 10006-1487
212/820-8200
www.gruntal.com
GRUNTAL & CO.
Investment Advice Since 1880
July 26, 1999
The Board of Directors
Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, PA 19124
Gentlemen:
We understand that Global Pharmaceutical Corporation, a Delaware
corporation ("Global") and Impax Pharmaceuticals, Inc., a California
Corporation ("Impax") are proposing to enter into an Agreement and Plan of
Merger (the "Agreement") pursuant to which Impax will be merged with and into
Global (the "Merger") with Global as the surviving corporation (the "Proposed
Transaction"). Capitalized terms used herein and not otherwise defined shall
have the meaning assigned such terms in the Agreement. In the Merger, (i) each
holder of Common Stock, no par value per share of Impax, and each holder of
Series A and Series B Preferred Stock of Impax shall receive, in each case,
3.3358 shares of Common Stock, par value $0.01 per share of Global (the "Global
Common Stock") for each such share of Common Stock, Series A Preferred Stock or
Series B Preferred Stock, respectively, (ii) each holder of Series C Preferred
Stock of Impax will receive 5.8490 Shares of Global Common Stock for each such
share of Series C Preferred Stock, and (iii) each holder of Series D Preferred
Stock of Impax will receive .0500 shares of Series 1 Preferrred Stock of Global
("Global Series 1 Preferred Stock") for each such share of Series D Preferred
Stock. The Global Common Stock and the Global Series 1 Preferred Stock to be
received by shareholders of Impax in the Merger shall be referred to herein as
the "Consideration."
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to the holders of Global Common Stock of the
Consideration. Our opinion addresses only the fairness, from a financial point
of view, of the Consideration, and we do not express any views on any other
terms of the Proposed Transaction. Specifically, we have not been requested to
opine as to, and our opinion does not in any manner address, Global's
underlying business decision to proceed with or affect the Proposed
Transaction.
In arriving at our opinion we have:
(i) reviewed a draft of the Agreement dated July 20, 1999 and, for
purposes hereof, we have assumed that the final form thereof will
not differ in any material respect from such draft;
(ii) held discussions with members of senior management of Global and
Impax regarding their respective past and current business
operations and their financial conditions and future prospects;
(iii) reviewed historical financial and business information provided to
us by the management of Global and the management of Impax;
(iv) reviewed internally prepared financial projections of Global and
Impax furnished to us by the management of Global and the management
of Impax;
(v) reviewed the historical stock prices and trading volumes of the
Global Common Stock;
(vi) reviewed certain historical financial and operating data of public
companies whose business we consider comparable to that of each of
Global and Impax;
(vii) reviewed the financial terms, to the extent publicly available, of
certain transactions which we considered comparable to the Proposed
Transaction;
(viii) performed discounted cash flow analyses of Global and Impax based
upon certain assumptions of future performance provided to us by
management of Global and management of Impax;
(ix) conducted such other analyses and reviewed such other information as
we deemed appropriate.
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Gruntal, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, distributions of listed and
unlisted securities, private placements and financial valuations for corporate
purposes. In addition, in the ordinary course of our business, Gruntal may
actively trade the Global Common Stock for Gruntal's account and for the
accounts of customers, and accordingly, may at any time hold a long or short
position in such security.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of all the information furnished to us by Global and Impax and
have not attempted an independent verification thereof. We have not made nor
obtained any independent evaluations or appraisals of the assets or liabilities
of Impax or Global, including, but not limited to, liabilities arising from or
connected with any pending or future litigation to which Global or Impax is or
may become a party. With respect to the financial projections furnished to us
or discussed by us with the management of Global and Impax, we have assumed
that they have been reasonably prepared and reflect the best currently
available estimates and judgement of Global's and Impax's management as to the
expected future results of operations, synergies and financial condition of
Global and Impax to which such analyses and forecasts relate, and we have
assumed that such expected future results of operations, synergies and
strategic benefits will be realized as described by such management. The
inability of Global and Impax to realize such expected future results of
operations, synergies and strategic benefits could affect the opinion herein,
and we express no view as to whether such future results of operations,
synergies and strategic benefits will actually be realized. We have also
assumed that the transaction will have the tax consequences described in the
Agreement and in discussions with, and other materials furnished to us by,
representatives of Global.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments including, without
limitation, any changes to the terms or conditions of the Proposed Transaction
may affect this opinion and that we do not have any obligation to update,
revise, or reaffirm this opinion. We are expressing no opinion herein as to the
price at which Global Common Stock or the Global Series 1 Preferred Stock will
trade at any future date. We have also assumed that in the course of obtaining
the necessary regulatory or other consents or approvals (contractual or
otherwise) for the Proposed Transaction, no material restrictions, including
any divestiture requirements or amendments or modifications to the Proposed
Transaction, will be imposed.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, we are of the opinion that, as of the date
hereof, the Consideration is fair, from a financial point of view, to the
holders of Global Common Stock.
This opinion is for the use and benefit of the Board of Directors of
Global in connection with and for the purpose of its evaluation of the Proposed
Transaction. This opinion does not constitute a recommendation to engage in the
Proposed Transaction or a recommendation to any shareholder of Global as to how
such shareholder should vote on the Proposed Transaction or any matter related
thereto.
Very truly yours,
[SIGNATURE OMITTED]
GRUNTAL & CO., L.L.C.
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GRUNTAL & CO., L.L.C.
One Liberty Plaza
New York, NY 10006-1487
212/820-8200
www.gruntal.com
GRUNTAL & CO.
Investment Advice Since 1880
November 8, 1999
Board of Directors
Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, PA 19124
Gentlemen:
On July 26, 1999 Gruntal & Co., L.L.C. expressed its opinion (the "Opinion")
that the Consideration is fair, from a financial point of view, to the holders
of Global Common Stock. In affirming the Opinion we have reviewed the Opinion
and its supporting materials and such other matters as we have deemed relevant.
We reviewed the final merger agreement dated July 26, 1999 between Global and
Impax. All terms used and not defined herein have the meaning set forth in the
Opinion.
Following the above review, as of the date hereof, we affirm the Opinion.
Very truly yours,
GRUNTAL & CO., L.L.C.
/s/ Roger C. Kahn
-----------------------------
Roger C. Kahn
Senior Managing Director
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ANNEX C
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to ss. 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; and the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to
ss. 251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or
ss. 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
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(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of 1such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation,
and shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all
such holders of any class or series of stock of a constituent corporation that
are entitled to appraisal rights. Such notice may, and, if given on or after
the effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of
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the merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after such
stockholder's written request for such a statement is received by the surviving
or resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery of other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose
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or to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
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ANNEX D
CHAPTER 13. DISSENTERS' RIGHTS
1300 [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE;
"DISSENTING SHARES" AND DISSENTING SHAREHOLDER].-- (a) If the approval of the
outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which
the shareholder holds shares to purchase for cash at their fair market value
the shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A)
or (B) if demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisions in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record. (Last
amended by Ch. 543, L. '93, eff. 1-1-94.)
1301 [DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES].--
(a) If, in the case of a reorganization, any shareholders of a corporation have
a right under Section 1300, subject to compliance with paragraphs (3) and (4)
of subdivision (b) thereof, to require the corporation to purchase their shares
for cash, such corporation shall mail to each such shareholder a notice of the
approval of the reorganization by its outstanding shares (Section 152) within
10 days after the date of such approval, accompanied by a copy of Sections
1300, 1302, 1303, 1304 and this section, a statement of the price determined by
the corporation to represent the fair market value of the dissenting shares,
and a brief description of the procedure to be followed if the shareholder
desires to exercise the shareholder's right under such sections. The statement
of price constitutes an offer by the corporation to purchase at the price
stated any dissenting shares as defined in subdivision (b) of Section 1300,
unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares
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described in clause (i) or (ii) of paragraph (1) of subdivision (b) of Section
1300 (without regard to the provisos in that paragraph), not later than the
date of the shareholder's meeting to vote upon the reorganization, or (2) in
any other case within 30 days after the date on which the notice of the
approval by the outstanding shares pursuant to subdivision (a) or the notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement of
the proposed reorganization or shortform merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
(Last amended by Ch. 1155, L. '80, eff. 1-1-81.)
1302 [DISSENTING SHARES, STAMPING OR ENDORSING],--Within 30 days after the
date on which notice of the approval by the outstanding shares or the notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the
shareholder shall submit to the corporation at its principal office or at the
office of any transfer agent thereof, (a) if the shares are certificated
securities, the shareholder's certificates representing any shares which the
shareholder demands that the corporation purchase, to be stamped or endorsed
with a statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation the new
certificates, initial transaction statement, and other written statements
issued therefor shall bear a like statement, together with the name of the
original dissenting holder of the shares. (Last amended by Ch. 766, L. '86 eff.
1-1-87.)
1303 [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME
OF PAYMENT].--(a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
thereof, unless provided otherwise by agreement. (Last amended by Ch. 766, L.
'86 eff. 1-1-87.)
1304 [DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF
APPRAISERS].--(a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market values of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares
are dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint.
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(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305 [APPRAISERS DUTY AND REPORT; COURT JUDGEMENT; PAYMENT; APPEAL; COSTS
OF ACTION]--(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file
a report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the
court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Section 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301). (Last amended by Ch. 766 L. '86, eff. 1-1-87.)
1306 [DISSENTING SHAREHOLDERS: EFFECT OF PREVENTION OF PAYMENT OF
FAIRMARKET VALUE].-- To the extent that the provisions of Chapter 5 prevent the
payment to any holders of dissenting shares of their fair market value, they
shall become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
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1307 [DISSENTING SHARES, DISPOSITION OF DIVIDENDS].--Cash dividends
declared and paid by the corporation upon the dissenting shares after the date
of approval of the reorganization by the outstanding shares (Section 152) and
prior to payment for the shares by the corporation shall be credited against
the total amount to be paid by the corporation therefor.
1308 [DISSENTING SHARES, RIGHTS AND PRIVILEGES].--Except as expressly
limited in this chapter, holders of dissenting shares continue to have all the
rights and privileges incident to their shares, until the fair market value of
their shares is agreed upon or determined. A dissenting shareholder may not
withdraw a demand for payment unless the corporation consents thereto.
1309 [DISSENTING SHARES, LOSS OF STATUS].--Dissenting shares lose their
status as dissenting shares and the holders thereof cease to be dissenting
shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares
of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310 [SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING].--If
litigation is instituted to test the sufficiency or regularity of the votes of
the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
1311 [CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES].--This chapter,
except Section 1312, does not apply to classes of shares whose terms and
provisions specifically set forth the amount to be paid in respect to such
shares in the event of a reorganization or merger. (Last amended by ch. 919, L.
'88, eff. 1-1-89.)
1312 [VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK ON;
SHAREHOLDERS' RIGHTS; BURDEN OF PROOF].--(a) No shareholder of a corporation
who has a right under this chapter to demand payment of cash for the shares
held by the shareholder shall have any right at law or in equity to attack the
validity of the reorganization or short-form merger, or to have the
reorganization or short-form merger set aside or rescinded, except in an action
to test whether the number of shares required to authorize or approve the
reorganization have been legally voted in favor thereof; but any holder of
shares of a class whose terms and provisions specifically set forth the amount
to be paid in respect to them in the event of a reorganization or short-form
merger is entitled to payment in accordance with those terms and provisions or,
if the principal terms of the reorganization are approved pursuant to
subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or
short-form merger or to have the reorganization or short-form merger set aside
or rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days, prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
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(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attach the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled. (Last amended by Ch. 919, L.
'88, eff. 1-1-89.)
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ANNEX E
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
GLOBAL PHARMACEUTICAL CORPORATION
* * * * *
GLOBAL PHARMACEUTICAL CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
(hereinafter called the "Corporation") DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation (the "Board"), at a
duly called meeting of the Board, adopted a resolution proposing and declaring
advisable the following amendment to the Restated Certificate of Incorporation
of the Corporation:
RESOLVED, that Paragraph FIRST of the Restated Certificate of
Incorporation of the Corporation be amended by striking paragraph FIRST in its
entirety and replacing therefor:
"FIRST: The name of the corporation is IMPAX LABORATORIES, INC.
(hereinafter called the "Corporation").
RESOLVED, that subparagraph (a) of paragraph FOURTH of the Restated
Certificate of Incorporation of the Corporation be amended by striking
Subparagraph (a) in its entirety and replacing therefor:
"(a) The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is Fifty-two Million
(52,000,000) shares, consisting of (i) Fifty Million (50,000,000) shares of
Common Stock, $.01 par value per share (the "Common Stock"), and (ii) Two
Million (2,000,000) shares of designated preferred stock, $.01 par value
per share (the "Preferred Stock")."
SECOND: The Certificate of Amendment of Restated Certificate of
Incorporation herein certified was duly adopted by vote of the stockholders in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment of Restated Certificate of Incorporation to be signed, under
penalties of perjury, and the facts stated herein are true and correct.
Dated:-----------------------------
By:-------------------------------------
Barry R. Edwards, President and
Chief Executive Officer
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ANNEX F
GLOBAL PHARMACEUTICAL CORPORATION
CERTIFICATE OF DESIGNATIONS
OF
SERIES 1-A CONVERTIBLE PREFERRED STOCK
AND
SERIES 1-B CONVERTIBLE PREFERRED STOCK
--------------------
Pursuant to Section 151(g) of the Delaware General Corporation Law
The undersigned officer hereby certifies that:
A. He is the duly elected and acting officer of Global Pharmaceutical
Corporation, a Delaware corporation (the "Corporation").
