U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 33-99310-NY
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Impax Laboratories, Inc.
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(Name of Small Business Issuer in its Charter)
Delaware 65-0403311
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30831 Huntwood Avenue, Hayward, CA 94544
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(Address of Principal Executive Offices) (Zip Code)
(510) 471-3600
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value per share
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes__ No X
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of the
Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $1,240,000
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The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant as of March 15, 1999 (based on the closing
price for such shares on March 15, 1999 as reported by NASDAQ) was $62,407,462.
As of March 15, 1999, the number of shares outstanding of each of the
issuer's classes of common equity was 24,807,147 shares of common stock, $.01
par value per share.
Registrant's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with solicitations of proxies for Registrant's 2000
Annual Meeting of Stockholders scheduled to be held on May 22, 2000 is
incorporated by reference in Part III, Items 9, 10, 11 and 12 of this Form
10-KSB.
Transitional Small Business Disclosure Format (check one) Yes_ No X -
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PART 1
When used in this discussion, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected.
The Company's business and results of operations are affected by a wide
variety of factors that could materially and adversely affect the Company and
its actual results, including, but not limited to, the ability to obtain
governmental approvals on additional products (including, to the extent
appropriate governmental approvals are not obtained, the inability to
manufacture and sell products), the impact of competitive products and pricing,
product demand and market acceptance, new product development, reliance on key
strategic alliances, availability of raw materials and the regulatory
environment. As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual basis
which could materially and adversely affect its business, financial condition,
operating results, and stock price. An investment in the company involves
various risks, including those referred to above and those which are detailed
from time-to-time in the Company's filings with the Securities and Exchange
Commission.
These forward-looking statements speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements e to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Item 1. Description of Business
Introduction
Impax Laboratories, Inc. (the "Company" or "Impax") is engaged in the
development, manufacturing and marketing of specialty prescription
pharmaceutical products utilizing its own formulation expertise and unique drug
delivery technologies. Prior to December 14, 1999, the Company was known as
Global Pharmaceutical Corporation ("Global"). On December 14, 1999 Impax
Pharmaceuticals, Inc., a privately held drug delivery company was merged into
the Company and the Company changed its name to Impax Laboratories Inc. For
accounting purposes, however, the acquisition has been treated as the
recapitalization of Impax Pharmaceuticals, Inc., with Impax Pharmaceuticals,
Inc. deemed the acquirer of Global in a reverse acquisition.
Impax, a Delaware Corporation, maintains its headquarters in Hayward,
California, in a 36,000 square foot facility which also serves as the primary
development center of the Company. A second facility, located in Philadelphia,
Pennsylvania, serves as the primary commercial center, with sales, marketing,
manufacturing and distribution occurring in this 113,000 square foot facility.
Manufacturing will also occur in Hayward, where it is expected most of the
controlled-release products will be produced.
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From the Company's 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 acquired from Richlyn
Laboratories, Inc ("Richlyn") 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 Food and Drug
Administration ("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
Abbreviated New Drug Applications ("ANDA") product portfolio.
The Company is focusing on three key areas:
o Drug Delivery Technology
o Niche Multi-source, or Generic, Pharmaceutical Products
o Branded Pharmaceutical Products
Drug Delivery Technology - 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 has been engaged in developing technologies for the formulation of
controlled-release oral pharmaceuticals utilizing both proprietary and
non-proprietary drug delivery technologies. To expedite the growth of the
business and reduce overall costs, Impax has entered into collaborative
development arrangements with major pharmaceutical companies, both domestic and
foreign.
Impax is developing and applying multiple drug delivery technologies to
control the release characteristics of a variety of orally administered drugs.
Impax believes that its technologies are 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 Desired release rates of the drug;
o Physico-chemical properties of the drug;
o Physiology of the gastrointestinal tract and the manner in which the
drug will be absorbed during passage through the gastrointestinal
tract;
o Effect of food on the absorption rate and transit time of the drug;
o In-vivo/in-vitro correlation.
To date, 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
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delivery technologies in its product development programs and continues to
develop new technologies for which it may seek patent protection. A more
detailed description of our proprietary technologies appears in the Proprietary
Rights Section later in this Form 10-KSB.
Niche Multi-source, or Generic, Pharmaceutical Products - These niche
products generally target brand products that are particularly difficult to
develop or have special handling requirements, as we believe there will be less
competition and as a result, higher profit margins. In addition, select brands
which have a lower level of sales are also targeted.
The Hayward facility has a development and technology base that allows the
targeting of difficult products such as those utilizing modified or
controlled-release. Impax is applying its patented and non-patented drug
delivery technologies discussed above to the development of generic versions of
selected, controlled-release brand name pharmaceuticals.
The Philadelphia facility has US Drug Enforcement Agency ("DEA") approval
to handle scheduled substances CII-CV that increases the number of product
candidates the Company considers for development. The facility also has an
isolation suite that provides the ability to handle and manufacture products
requiring special handling such as high potency steroids, hormones or
oncologics.
To date, Impax has submitted ANDA's to the FDA covering generic versions of
six different branded prescription pharmaceuticals. In March of 1999, Inpax
received its first new ANDA approval for, Minocycline HCl Capsules. Impax's
first ANDA for a controlled-release product, Pentoxifylline Extended Release
Tablets, was approved in August 1999. Both products are currently marketed by
Impax's Global Pharmaceuticals marketing division. Impax currently has 5
applications under review by FDA and 15 additional products under development.
All multi-source or generic products are marketed under the Global
Pharmaceuticals label. The multi-source line will consist of a broad range of
products distributed primarily through traditional pharmaceutical supply
channels, including, but not limited to drug wholesalers, warehousing chain drug
stores, distributors, managed healthcare providers, mail-order pharmacies,
hospitals and institutions, governmental agencies and independent pharmacies. We
currently market over 25 products; a table containing these products and related
information is listed in the Products and Product Development Section later in
this form 10-KSB.
The Company's existing customer base includes most of the pharmaceutical
wholesalers, warehousing chain drug stores, the largest three mass merchandisers
and the two largest mail-order pharmacies. The sale of the multi-source line
requires a small, targeted sales and marketing group.
Branded Pharmaceutical Products -The Company is currently developing its
branded product strategy and focus. The Company expects to initially focus on
building a portfolio of products used for treating disorders of the central
nervous system (CNS). The Company's strategy to build this portfolio includes a
combination of licensing, acquisition and internal development. The Company
intends to utilize its drug delivery
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technologies in the formulation of off-patent drugs as modified or controlled
release pharmaceutical products that it will market as branded products.
The branded pharmaceutical products will be marketed by the Impax
Pharmaceuticals marketing division through a separate sales and marketing
effort. The sales and marketing group for the Impax Pharmaceuticals label will
be larger than that of the multi-source marketing division, but will still
remain relatively small and targeted. The branded sales strategy consists of
detailing only the high volume prescribing physicians, first on a selected
regional basis, and then expanding the sales force nationally as required.
On March 23, 2000, the Company issued 150,000 shares of Mandatorily
Redeemable Convertible Series 2 Preferred Stock for aggregate proceeds of
$15,000,000.
Product and Product Development
Generic Specialty And Controlled-Release Pharmaceuticals
The Company is applying its 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 currently has five
applications under review by the FDA and fifteen 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.
During formulation development, the Company 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
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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.
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
specification for Impax's formulation, stability data, analytical data, methods
validation and manufacturing procedures and controls. See: "Government
Regulation" section later in this Form 10-KSB.