B. On July 26, 1999, the Board of Directors of the Corporation duly
adopted resolutions in order to terminate all existing Series of Preferred
Stock with the Corporation (i.e., Series A Convertible Preferred Stock, Series
B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series
D Convertible Preferred Stock) and to designate the Series 1-A Convertible
Preferred Stock and Series 1-B Convertible Preferred Stock (as set forth in the
resolution below), all upon the occurrence and simultaneously with the
Effective Time (as such term is defined in the Agreement and Plan of Merger,
dated as of July 26, 1999, by and between the Corporation and Impax
Pharmaceuticals, Inc.).
C. The resolution contained herein has not been modified, altered or
amended and is presently in full force and effect.
RESOLVED, that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article 4 of the Certificate of Incorporation
of the Corporation, the Board of Directors hereby fixes and determines the
voting rights, designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
relative rights of the foregoing series of the preferred stock, par value $.01
per share, which shall be designated as Series 1-A Convertible Preferred Stock
(the "Series 1-A Preferred Stock") and Series 1-B Convertible Preferred Stock
(the "Series 1-B Preferred Stock"). Except as otherwise provided herein, the
Series 1-A Preferred Stock and the Series 1-B Preferred Stock shall have
identical voting rights, designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
relative rights. The designation of the Series 1-A Preferred Stock and Series
1-B Preferred Stock shall be effective upon the occurrence of and
simultaneously with the Effective Time (as such term is defined in the
Agreement and Plan of Merger, dated as of July 26, 1999, by and between the
Corporation and Impax Pharmaceuticals, Inc.), at which time the previously
designated Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred
Stock of the Corporation shall cease to exist and to be so designated (i.e.,
simultaneously with the Effective Time, the only designated Preferred Stock of
the Corporation shall be the Series 1-A Preferred Stock and the Series 1-B
Preferred Stock).
1. Designation. 50,000 of shares of preferred stock, par value $.01 per
share, of the Corporation are hereby constituted as a series of the preferred
stock designated as "Series 1-A Convertible Preferred Stock." 170,000 shares of
preferred stock, par value $.01 per share, of the Corporation are hereby
constituted as a series of the preferred stock designated as "Series 1-B
Convertible Preferred Stock." The Series 1-A Preferred Stock and Series 1-B
Preferred Stock are collectively referred to herein as the "Series 1 Preferred
Stock."
2. Dividends.
(a) Dividends on Series 1 Preferred Stock. In the event that the
Corporation shall at any time or from time to time declare, order, pay or make
a dividend or other distribution (whether in cash, securities, rights to
purchase securities or other property) on its Common Stock, the holders of
shares of the Series 1 Preferred Stock shall be entitled to receive from the
Corporation, with respect to each share of Series 1 Preferred Stock held, a
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dividend or distribution that is the same dividend or distribution that would
be received by a holder of the number of shares of Common Stock into which such
share of Series 1 Preferred Stock is convertible pursuant to the provisions of
Section 5 hereof on the record date for such dividend or distribution (except
in the case of the payment of a stock dividend in shares of its Common Stock if
a holder of shares of Series 1 Preferred Stock shall have given notice to the
Corporation (within five (5) business days after such holder's receipt of the
Corporation's notice regarding the stock dividend) of its election to have the
Conversion Price of its shares adjusted in accordance with Section 5(d)(i)
hereof). Any such dividend or distribution shall be declared, ordered, paid or
made on the Series 1 Preferred Stock at the same time such dividend or
distribution is declared, ordered, paid or made on the Common Stock. Dividends,
if declared, on shares of the Series 1 Preferred Stock shall accrue and be
cumulative from the payment date of such dividend on such shares.
(b) Limitation on Dividends, Repurchases and Redemptions. So long as any
shares of Series 1 Preferred Stock shall be outstanding, the Corporation shall
not declare or pay or set apart for payment any dividends or make any other
distributions on any Junior Securities, whether in cash, securities, rights to
purchase securities or other property (other than dividends or distributions
payable in shares of the class or series upon which such dividends or
distributions are declared or paid), nor shall the Corporation purchase, redeem
or otherwise acquire for any consideration or make payment on account of the
purchase, redemption or other retirement of any Parity Securities or Junior
Securities, nor shall any monies be paid or made available for a sinking fund
for the purchase or redemption of any Parity Securities or Junior Securities,
unless with respect to all of the foregoing all dividends or other
distributions to which the holders of Series 1 Preferred Stock shall have been
entitled, pursuant to Section 2(a) hereof, shall have been paid or declared and
a sum of money has been set apart for the full payment thereof.
(c) Pro Rata Payments. In the event that full dividends are not paid or
made available to the holders of all outstanding shares of Series 1 Preferred
Stock and of any Parity Securities and funds available for payment of dividends
shall be insufficient to permit payment in full to holders of all such stock of
the full preferential amounts to which they are then entitled, then the entire
amount available for payment of dividends shall be distributed ratably among
all such holders of Series 1 Preferred Stock and of any Parity Securities in
proportion to the full amount to which they would otherwise be respectively
entitled.
3. Preference on Liquidation.
(a) Liquidation Preference for Series 1 Preferred Stock. In the event that
the Corporation shall liquidate, dissolve or wind up, whether voluntarily or
involuntarily, no distribution shall be made to the holders of shares of Common
Stock or other Junior Securities (and no monies shall be set apart for such
purpose) unless prior thereto, the holders of shares of Series 1 Preferred
Stock shall have received an amount per share equal to the greater of (i) the
sum of (x) the Liquidation Value, plus (y) all declared but unpaid dividends
thereon through the date of distribution, (ii) ratable distributions determined
with respect to the holders of Series 1 Preferred Stock and Common Stock on the
basis of the number of shares of Common Stock into which such Series 1
Preferred Stock could be converted pursuant to the provisions of Section 5
hereof immediately prior to such distribution and (iii) the Payment Amount, on
a per share basis (the greater of (i), (ii) and (iii) above is herein referred
to as the "Series 1 Liquidation Preference"). The "Liquidation Value" means
$100 per share with respect to the Series 1 Preferred Stock.
(b) Pro Rata Payments. If, upon any such liquidation, dissolution or other
winding up of the affairs of the Corporation, the assets of the Corporation
shall be insufficient to permit the payment in full of the Series 1 Liquidation
Preference for each share of Series 1 Preferred Stock then outstanding and the
full liquidating payments on all Parity Securities, then the assets of the
Corporation remaining shall be ratably distributed among the holders of Series
1 Preferred Stock and of any Parity Securities in proportion to the full
amounts to which they would otherwise be respectively entitled if all amounts
thereon were paid in full.
(c) Sale Not a Liquidation. Neither the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation, merger or other business combination of the
Corporation with or into one or more corporations shall be deemed to be a
liquidation, dissolution or winding-up, voluntary or involuntary, of the
Corporation.
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(d) Notice of Liquidation. Written notice of any liquidation, dissolution
or winding up of the Corporation, stating the payment date or dates when and
the place or places where amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than
thirty (30) days prior to any payment date specified therein, to the holders of
record of the Series 1 Preferred Stock at their respective addresses as shall
appear on the records of the Corporation.
4. Voting.
(a) General. In addition to any voting rights provided in the
Corporation's Certificate of Incorporation or by law, the Series 1-A Preferred
Stock and the Series 1-B Preferred Stock shall vote together with the Common
Stock as a single class on all actions to be voted on by the stockholders of
the Corporation. Each share of Series 1 Preferred Stock shall entitle the
holder thereof to such number of votes per share on each such action as shall
equal the number of shares of Common Stock into which each share of Series 1
Preferred Stock is then convertible. The holders of Series 1 Preferred Stock
shall be entitled to notice of any stockholder's meeting in accordance with the
By-Laws of the Corporation.
(b) Board of Directors. The Corporation shall not, without the written
consent or affirmative vote of the holders representing at least 80% of the
shares of Series 1 Preferred Stock then outstanding, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class, increase the maximum number of directors constituting the Board of
Directors to a number in excess of ten (10).
(c) Election of Directors. So long as either (i) a Director Holder owns at
least 40%, on an aggregate basis, of the shares of Series 1 Preferred Stock
owned or acquired, as the case may be, by such holder at the Effective Time
(the "Minimum Election Holdings") or (ii) any Transferee owns shares of Series
1 Preferred Stock at least equal to the Minimum Election Holdings of such
transferor holder, and the Corporation consented to such Transferee (which
consent shall not be unreasonably withheld), each such Director Holder or
Transferee, as the case may be, shall be entitled, but not required, to elect
one (1) director of the Corporation; provided, however, in no event shall any
Director Holder and such Director Holder's Transferee or Transferees be
entitled to elect, in the aggregate, more than one (1) director of the
Corporation pursuant to the provisions of this Section 4(c). A director or the
directors elected are referred to as a "Preferred Director" or the "Preferred
Directors."
Any Preferred Director may be removed with or without cause by, and shall
not be removed except by, the Director Holder or Transferee who elected such
director. A vacancy in the directorship to be held by a Preferred Director
shall be filled only by the Director Holder or Transferee who elected such
director, so long as such Director Holder or Transferee, as the case may be,
continues to then hold shares of Series 1 Preferred Stock at lest equal to the
Minimum Election Holdings.
5. Conversion. The holders of shares of Series 1 Preferred Stock shall
have the right to convert all or a portion of such shares into fully paid and
nonassessable shares of Common Stock or any capital stock or other securities
into which such Common Stock shall have been changed or any capital stock or
other securities resulting from a reclassification thereof as follows:
(a) Right to Convert. Subject to and upon compliance with the provisions
of this Section 5, a holder of shares of Series 1 Preferred Stock shall have
the right, at the option of such holder, at any time, to convert any or all of
such shares into the number of fully paid and nonassessable shares of Common
Stock (calculated as to each conversion rounded down to the nearest 1/100th of
a share) obtained by dividing the aggregate Liquidation Value of the shares to
be converted, plus all declared but unpaid dividends thereon through the date
of conversion (unless the holder of shares of Series 1 Preferred Stock being so
converted shall have elected to receive any such dividends in respect of the
shares being converted subsequent to conversion), by the Conversion Price and
by surrender of such shares, such surrender to be made in the manner provided
in paragraph (b) of this Section 5. The Common Stock issuable upon conversion
of the shares of Series 1 Preferred Stock, when such Common Stock shall be
issued in accordance with the terms hereof, are hereby declared to be and shall
be duly authorized, validly issued, fully paid and nonassessable Common Stock
held by the holders thereof.
(b) Mechanics of Conversion. Each holder of Series 1 Preferred Stock that
desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the principal
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office of the Corporation or of any transfer agent for the Series 1 Preferred
Stock or Common Stock, accompanied by written notice to the Corporation that
such holder elects to convert the same and stating therein the number of shares
of Series 1 Preferred Stock being converted and whether all declared and unpaid
dividends in respect of such shares shall be included in the calculation set
forth in Section 5(a) hereof, and setting forth the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued if such name or names shall be different than that of such holder.
Thereupon, the Corporation shall issue and deliver at such office on not later
than the fifth Business Day thereafter (unless such conversion is in connection
with an underwritten public offering of Common Stock, in which event
concurrently with such conversion) to such holder or on such holder's written
order, (i) a certificate or certificates for the number of validly issued,
fully paid and nonassessable full shares of Common Stock to which such holder
is entitled and (ii) if less than the full number of shares of Series 1
Preferred Stock evidenced by the surrendered certificate or certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or certificates less
the number of shares converted.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date of such surrender of the shares to be
converted (except that if such conversion is in connection with an underwritten
public offering of Common Stock, then such conversion shall be deemed to have
been effected upon such surrender) so that the rights of the holder thereof as
to the shares being converted shall cease at such time except for the right to
receive shares of Common Stock and if the holder of the shares being so
converted shall have elected to receive dividends subsequent to such
conversion, all accrued and unpaid dividends in accordance herewith, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such
shares of Common Stock at such time.
(c) Conditional Conversion. Notwithstanding any other provision hereof, if
conversion of any shares of Series 1 Preferred Stock is to be made in
connection with a public offering of Common Stock or any transaction described
in Section 5(d)(vii) hereof, the conversion of any shares of Series 1 Preferred
Stock may, at the election of the holder thereof, be conditioned upon the
consummation of the public offering or such transaction, in which case such
conversion shall not be deemed to be effective until the consummation of such
public offering or transaction.
(d) Adjustment of the Conversion Price. The Conversion Price shall be
adjusted from time to time as follows (except that from the date hereof the
Corporation may issue securities for a consideration per share above or below
the Conversion Price, in the form of Convertible Securities, Common Stock,
warrants or rights to purchase Common Stock or Convertible Securities, with an
aggregate Market Value up to $10 million before any adjustments to the
Conversion Price shall be made pursuant to this Section 5(d); provided that
such $10 million threshold may be achieved through one such issuance or a
cumulation of several such issuances); and provided further for purposes of
computing such $10 million threshold, the value of any securities referred to
in subsections (a) or (b) of the definition of Additional Shares of Stock in
Section 10 hereof, shall be excluded.
(i) Adjustment for Stock Splits and Combinations. If the Corporation at
any time or from time to time after the Issue Date, pays a stock dividend
in shares of its Common Stock, issues any convertible debt securities,
effects a subdivision of the outstanding Common Stock, combines the
outstanding shares of Common Stock, issues by reclassification of shares of
its Common Stock any shares of capital stock of the Corporation, makes a
distribution of any of its assets (other than cash dividends payable out of
earnings or retained earnings in the ordinary course of business) then, in
each such case, the Conversion Price in effect immediately prior to such
event shall be adjusted so that each holder of shares of Series 1 Preferred
Stock shall have the right to convert its shares of Series 1 Preferred
Stock into the number of shares of Common Stock which it would have owned
after the event had such shares of Series 1 Preferred Stock been converted
immediately before the happening of such event. Any adjustment under this
Section 5(d)(i) shall become effective retroactively immediately after the
record date in the case of a dividend and distribution and shall become
effective immediately after the effective date in the case of a issuance,
subdivision, combination or reclassification. If the Corporation pays a
stock dividend in shares of its Common Stock and the holders of the Series
1 Preferred Stock received such stock dividend pursuant to Section 2(a)
hereof, the Conversion Price shall not be adjusted for such stock dividend
under this Section 5(d)(i).