The following table contains a list of the products the Company currently
markets:
<TABLE>
<CAPTION>
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ALTERNATIVE TO
IMPAX PRODUCT STRENGTH BRAND PRODUCT* PRESCRIBED USE
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<S> <C> <C> <C>
Aminobenzoate Potassium Capsules 0.5 gram Potaba Anti-fibrotic
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Aminobenzoate Potassium Tablets 0.5 gram Potaba Anti-fibrotic
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Aminobenzoate Potassium Packets 2 gram Potaba Anti-fibrotic
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Carbinoxamine/Pseudoephedrine ER Tablets 8/120 mg Rondec TR Antihistamine/decongestant
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Chloroquine Phosphate Tablets 250 mg Aralen Anti-malarial
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Hydrocortisone Tablets 20 mg Cortef, Hydrocortone Steroid
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Hyoscyamine Oral Tablets 0.125 mg Levsin Anticholinergic/antispasmodic
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Hyoscyamine Sublingual Tablets 0.125 mg Levsin Acticholinergic/antispasmodic
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Hyoscyamine Extended Release Tablets 0.375 Levbid Acticholinergic/antispasmodic
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Lipram 4500 (Pancrelipase) Capsules 4500 units Pancrease Pancreatic enzyme replacement
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Lipram 10,000 (Pancrelipase) Capsules 10,000 units Creon 10 Pancreatic enzyme replacement
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Lipram 12,000 (Pancrelipase) Capsules 12,000 units Ultrase Pancreatic enzyme replacement
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Lipram 16,000 (Pancrelipase) Capsules 16,000 units Pancrease Pancreatic enzyme replacement
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Lipram 18,000 (Pancrelipase) Capsules 18,000 units Ultrase Pancreatic enzyme replacement
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Lipram 20,000 (Pancrelipase) Capsules 20,000 units Creon Pancreatic enzyme replacement
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Mephobarbital Tablets CIV 32 mg Mebaral Sedative/anticonvulsant
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Mephobarbital Tablets CIV 50 mg Mebaral Sedative/anticonvulsant
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Mephobarbital Tablets CIV 100 mg Mebaral Sedative/anticonvulsant
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Methyltestosterone Tablets CIII 10 mg Testred/Android Hormone replacement
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Methyltestosterone Tablets CIII 25 mg Testred/Android Hormone replacement
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Minocycline Capsules 50 mg Minocin Antimicrobial
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Minocycline Capsules 100 mg Minocin Antimicrobial
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Oxycodone HCl Tablets CII 5 mg Roxicodone Analgesic
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Pancrelipase Tablets 8000 units Viokase Pancreatic enzyme replacement
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Pentoxifylline ER Tablets 400 mg Trental Hemorheologic Agent
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Tetracycline HCl Capsules 250 mg Achromycin V Antibiotic
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Tetracycline HCl Capsules 500 mg Achromycin V Antibiotic
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</TABLE>
* The brand names listed are trademarks of the various companies represented.
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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 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.
Development and Licensing Agreements
Impax has entered into development and licensing agreements covering
generic pharmaceuticals with a number of U.S. and 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. Impax may terminate a 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 the 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 product owned by this corporate partner. The
formulation of this product has been completed.
Raw Materials
The raw materials that are essential to the Company's business are bulk
pharmaceutical chemicals which are generally available and purchased from
numerous sources. Because FDA requires specification of raw material suppliers
in applications for approval of drug products, if raw materials from a specified
supplier were to become unavailable, the required FDA approval of a new supplier
could cause a significant delay in the manufacturing of the drug involved.
Although the Company expects to specify more
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than one raw materials supplier with respect to each FDA application where that
is possible, some materials are currently available from only one or a limited
number of suppliers, as a result of which the Company would be subject to the
special risks that are associated with limited sources of supply. The Company
plans to purchase bulk pharmaceutical chemicals pursuant to multi-shipment
contracts, typically of one year's duration, when it believes advance-ordered
bulk purchases are advantageous to assure availability at a specified price. The
Company believes that alternative sources could be found, or new sources would
arise, should any of its sole or limited source raw materials become unavailable
from current suppliers. Nevertheless, any curtailment of raw materials could be
accompanied by production or other delays as well as increased raw materials
costs, with consequent adverse effects on the Company's business and results of
operations. Furthermore, as any new source of raw materials, whether domestic or
foreign, would require FDA approval, any delays in obtaining FDA approval could
also have a material adverse effect on the Company's business and operating
results.
Following a general trend in the pharmaceutical industry, an increasing
portion of the Company's raw material supplies may come from foreign sources.
Export and import policies of the United States and foreign countries therefore
could also materially affect the availability and cost to the Company of certain
raw materials at any time or from time to time.
Quality Control
In connection with the manufacture of drugs, the FDA requires testing
procedures to monitor the quality of the product as well as the consistency of
its formulation. The Company maintains a state-of-the-art laboratory in both of
its facilities, that perform, among other things, analytical tests and
measurements required to control and release raw materials and finished
products.
Quality monitoring and testing programs and procedures have been
established by the Company to assure that all critical activities associated
with the production, control and distribution of its drug products will be
carefully controlled and evaluated throughout the process. By following a series
of systematically organized steps and procedures, the Company seeks to assure
that established quality standards will be achieved and built into the product.
The Company's policy is to continually seek to meet the highest quality
standards, with the goal of thereby assuring the quality, purity, safety and
efficacy of each of its drug products. The Company believes that adherence to
high operational quality standards will also promote more efficient utilization
of personnel, materials and production capacity.
Sales and Marketing
The Company intends to develop its sales and marketing capabilities to
support the company's three strategic areas. These are the application of our
drug delivery technology, multi-source pharmaceuticals and branded
pharmaceuticals. Two internal marketing divisions are primarily responsible for
the sales and marketing of our pharmaceutical products. The Global
Pharmaceuticals division currently markets multi-
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source products while the Impax Pharmaceuticals division will market branded
products in the future.
Global Pharmaceuticals division markets solid oral prescription
pharmaceuticals primarily directed to the generic sector of the pharmaceutical
market (also known as the "multi-source 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 the Company 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 support the sales process and help generate product
demand.
Marketing efforts often extend beyond the ordinary promotional vehicles;
the Company plans to reach the decision makers, including physicians and
dispensing pharmacists, with campaigns designed to develop awareness of some of
the Company's exclusive pharmaceutical alternatives. By increasing awareness of
these new generic entities, the Company 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 marketing unit, 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
has been successful in gaining acceptance by all of the major pharmaceutical
wholesalers and warehousing drug store chains, as well as by, mail order
pharmacies, managed healthcare providers and governmental agencies, both
directly and indirectly, through contracts.
Competition
Competition in the pharmaceutical industry is intense, especially in the
generic or multi-source arena. The Company is in competition with numerous other
companies in that industry, including major pharmaceutical concerns, specialty
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 extension of the patent. Companies introducing a product after the
patent (and any extension) expires may market the product under a brand name and
promote it to physicians and pharmacists to create a market for the product or
may market the product under its generic name and rely on physicians,
pharmacists and customers to specify the lower-cost generic product. Some
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.
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
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products, customer service (including maintenance of inventories for timely
delivery), breath 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.
Some of the Company's competitors may choose to augment their presence in
the market through acquisitions and strategic alliances. This activity could
result in consolidation and restructuring within the generic industry and could
impair the Company's ability to compete effectively or effectively limit the
number of new opportunities for the Company's products.
Proprietary Rights
The Company 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.
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 can be no assurance that
the 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 by 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.
The Company 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 Company's proprietary technologies are
described below:
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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.
Timed Multiple-Action Delivery System (TMDS) - Patent pending.
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 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 pending.
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 table 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.
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.
On January 8, 1998, the Company filed an application to register its
trademark "IMPAX" with the U.S. Patent and Trademark Office("PTO"). (Serial No.
75/415057.) In September 1999, Agfa-Gevaert, a Belgium corporation, filed a
notice of opposition with PTO alleging the Company's "IMPAX" mark is likely to
cause confusion to the consumer.
The Company 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.
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The Company is in process of settling this trademark dispute and expects no
further opposition using its trademark "IMPAX" for pharmaceutical products.
There has been substantial litigation in the pharmaceutical, biomedical,
and biotechnology industries with respect to the manufacture, use and sale of
new product 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 an 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 by, 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.
On January 31, 2000, the Company obtained $5 million of insurance coverage
with American Intentional Specialty Lines Insurance Company (a member of AIG)
covering primarily, potential claims brought against Impax under the
Waxman-Hatch Act provisions relating to Paragraph IV Certification.