(ii) Issuance of Additional Shares of Stock. If the Corporation shall
(except as hereinbefore or hereinafter provided) issue or sell Additional
Shares of Stock in exchange for consideration in an amount per
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Additional Share of Stock less than the Conversion Price in effect
immediately prior to such issuance or sale of Additional Shares of Stock,
then the Conversion Price as to the Common Stock into which the Series 1
Preferred Stock is convertible immediately prior to such adjustment shall
be adjusted to equal the price determined by multiplying the applicable
Conversion Price for such Series 1-A Preferred Stock or Series 1-B
Preferred Stock, as the case may be, by a fraction, of which:
(x) the numerator shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale of Additional
Shares of Stock plus (2) the number of shares of Common Stock which the
aggregate amount of consideration, if any, received by the Corporation
for the total number of such Additional Shares of Stock so issued or
sold would purchase at the greater of (I) the Market Price per share of
the Common Stock in effect immediately prior to such issuance or sale of
Additional Shares of Stock or (II) the Conversion Price in effect
immediately prior to such issuance or sale of Additional Shares of
Stock, and
(y) the denominator shall be the number of shares of Common Stock
outstanding immediately after such issuance or sale of Additional Shares
of Stock; provided, however, that such adjustment shall be made only if
the Conversion Price determined from such adjustment shall be less than
the Conversion Price in effect immediately prior to the issuance of such
Additional Shares of Stock.
The provisions of this Section 5(d)(ii) shall not apply to any issuance of
Additional Shares of Common Stock for which an adjustment is provided under
Section 5(d)(i) or which are dividends or distributions received by the
holders of the Series 1 Preferred Stock pursuant to Section 2(a) hereof.
(iii) (A) Issuance of Warrants or Other Rights. If at any time (i) the
Corporation shall in any manner (whether directly or by assumption in a
merger in which the Corporation is the surviving corporation) issue or sell
any warrants or other rights to subscribe for or purchase any Additional
Shares of Stock or any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the
consideration (computed in accordance with Section 5(d)(vi)(A) hereof)
received for such warrants or other rights or such Convertible Securities
shall be less than the Conversion Price in effect immediately prior to the
time of such issue or sale, then the Conversion Price shall be adjusted as
provided in Section 5(d)(ii). No further adjustments of the Conversion
Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such warrants or other rights or
upon the actual issue of such Common Stock upon such conversion or exchange
of such Convertible Securities.
(B) Issuance of Convertible Securities. If at any time the Corporation
shall in any manner (whether directly or by assumption in a merger in which
the Corporation is the surviving corporation) issue or sell, any
Convertible Securities, whether or not the rights to convert thereunder are
immediately exercisable, and the consideration (computed in accordance with
Section 5(d)(vi)(A) hereof) received for such Convertible Securities shall
be less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the Conversion Price shall be adjusted as
provided in Section 5(d)(ii). No adjustment of the Conversion Price shall
be made under this Section 5(d)(iii)(B) upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 5(d)(iii)(A). No further
adjustments of the Conversion Price shall be made upon the actual issue of
such Common Stock upon conversion of such Convertible Securities and, if
any issue or sale of such Convertible Securities is made upon exercise of
any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the Conversion Price have
been or are to be made pursuant to other provisions of this Section 5(d),
no further adjustments of the Conversion Price shall be made by reason of
such issue or sale.
(iv) Superseding Adjustments. If, at any time after any adjustment of
the Conversion Price at which the Series 1 Preferred Stock is convertible
shall have been made pursuant to Section 5(d)(iii) as a result of any
issuance of warrants, rights or Convertible Securities,
(A) such warrants or rights, or the right of conversion or exchange
in such other Convertible Securities, shall expire, and all or a portion
of such warrants or rights, or the right of conversion or exchange with
respect to all or a portion of such other Convertible Securities, as the
case may be, shall not have been exercised, or
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(B) the consideration per share for which shares of Stock are
issuable pursuant to such warrants or rights, or the terms of such other
Convertible Securities, shall be increased solely by virtue of
provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or
event,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Stock which were deemed to have been issued by virtue
of the computation made in connection with the adjustment so rescinded and
annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the basis of
(C) treating the number of Additional Shares of Stock or other
property, if any, theretofore actually issued or issuable pursuant to
the previous exercise of any such warrants or rights or any such right
of conversion or exchange, as having been issued on the date or dates of
any such exercise and for the consideration actually received and
receivable therefor, and
(D) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Stock or other property are
issuable under such warrants or rights or other Convertible Securities;
whereupon a new adjustment of the Conversion Price at which the Series 1
Preferred Stock is convertible shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
(v) Antidilution Adjustments Under Other Securities. Without limiting
any other rights available hereunder to the holders of the Series 1
Preferred Stock, if there is an antidilution adjustment (i) under any
Convertible Securities other than the Series 1 Preferred Stock, whether
issued prior to or after the Issue Date, or (ii) under any rights, options
or warrants to purchase Additional Shares of Stock, whether issued prior to
or after the Issue Date which, in either case, results in a reduction in
the exercise or purchase price with respect to such security or rights or
results in an increase in the number of Additional Shares of Stock
obtainable under such Convertible Security, right, option or warrant, then
an adjustment shall be made to the Conversion Price hereunder. Any such
adjustment pursuant to this Section 5(d)(v) shall be whichever of the
following results in a lower Conversion Price: (A) a reduction in the
Conversion Price equal to the percentage reduction in such exercise or
purchase price with respect to such Convertible Security, right, option or
warrant or (B) a reduction in the Conversion Price which will result in the
same percentage increase in the number of shares of Common Stock available
hereunder as the percentage increase in the number of Additional Shares of
Stock available under such Convertible Security, right, option or warrant.
Any such adjustment under this Section 5(d)(v) shall only be made if it
would result in a lower Conversion Price than that which would be
determined pursuant to any other antidilution adjustment otherwise required
hereunder as a result of the event or circumstance which triggered the
adjustment to such Convertible Security, right, option or warrant, and if
an adjustment is made pursuant to this Section 5(d)(v), such other
antidilution adjustment otherwise required hereunder shall not be made as a
result of such event or circumstance.
(vi) Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to making adjustments to the
shares of Common Stock into which the Series 1 Preferred Stock is
convertible and the Conversion Price at which the Series 1 Preferred Stock
is convertible provided for in this Section 5(d):
(A) Computation of Consideration. To the extent that any Additional
Shares of Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Shares of Stock or
any Convertible Securities shall be issued for cash consideration, the
consideration received by the Corporation therefor shall be the amount
of the cash received by the Corporation therefor, or, if such Additional
Shares of Stock or Convertible Securities are offered by the Corporation
for subscription, the subscription price, or, if such Additional Shares
of Stock or Convertible Securities are sold to underwriters or dealers
for public offering without a subscription offering, the initial public
offering price (subtracting (i) in any case, any amounts paid or
receivable for accrued interest or accrued dividends, (ii) in the case
of any public offering, any compensation, discounts or
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expenses paid or incurred by the Corporation for and in the underwriting
of, or otherwise in connection with, the issuance thereof, and (iii) in
the case of any transaction other than a public offering, any
compensation, discounts or expenses paid or incurred by the Corporation
for and in the underwriting of, or otherwise in connection with, the
issuance thereof; provided that, in the case of clause (iii), such
amount is in excess of eight percent (8%) of the aggregate costs of such
transactions, and then only to the extent of such excess). To the extent
that such issuance shall be for a consideration other than cash, then
except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such consideration
at the time of such issuance as determined in good faith by the Board of
Directors of the Corporation. In case any Additional Shares of Stock or
any Convertible Securities or any warrants or other rights to subscribe
for or purchase such Additional Shares of Stock or Convertible
Securities shall be issued in connection with any merger in which the
Corporation issues any securities, the amount of consideration therefor
shall be deemed to be the fair value, as determined in good faith by the
Board of Directors of the Corporation, of such portion of the assets and
business of the nonsurviving corporation as such Board in good faith
shall determine to be attributable to such Additional Shares of Stock,
Convertible Securities, warrants or other rights, as the case may be.
The consideration for any Additional Shares of Stock issuable pursuant
to any warrants or other rights to subscribe for or purchase the same
shall be the consideration received by the Corporation for issuing such
warrants or other rights plus the additional consideration payable to
the Corporation upon exercise of such warrants or other rights. The
consideration for any Additional Shares of Stock issuable pursuant to
the terms of any Convertible Securities shall be the consideration
received by the Corporation for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Corporation in respect of the
subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Corporation upon the
exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional Shares
of Stock or Convertible Securities in payment or satisfaction of any
dividends upon any class of stock other than Common Stock, the
Corporation shall be deemed to have received for such Additional Shares
of Stock or Convertible Securities a consideration equal to the amount
of such dividend so paid or satisfied.
(B) When Adjustments to Be Made. The adjustments required by this
Section 5(d) shall be made whenever and as often as any event requiring
an adjustment shall occur, except that any adjustment of the Conversion
Price that would otherwise be required may be postponed (except in the
case of a subdivision or combination of shares of the Common Stock, as
provided for in Section 5(d)(i)) up to, but not beyond the date of
exercise if such adjustment either by itself or with other adjustments
not previously made amount to a change in the Conversion Price of less
than $.05. Any adjustment representing a change of less than such
minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other
adjustments required by this Section 5(d) and not previously made, would
result in a minimum adjustment or on the date of conversion. For the
purpose of any adjustment, any event shall be deemed to have occurred at
the close of business on the date of its occurrence.
(C) Fractional Interests. In computing adjustments under this Section
5(d), fractional interests in the Common Stock shall be taken into
account to the nearest 1/100th of a share.
(D) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Corporation shall be required to make a determination
in good faith of the fair value of any item under this Section 5(d),
such determination may be challenged in good faith by a holder of Series
1 Preferred Stock and any dispute shall be resolved by an investment
banking firm of recognized national standing jointly selected by the
Corporation and such holder. The fees of such investment banker shall be
borne by such holder if the Corporation's calculation is determined to
be between 95% and 105% of the calculation of such banker.
(vii) Reorganization, Reclassification, Merger or Consolidation. If the
Corporation shall at any time reorganize or reclassify the outstanding
shares of Common Stock (other than a change in par value, or from no par
value to par value, or from par value to no par value, or as a result of a
subdivision or combination)
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or consolidate with or merge into another corporation (where the
Corporation is not the continuing corporation after such merger or
consolidation), the holders of Series 1 Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series 1 Preferred Stock in
whole or in part, the same kind and number of shares of stock and other
securities, cash or other property (and upon the same terms and with the
same rights) as would have been distributed to a holder upon such
reorganization, reclassification, consolidation or merger had such holder
converted its Series 1 Preferred Stock immediately prior to such
reorganization, reclassification, consolidation or merger (subject to
subsequent adjustments under Section 5(d) hereof). The Conversion Price
upon such conversion shall be the Conversion Price that would otherwise be
in effect pursuant to the terms hereof. Notwithstanding anything herein to
the contrary, the Corporation will not effect any such reorganization,
reclassification, merger or consolidation unless prior to the consummation
thereof, the corporation which may be required to deliver any stock,
securities or other assets upon the conversion of the Series 1 Preferred
Stock shall agree by an instrument in writing to deliver such stock, cash,
securities or other assets to the holders of the Series 1 Preferred Stock.
A sale, transfer or lease of all or substantially all of the assets of the
Corporation to another person shall be deemed a reorganization,
reclassification, consolidation or merger for the foregoing purposes.
(viii) Exceptions to Adjustment of Conversion Price. Anything herein to
the contrary notwithstanding, the Corporation shall not make any adjustment
of the Conversion Price in the case of the issuance of shares of Common
Stock to holders of the Series 1 Preferred Stock upon conversion of all or
any portion of their shares of Series 1 Preferred Stock.
(ix) Chief Financial Officer's Opinion. Upon each adjustment of the
Conversion Price, and in the event of any change in the rights of a holder
of Series 1 Preferred Stock by reason of other events herein set forth,
then and in each such case, the Corporation will promptly obtain a
certificate of the chief financial officer of the Corporation, stating the
adjusted Conversion Price, or specifying the other shares of the Common
Stock, securities or assets and the amount thereof receivable as a result
of such change in rights, and setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based. The
Corporation will promptly mail a copy of such certificate to the holders of
Series 1 Preferred Stock. If a holder disagrees with such calculation, the
Corporation agrees to obtain within thirty (30) business days an opinion of
a firm of independent certified public accountants selected by the
Corporation's Board of Directors and acceptable to such holder to review
such calculation and the opinion of such firm of independent certified
public accountants shall be final and binding on the parties and shall be
conclusive evidence of the correctness of the computation with respect to
any such adjustment of the Conversion Price.
(x) Corporation to Prevent Dilution. In case at any time or from time to
time conditions arise by reason of action taken by the Corporation, which
in the good faith opinion of its Board of Directors or a majority of the
holders of the Series 1 Preferred Stock are not adequately covered by the
provisions of this Section 5(d), and which might materially and adversely
affect the exercise rights of the holders of the Series 1 Preferred Stock,
the Board of Directors of the Corporation shall appoint such firm of
independent certified public accountants acceptable to a majority of the
holders of the Series 1 Preferred Stock, which shall give their opinion
upon the adjustment, if any, on a basis consistent with the standards
established in the other provisions of this Section 5(d), necessary with
respect to the Conversion Price, so as to preserve, without dilution (other
than as specifically contemplated by the Certificate of Incorporation), the
exercise rights of the holders of the Series 1 Preferred Stock. Upon
receipt of such opinion, the Board of Directors of the Corporation shall
forthwith make the adjustments described therein.
(e) No Impairment. The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of Section 5 hereof and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series 1 Preferred Stock against impairment.
(f) No Fractional Shares Adjustments. No fractional shares shall be issued
upon conversion of the Series 1 Preferred Stock. If more than one share of the
Series 1 Preferred Stock is to be converted at one time by the
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same stockholder, the number of full shares issuable upon such conversion shall
be computed on the basis of the aggregate amount of the shares to be converted.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series 1 Preferred Stock, the
Corporation will pay a cash adjustment in respect of such fractional interest
in an amount equal to the same fraction of the Market Price per share of Common
Stock at the close of business on the day of conversion which such fractional
share of Series 1 Preferred Stock would be convertible into on such date.
(g) Shares to be Reserved. The Corporation shall at all times reserve and
keep available, out of its authorized and unissued stock, solely for the
purpose of effecting the conversion of the Series 1 Preferred Stock, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Series 1 Preferred Stock from time to time
outstanding. The Corporation shall from time to time, in accordance with the
laws of the State of Delaware, increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized but unissued
Common Stock shall be insufficient to permit the conversion in full of the
Series 1 Preferred Stock.
(h) Taxes and Charges. The Corporation will pay any and all issue or other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock on conversion of the Series 1 Preferred Stock. The Corporation
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issuance or delivery of Common Stock in a name
other than that of the Series 1 Preferred Stock, and no such issuance or
delivery shall be made unless and until the Person requesting such issuance has
paid to the Corporation the amount of such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(i) Accrued Dividends. Upon conversion of any shares of Series 1 Preferred
Stock, the holder thereof shall be entitled to receive any accrued but unpaid
dividends in respect of the shares of Series 1 Preferred Stock so converted to
the date of such conversion.
(j) Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any shares of Series 1 Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series 1 Preferred Stock in any manner which interferes with the timely
conversion of such shares of Series 1 Preferred Stock.
6. Redemption
(a) Redemption Price. Any redemption of the Series 1 Preferred Stock
pursuant to Section 6(b) shall be at a price per share equal to the Liquidation
Value plus all declared but unpaid dividends thereon through the redemption
date (the "Mandatory Redemption Price"). Any redemption of the Series 1
Preferred Stock pursuant to Section 6(d) shall be at a price per share equal to
the Series 1 Liquidation Preference, except that, for purposes of calculation
of the redemption price under this Section 6(a), clause (ii) of the definition
of Series 1 Liquidation Preference in Section 3(a) hereof shall provide for the
amount per share such holders would have received if such holders had converted
their shares of Series 1 Preferred Stock into shares of Common Stock
immediately prior to the Fundamental Change (the "Optional Redemption Price").
The Mandatory Redemption Price shall be paid, at the election of the
Corporation, in cash or shares of Common Stock which have been registered under
a registration statement under the Securities Act of 1933, as amended, which
registration statement is effective, provided, that, for purposes of
calculating the number of shares of Common Stock to be received by each holder
of Series 1 Preferred Stock, each such share of Common Stock shall be valued at
10% less than the Market Price.
(b) Mandatory Redemption. Subject to Section 6(a) hereof, the Corporation
shall redeem all of the then outstanding shares of Series 1 Preferred Stock at
the Mandatory Redemption Price on March 31, 2004.
(c) Procedures for Redemption. In the event the Corporation shall redeem
shares of Series 1 Preferred Stock pursuant to Section 6(b), the Corporation
shall give written notice of such redemption by first class mail, postage
prepaid, mailed not less than thirty (30) nor more than ninety (90) days prior
to the redemption date, to each holder of record of the shares to be redeemed,
at such holder's address as the same appears on the stock records of the
Corporation. Each such notice shall state: (i) the redemption date; (ii) the
number of shares of Series 1 Preferred Stock to be redeemed; (iii) the
Mandatory Redemption Price or Optional Redemption Price, as the case
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may be; (iv) the place or places where certificates for such shares are to be
surrendered for payment of the Mandatory Redemption Price or Optional
Redemption Price, as the case may be; (v) that payment will be made upon
presentation and surrender of such Series 1 Preferred Stock; (vi) the then
current Conversion Price and the date on which the right to convert such shares
of Series 1 Preferred Stock will expire; (vii) that dividends on the shares to
be redeemed shall cease to accrue following such redemption date; (viii) that
such redemption is mandatory, if pursuant to Section 6(b) and (ix) that
dividends, if any, accrued to and including the date fixed for redemption will
be paid as specified in such notice. Notice having been mailed as aforesaid,
from and after the redemption date, unless the Corporation shall be in default
in the payment of the Mandatory Redemption Price or Optional Redemption Price,
as the case may be (including any accrued and unpaid dividends to (and
including) the date fixed for redemption), (A) dividends on the shares of the
Series 1 Preferred Stock so called for redemption shall cease to accrue, (B)
such shares shall be deemed no longer outstanding and (C) all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation (i) any moneys payable upon redemption without interest
thereon and (ii) any shares of Series 1 Preferred Stock and Common Stock
pursuant to Section 6(a) hereof) shall cease.
Upon surrender in accordance with such notice of the certificates for any
such shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation at the applicable Mandatory Redemption
Price.
Notwithstanding the foregoing, if notice of redemption has been given
pursuant to this Section 6 and any holder of shares of Series 1 Preferred Stock
shall, prior to the close of business on the third (3rd) Business Day preceding
the redemption date, give written notice to the Corporation pursuant to Section
5(b) hereof of the conversion of any or all of the shares to be redeemed held
by such holder (accompanied by a certificate or certificates for such shares,
duly endorsed or assigned to the Corporation), then the conversion of such
shares to be redeemed shall become effective as provided in Section 5 hereof.
(d) Redemption at Option of Holder Upon a Fundamental Change. Subject to
Section 6(a) hereof, if a Fundamental Change occurs, each holder of Series 1
Preferred Stock shall have the right, at the holder's option, to require the
Corporation to repurchase all of such holder's Series 1 Preferred Stock, or any
portion thereof, on the date (the "Repurchase Date") selected by the
Corporation that is not less than ten (10) nor more than twenty (20) days after
the Final Surrender Date, at a price per share equal to the Optional Redemption
Price. The Corporation agrees that it will not complete any Fundamental Change
unless proper provision has been made to satisfy its obligations under this
Section 6(d).
(e) Notice of Fundamental Change. Within thirty (30) days after the
occurrence of a Fundamental Change, the Corporation shall mail to all holders
of record of the Series 1 Preferred Stock a notice in the manner and containing
the information set out in Section 6(c), except that, for purposes of this
Section 6(e), such notice shall also describe the occurrence of such
Fundamental Change and of the repurchase right arising as a result thereof. To
exercise the repurchase right, a holder of Series 1 Preferred Stock must
surrender, on or before the date which is, subject to any contrary requirements
of applicable law, thirty (30) days after the date of mailing of the notice
from the Corporation (the "Final Surrender Date"), the certificates
representing the Series 1 Preferred Stock with respect to which the right is
being exercised, duly endorsed for transfer to the Corporation, together with a
written notice of election.
(f) Election Irrevocable. An election by a holder of Series 1 Preferred
Stock to have the Corporation repurchase shares of Series 1 Preferred Stock
pursuant to Section 6(d) shall become irrevocable at the close of business on
the relevant Repurchase Date.
7. Shares to be Retired. Any share of Series 1 Preferred Stock converted,
redeemed, repurchased or otherwise acquired by the Corporation shall be retired
and cancelled and shall upon cancellation be restored to the status of
authorized but unissued shares of preferred stock, subject to reissuance by the
Board of Directors as shares of preferred stock of one or more other series but
not as shares of Series 1 Preferred Stock.
8. Preemptive Rights.
(a) Except (i) for issuances of pro rata dividends to all holders of
Common Stock, (ii) stock issued to employees, officers or directors in
connection with management options or incentive plans approved by the
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Board of Directors, (iii) stock issued in connection with any merger,
acquisition or business combination, (iv) stock issued for consideration
amounting to less than $500,000 in any single transaction where the purchase
price is not less than the then applicable Conversion Price, provided that the
aggregate amount of all such transactions shall not exceed $1,000,000 or (v)
stock issued in connection with any joint venture, partnership or limited
liability company, or other entities with which the Corporation has a business
relationship, the holders of the Series 1 Preferred Stock, in order to enable
such holders to maintain their fully diluted percentage ownership of the
Corporation, shall have preemptive rights, as hereinafter set forth, to
purchase any capital stock, including any warrants or securities convertible
into capital stock, of the Corporation hereafter issued by the Corporation so
that a holder of the Series 1 Preferred Stock shall hereafter be entitled to
acquire a percentage of capital stock which is hereafter issued equal to the
same percentage of the issued and outstanding Common Stock of the Corporation
as is held (directly or obtainable upon conversion of the Series 1 Preferred
Stock) by such holder of Series 1 Preferred Stock immediately prior to the date
on which the capital stock is to be issued on a fully diluted basis. As used
herein, "issue" (and variations thereof) includes sales and transfers by the
Corporation of treasury shares. From the date hereof until the fifth
anniversary hereof, the total number of shares issuable under clause (v) of
this Section 8(a) shall not exceed 300,000.
(b) The Corporation shall, before issuing any additional capital stock
(other than the exceptions referred to in Section 8(a) hereof), give written
notice thereof to the holders of the Series 1 Preferred Stock. Such notice
shall specify what type of instrument the Corporation intends to issue and the
consideration which the Corporation intends to receive therefor. For a period
of twenty (20) days following receipt by the holders of the Series 1 Preferred
Stock of such notice, the Corporation shall be deemed to have irrevocably
offered to sell to the holders of the Series 1 Preferred Stock a sufficient
number of shares of such capital stock so that the holders of the Series 1
Preferred Stock, if such holders elects to acquire such shares as hereinafter
set forth, shall be capable of acquiring the same percentage of such shares as
the percentage of Common Stock beneficially owned (directly or obtainable upon
conversion of the Series 1 Preferred Stock) by such holders immediately prior
to the proposed issuance on a fully diluted basis. In the event any such offer
is accepted, in whole or in part, by the holders of the Series 1 Preferred
Stock, the Corporation shall sell such shares to holders of the Series 1
Preferred Stock for the consideration and on the precise terms set forth in the
Corporation's notice (given under the first two sentences of this paragraph).
In the event that one or more holders of the Series 1 Preferred Stock elects
not to, or fails to, exercise its rights under this Section within the twenty
(20) day period, then the Corporation may issue the remaining shares of capital
stock to third persons but only for the same consideration set forth in the
Corporation's notice (given under the first two sentences of this paragraph)
and no later than ninety (90) days after the expiration of such twenty day
period. The closing for such transaction shall take place as proposed by the
Corporation with respect to the shares of capital stock proposed to be issued,
at which closing the Corporation shall deliver certificates for the shares of
capital stock in the respective names of the holders of the Series 1 Preferred
Stock against receipt of the consideration therefor.
(c) Notwithstanding any other provision hereof, the preemptive rights
granted to holders of Series 1 Preferred Stock by this Section 8 shall
terminate with respect to a share of Series 1 Preferred Stock upon the
conversion or redemption of such share of Series 1 Preferred Stock in
accordance with the provisions hereof.
9. Call
(a) Call at the Corporation's Option. Subject to the other provisions of
this Section 9, on any date beginning two (2) years after the Issue Date, the
Corporation shall have the right to purchase all (but not less than all)
outstanding shares of Series 1 Preferred Stock (the "Call"), provided, however,
that (i) the Market Price of a share of Common Stock is equal to, or greater
than, the greater of (x) an amount equal to 300% of the then applicable
Conversion Price or (y) $6.00 and (ii) the Common Stock has traded, on the
principal market for the Common Stock, with an average daily volume in excess
of 50,000 shares for a period of 30 consecutive days ending on the day
immediately prior to the Call Date (as hereinafter defined). Any purchase of
the Series 1 Preferred Stock pursuant to this Section 9(a) shall be at a price
per share of Series 1 Preferred Stock equal to the Mandatory Redemption Price.
(b) Procedures for Call at the Corporation's Option. The Corporation's
right to Call the Series 1 Preferred Stock pursuant to Section 9(a) shall be
conditioned upon the Corporation giving notice (the "Call Notice"), by first
class mail, postage prepaid, of the exercise of the Call to the holders of the
Series 1 Preferred Stock not less
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than twenty five (25) days prior to the date of the exercise of the Call (the
"Call Date"). Each Call Notice shall state: (i) the Call Date; (ii) the
Mandatory Redemption Price; (iii) the place or places where certificates for
such shares are to be surrendered for payment of the Mandatory Redemption
Price; (iv) that payment will be made upon presentation and surrender of such
Series 1 Preferred Stock; (v) the then current Conversion Price and the date on
which the right to convert such shares of Series 1 Preferred Stock will expire;
(vi) that dividends on the shares to be purchased shall cease to accrue
following such Call Date; (vii) that such Call is mandatory; and (viii) that
dividends, if any, accrued to and including the Call Date will be paid as
specified in such notice. Notice having been mailed as aforesaid, from and
after the Call Date, unless the Corporation shall be in default in the payment
of the Mandatory Redemption Price (including any accrued and unpaid dividends
to (and including) the Call Date), (A) dividends on the shares of the Series 1
Preferred Stock shall cease to accrue, (B) such shares shall be deemed no
longer outstanding and (C) all rights of the holders thereof as stockholders of
the Corporation (except the right to receive from the Corporation (i) any
moneys payable upon exercise of the Call without interest thereon and (ii) any
shares of Common Stock pursuant to Section 5 hereof) shall cease.
Upon surrender in accordance with the Call Notice of the certificates for
any such shares so purchased (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the Call Notice shall so state),
such shares shall be purchased by the Corporation at the applicable Mandatory
Redemption Price.