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 ("FDCA"), the Controlled Substance Act, the Generic
Drug Enforcement Act of 1992 and other federal statutes and regulation govern or
influence the manufacture, labeling, testing, storage, recordkeeping, approval,
advertising and promotion of the Company's products. Noncompliance with
applicable requirements can result in fines, recalls, seizure of products,
suspension of production, refusal of the government to enter into supply
contracts or to approve drug applications, or 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.
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All facilities engaged in the manufacture of drug products must be
registered with FDA and are subject to FDA inspection to ensure that drug
products are manufactured in accordance with cGMP.
Generally, two types of applications are used to obtain FDA approval of a
new drug. They are:
1. New Drug Application ("NDA"). For drug products with active ingredients
or indications not previously approved by FDA, a prospective
manufacturer must submit a complete application which contains the
results of clinical studies supporting the drug's safety and efficacy.
These studies may take anywhere from two to five years or more. 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 12 to 15 months following submission to FDA.
2. Abbreviated New Drug Application ("ANDA"). The Drug Price Competition
and Patent Term Restoration Act of 1984 (the "Drug Price Act")
established an abbreviated new drug application procedure for obtaining
FDA approval of certain generic drugs. An ANDA is similar to a NDA
except that the FDA waives the requirement for conducting clinical
studies to demonstrate the safety and effectiveness of the drug.
Instead, for drugs that contain the same active ingredient and are of
the same route of administration, dosage form, strength and
indication(s) as drugs already approved for use in the United States,
FDA ordinarily only requires bioavailability data demonstrating that the
generic formulation is bioequivalent to the previously approved
reference drug. "Bioavailability" indicates the rate of absorption and
levels of concentration of a drug in the blood stream which are needed
to produce a therapeutic effect. "Bioequivalence" compares the
bioavailability of one drug product with another and, when established,
indicates that the rate of absorption and the levels of concentration of
a generic drug in the body do not show a significant difference from
those of the previously approved equivalent drug. According to
information published by FDA, it currently takes approximately 18 to 20
months on average to obtain FDA approval of an ANDA following the date
of its first submission to FDA.
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, unenforceable or
not infringed, patent infringement litigation may be instituted by the holder or
holders of the brand name drug patents. 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
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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 application containing
new clinical investigations essential to an approval, such as a 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.
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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.
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 GMP regulations, the manufacturer must expend time,
money and effort in the areas of production and quality control to ensure full
technical compliance. Failure to comply can result in possible FDA actions such
as the suspension of manufacturing or seizure of finished drug products. The
Company also is governed by federal, state and local laws of general
applicability, such as laws regulating working conditions.
The Generic Drug Enforcement Act of 1992 establishes penalties for
wrongdoing in connection with the development or submission of an ANDA. In
general, 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, 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.
The Company is also subject to the Maximum Allowable Cost Regulations ("MAC
Regulations"), which limit reimbursements for certain multi-source prescription
drugs under Medicare, Medicaid and other programs to the lowest price at which
such drugs are generally available. In many instances, only generic prescription
drugs fall within the MAC Regulations' limits. Generally, the methods of
reimbursement and fixing of reimbursement levels are under active review by
federal, state and local governmental entities as well as by private third-party
reimbursers. The Company cannot predict the results of those reviews or their
impact on the business of the Company.
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
The Company is subject to comprehensive federal, state and local
environmental laws, including the Comprehensive Environmental Response,
Compensation and Liability Act
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of 1980, as amended, the Resource Conservation and Recovery Act and the Toxic
Substance Control Act, which govern, among other things, all emissions, waste
water discharge and solid and hazardous waste disposal, and the remediation of
contamination associated with generation, handling and disposal activities. The
Company is subject periodically to environmental compliance reviews by various
regulatory offices.
A Phase I environmental study was conducted with respect to the Company's
Philadelphia idled plant and operations in 1993 and certain environmental
compliance issues identified at that time, including findings of asbestos in
certain areas of the plant and underground oil storage tanks, have been
addressed. Additionally the Company monitors regularly its compliance with any
applicable Environmental Laws. There can be no assurance that future
developments, administrative actions or liabilities relating to environmental
matters will not have a material adverse effect on the Company's financial
condition or results of operations.
Employees
As of March 15, 2000, the Company employed approximately 125 full-time
persons. Of those employees, approximately 37 are in product development, 33 are
in operations, 31 work in the quality area, 20 are in administration, and 4 work
in sales and marketing. The Company may also employ part-time personnel from
time to time to meet specific demands of its business should they arise. None of
the Company's employees are subject to collective bargaining agreements with
labor unions. The Company believes that its relations with its employees, in
general, are satisfactory.
Executive Officers
The following table sets forth certain information with respect to executive
officers and significant employees of the Company:
Charles Hsiao 56 Chairman, Co-Chief Executive Officer and Director
Barry R. Edwards 43 Co-Chief Executive Officer and Director
Larry Hsu 51 President, Chief Operating Officer and Director
Cornel C. Spiegler 55 Chief Financial Officer
May Chu 50 Vice President, Quality Affairs
Mitchell Goldberg 48 Vice President, Sales
Joseph A. Storella 58 Vice President, Operations
Charles Hsiao, Ph.D. has been Chairman, Co-Chief Executive Officer and
Director since December 14, 1999. Dr. Hsiao co-founded Impax Pharmaceuticals,
Inc. 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, this
company 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.
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Barry R. Edwards has been Co-Chief Executive Officer since December 14,
1999, and a Director since January 1999. Previously, Mr. Edwards has served as
President since August 1998 and Chief Executive Officer 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. has been President, Chief Operating Officer and Director
since December 14, 1999. Dr. Hsu co-founded Impax Pharmaceuticals, Inc. in 1994
and served as its 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.
Cornel C. Spiegler has been Chief Financial Officer since September 1995.
From 1989 to 1995, Mr. Spiegler was Chief Financial Officer and Senior Vice
President of United Research Laboratories, Inc. and Mutual Pharmaceutical
Company, Inc., companies engaged in the generic pharmaceutical industry. From
1973 to 1989, Mr. Spiegler held a number of financial and operational management
functions, including Vice President and Controller of Fischer and Porter, Inc.,
a manufacturer of process control equipment. From 1970 to 1973, Mr. Spiegler was
employed by the accounting firm of Arthur Andersen and Co. Mr. Spiegler is a
certified public accountant and has a MBA from Temple University.
May Chu, M.S., has been Vice President, Quality Affairs since December 14,
1999. Ms. Chu joined Impax Pharmaceuticals, Inc. 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.
Mitchell Goldberg has been Vice President, Sales since March 1997. From
October 1996 until March 1997, Mr. Goldberg served as Vice President, Sales and
Marketing for Ethex Corporation, a generic manufacturing company. From 1985 to
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 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).
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From 1966 to 1977, Mr. Storella held a number of operational management
positions for Ayerst Laboratories.
Item 2. Description of Property
The executive office, the primary, research and development center and a
pilot plant 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 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.
The primary commercial center with sales, manufacturing and distribution of
the Company occupy an aggregate of approximately 113,000 square feet at 3735
Castor Avenue, in Philadelphia, Pennsylvania.
The Company owns its Philadelphia plant, which consists of three
three-story brick interconnected buildings. 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 ("PIDA") loans. See Item 6,
"Management's Discussion and Analysis or Plan of Operation--Liquidity and
Capital Resources".
Of the total 113,000 square foot area of the plant, approximately 20,000
square feet are used for warehousing and storage operations, (including high
security DEA areas and designated areas for raw materials, processed goods,
labels and packaging materials); approximately 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 are for labeling and packaging
activities; approximately 2,500 square feet for product development; and
approximately 9,000 square feet are for administrative functions. The unused
balance of the plant, approximately 41,800 square feet, is available for future
expansion. Management believes that the Company's production facilities are
sufficient for its current and reasonably anticipated operations.
The Company maintains an extensive equipment base, much of it new or
recently reconditioned and automated, including manufacturing equipment for the
production of tablets; coated tablets, and capsules; packaging equipment,
including fillers, cottoners, cappers and labelers; and two well-equipped,
modern laboratories. The manufacturing equipment includes mixers and blenders
for capsules and tablets, automated capsule fillers, tablet presses, particle
reduction, sifting equipment and tablet coaters. The Company also maintains a
broad variety or material handling and cleaning, maintenance and support
equipment. The Company owns substantially all of its manufacturing equipment and
believes that its equipment is well maintained and suitable for its
requirements.