Notwithstanding the foregoing, if the Call Notice has been given pursuant
to this Section 9 and any holder of shares of Series 1 Preferred Stock shall,
prior to the close of business on the twentieth (20th) day after receipt of
such Call Notice, give written notice to the Corporation pursuant to Section
5(b) hereof of the conversion of any or all of the shares to be purchased held
by such holder (accompanied by a certificate or certificates for such shares,
duly endorsed or assigned to the Corporation), then (i) the conversion of such
shares to be purchased shall become effective as provided in Section 5 hereof
and (ii) the Corporation's right to Call such shares to be purchased shall
terminate.
10. Definitions. As used herein, the following terms shall have the
respective meanings set forth below:
"Additional Shares of Stock" means all shares of Common Stock issued by
the Corporation after the Issue Date, other than (a) (i) Common Stock to be
issued upon conversion of the Series 1-A Preferred Stock and the Series 1-B
Preferred Stock, (ii) up to an aggregate of 750,000 shares of Common Stock to
be issued pursuant to the 1995 Stock Incentive Plan or other similar equity
plan to be adopted by the Corporation, (iii) Common Stock to be issued upon
the exercise of any option granted to Barry Edwards upon consummation of the
merger of Impax Pharmaceuticals, Inc. and the Corporation and (iv) Common
Stock to be issued upon the exercise of any option or warrant, or the
conversion of any preferred stock, provided that such option, warrant or
preferred stock is outstanding immediately after the effective date of the
merger of Impax Pharmaceuticals, Inc. and the Corporation, and (b) from the
date hereof until the fifth anniversary hereof, up to 750,000 shares in
addition to the shares described in clause (a) hereof, provided that any
change in the number of shares of Common Stock issuable upon exercise of the
existing options, rights (including conversion rights) and warrants due to
any amendment or modification of the terms thereof (but not as a result of
the application of the current antidilution provisions thereof), or the
exchange of any such option, right or warrant for any other option, right,
warrant or security exercisable for or convertible into Common Stock, shall
be included in the calculation of the 750,000 shares described in this clause
(b).
"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 hereof) 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 of 1934, as amended)
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.
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"Business Day" means any day that is not a Saturday, a Sunday or any day
on which banks in the State of New York are authorized or obligated to
close.
"Call" shall have the meaning set forth in Section 9(a).
"Call Date" shall have the meaning set forth in Section 9(b).
"Call Notice" shall have the meaning set forth in Section 9(b).
"Common Stock" means the Corporation's Common Stock, par value $.01 per
share, and shall also include any common stock of the Corporation hereafter
authorized and any capital stock of the Corporation of any other class
hereafter authorized which is not preferred as to dividends or assets over
any other class of capital stock of the Corporation or which has ordinary
voting power for the election of directors of the Corporation.
"Conversion Price" means the Conversion Price per share of Common Stock
into which the Series 1-A Preferred Stock or the Series 1-B Preferred
Stock, as the case may be, is convertible, as such Conversion Price may be
adjusted pursuant to Section 5 hereof. The initial Conversion Price for the
Series 1-A Preferred Stock will be $2.00. The initial Conversion Price for
the Series 1-B Preferred Stock will be $1.4989.
"Convertible Securities" means evidences of indebtedness, shares of
preferred stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in cash
or property, for Additional Shares of Stock, either immediately or upon the
occurrence of a specified date or a specified event, other than the Series
1 Preferred Stock.
"Designated Entity" means (i) as long as any shares of Series 1
Preferred Stock are held by any Fleming Holder, Fleming Capital Management,
320 Park Avenue, NY, NY 10022, Attention: Robert L. Burr and David J.
Edwards and (ii) if no shares of Series 1 Preferred Stock are held by a
Fleming Holder, the entity designated by the Transferee who holds the
largest number of such shares (in which case such Transferee shall provide
notice to the Corporation of such entity in accordance with Section 5(d)
hereof).
"Director Holder" means the (i) Fleming Holders, (ii) Chemical Company
of Malaysia Berhad, (iii) President (BVI) International Investment Holdings
Ltd., and (iv) China Development Industrial Bank Inc.
"Effective Time" shall mean the Effective Time, as such term is defined
in the Agreement and Plan of Merger, dated as of July 26, 1999, by and
between the Corporation and Impax Pharmaceuticals, Inc.
"Final Surrender Date" shall have the meaning set forth in Section 6(e).
"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 and (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 any shares of Series 1 Preferred
Stock (the "Shares") or any shares of Common Stock obtained or obtainable
upon conversion of the Shares (the "Conversion Shares"). The transferor and
the transferee shall notify the Company in writing as to the transferee's
status as a Fleming Holder in accordance with this definition, and shall
notify the Company if such transferee ceases to be a Fleming Holder. The
Conversion Shares shall 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.
"Fundamental Change" means any of the following events:
(i) the sale (or functional equivalent of a sale) of all or substan
tially all of the assets of the Corporation;
(ii) any event (A) which results in the registration of the
Corporation's Common Stock under the Securities Exchange Act of 1934, as
amended, to be no longer required; (B) requiring the Corporation
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to make a filing under Section 13(e) of the Securities Exchange Act of
1934, as amended; (C) reducing substantially or eliminating the public
market for shares of Common Stock of the Corporation; or (D) causing a
delisting of the Corporation's Common Stock from the Nasdaq Stock
Market;
(iii) any consolidation of the Corporation with, or merger of the
Corporation into, any other person, any merger of another person into
the Corporation or any other business combination involving the
Corporation which results in the holders of the Corporation's stock
immediately prior to giving effect to such transaction owning shares of
capital stock of the surviving corporation in such transaction
representing (x) fifty percent (50%) or less of the total voting power
of all shares of capital stock of such surviving corporation entitled to
vote generally in the election of directors or (y) fifty percent (50%)
or less of the total value of all capital stock of such surviving
corporation; or
(iv) the commencement by the Corporation of a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law; the consent by the Corporation to
the entry of an order for relief in an involuntary case under such law
or to the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or
of any substantial part of its property; any assignment by the
Corporation for the benefit of its creditors; any admission by the
Corporation in writing of its inability to pay its debts generally as
they become due; the entry of a decree or order for relief in respect of
the Corporation by a court having jurisdiction in the premises in an
involuntary case under Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
other similar official) of the Corporation or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs,
and on account of any such event the Corporation shall liquidate,
dissolve or wind up; or the liquidation, dissolution or winding up of
the Corporation under any other circumstances.
"Issue Date" means, as to any share of Series 1 Preferred Stock, the
date of original issuance thereof by the Corporation.
"Junior Securities" mean the Common Stock and any other class of capital
stock or series of preferred stock existing on the date hereof, or
hereafter created by the Corporation which does not expressly provide that
it ranks senior to or pari passu with the Series 1 Preferred Stock as to
dividends, other distributions, liquidation preference or otherwise.
"Liquidation Value" shall have the meaning set forth in Section 3(a).
"Mandatory Redemption Price" shall have the meaning set forth in Section
6(a).
"Market Price" means, as to any security on the date of determination
thereof, the average of the closing prices of such security's sales on all
principal United States securities exchanges on which such security may at
the time be listed, or, if there shall have been no sales on any such
exchange on any day, the last trading price of such security on such day,
or if such there is no such price, the average of the bid and asked prices
at the end of such day, on the Nasdaq Stock Market, in each such case
averaged for a period of twenty (20) consecutive Business Days prior to the
day when the Market Price is being determined (except that, for purposes of
the calculation of the Market Price under clause (i) of the first proviso
in Section 9(a), such prices will be averaged for a period of thirty (30)
consecutive days prior to the day when the Market Price is being determined
under Section 9(a)); provided that if such security is listed on any United
States securities exchange the term "Business Days" as used in this
sentence means business days on which such exchange is open for trading.
Notwithstanding the foregoing, with respect to the issuance of any security
by the Corporation in an underwritten public offering, the Market Price
shall be the per share purchase price paid by the underwriters. If at any
time such security is not listed on any exchange or the Nasdaq Stock
Market, the Market Price shall be deemed to be the fair value thereof
determined by an investment banking firm of nationally recognized standing
selected by the Board of Directors of the Corporation and acceptable to
holders of a majority of the Series 1 Preferred Stock, as of the most
recent practicable date when the determination is to be made, taking into
account the value of the Corporation as a going concern, and without taking
into account any lack of liquidity of such security or any discount for a
minority interest.
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"Market Value" means the amount obtained by multiplying the Market Price
by the number of securities issued.
"Optional Redemption Price" shall have the meaning set forth in Section
6(a).
"Parity Securities" mean any class of capital stock or series of
preferred stock existing on the date hereof or hereafter created by the
Corporation with the prior written consent of the holders representing at
least 80% of the shares of Series 1 Preferred Stock, which expressly
provides that it ranks pari passu with the Series 1 Preferred Stock as to
dividends, other distributions, liquidation preference or otherwise;
provided that the Corporation may, without such prior written consent,
issue at one or more times, preferred stock that ranks pari passu with the
Series 1 Preferred Stock for an aggregate consideration not exceeding $10
million.
"Payment Amount" means such amount as is necessary to cause the net
present value to equal zero as of any date of all Cash Inflows and all Cash
Outflows (each as defined below) with respect to the Series 1 Preferred
Stock being repur chased pursuant to Section 6 or held on the date of the
distribution pursuant to Section 3, as the case may be, when calculated
with an annual interest rate (compounded annually) equal to twelve percent
(12%). "Cash Inflows" as used herein means all cash payments, including the
Payment Amount, received by the holders of the Series 1 Preferred Stock as
a dividend or distribution with respect to, or as consideration for the
sale of, such Series 1 Preferred Stock (whether such payments are received
from the Corporation or any other Person). "Cash Outflows" as used herein
means the sum of all cash payments made by the holders of the Series 1
Preferred Stock to the Corporation (including any predecessor corporation
or any other corporation which was merged with and into the Corporation or
any of its predecessor corporations) in connection with the acquisition of
such Series 1 Preferred Stock. (For the avoidance of doubt, Cash Inflows
and Cash Outflows with respect to any Series 1 Preferred Stock not included
in the Series 1 Preferred Stock being repurchased pursuant to Section 6
hereof as part of the transaction for which the Payment Amount is then
being calculated shall not be included in the Cash Inflows and Cash
Outflows used to make such calculation (for purposes of Section 6 only),
and only the Cash Inflows and Cash Outflows with respect to the Series 1
Preferred Stock which are then being repurchased pursuant to Section 6
hereof in the transaction for which the Payment Amount is then being
calculated shall be used in the Cash Inflows and Cash Outflows used to make
such calculation (for purposes of Section 6 only).)
"Person or "person" shall mean an individual, partnership, corporation,
trust, unincorporated organization, joint venture, government or agency,
political subdivision thereof, or any other entity of any kind.
"Preferred Director" shall have the meaning set forth in Section 4(c).
"Preferred Directors" shall have the meaning set forth in Section 4(c).
"Repurchase Date" shall have the meaning set forth in Section 6(d).
"Series 1 Liquidation Preference" shall have the meaning set forth in
Section 3(a).
"Series 1 Liquidation Preference" shall have the meaning set forth in
Section 3(a).
"Series 1 Preferred Stock" shall have the meaning set forth in the
resolution paragraph in the preamble.
"Series 1-A Preferred Stock" shall have the meaning set forth in the
resolution paragraph in the preamble.
"Series 1-B Preferred Stock" shall have the meaning set forth in the
resolution paragraph in the preamble.
"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.
11. Notices. Except as may otherwise be provided for herein, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given (i) upon receipt, in the case of a notice of
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conversion given to the Corporation as contemplated in Section 5(b) hereof or
in the case of a notice of redemption at the holder's option given to the
Corporation as contemplated in Section 6(d) hereof, or (ii) in all other cases,
upon the earlier of (x) receipt of such notice, (y) three Business Days after
the mailing of such notice if sent by registered mail (unless first-class mail
shall be specifically permitted for such notice under the terms hereof) or (z)
the Business Day following sending such notice by overnight courier, in any
case with postage or delivery charges prepaid, addressed: if to the
Corporation, to its offices at 30831 Huntwood Avenue, Hayward, California
94544, Attention: President, or to an agent of the Corporation designated as
permitted by the Certificate of Incorporation, or, if to any holder of the
Series 1 Preferred Stock, to such holder at the address of such holder of the
Series 1 Preferred Stock as listed in the stock record books of the
Corporation, or to such other address as the Corporation or holder, as the case
may be, shall have designated by notice similarly given.
IN WITNESS WHEREOF, Global Pharmaceutical Corporation has caused this
Certificate of Designations to be signed by its Chief Executive Officer and
attested to by its Secretary, all as of the 8th day of November, 1999.
GLOBAL PHARMACEUTICAL CORPORATION
By:/s/ Barry R. Edwards
-------------------------------------
Name: Barry R. Edwards
Title: Chief Executive Officer
Attest:
By:/s/ Cornel C. Spiegler
-------------------------------------
Name: Cornel C. Spiegler
Title: Secretary
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ANNEX G
IMPAX LABORATORIES, INC.
1999 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the Plan is to attract, retain and motivate key
personnel by providing a means whereby the Company may grant (i) Incentive
Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights
and/or (iv) Stock Bonuses to officers, employees, directors and consultants of
the Company and its Affiliates. In addition, Non-Employee Directors shall
receive automatic grants of Nonstatutory Stock Options under the Plan.
2. Administration.
2.1 Administration by Board. The Board shall administer the Plan unless
and to the extent that the Board delegates its power and authority to a
Committee as provided in Section 2.3.
2.2 Power of Board. Subject to the provisions of the Plan, the Board,
acting in its sole discretion, shall have the following power and authority:
2.2.1 to determine to which of the eligible individuals, and the time or
times at which, Awards shall be granted;
2.2.2 to determine the number of shares of Common Stock subject to
Awards granted under the Plan and, where applicable, the price to be paid
for the shares of Common Stock subject to each Award;
2.2.3 to determinate the terms and conditions of each Award (which need
not be identical);
2.2.4 to interpret the terms of the Plan and Awards granted under it,
and to establish, amend and revoke rules and regulations for its
administration (and, in the exercise of this power, may correct any defect,
omission or inconsistency in the Plan or in any Award Agreement, in a
manner and to the extent it deemed necessary or desirable);
2.2.5 to accelerate the exercisability or vesting of any Award;
2.2.6 to amend the terms of the Plan or any Award;
2.2.7 to adopt forms of Award Agreements for use under the Plan;
2.2.8 to allow Participants to satisfy the minimum withholding tax
obligations by electing to have the Company withhold from the shares
covered by an Award that number of shares having a Fair Market Value equal
to the amount required to be withheld; and
2.2.9 to make all determinations deemed necessary or advisable for the
administration of the Plan.
2.3 Delegation. Except with regard to Awards to Non-Employee Directors,
the Board may delegate any or all of its powers and authority relating to the
administration of the Plan (but not the power to amend or terminate the Plan)
to a Committee of two (2) or more members of the Board. If and to the extent
that administrative responsibility is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers and
authority theretofore possessed by the Board, including the power to delegate
to a subcommittee any of the administrative powers the Committee is authorized
to exercise (and, as appropriate, references in the Plan to the Board shall be
deemed to be the Committee or subcommittee). If a Committee is appointed, then,
unless the Board determines otherwise, its members shall consist solely of
individuals who qualify as "non-employee directors" under Rule 16b-3
promulgated under Section 16 of the Exchange Act and as "outside directors"
under Section 162(m) of the Code. If for any reason the Committee does not
satisfy the "non-employee director" requirements of Rule 16b-3 or the "outside
director" requirements of Section 162(m) of the Code, such non-compliance shall
not affect the validity of the awards, interpretations or other actions of the
Committee. The Board may delegate nondiscretionary administrative duties to
such employees of the Company as it deems proper.
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2.4 Indemnification. The Company shall indemnify and hold harmless to the
fullest extent permitted by law each member of the Board and the Committee and
any employee or director of the Company to whom any duty or power relating to
the administration or interpretation of the Plan is delegated from and against
any loss, cost, liability (including any sum paid in settlement of a claim with
the approval of the Board), damage and expense (including legal and other
expenses incident thereto) arising out of or incurred in connection with the
Plan, unless and except to the extent attributable to such person's fraud or
wilful misconduct.
2.5 Decisions. All decisions, determinations and interpretations of the
Board shall be final, binding and conclusive on all persons.
3. Share Reserve. Subject to adjustment pursuant to Section 11, the
aggregate number of shares of Common Stock that may be issued pursuant to the
Plan is 2,400,000 shares. If any Option or Stock Appreciation Right expires or
is terminated without being exercised in whole or in part, the unexercised or
released shares from such Option or Stock Appreciation Right shall be available
for future issuance under the Plan. Shares that are subject to an Award that is
forfeited or cancelled or that are withheld in order to pay the purchase price
for shares of Common Stock covered by any Award or to satisfy the tax
withholding obligations associated with any Award under the Plan shall be
available for future issuance under the Plan. Shares of Common Stock available
for issuance under the Plan may be authorized and unissued, held by the Company
in its treasury or otherwise acquired for purposes of the Plan. No fractional
shares of Common Stock shall be issued under the Plan. Subject to adjustment
pursuant to Section 11, the maximum number of shares of Common Stock with
respect to which Options or Stock Appreciation Rights may be granted during any
calendar year to any employee may not exceed 300,000 shares.
4. Eligibility. Awards may be granted under the Plan to officers,
employees, directors and consultants of the Company or its Affiliates.
Incentive Stock Options may be granted only to employees of the Company or its
Affiliates. Non-Employee Directors shall receive automatic grants of
Nonstatutory Stock Options pursuant to Section 8 of the Plan. The Company may
also, from time to time, assume outstanding awards granted by another company,
whether in connection with an acquisition of such other company or otherwise,
by either (i) granting an Award under the Plan in replacement of the award
assumed by the Company, or (ii) treating the assumed award as if it had been
granted under the Plan.
5. Options.
5.1 Option Grant. Subject to the provisions hereof, the Board may grant
Incentive Stock Options and Nonstatutory Stock Options to eligible personnel on
such terms and conditions as the Board deems appropriate.
5.2 Exercise Price. The exercise price of an Option shall not be less than
the par value of the Common Stock, provided that (i) the exercise price of an
Incentive Stock Option shall not be less than the Fair Market Value of the
Common Stock on the date the Option is granted, and (ii) the exercise price of
an Incentive Stock Option granted to a Ten Percent Stockholder shall not be
less than 110% of the Fair Market Value of the Common Stock on the date the
Option is granted.
5.3 Option Term. No Option granted under the Plan may be exercisable (if
at all) more than ten (10) years after the date the Option is granted (or, in
the case of an Incentive Stock Option granted to a Ten Percent Stockholder,
five (5) years).
5.4 Vesting and Exercise of Options. The Board may establish such vesting
and other conditions and restrictions on the exercise of an Option and/or upon
the issuance of Common Stock in connection with the exercise of an Option as it
deems appropriate. Subject to satisfaction of applicable withholding
requirements, once vested and exercisable, an Option may be exercised by
transmitting to the Company: (i) a notice specifying the number of shares to be
purchased and (ii) payment of the exercise price. The exercise price of an
Option may be paid in cash and/or such other form of payment as the Company may
permit.
5.5 Rights as a Stockholder. No shares of Common Stock shall be issued in
respect of the exercise of an Option until full payment of the exercise price
and the applicable tax withholding obligation with respect to such exercise has
been made or provided for. The holder of an Option shall have no rights as a
stockholder with respect to any shares covered by an Option until the date such
shares are issued. Except as otherwise provided herein, no adjustments shall be
made for dividend distributions or other rights for which the record date is
prior to the date such shares are issued.
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5.6 Buy Out and Settlement. The Board, on behalf of the Company, may at
any time offer to buy out any Option on such terms and conditions as the Board
shall establish.
5.7 Options Non-Transferable. Options granted under the Plan shall not be
transferable or assignable by a Participant, and may not be made subject to
execution, attachment or similar process, otherwise than by will or by the laws
of descent and distribution, and shall be exercisable during the lifetime of a
Participant only by the Participant. Notwithstanding the foregoing, the Board
may determine at the time of grant or thereafter that a Nonstatutory Stock
Option is transferable in whole or part to such persons, under such
circumstances, and subject to such conditions as the Board may prescribe.
5.8 Assumed Options. In the event the Company assumes an option granted by
another company, the exercise price and the number and nature of shares
issuable upon exercise of such assumed option shall be adjusted appropriately
as determined by the Board. In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option need not be
granted at Fair Market Value on the date of grant and may instead be granted
with a similarly adjusted exercise price.
5.9 Replacement Options. Without in any way limiting the authority of the
Board to make or not to make grants of Options, the Board shall have the
authority (but not an obligation) to include as part of any Award Agreement a
provision entitling the Participant to a replacement Option in the event the
Participant exercises the Option evidenced by the Award Agreement, in whole or
in part, by surrendering other shares of Common Stock in accordance with the
Plan and the terms and conditions of the Award Agreement.
6. Stock Appreciation Rights.
6.1 Stock Appreciation Right Grant. Subject to the provisions hereof, the
Board may award Stock Appreciation Rights to eligible personnel upon such terms
and conditions as it deems appropriate. A Stock Appreciation Right is an Award
entitling the Participant, upon exercise, to receive an amount, in cash or
shares of Common Stock or a combination thereof, as determined by the Board in
its sole discretion, determined with reference to the appreciation, if any, in
the fair market value of Common Stock during the period beginning on the date
the Stock Appreciation Right is granted and ending on the date the Stock
Appreciation Right is exercised.
6.2 Types of Stock Appreciation Rights. Stock Appreciation Rights may be
awarded under the Plan in conjunction with an Option ("tandem SARs") or
independent of any Option ("stand-alone SARs"). Tandem SARs awarded in
conjunction with a Nonstatutory Stock Option may be awarded either at or after
the time the Nonstatutory Stock Option is granted. Tandem SARs awarded in
conjunction with an Incentive Stock Option may only be awarded at the time the
Incentive Stock Option is granted.
6.3 Exercisability. Except as otherwise provided herein, a tandem SAR
shall be exercisable only at the same time and to the same extent and subject
to the same conditions as the related Option is exercisable. The exercise of a
tandem SAR shall cancel the related Option to the extent of the shares of
Common Stock with respect to which the Stock Appreciation Right is exercised,
and vice versa. Tandem SARs may be exercised only when the Fair Market Value of
the Common Stock to which it relates exceeds the Option exercise price. The
Board may impose such additional service or vesting conditions upon the
exercise of a Stock Appreciation Right (tandem or stand-alone) as it deems
appropriate.
6.4 Exercise. A Stock Appreciation Right may be exercised by giving
written notice to the Company identifying the Stock Appreciation Right that is
being exercised, specifying the number of shares covered by the exercise and
containing such other information or statements as the Board may require. The
Board may establish such rules and procedures as it deems appropriate for the
exercise of Stock Appreciation Rights under the Plan. Upon the exercise of a
Stock Appreciation Right, the Participant shall be entitled to receive an
amount (in cash and/or shares of Common Stock as determined by the Board) equal
to the product of (i) the number of shares with respect to which the Stock
Appreciation Right is being exercised and (ii) the difference between the Fair
Market Value of a share of Common Stock on the date the Stock Appreciation
Right is exercised and the Fair Market Value of a share of Common Stock on the
date the Stock Appreciation Right is granted.
6.5 SARs Non-Transferable. Stock Appreciation Right shall not be
transferable by a Participant other than upon the Participant's death to a
beneficiary designated by the Participant in a manner acceptable to the
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Board, or, if no designated beneficiary shall survive the Participant, pursuant
to the Participant's will or by the laws of descent and distribution. All Stock
Appreciation Rights shall be exercisable during the Participant's lifetime only
by the Participant. A Tandem SAR shall be transferable, to the extent permitted
above, only with the underlying Option.
7. Stock Bonus Awards. Subject to the provisions hereof, the Board may
grant Stock Bonus Awards to eligible personnel upon such terms and conditions
as the Board deems appropriate. The terms and conditions of Stock Bonus Awards
may change from time to time, and the terms and conditions of each Award
Agreement need not be identical.
7.1 Consideration. A Stock Bonus shall be awarded in consideration for
past or future services rendered to the Company or its Affiliates.
7.2 Vesting. Shares of Common Stock awarded pursuant to a Stock Bonus may,
but need not, be subject to a vesting schedule determined by the Board.
7.3 Transferability. Shares of Common Stock received pursuant to a Stock
Bonus Award shall be transferable by the Participant only upon such terms and
conditions as are set forth in the Award Agreement, as the Board shall
determine in its discretion, so long as such shares remain subject to the terms
of the Award Agreement.
8. Non-Employee Director Stock Option Awards. Subject to the provisions
hereof and without further action by the Board, during the term of the Plan:
(i) each Non-Employee Director then in service shall be granted a Nonstatutory
Stock Option to purchase 2,000 shares of Common Stock on the trading day
following the Effective Date, and (ii) each Non-Employee Director then in
service shall be granted a Nonstatutory Stock Option to purchase 2,000 shares
of Common Stock on the trading day following each annual meeting of the
Company's stockholders that occurs at least one year after his or her
commencement of service as a Non-Employee Director. Unless otherwise determined
by the Board, each Option granted pursuant to this Section 8 shall be subject
to the following terms and conditions:
8.1 Exercise Price. The purchase price per share shall be equal to the
Fair Market Value of the Common Stock on the date the Option is granted.
8.2 Vesting Conditions. Each Option shall vest and become exercisable in
annual one-third increments on the first, second and third anniversaries of the
date the Option is granted, provided that the Participant remains in the
continuous service on the Board through each applicable anniversary date.
8.3 Effect of Termination of Service. If a Non-Employee Director's service
terminates for any reason (other than death or Disability) or no reason, then
any Option held by the Non- Employee Director, to the extent not then
exercisable, shall thereupon terminate. Any Option held by the Non-Employee
Director which is exercisable at the time of such termination of service shall
remain exercisable during the ninety (90) day period following such termination
or, if sooner, until the expiration of the stated term of the Option and, to
the extent not exercised within such period, shall thereupon terminate. The
provisions of Section 9.1.1 shall apply in the event a Non-Employee Director's
service terminates due to his or her death or Disability.
8.4 Capital Transactions; Change in Control. The provisions of Section 11
shall apply.
8.5 Expiration. Except as otherwise provided herein, if not previously
exercised, each Option shall expire on the tenth anniversary of the date the
Option is granted.
9. Termination of Employment or Service. Except as specifically provided
in Section 8, and unless otherwise determined by the Board at grant or, if no
rights of the Participant are thereby reduced, thereafter, and subject to
earlier termination in accordance with the provisions hereof, the following
rules apply with regard to Awards held by a Participant (other than Awards
covered by Section 8) at the time of his or her termination of employment or
other service with the Company and its Affiliates:
9.1 Stock Options and Stock Appreciation Rights.
9.1.1 If a Participant's employment or service terminates due to his or
her death or Disability, then (i) any Option or Stock Appreciation Right
held by the Participant which is not then exercisable shall
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terminate, and (ii) any such Option or Stock Appreciation Right may be
exercised, to the extent otherwise exercisable on the date his or her
employment or service terminates, by the Participant (or, in the event of
death, his or her legal representative) at any time within one year from
the date his or her employment or service terminates, but in no event after
expiration of the stated term, and, to the extent not exercised within such
time period, shall thereupon terminate.