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The Company 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.
Item 3. Legal proceedings
Global's operations are subject to an order ("the Richlyn Order") issued on
May 25, 1993, by the United States District Court for the Eastern District of
Pennsylvania. The Richlyn Order, among other things, permanently enjoined
Richlyn from introducing into commerce any drug manufactured, processed, packed
or labeled at Richlyn's manufacturing facility unless Richlyn met certain
stipulated conditions, including successful compliance with a validation and
recertification program as described below. Global, having acquired certain
assets of Richlyn, is obligated by the terms of the Richlyn Order. The Richlyn
Order also requires Global hire and retain a person, subject to FDA approval,
who, by reason of training and expertise, is qualified to inspect the 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 will inspect the Company's
manufacturing facilities and its manner of operating them and will examine all
drug products manufactured, processed, packed and held at the Global's Facility;
and will certify in writing to FDA compliance with related cGMP. Global has
retained an independent consultant to serve in respect of the Richlyn Order.
Additionally, the Company has assumed the liabilities of Richlyn in
connection with Diethyl Stilbestrol ("DES"), which was manufactured by Richlyn
and many other drug manufacturers during the late 1950's and early 1960's. DES
was prescribed to pregnant women during that period and has been alleged to
cause birth defects, in particular, an increased risk of uterine cancer and
sterility to female children whose mothers took DES during their pregnancy.
There have been numerous claims brought against drug manufacturers in connection
with DES. Since 1987, Richlyn's insurers have paid approximately $136,000 on
Richlyn's and the Company's behalf to settle approximately 143 DES-related
suits. The Company is unaware of any other legal actions having been brought or
threatened against Richlyn or the Company in connection with DES-related claims
other that claims based on products manufactured by Richlyn. While Richlyn's
insurers have in the past defended those DES claims against Richlyn and paid
settlements in connection therewith to date, those insurers have reserved their
right to discontinue the defense of the claims and the payment of any
settlements at any time. There can be no assurance or guarantee that the
insurers will defend actions or pay claims in the future. Further, there can be
no assurance that, if those insurers fail or refuse to pay any claim, the
Company will have recourse against the insurers with respect thereto.
Accordingly, there can be no assurance that the Company will not be exposed to
the risk of substantial monetary judgments. Claims settlements to date have been
based upon market share and Richlyn's share of the market during the periods in
question was substantially less than 1%. The Company does not believe the
Richlyn DES liabilities will have a material adverse effect on the Company's
business.
Product liability claims by customers constitute a risk to all
pharmaceutical manufacturers. The Company carries $10 million of product
liability insurance for its own manufactured products. The Company believes that
this insurance will be adequate
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for its foreseeable purposes and is comparable to product liability insurance
carried by similar generic drug companies.
The Company is not aware of other material pending or threatened legal
actions, private or governmental, against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Special Meeting of Stockholders held on December 13, 1999,
the following actions were approved, by the votes indicated:
1. The 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.
7,205,465 For 310,836 Against/Witheld 3,400 Abstaining
- --------- ------- ------
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Since December 15, 1999, the Company's Common Stock is traded on the NASDAQ
Small Cap Market under the symbol "IPXL". Previously, the Company was traded
under the symbol "GLPC". The following are the high and low per share bid prices
of the Company's Common Stock on the NASDAQ Small Cap Market since December 31,
1997. Such prices represent quotations or prices between dealers and do not
include retail mark-up, mark-down or commission and may not necessarily
represent actual transactions:
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Quarter Ended High Low
- ------------- ---- ---
March 31, 1998 $5 3/4 $2 3/4
June 30, 1998 $5 3/8 $2 7/8
September 30, 1998 $3 5/8 $1 1/2
December 31, 1998 $2 3/8 $13/16
March 31, 1999 $3 7/8 $1 15/16
June 30, 1999 $4 $2 11/16
September 30, 1999 $5 5/8 $3
December 31, 1999 $5 $3
On March 15, 2000, the last reported bid price of the Common Stock on the
NASDAQ Small Cap Market was $4 15/16 per share. As of March 24, 2000, there were
approximately 99 holders of record of common stock and approximately 645
beneficial owners of common stock.
The Company has never paid cash dividends on its Common Stock and has no
present plans to do so in the foreseeable future. The Company's current policy
is to retain all earnings, if any, for use in the operation of its business. The
payment of future cash dividends, if any, will be at the discretion of the Board
of Directors and will be dependent upon the Company's earnings, financial
conditions, capital requirements and other factors as the Board of Directors may
deem relevant.
On March 23, 2000, the Company issued 150,000 shares of Mandatorily
Redeemable Convertible Series 2 Preferred Stock for aggregate proceeds of
$15,000,000.
Item 6. Management's Discussion and Analysis or Plan of Operation
General
The Company is the result of a business combination on December 14, 1999,
of Impax Pharmaceuticals, Inc., a privately held drug delivery company and
Global Pharmaceutical Corporation, a specialty generic pharmaceutical company.
Global acquired all of the outstanding common stock of Impax Pharmaceuticals,
Inc. with Impax stockholders receiving 3.3358 shares of Global common stock for
each share of Impax Pharmaceuticals, Inc. For accounting purposes, however, the
acquisition has been treated as the recapitalization of Impax Pharmaceuticals,
Inc. with Impax Pharmaceuticals, Inc., deemed the acquirer of Global in a
reverse acquisition. At the conclusion of the merger, Impax Pharmaceuticals,
Inc. stockholders held over 70% of the combined company. As a reverse
acquisition, the historical operating results prior to the acquisition are those
of Impax Pharmaceuticals, Inc. and only include the operating results of Global
after the acquisition. Additionally, Global formally changed its name to Impax
Laboratories, Inc.
The Company's main business is the development, manufacturing and marketing
of specialty prescription pharmaceutical products utilizing its own formulation
expertise and unique delivery technologies. The Company is currently marketing
over 25 products and has five applications under review with FDA and fifteen
additional products under development.
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Results of Operations
The Company was considered a development stage company as defined in
Statement of Financial Accounting Standards No. 7 until the fourth quarter of
1999, when the Company determined it had begun operations.
Revenues for the year ended December 31, 1999, were $1,240,000. The Company
had an accumulated deficit of $20,230,000 at December 31, 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The net loss for Impax for the year ended December 31, 1999 was $8,949,000,
as compared to $5,222,000 for the year ended December 31, 1998. The increase in
net loss was primarily due to increased research and development expenses,
selling expenses, and general and administration expenses. On a pro forma basis,
if the acquisition took place on January 1, 1998, the Company's net loss would
have been $15,224,000 for the year ended December 31, 1999, as compared to a net
loss of $14,829,000 for the year ended December 31, 1998.
The net sales for the year ended December 31, 1999 were $1,240,000 compared
to $0 for the same period in 1998. On a pro forma basis, if the acquisition took
place January 1, 1998, The Company's net sales for the year ended December 31,
1999, would have been $9,446,000, as compared to $4,401,000 for the year ended
December 31, 1998. The increase in pro forma net sales of $5,045,000 was due
primarily to an increase in the number of products offered and customers served
in 1999 as compared to 1998.
The cost of sales for the year ended December 31, 1999 was $925,000
compared to $0 for the year ended December 31, 1998.
The gross margin for the year ended December 31, 1999, was $315,000
compared to $0 for the year ended December 31, 1998.
The research and development expenses for the year ended December 31, 1999
were $6,479,000 as compared to $5,127,000 for the same period in 1998. The
increase was primarily due to additional personnel, higher bio-study costs, and
the associated testing expenses. Additionally, the Company wrote-off $1,379,000
of acquired in-process research and development in connection with the merger.
The selling expenses for the year ended December 31, 1999, were $327,000 as
compared to $0 for the same period in 1998.
The general and administrative expenses for the year ended December 31,
1999, were $1,506,000 as compared to $705,000 for the same period in 1998. The
increase was primarily due to merger related expenses, higher professional fees
and additional personnel.