9.1.2 If a Participant's employment or service is terminated by the
Company or its Affiliates for Cause or if, at the time of a Participant's
termination, grounds for termination for Cause exist, then, notwithstanding
anything to the contrary contained herein, any Option or Stock Appreciation
Right held by the Participant (whether or not otherwise vested) shall
immediately terminate and cease to be exercisable. "Cause" means (i) in the
case where there is no employment or consulting agreement between the
Participant and the Company or its Affiliates or where such an agreement
exists but does not define "Cause" (or words of like import), a termination
classified by the Company as a termination due to the participant's
dishonesty, fraud, insubordination, willful misconduct, refusal to perform
services or materially unsatisfactory performance of his or her duties, or
(ii) in the case where there is an employment or consulting agreement
between the Participant and the Company or its Affiliates, a termination
that is or would be deemed for "cause" (or words of like import) under such
agreement.
9.1.3 If a Participant's employment or service terminates for any reason
(other than death, Disability or Cause or at a time when Cause exists) or
no reason, then any Option or Stock Appreciation Right held by the
Participant, to the extent not then exercisable, shall thereupon terminate.
Any Option or Stock Appreciation Right held by the Participant which is
exercisable at the time of such termination of employment or service shall
remain exercisable during the thirty (30) day period following such
termination of employment or service or, if sooner, until the expiration of
the stated term of the Option or Stock Appreciation Right and, to the
extent not exercised within such period, shall thereupon terminate.
9.2 Stock Bonuses. If a Participant's employment or service terminates,
then any shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the Award Agreement shall be
forfeited.
10. Miscellaneous.
10.1 No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Award granted pursuant thereto shall confer upon any
Participant or other holder of Awards any right to continue to be employed by
or serve the Company or an Affiliate in the capacity in effect at the time the
Award was granted or shall affect the right of the Company or an Affiliate to
terminate such employment or service.
10.2 Investment Assurances. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to reflect conditions imposed
under an Award or to comply with applicable securities laws, including, but not
limited to, legends restricting the transfer of the stock.
10.3 Withholding Obligations. As a condition to the exercise of any Award
or the delivery of any shares of Common Stock pursuant to any Award or the
lapse of restrictions on any Award, or in connection with any other event that
gives rise to a federal or other governmental tax withholding obligation on the
part of the Company relating to an Award, (i) the Company may deduct or
withhold (or cause to be deducted or withheld) from any payment or distribution
to a Participant whether or not pursuant to the Plan or (ii) the Company shall
be entitled to require that the Participant remit cash to the Company (through
payroll deduction or otherwise), in each case in an amount sufficient in the
opinion of the Company to satisfy such withholding obligation. If the event
giving rise to the withholding obligation involves a transfer of shares of
Common Stock, then, unless the applicable Award Agreement provides otherwise,
at the discretion of the Board, the Participant may satisfy the withholding
obligation described under this Section 10.3 by electing to have the Company
withhold shares of Common Stock (which withholding shall be at a rate not in
excess of the statutory minimum rate) or by tendering previously owned shares
of Common Stock, in each case having a Fair Market Value equal to the amount of
tax to be withheld (or by any other mechanism as may be required or appropriate
to conform with local tax and other rules).
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11. Adjustments upon Changes in Common Stock.
11.1 Capitalization Adjustments. If any change is made in the Common Stock
subject to the Plan, or subject to any Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan shall be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
and the maximum number of securities that may be awarded to any employee, and
the outstanding Awards shall be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to such outstanding
Awards. The Board, the determination of which shall be final, binding and
conclusive, shall make such adjustments. The conversion of any convertible
securities of the Company shall not be treated as a transaction "without
receipt of consideration" by the Company.
11.2 Change in Control -- Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then Awards outstanding under the
Plan shall terminate if not exercised (if applicable) immediately prior to, or
simultaneous with, such event.
11.3 Change in Control -- Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (i) a sale of all or substantially all of the assets of
the Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Awards outstanding under
the Plan or shall substitute similar awards (including an award to acquire the
same consideration paid to the stockholders in the transaction described in
this Section 11.3 for those Awards outstanding under the Plan). In the event
any surviving corporation or acquiring corporation refuses to assume such
Awards or to substitute similar awards for those Awards outstanding under the
Plan, then the vesting of all outstanding Awards (and, if applicable, the time
during which such Awards may be exercised) shall be accelerated in full, and
the Awards shall terminate if not exercised (if applicable) at or prior to such
event.
12. Amendment and Termination. The Board may amend or terminate the Plan,
provided, however, that no such action may adversely affect the rights of a
Participant under any outstanding Award without the consent of the Participant.
Except as otherwise provided in Section 11, any amendment which would increase
the number of shares of Common Stock for which Awards may be granted under the
Plan (in the aggregate or on an individual basis) or modify the class of
employees eligible to receive Awards under the Plan shall be subject to the
approval of the stockholders of the Company. The Board may amend the terms of
any Award Agreement at any time and from time to time, provided, however, that
any amendment which would adversely affect the rights of the Participant may
not be made without the consent of the Participant.
13. Effective Date of Plan. The Plan shall become effective at the
Effective Time.
14. Definitions.
14.1 "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
14.2 "Award" means any Option, Stock Appreciation Right or Stock Bonus
granted under the Plan.
14.3 "Award Agreement" means a written agreement or other instrument
between the Company and a holder of an Award evidencing the terms and
conditions of an individual Award.
14.4 "Board" means the Board of Directors of the Company.
14.5 "Code" means the Internal Revenue Code of 1986, as amended.
14.6 "Committee" means a committee appointed by the Board in accordance
with Section 2.3.
14.7 "Common Stock" means the common stock, par value $.01, of the
Company.
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14.8 "Company" means Impax Laboratories, Inc., a Delaware corporation.
14.9 "Disability" means the dates and permanent disability of a person
within the meaning of Section 22(e)(3) of the Code.
14.10 "Effective Time" means the "Effective Time" as defined in the
Agreement and Plan of Merger by and between Global Pharmaceuticals Corporation
and Impax Pharmaceuticals, Inc. dated July 26, 1999.
14.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
14.12 "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows: (i) if the Common Stock is listed on any
established stock exchange or traded on the NASDAQ National Market System or
the NASDAQ SmallCap Market, the Fair Market Value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or market (or the exchange or
market with the greatest volume of trading in the Common Stock) on the last
market trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable; and (ii) in
the absence of such markets for the Common Stock, the Fair Market Value shall
be determined in good faith by the Board.
14.13 "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
14.14 "Non-Employee Director" means a member of the Board who is not also
an employee of, or consultant to, the Company or its Affiliates.
14.15 "Nonstatutory Stock Option" means an Option that does not qualify as
an Incentive Stock Option.
14.16 "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
14.17 "Participant" means a person to whom an Award is granted pursuant to
the Plan or, if applicable, such other person who holds an Award.
14.18 "Plan" means this Impax Laboratories, Inc. 1999 Equity Incentive
Plan.
14.19 "Securities Act" means the Securities Act of 1933, as amended.
14.20 "Stock Appreciation Right" means a stock appreciation right granted
pursuant to Section 6 of the Plan.
14.21 "Stock Bonus" means a stock bonus granted pursuant to Section 7 of
the Plan.
14.22 "Ten Percent Stockholder" means a person who owns (or is deemed to
own pursuant to Section 424 (d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Global's Indemnification
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 or director 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 bylaw,
agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Section TWELFTH of Global's
certificate of incorporation ("Global's Certificate") provides that Global
shall indemnify each person who is or was a director, officer, employee or
agent of Global (including the heirs, executors, administrators or estate of
such person) or is or was serving at the request of Global 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 Global's 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 bylaw, agreement, vote of stockholders 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 Global 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 Global. Section
ELEVENTH of Global's Certificate provides that a director of Global shall not
be personally liable to Global or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to Global 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
bylaws of Global provide that, to the fullest extent permitted by applicable
law, Global 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 Global or was serving at the request of Global.
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Impax's Indemnification
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers who are parties or are threatened to be made parties to any
proceeding (with certain exceptions) by reason of the fact that the person is
or was an agent of the corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with the proceeding if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation.
Section 204 of the California Corporations Code provides that this limitation
on liability has no effect on a director's liability (i) for acts or omissions
that involve intentional misconduct or a knowing and culpable violation of law,
(ii) for acts or omissions that a director believes to be contrary to the best
interests of the corporation or its stockholders or that involve the absence of
good faith on the part of the director, (iii) for any transaction from which a
director derived an improper personal benefit, (iv) for acts or omissions that
show a reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of a serious injury to the corporation or its shareholders, (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's duty to the corporation or its shareholders,
(vi) under Section 310 of the California Corporations Code (concerning
contracts or transactions between the corporation and a director) or (vii)
under Section 316 of the California Corporations Code (concerning directors'
liability for improper dividends, loans and guarantees). Section 317 does not
extend to acts or omissions of a director in his capacity as an officer.
Further, Section 317 has no effect on claims arising under federal or
state securities laws and does not affect the availability of injunctions and
other equitable remedies available to Impax's stockholders for any violation of
a director's fiduciary duty to Impax or its shareholders. Although the validity
and scope of the legislation underlying Section 317 have not yet been
interpreted to any significant extent by the California courts, Section 317 may
relieve directors of monetary liability to Impax for grossly negligent conduct,
including conduct in situations involving attempted takeovers of Impax.
In accordance with Section 317, the Restated Articles of Incorporation, as
amended, of Impax ("Impax's Articles") limit the liability of a director to
Impax or its stockholders for monetary damages to the fullest extent
permissible under California law. Impax's Articles further authorize Impax to
provide indemnification to its agents (including officers and directors),
subject to the limitations set forth above. Impax's Articles and Impax's bylaws
further provide for indemnification of corporate agents to the maximum extent
permitted by the California Corporations Code.
The foregoing summaries are necessarily subject to the complete text of
the statute, Impax's Articles, Impax's bylaws and the agreements referred to
above and are qualified in their entirety by reference thereto.
Item 21. Exhibits
The following exhibits are filed with this joint proxy
statement/prospectus or incorporated herein by this reference.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ---------- --------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger, dated as of July 26, 1999, between Global Pharmaceutical
Corporation and Impax Pharmaceuticals, Inc., as amended (included as Annex A to the joint
proxy statement/prospectus).
3.1 Restated Certificate of Incorporation of Global Pharmaceutical Corporation. (1)
3.2 Form of Certificate of Amendment of Restated Certificate of Incorporation of Global
Pharmaceutical Corporation (included as Annex E to the joint proxy statement/prospectus).
3.3 Bylaws. (1)
3.4 Certificate of Designations of Series 1-A Convertible Preferred Stock and Series 1-B
Convertible Stock (included as Annex F to the joint proxy statement/prospectus).
4 Specimen Certificate of the combined company's common stock, par value $.01 per share. (1)
</TABLE>
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<TABLE>
<S> <C>
5* Opinion of Fulbright & Jaworski L.L.P. regarding the legality of securities being registered.
8* Opinion of Fulbright & Jaworski L.L.P. regarding federal income tax matters.
9.1* Form of Stockholders' Agreement, dated as of ____________, 1999, between Global
Pharmaceutical Corporation and certain stockholders.
9.2* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and China Development Industrial Bank.
9.3* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and Chiin-Hsiung Hsiao.
9.4* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and Chung-Chiang Hsu.
9.5* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and President (BVI) International Investment Holdings.
9.6* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and Chemical Company of Malaysia Berhad.
10.1 Employment Agreement of Pieter Groenewoud, dated as of October 1, 1995. (1)
10.2 Employment Agreement of Cornel C. Spiegler, dated as of September 27, 1995. (1)
10.3 Global Pharmaceutical Corporation's 1995 Stock Incentive Plan. (1)
10.4 1999 Impax Laboratories, Inc. Equity Incentive Plan (included as Annex G to the joint proxy
statement/prospectus).
10.5 Form of Amended Agreement between Global Pharmaceutical Corporation and Merck
Kommanditgesellschaft auf Aktien regarding the issuance of common stock Purchase Warrants,
dated as of November, 1995. (1)
10.6 Form of Amended Manufacturing Agreement between Global Pharmaceutical Corporation and
Genpharm, Inc., dated as of November, 1995. (1)
10.7 Acquisition Agreement between PIDC-Financing Corporation and GPC Florida, dated September
17, 1993. (1)
10.8 Security Agreement by and between Global Pharmaceutical Corporation and PIDC Local
Development Corporation, dated October 15, 1993, with related Note and Commitment, and
Waiver and Consent dated November 13, 1995. (1)
10.9 Loan Agreement by and between PIDC Financing Corporation and the Pennsylvania Industrial
Development Authority ("PIDA") for a loan in a principal amount not to exceed $1,026,000,
dated April 18, 1994, with Waiver and Consent dated November 13, 1995. (1)
10.10 Open-End Mortgage between PIDC Financing Corporation and PIDA dated April 18, 1994. (1)
10.11 Assignment of Installment Sale Agreement by and among PIDC Financing Corporation and
GPC Florida dated April 18, 1994. (1)
10.12 Installment Sale Agreement by and between PIDC Financing Corporation and GPC Florida,
dated April 18, 1994. (1)
10.13 PIDC Financing Corporation Note to the PIDA, dated April 18, 1994. (1)
10.14 Secured $500,000 Note from Global Pharmaceutical Corporation to PIDC Local Development
Corporation. (1)
10.15 Consent, Subordination and Assumption Agreement by and among GPC Florida, PIDC
Financing Corporation and PIDA, dated April 18, 1994. (1)
10.16 Employment agreement by and between Global Pharmaceutical Corporation and Marc M.
Feinberg dated September 30, 1996. (2)
10.17 Technical Collaboration Agreement by and between Global Pharmaceutical Corporation and
Genpharm Inc. dated January 8, 1997. (3)
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.18 Employment agreement by and between Global Pharmaceutical Corporation and Mitchell
Goldberg dated March 13, 1997. (3)
10.19 Development, License and Supply Agreement between Global Pharmaceutical Corporation and
Eurand America, Inc. dated August 20, 1997. (4)
10.20 License and Supply Agreement between Global Pharmaceutical Corporation and Eurand
America, Inc. dated August 20, 1997. (4)
10.21 Employment agreement by and between Global Pharmaceutical Corporation and Barry Edwards
dated March 25, 1998. (5)
10.22 Loan and Security Agreement dated as of July 23, 1998 between General Electric Capital
Corporation as Lender and Global Pharmaceutical Corporation as Borrower. (5)
10.23* Series C Convertible Preferred Stock Agreement, by and between Global Pharmaceutical
Corporation and Small Cap Value Portfolio (of Bear Stearns & Co., Inc.), dated November 12,
1998.