Other net operating income for the year ended December 31, 1999 was $43,000
as compared to $565,000 for the same period in 1998. The decrease was primarily
due to certain research and development milestone payments that were received in
1998, but none in 1999.
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Net interest income for the period ended December 31, 1999 was $384,000 as
compared to $45,000 for the same period in 1998. The increase was primarily due
to the interest income generated from the proceeds of private placements of
equity.
Liquidity and Capital Resources
Prior to the merger, Impax Pharmaceuticals, Inc. financed its research and
development expenses and operating activity through private placements of
equity. The aggregate proceeds raised by Impax Pharmaceuticals, Inc. was
approximately $25.5 million.
Pursuant to the terms of the Merger Agreement by and between Global and
Impax Pharmaceuticals, Inc., December 14, 1999, each issued and outstanding
share of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock of Impax Pharmaceuticals, Inc. were converted into 9,739,610
shares of common stock, $0.01 par value, of the Company.
On March 2, 1999, Impax Pharmaceuticals, Inc issued 3,400,000 shares of its
Series D Preferred Stock at $5.00 per share for a total of $17,000,000. Pursuant
to the terms of the Merger Agreement on December 14, 1999, each share of Series
D Preferred Stock of Impax Pharmaceuticals, Inc. was converted into .05 shares
of Series 1-B Convertible Preferred Stock of the Company.
In December 1995, Global completed its IPO in which 1,650,000 shares of
common stock were sold for net proceeds of $11,489,000. An additional 247,500
shares of common stock were sold to the underwriter of the IPO in January 1996
for net proceeds of $1,835,000.
In August 1997, Global completed an initial closing of approximately $1.2
million of its Series A Convertible Preferred Stock, and a subsequent closing of
$150,000 in September 1997. In addition, Global completed the closing of $5
million of its Series B Convertible Preferred Stock in December 1997. The
Company used the net proceeds of approximately $6.1 million for working capital
purposes. All the shares of Series A and Series B Preferred Stock were converted
to Common Stock.
In November 1998, Global issued 9,000 shares of its Series C Convertible
Preferred Stock at a conversion price of $2.00 per share, 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. Pursuant to the terms of the
Merger Agreement, all the shares of Series C Preferred Stock were converted to
common stock.
In the first half of 1999, Global Pharmaceutical issued 50,000 shares of
Series D Convertible Preferred Stock at a conversion price of $2.00 per share
and a five year warrant to purchase 625,000 shares of common stock at an initial
exercise price equal to $4.00 per share for aggregate proceeds of $5 million.
The proceeds were used for research and development, working capital and general
corporate needs.
Pursuant to the terms of the Merger Agreement on December 14, 1999, each
share of Series D Preferred Stock of Global, was converted into one share of
Series 1-A Convertible Preferred Stock of the Company.
22
<PAGE>
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 the
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 the Company and pledged as additional collateral.
In July 1998, Global entered into a revolving credit facility with GE
Capital, providing financing to the Company 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. The Company pays a fee of
.125% per annum on the unused available portion of the credit line. At December
31, 1999, the Company had outstanding borrowings of $1,853,000 with additional
excess availability of $1,927,000.
On March 23, 2000, the Company issued 150,000 shares of Mandatorily
Redeemable Convertible Series 2 Preferred Stock for aggregate proceeds at
$15,000,000. The proceeds of this private placement will go towards funding
research and development efforts, capital expenditures and general corporate
needs.
The Company believes that it has adequate financing for its 2000
operational plan.
The Year 2000 Issue
The Company'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 the Company's computer systems, applications and other
equipment that may employ date sensitive embedded chips for the year 2000. The
Company has been advised by its hardware and software vendors that all databases
used by current systems are Year 2000 compliant. The Company completed an
inventory of all computer hardware and software applications and successfully
tested their Year 2000 compliance. The Company addressed the Year 2000 issues
with customers, suppliers, service providers and other constituents in 1999. The
Company reviewed the information received in response to these inquiries and
determined the need and extent of contingency planning. The Company completed
its contingency planning in 1999. The Company does not believe that the Year
2000 issue indicated a material event or uncertainty or that the cost of
addressing the Year 2000 issue was material to the Company's business,
operations or financial condition.
Risk of the Company's Year 2000 Issues
Achieving Year 2000 compliance is dependent on many factors, some of which
are not completely within the Company's control. There can be no assurance that
the Company has identified all aspects of its business that are subject to Year
2000 problems of customers or suppliers that affect the Company's business.
There also can be no assurance that the Company's software vendors are correct
in their assertions that the software is year 2000 compliant. Should either the
Company's internal systems or internal systems of one or more significant
suppliers or customers fail to achieve Year
23
<PAGE>
2000 compliance, the Company's business and its results of operations could be
adversely affected.
However, as of March 15, 2000, the Company did not have any significant
year 2000 issues.
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 the Company for the year ended
December 31, 1999.
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 the Company as it operates in one business segment:
generic pharmaceuticals.
In 1998, the FASB issues SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This standard revises and
standardized disclosure requirements for pension and other postretirement
benefits in annual financial statements. This statement had no impact on the
Company, as the Company 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 establishes a new model for the
accounting and reporting of derivative and hedging transactions. 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
operation, financial position or cash flow.
Also in 1998, the AICPA issues 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. The Company adopted this standard in 1999, but does
not believe it had any significant impact on its financial results.
Item 7. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item begin
on page F-1 of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
24
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information contained under the heading "Proposal No. 1 - Election of
Directors" in the Company's definitive Proxy Statement (the "Proxy Statement")
relating to the Company's Annual Meeting of Stockholders scheduled to be held on
or about May 22, 2000, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission is incorporated
herein by reference. For information concerning the executive officers and other
significant employees of the Company, see "Business - Executives Officers" in
Item 1 above of this Annual Report.
Item 10. Executive Compensation
The response to this item will be included in the Company's Proxy Statement
to be used in connection with the Annual Meeting of Stockholders scheduled to be
held on May 22, 2000, and is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The response to this item will be included in the Company's Proxy Statement
to be used in connection with the Annual Meeting of Stockholders scheduled to be
held on May 22, 2000, and is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The response to this item will be included in the Company's Proxy Statement
to be used in connection with the Annual Meeting of Stockholders scheduled to be
held on May 22, 2000, and is incorporated herein by reference.
Item 13. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description of Document
------- -----------------------
3.1 Restated Certificate of Incorporation of the Company.(1)
3.2 Certificate of the Designations, Powers, Preferences and
Rights of the Series A Convertible Preferred Stock of
the Company.(2)
3.3 Certificate of the Designations, Powers, Preferences and
Rights of the Series B Convertible Preferred Stock of the
Company.(5)
3.4 Certificate of the Designations, Powers, Preferences and
Rights of the Series C Convertible Preferred Stock of the
Company.(6)
25
<PAGE>
3.5 Certificate of Amendment to Certificate of the
Designations, Powers, Preferences and Rights of the
Series A and Series B Convertible Preferred Stock.(6)
3.6 By-laws of the Company.(1)
3.8 Certificate of the Designations of the Series D
Convertible Preferred Stock of the Company.(1)
3.9 Certificate of Amendment to Certificate of the
Designations, Powers, Preferences and Rights of the
Series A Convertible Preferred Stock and to Certificate
of Designations, Powers, Preferences and Rights of the
Series B Convertible Preferred Stock of the Company.(1)
3.10 Certificate of Amendment to Certificate of the
Designations, Powers, Preferences and Rights of Series C
Convertible Preferred Stock of the Company.(1)
3.11 Agreement and Plan of Merger dated as of July 26, 1999 by
and between Global Pharmaceutical Corporation and Impax
Pharmaceuticals, Inc.(7)
3.12 Certificate of Amendment of Restated Certificate of
Incorporation of Global Pharmaceutical Corporation,
dated May 14, 1999.
3.13 Certificate of Amendment of Restated Certificate of
Incorporation of Global Pharmaceutical Corporation,
dated December 14, 1999.
3.14 Certificate of Merger of Impax Pharmaceuticals, Inc. and
Global Pharmaceutical Corporation.