10.24 Series D Convertible Preferred Stock Agreement, by and between Global Pharmaceutical
Corporation, Fleming US Discovery Fund, L.P. and Fleming US Discovery Offshore Fund, L.P.,
dated March 2, 1999. (6)
10.25* Form of Employment Agreement, dated as of _______________, 1999 by and between the
combined company and Charles Hsiao, Ph.D.
10.26* Form of Employment Agreement, dated as of _______________, 1999, by and between the
combined company and Larry Hsu, Ph.D.
10.27* Form of Employment Agreement, dated as of _______________, 1999, by and between the
combined company and Barry Edwards.
10.28* Lease Agreement, by and between Impax and YHS (USA), Inc., dated May 5, 1997 for a
warehouse facility at 30831 Huntwood Avenue, Hayward, California.
13.1 Global annual report on form 10-KSB for the fiscal year ended December 31, 1998, previously
filed with the Commission (file no. 0-27354).
13.2 Global quarterly report on form 10-QSB for the fiscal quarter ended June 30, 1999, previously
filed with the Commission (file no. 0-27354).
23.1 Consents of PricewaterhouseCoopers LLP.
23.2* Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
23.3* Consent of Fulbright & Jaworski L.L.P., acting as Tax counsel for Global (included in
Exhibit 8).
23.4 Fairness Opinion of Gruntal & Co., L.L.C. (included as Annex B to the joint proxy
statement/prospectus).
23.5* Consent of Gruntal & Co., L.L.C.
24* Power of Attorney (included on signature page).
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)
99.2* Form of Escrow Agreement, dated as of ___________, 1999, among Global Pharmaceutical
Corporation, Continental Stock Transfer and Trust Company, as escrow agent, Charles Hsiao,
Ph.D. and Larry Hsu, Ph.D., in the capacity of the selling stockholders' agents, and each of the
selling stockholders of Impax Pharmaceuticals, Inc.
99.3* Global Pharmaceutical Corporation Special Meeting Proxy Card.
99.4* Impax Pharmaceuticals, Inc. Special Meeting Proxy Card.
99.5* Consent of Person Named to Become a Director, signed by Charles Hsiao, dated October 29,
1999.
99.6* Consent of Person Named to Become a Director, signed by Larry Hsu, dated October 29, 1999.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
99.7* Consent of Person Named to Become a Director, signed by Brian Keng, dated October 29,
1999.
99.8* Consent of Person Named to Become a Director, signed by Jason Lin, dated October 29, 1999.
99.9* Consent of Person Named to Become a Director, signed by Oh Kim Sun, dated October 29,
1999.
99.10* Consent of Person Named to Become a Director, signed by Nigel Fleming, dated November 5,
1999.
</TABLE>
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* Previously filed as Exhibits to the initial filing of this Registration
Statement on Form S-4 (File No. 333-90599).
(1) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Registration Statement on Form SB-2
(File No. 33-99310-NY).
(2) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1996.
(3) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Yearly Report on Form 10-KSB for the
year ended December 31, 1996.
(4) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1997.
(5) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Yearly Report on Form 10-KSB for the
year ended December 31, 1998.
(6) Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference from, Global's Registration Statement on Form S-3
(File No. 333-81883).
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UNDERTAKINGS
(a) If the small business issuer is registering securities under Rule 415
of the Securities Act, that small business issuer hereby undertakes that it
will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The undersigned registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (b) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes 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.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer 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 small business issuer 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this form, within one
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<PAGE>
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to the registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Philadelphia,
State of Pennsylvania on November 12, 1999.
Global Pharmaceutical Corporation
By: /s/ Barry R. Edwards
---------------------------------
Barry R. Edwards
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- -----
<S> <C> <C>
/s/ Barry R. Edwards President and Chief Executive Officer and November 12, 1999
- -------------------------- Director (Principal Executive Officer)
Barry R. Edwards
/s/ Cornel C. Spiegler Chief Financial Officer, Vice-President-- November 12, 1999
- -------------------------- Administration (Principal Financial and Accounting
Cornel C. Spiegler Officer)
/s/ * Director November 12, 1999
- --------------------------
Robert L. Burr
/s/ * Director November 12, 1999
- --------------------------
Philip R. Chapman
/s/ * Director November 12, 1999
- --------------------------
David J. Edwards
/s/ * Director November 12, 1999
- --------------------------
Gary Escandon
/s/ * Director November 12, 1999
- --------------------------
George F. Keane
/s/ * Director November 12, 1999
- --------------------------
Michael Markbreiter
/s/ * Director November 12, 1999
- --------------------------
Max L. Mendelsohn
/s/ * Director November 12, 1999
- --------------------------
John W. Rowe
/s/ * Director November 12, 1999
- --------------------------
Udi Toledano
* = By: /s/ Cornel C. Spiegler
-----------------------
Cornel C. Spiegler
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ---------- --------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger, dated as of July 26, 1999, between Global Pharmaceutical
Corporation and Impax Pharmaceuticals, Inc., as amended (included as Annex A to the joint
proxy statement/prospectus).
3.1 Restated Certificate of Incorporation of Global Pharmaceutical Corporation. (1)
3.2 Form of Certificate of Amendment of Restated Certificate of Incorporation of Global
Pharmaceutical Corporation (included as Annex E to the joint proxy statement/prospectus).
3.3 Bylaws. (1)
3.4 Certificate of Designations of Series 1-A Convertible Preferred Stock and Series 1-B
Convertible Stock (included as Annex F to the joint proxy statement/prospectus).
4 Specimen Certificate of the combined company's common stock, par value $.01 per share. (1)
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5* Opinion of Fulbright & Jaworski L.L.P. regarding the legality of securities being registered.
8* Opinion of Fulbright & Jaworski L.L.P. regarding federal income tax matters.
9.1* Form of Stockholders' Agreement, dated as of ____________, 1999, between Global
Pharmaceutical Corporation and certain stockholders.
9.2* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and China Development Industrial Bank.
9.3* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and Chiin-Hsiung Hsiao.
9.4* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and Chung-Chiang Hsu.
9.5* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and President (BVI) International Investment Holdings.
9.6* Irrevocable Proxy and Voting Agreement, dated as of July 26, 1999, between Global
Pharmaceutical Corporation and Chemical Company of Malaysia Berhad.
10.1 Employment Agreement of Pieter Groenewoud, dated as of October 1, 1995. (1)
10.2 Employment Agreement of Cornel C. Spiegler, dated as of September 27, 1995. (1)
10.3 Global Pharmaceutical Corporation's 1995 Stock Incentive Plan. (1)
10.4 1999 Impax Laboratories, Inc. Equity Incentive Plan (included as Annex G to the joint proxy
statement/prospectus).
10.5 Form of Amended Agreement between Global Pharmaceutical Corporation and Merck
Kommanditgesellschaft auf Aktien regarding the issuance of common stock Purchase Warrants,
dated as of November, 1995. (1)
10.6 Form of Amended Manufacturing Agreement between Global Pharmaceutical Corporation and
Genpharm, Inc., dated as of November, 1995. (1)
10.7 Acquisition Agreement between PIDC-Financing Corporation and GPC Florida, dated September
17, 1993. (1)
10.8 Security Agreement by and between Global Pharmaceutical Corporation and PIDC Local
Development Corporation, dated October 15, 1993, with related Note and Commitment, and
Waiver and Consent dated November 13, 1995. (1)
10.9 Loan Agreement by and between PIDC Financing Corporation and the Pennsylvania Industrial
Development Authority ("PIDA") for a loan in a principal amount not to exceed $1,026,000,
dated April 18, 1994, with Waiver and Consent dated November 13, 1995. (1)
10.10 Open-End Mortgage between PIDC Financing Corporation and PIDA dated April 18, 1994. (1)
10.11 Assignment of Installment Sale Agreement by and among PIDC Financing Corporation and
GPC Florida dated April 18, 1994. (1)
10.12 Installment Sale Agreement by and between PIDC Financing Corporation and GPC Florida,
dated April 18, 1994. (1)
10.13 PIDC Financing Corporation Note to the PIDA, dated April 18, 1994. (1)
10.14 Secured $500,000 Note from Global Pharmaceutical Corporation to PIDC Local Development
Corporation. (1)
10.15 Consent, Subordination and Assumption Agreement by and among GPC Florida, PIDC
Financing Corporation and PIDA, dated April 18, 1994. (1)
10.16 Employment agreement by and between Global Pharmaceutical Corporation and Marc M.
Feinberg dated September 30, 1996. (2)
10.17 Technical Collaboration Agreement by and between Global Pharmaceutical Corporation and
Genpharm Inc. dated January 8, 1997. (3)
</TABLE>
II-10
<PAGE>
<TABLE>
<S> <C>
10.18 Employment agreement by and between Global Pharmaceutical Corporation and Mitchell
Goldberg dated March 13, 1997. (3)
10.19 Development, License and Supply Agreement between Global Pharmaceutical Corporation and
Eurand America, Inc. dated August 20, 1997. (4)
10.20 License and Supply Agreement between Global Pharmaceutical Corporation and Eurand
America, Inc. dated August 20, 1997. (4)
10.21 Employment agreement by and between Global Pharmaceutical Corporation and Barry Edwards
dated March 25, 1998. (5)
10.22 Loan and Security Agreement dated as of July 23, 1998 between General Electric Capital
Corporation as Lender and Global Pharmaceutical Corporation as Borrower. (5)
10.23* Series C Convertible Preferred Stock Agreement, by and between Global Pharmaceutical
Corporation and Small Cap Value Portfolio (of Bear Stearns & Co., Inc.), dated November 12,
1998.
10.24 Series D Convertible Preferred Stock Agreement, by and between Global Pharmaceutical
Corporation, Fleming US Discovery Fund, L.P. and Fleming US Discovery Offshore Fund, L.P.,
dated March 2, 1999. (6)
10.25* Form of Employment Agreement, dated as of _______________, 1999 by and between the
combined company and Charles Hsiao, Ph.D.
10.26* Form of Employment Agreement, dated as of _______________, 1999, by and between the
combined company and Larry Hsu, Ph.D.
10.27* Form of Employment Agreement, dated as of _______________, 1999, by and between the
combined company and Barry Edwards.
10.28* Lease Agreement, by and between Impax and YHS (USA), Inc., dated May 5, 1997 for a
warehouse facility at 30831 Huntwood Avenue, Hayward, California.
13.1 Global annual report on form 10-KSB for the fiscal year ended December 31, 1998, previously
filed with the Commission (file no. 0-27354).
13.2 Global quarterly report on form 10-QSB for the fiscal quarter ended June 30, 1999, previously
filed with the Commission (file no. 0-27354).
23.1 Consents of PricewaterhouseCoopers LLP.
23.2* Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
23.3* Consent of Fulbright & Jaworski L.L.P., acting as Tax counsel for Global (included in
Exhibit 8).
23.4 Fairness Opinion of Gruntal & Co., L.L.C. (included as Annex B to the joint proxy
statement/prospectus).
23.5* Consent of Gruntal & Co., L.L.C.
24* Power of Attorney (included on signature page).
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)
99.2* Form of Escrow Agreement, dated as of ___________, 1999, among Global Pharmaceutical
Corporation, Continental Stock Transfer and Trust Company, as escrow agent, Charles Hsiao,
Ph.D. and Larry Hsu, Ph.D., in the capacity of the selling stockholders' agents, and each of the
selling stockholders of Impax Pharmaceuticals, Inc.
99.3* Global Pharmaceutical Corporation Special Meeting Proxy Card.
99.4* Impax Pharmaceuticals, Inc. Special Meeting Proxy Card.
99.5* Consent of Person Named to Become a Director, signed by Charles Hsiao, dated October 29,
1999.
99.6* Consent of Person Named to Become a Director, signed by Larry Hsu, dated October 29, 1999.
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
99.7* Consent of Person Named to Become a Director, signed by Brian Keng, dated October 29,
1999.
99.8* Consent of Person Named to Become a Director, signed by Jason Lin, dated October 29, 1999.
99.9* Consent of Person Named to Become a Director, signed by Oh Kim Sun, dated October 29,
1999.
99.10* Consent of Person Named to Become a Director, signed by Nigel Fleming, dated November 5,
1999.
</TABLE>
- ------------
* Previously filed as Exhibits to the initial filing of this Registration
Statement on Form S-4 (File No. 333-90599).
(1) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Registration Statement on Form SB-2
(File No. 33-99310-NY).
(2) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1996.
(3) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Yearly Report on Form 10-KSB for the
year ended December 31, 1996.
(4) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1997.
(5) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, Global's Yearly Report on Form 10-KSB for the
year ended December 31, 1998.
(6) Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference from, Global's Registration Statement on Form S-3
(File No. 333-81883).
II-12
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-4 of
Global Pharmaceutical Corporation of our report dated March 2, 1999 relating to
the financial statements of Global Pharmaceutical Corporation which appears in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 8, 1999
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-4 of
Global Pharmaceutical Corporation of our report dated August 6, 1999 relating to
the financial statements of Impax Pharmaceuticals, Inc. which appears in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 8, 1999