3.15 Certificate of Designations of Series 1-A Convertible
Preferred Stock and Series 1-B Convertible Preferred
Stock.
3.16 Certificate of Designations of Series 2 Convertible
Preferred Stock.
10.2 Employment Agreement of Cornel C. Spiegler, dated as of
September 27, 1995.(1)(8)
10.6 The Company's 1995 Stock Incentive Plan.(1)(8)
10.9 Form of Amended Agreement between the Company and Merck
Kommanditgesellschaft auf Aktien regarding the issuance
of Common Stock Purchase Warrants, dated as of November,
1995.(1)
10.10 Form of Amended Manufacturing Agreement between the
Company and Genpharm, Inc., dated as of November,
1995.(1)
10.18 Acquisition Agreement between PIDC-Financing Corporation
and CPC Florida, dated September 17, 1993.(1)
10.19 Security Agreement by and between the Company and PIDC
Local Development Corporation, dated October 15, 1993,
with related Note and Commitment, and Waiver and Consent
dated November 13, 1995.(1)
10.21 Loan Agreement by and between PIDC Financing Corporation
and the Pennsylvania Industrial Development Authority
("PIDA") for a loan in a principal amount not to exceed
$1,026,000, dated April 18, 1994, with Waiver and Consent
dated November 13, 1995.(1)
26
<PAGE>
10.22 Open-End Mortgage between PIDC Financing Corporation and
PIDA dated April 18, 1994.(1)
10.25 Assignment of Installment Sale Agreement by and among
PIDC Financing Corporation, PIDA and GPC Florida, dated
April 18, 1994.(1)
10.26 Installment Sale Agreement by and between PIDC Financing
Corporation and GPC Florida dated April 18, 1994.(1)
10.27 PIDC Financing Corporation Note to the PIDA, dated
April 18, 1994.(1)
10.28 Secured $500,000 Note from the Company to PIDC Local
Development Corporation.(1)
10.29 Consent, Subordination and Assumption Agreement by and
among GPC Florida, PIDC Financing Corporation and PIDA,
dated April 18, 1994.(1)
10.40 Technical Collaboration Agreement by and between the
Company and Genpharm Inc. dated January 8, 1997.(3)
10.42 Employment agreement by and between the Company and
Mitchell Goldberg dated March 13, 1997.(3)(8)
10.43 Development, License and Supply Agreement with Eurand
America, Inc. dated August 20, 1997.(4)
10.44 License and Supply Agreement with Eurand America, Inc.
dated August 20, 1997.(4)
10.46 Loan and Security Agreement dated as of July 23, 1998
between General Electric Capital Corporation as Lender
and Global Pharmaceutical Corporation as Borrower.
10.47 The Lease between YHS (USA) Inc. and Impax
Pharmaceuticals, Inc regarding the 30831 Huntwood Avenue,
Hayward, California facility dated May 5, 1997.
10.48 Employment Agreement of Charles Hsiao, Ph.D., dated as of
December 14, 1999.(8)
10.49 Employment Agreement of Barry R. Edwards, dated as of
December 14, 1999.(8)
10.50 Employment Agreement of Larry Hsu, dated as of December
14, 1999.(8)
10.51 1999 Equity Incentive Plan of Impax Pharmaceuticals,
Inc.(8)
27
<PAGE>
23.1 Consent of PriceWaterhouseCoopers LLP.
27 Financial Data Schedule.
99.1 Court Order issued May 25, 1993 by the United States
District Court for the Eastern District of Pennsylvania
against Richlyn Laboratories, Inc.(1)
-----------
(1) Previously filed with the Commission as Exhibits
to, and incorporated herein by reference from, the
Registrant's Registration Statement on Form SB-2
(File No. 33-99310-NY)
(2) Previously filed with the Commission as Exhibit 3.3
to, and incorporated herein by reference from, the
Registrant's Registration Statement on Form S-3
(File No. 333-35569)
(3) Previously filed with the Commission as Exhibits
to, and incorporated herein by reference from, the
Registrant'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, the
registrant's Quarterly Report on Form 10-QSB for
the quarterly period ended September 30, 1997.
(5) Previously filed with the Commission as Exhibit 3.3
to, and incorporated herein by reference from, the
Registrant's Registration Statement on Form S-3
(File No. 333-44217)
(6) Previously filed with the Commission as Exhibit 3.3 to, and
incorporated herein by reference from, the Registrant's
Registration Statement on Form S-3 (File No. 333-69395).
(7) Previously filed with the Commission as Exhibit
3.11 to, and incorporated herein by reference from,
the Registrant's Quarterly Report on Form 10-QSB
for the quarterly period ended June 30, 1999.
(8) Indicates management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1999
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IMPAX LABORATORIES, INC.
By /s/ CHARLES HSIAO
------------------------------------
Charles Hsiao, Chairman and Co-Chief
Executive Officer
Date 3/29/00
------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in capacities and on the
dated indicated.
/s/ CHARLES HSIAO Chairman, Co-Chief Executive
- ---------------------------------------- Officer and Director (Principal
(Charles Hsiao) Executive Officer)
/s/ BARRY R. EDWARDS Co-Chief Executive Officer
- ---------------------------------------- and Director
(Barry R. Edwards)
/s/ LARRY HSU President, Chief Operating
- ---------------------------------------- Officer and Director
(Larry Hsu)
/s/ CORNEL C. SPIEGLER Chief Financial Officer
- ---------------------------------------- (Principal Financial and Accounting
(Cornel C. Spiegler) Officer)
/s/ DAVID J. EDWARDS Director
- ----------------------------------------
(David J. Edwards)
/s/ BRIAN KENG Director
- ----------------------------------------
(Brian Keng)
/s/ JASON LIN Director
- ----------------------------------------
(Jason Lin)
/s/ MICHAEL MARKBREITER Director
- ----------------------------------------
(Michael Markbreiter)
/s/ OH KIM SUN Director
- ----------------------------------------
Oh Kim Sun)
/s/ NIGEL FLEMING Director
- ----------------------------------------
(Nigel Fleming)
29
<PAGE>
IMPAX LABORATORIES, INC.
INDEX TO FINANCIAL STATEMENTS
Page(s)
-------
Report of Independent Accountants................................... F-2
Balance Sheets at December 31, 1999 and December 31, 1998........... F-3
Statements of Operations for each of the three years in the period
ended December 31, 1999 ......................................... F-4
Statements of Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 1999................ F-5 to F-6
Statements of Cash Flows for each of the three years in the period
ended December 31, 1999 ......................................... F-7
Notes to Financial Statements....................................... F-8 to F-22
All financial statement schedules are omitted because they are not required.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Impax Laboratories, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Impax
Laboratories, Inc. at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in the
United States, 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
February 11, 2000, except for Note 16,
as to which the date is March 23, 2000
F-2
<PAGE>
IMPAX LABORATORIES, INC.
BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,413 $ 370
Accounts receivable, net 3,973 --
Inventories 2,022 --
Prepaid expenses and other assets 256 41
-------- --------
Total current assets 13,664 411
Property, plant and equipment, net 8,128 2,970
Investments and other assets 663 27
Goodwill and intangibles, net 39,250 --
-------- --------
Total assets $ 61,705 $ 3,408
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 472 $ --
Advances from shareholders -- 80
Accounts payable 2,390 909
Accounts payable-related party -- 93
Notes payable 1,853 --
Accrued expenses 2,702 124
-------- --------
Total current liabilities 7,417 1,206
Long-term debt 1,490 --
Accrued compensation 520 520
-------- --------
9,427 1,726
-------- --------
Commitments and contingencies (Note 11)
Mandatorily redeemable convertible preferred stock:
Series 1 mandatorily redeemable convertible preferred stock,
$0.01 par value, 220,000 shares outstanding at December 31, 1999,
redeemable at $100 per share 22,000 --
-------- --------
Stockholders' equity:
Convertible preferred stock -- 12,206
Common stock, $0.01 par value, 50,000,000 authorized and 24,807,147
and 7,162,000 shares issued and outstanding
at December 31, 1999 and 1998, respectively 248 72
Additional paid in capital 51,730 685
Unearned compensation (1,470) --
Accumulated deficit (20,230) (11,281)
-------- --------
Total stockholders' equity 30,278 1,682
-------- --------
Total liabilities and stockholders' equity $ 61,705 $ 3,408
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
IMPAX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 1,240 $ 0 $ 0
Cost of sales 925 0 0
----------- ----------- -----------
Gross margin (loss) 315 0 0
Research and development 6,479 5,127 3,255
Acquired in-process research and development 1,379 0 0
Selling expenses 327 0 0
General and administrative 1,506 705 516
Other operating income, net 43 565 75
----------- ----------- -----------
Net loss from operations: (9,333) (5,267) (3,696)
Interest income, net 384 45 88
----------- ----------- -----------
Net loss $ (8,949) $ (5,222) $ (3,608)
=========== =========== ===========
Net loss per share (basic and diluted) $ (1.12) $ (0.73) $ (0.51)
=========== =========== ===========
Weighted average common shares outstanding 7,998,665 7,153,052 7,135,276
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
IMPAX LABORATORIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 31, 1999
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Convertible Prefereed Stock
--------------------------------------------------------------------- Series D
Series A Series B Series C Series D Preferred Stock
--------------- --------------- --------------- --------------- Subscription
Shares Amount Shares Amount Shares Amount Shares Amount Amount
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 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 -- -- -- -- -- -- -- -- 3,000
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 -- $ -- $3,000
====== ====== ==== ====== ==== ====== ====== ======= ======
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 -- -- -- -- -- -- -- -- 1,300
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 -- $ -- $4,300
====== ====== ==== ====== ==== ====== ====== ======= ======
<CAPTION>
Common Stock Additional
--------------- Paid-In Unearned Accumulated
Shares Amount Capital Compensation Deficit Total
--------------- ----------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 7,125 $ 72 $ 391 -- $(2,451) $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
PProceeds from Series D Stock
Subscriptions -- -- -- -- -- 3,000
Issuance of Common Stock upon
exercise of stock options for cash
at $1.67 per share 20 -- 10 -- -- 10
Net loss -- -- -- -- (3,608) (3,608)
------ ------ ---- ---- -------- ------
Balance at December 31, 1997: 7,145 72 401 -- (6,059) 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 17 -- 13 -- -- 13
Grant of stock options to
non-employees -- -- 11 -- -- 11
Intrinsic value of warrants issued -- -- 260 -- -- 260
Net loss -- -- -- -- (5,222) (5,222)
------ ------ ---- ---- -------- ------
Balance at December 31, 1998 7,162 $ 72 $685 -- $(11,281) $1,682
====== ====== ==== ==== ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
IMPAX LABORATORIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the period from January 1, 1997 through December 31, 1999
<TABLE>
<CAPTION>
Convertible Prefereed Stock
--------------------------------------------------------------------- Series D
Series A Series B Series C Series D Preferred Stock
--------------- --------------- --------------- --------------- Subscription
Account Title Shares Amount Shares Amount Shares Amount Shares Amount Amount
------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 1,580 $1,580 410 $2,050 520 $4,276 -- -- $4,300
January 1, 1999 to December 31, 1999
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 (4,300)
Intrinsic value of options issued -- -- -- -- -- -- -- -- --
Amoritization of unearned compensation -- -- -- -- -- -- -- -- --
Exercise of options during period -- -- -- -- -- -- -- -- --
Conversion of Preferred Series A (1,580) (1,580) -- -- -- -- -- -- --
Conversion of Preferred Series B -- -- (429) (2,143) -- -- -- -- --
Conversion of Preferred Series C -- -- -- -- (520) (4,276) -- -- --
Conversion Preferred Series D to Series 1-B -- -- -- -- -- -- (3,400) (17,000) --
Acquisition of Global -- -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- -- --
------ ------ ---- ------ ---- ------ ------ ------- ------
Balance at December 31, 1999 -- $ -- -- $ -- -- $ -- -- $ -- $ --
====== ====== ==== ====== ==== ====== ====== ======= ======
<CAPTION>
Common Stock Additional
--------------- Paid-In Unearned Accumulated
Account Title Shares Amount Capital Compensation Deficit Total
------------- --------------- ----------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 7,162 $ 72 $ 685 -- ($11,281) $1,682
January 1, 1999 to December 31, 1999
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 -- -- 1,805 (1,805) -- --
Amoritization of unearned compensation -- -- 335 -- 335
Exercise of options during period 200 2 148 -- -- 150
Conversion of Preferred Series A 5,271 53 1,527 -- -- --
Conversion of Preferred Series B 1,430 14 2,129 -- -- --
Conversion of Preferred Series C 3,039 30 4,246 -- -- --
Conversion Preferred Series D to Series 1-B -- -- -- -- -- (17,000)
Acquisition of Global 7,704 77 41,190 41,267
Net loss -- -- -- -- (8,949) (8,949)
------ ---- ------- ------- -------- -------
Balance at December 31, 1999 24,807 $248 $51,730 ($1,470) ($20,230) $30,278
====== ==== ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
IMPAX LABORATORIES CORPORATION
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net loss $ (8,949) $(5,222) $(3,608)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 882 521 323
Loss on disposal of assets 9 24 --
Accretion in short-term investments (73) -- --
Grant of stock options to non-employees -- 11 --
Non-Cash compensation charge (warrants and options) 335 260 --
Write-off of in-process research and development 1,379 -- --
Change in assets and liabilities net of effects from purchase
of Global Pharmaceutical:
Accounts Receivable (1,292) -- --
Inventory 471 -- --
Prepaid expenses and other assets (135) (32) (27)
Accounts payable and accrued expenses 636 905 421
-------- ------- -------
Net cash used in operating activities (6,737) (3,533) (2,891)
-------- ------- -------
Cash Flows from investing activities:
Purchases of property and equipment (457) (1,591) (1,150)
Purchases of short-term investments (9,010) -- --
Sale and maturities of short term investments 9,081 -- 3,300
Cash acquired in purchase of Global Pharmaceutical 1,325 -- --
-------- ------- -------
Net cash provided by (used in) investing activities 939 (1,591) 2,150
-------- ------- -------
Cash Flows from financing activities:
Notes payable borrowings 221 -- --
Proceeds from revolving credit notes from stockholders -- 138 --
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 12,700 -- --
Proceeds from issuance of Common Stock -- 13 10
Proceeds from advances from stockholders -- 373 282
Repayments of advances from stockholders (80) (293) (282)
-------- ------- -------
Net Cash provided by financing activities 12,841 2,246 3,566
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 7,043 (2,878) 2,825
Cash and cash equivalents, beginning of the year 370 3,248 423
-------- ------- -------
Cash and cash equivalents, end of year $ 7,413 $ 370 $ 3,248
======== ======= =======
</TABLE>
For other supplemental disclosure of non-cash investing and financing
activities, see Notes 1, 8, 10, and 13.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
IMPAX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. - THE COMPANY
Nature of operations
Impax Laboratories, Inc. ("Impax" or the "Company") is the result of a
business combination (see "Reverse acquisition" below) on December 14, 1999, of
Impax Pharmaceuticals, Inc., a privately held drug delivery company, and Global
Pharmaceutical Corporation ("Global"), a specialty generic pharmaceutical
company.
The Company's main business is the development, manufacturing and marketing
of specialty prescription pharmaceutical products utilizing its own formulation
expertise and unique drug delivery technologies. The Company is currently
marketing over 25 products and has five applications under review with the Food
Drug Administration (FDA) and fifteen additional products under development.
Impax was originally organized on September 27, 1994 as a California
corporation. Global was formed in April 1993 to acquire the assets and
liabilities of Richlyn Laboratories, Inc. Global commenced operations and began
shipping products in September 1997.
The Company was considered a development stage company as defined in
Statement of Financial Accounting Standards No. 7 until the fourth quarter of
1999 when the Company determined it had begun operations.
Reverse acquisition
Pursuant to the terms of the Agreement and Plan of Merger (the "Merger
Agreement"), by and between Global and Impax Pharmaceuticals, Inc., on December
14, 1999, Global acquired all of the outstanding common stock of Impax
Pharmaceuticals, Inc. with Impax Pharmaceuticals, Inc. stockholders receiving
3.3358 shares of Global common stock for each share of Impax Pharmaceuticals,
Inc. common stock. For accounting purposes, however, the acquisition has been
treated as the re-capitalization of Impax Pharmaceuticals, Inc., with Impax
Pharmaceuticals, Inc. deemed, the acquirer of Global in a reverse acquisition.
Therefore, the historical equity of the company has been adjusted to reflect the
conversion of Impax Pharmaceuticals, Inc. common stock to that of Global.
The purchase price of $46,757,000 (including $489,000 of direct acquisition
costs) was determined based on the fair value of Global's outstanding stock and
equivalents.
The allocation of the purchase price is, as follows: $000's
------
Current assets $ 7,983
Property, plant and equipment 5,449
Intangible assets 4,728
In-process research and development 1,379
Goodwill 34,727
Liabilities (7,509)
-------
$46,757
=======
F-8
<PAGE>
Included in the net assets acquired was in-process research and development
(IPR&D) which represents the value assigned to research and development projects
of Global that were in-process, but not yet completed at the date of
acquisition. Amounts assigned to purchased IPR&D were expensed at the date of
completion of the acquisition. By utilizing projections, the IPR&D products were
valued through the application of the risk-adjusted discounted cash flow method.
In projecting cash flows, each of the research and development projects under
development were reviewed to determine their stage of completeness. Management
identified four products as IPR&D and estimated that these products were 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. For one compound, the Company needs to
complete bioequivalency and regulatory filing. For two of the compounds, the
Company needs to complete formulation development, methodology development and
valuation, bioequivalency and regulatory filing. 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. The Company believes that the assumptions and forecasts used in valuing
IPR&D are reasonable. No assurance can be given, however, that future events
will transpire as estimated. As such, actual results may vary from projected
results.
Additionally, as a reverse acquisition, the historical operating results
prior to the acquisition are those of Impax Pharmaceuticals, Inc. and only
include the operating results of Global after the acquisition. The following pro
forma information on results of operations assumes the purchase of Global as if
the companies had combined on January 1, 1998:
Pro forma year ended
December 31,
----------------------
(unaudited)
1999* 1998
-------- --------
(in thousands except
per share data)
Net sales $ 9,446 $ 4,401
Loss from operations (15,608) (15,269)
Net loss (15,224) (14,228)
Less: Imputed dividends on preferred stock (1,474) (140)
Net loss applicable to common stock (16,698) (14,368)
Net loss per common share - basic and diluted ($0.71) ($0.66)
- ----------
* 1999 excludes actual non-recurring charges related to acquisition of $1,420 or
$(0.06) per share.
Funding of Activities
To date, the Company has funded its research and development, and operating
activities through equity and debt financings.
F-9
<PAGE>
NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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
The Company considers all short-term investments with a maturity of three
months or less at the date of purchase to be cash equivalents. Cash and cash
equivalents are stated at amortized cost which approximates market value.
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 three customers which account for 57% of total sales for
the year ended December 31, 1999. At December 31, 1999, accounts receivable from
three customers represent 74% of total trade receivables. Approximately 35% 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.
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 10) and management's intention with respect to
holding these securities. At December 31, 1999, the amortized cost of the
Company's investments approximate fair value.
F-10
<PAGE>
Goodwill and Intangibles:
Intangible assets, comprised of product rights and licenses, are amortized
on a straight line basis over the estimated useful life of 3 to 8 years.
Goodwill is being amortized on a straight line basis over 10 years.
The Company complies with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived
Assets to Be Disposed Of". Accordingly, the carrying value of long-lived assets
and certain identifiable intangible assets are evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review for recoverability, the Company compares
expected future cash flows to the carrying value of long-lived assets and
identifiable intangibles. If the expected future cash flows (undiscounted) are
less than the carrying amount of such assets, the Company recognizes an
impairment loss for the difference between the carrying amount of the assets and
their estimated fair value.
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.
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 operating 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 owners 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 income (loss) for each period as presented in the
Statements of Operations.
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 of America.
F-11
<PAGE>
Computation of basic and diluted net loss 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 on 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.
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 for 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 - RELATED PARTY TRANSACTIONS:
The Company was advanced $373,000 in fiscal 1998 from certain shareholders.
A total amount of $293,000 was repaid in 1998 and the remaining balance was paid
in January 1999. As of December 31, 1999 and 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 in obtaining equity financing. The balance was paid in
1999.
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.
On November 8, 1995, Global entered into an agreement (the "Genpharm
Agreement") with Genpharm, Inc. ("Genpharm"), a Canadian corporation and an
indirect subsidiary of Merck KgaA, under which Merck KGaA purchased 150,000
shares of Global's common stock. Global 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 Global under the Genpharm Agreement. In January 1997, Global revised
its agreement with Genpharm, pursuant to which Global shall supply packaging, if
it has 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 Global 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, from which one product,
minocycline, received approval in March 1999.
F-12
<PAGE>
NOTE 4. INVENTORIES
Inventories consist of the following:
December 31,
-------------------
1999 1998
------ -----
(in thousands)
Raw materials ..................................... $ 698 $ --
Finished goods .................................... 1,414 --
------- -----
2,112 --
Less: Reserve for obsolete inventory .............. (90) --
------ -----
$2,022 $ --
====== =====
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Estimated December 31,
useful life -----------------
(years) 1999 1998
----------- ------ ------
(in thousands)
Land ....................................... -- $ 170 $ --
Building and building improvements ......... 15 2,544 --
Equipment .................................. 7-10 5,935 3,071
Leasehold improvements ..................... * 870 857
Office furniture and equipment ............. 5 396 212
Construction in progress ................... -- 18 --
------ ------
9,933 4,140
Less: Accumulated depreciation (1,805) (1,170)
------ ------
$8,128 $2,970
====== ======
- ----------
* Depreciated over the life of the lease or the life of the asset whichever is
shorter.
Depreciation expense was $676,000, $509,000 and $298,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
NOTE 6. GOODWILL AND INTANGIBLES
<TABLE>
<CAPTION>
Estimated December 31,
useful life -----------------
(years) 1999 1998
----------- ------ ------
(in thousands)
<S> <C> <C> <C>
Goodwill and intangible consist of the following:
Product rights and licenses 3 - 8 $ 4,728 $ --
Goodwill 10 34,727 --
------- ------
39,455 --
Less: Accumulated amortization (205) --
------- ------
$39,250 $ --
======= ======
</TABLE>
Amortization expense was $205, $0, $0 for the years ended December 31,
1999, 1998 and 1997, respectively.
NOTE 7. ACCRUED EXPENSES
December 31,
--------------------
1999 1998
------ ----
(in thousands)
Accrued expenses consist of the following:
Accrued rebates, chargebacks and returns ............. $1,271 $ --
Accrued professional fees ............................ 410 --
Accrued salaries and payroll related expenses ........ 272 8
Accrued merger expenses .............................. 241 --
Accrued development and royalty expense .............. 228 --
Other ................................................ 280 116
------ ----
$2,702 $124
====== ====
F-13
<PAGE>
NOTE 8. 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,
-----------------------
1999 1998
-------- -------
(in thousands)
Net operating losses ................................ $ 13,323 $ 2,708
Deferred start-up and organization costs ............ 3,557 --
Depreciation and amortization ....................... 216 (100)
Research and development credit ..................... 1,090 716
Other ............................................... 515 --
-------- --------
Gross deferred tax assets ........................... 18,701 3,324
Deferred tax asset valuation allowance .............. (18,701) (3,324)
-------- -------
$ -- $ --
======== =======
Deferred start-up and organization expenditures are amortized for tax
purposes over a 60-month period ending 2003. Cash paid for income taxes was
$1,000, $8,000 and $8,000 for the years ended December 31, 1999, 1998, and 1997,
respectively. 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
ceratin 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.
At December 31, 1999, the Company has net operating loss-carryforward
totalling approximately $29,926,000, which expire from 2010 through 2019. The
Company also has research and development expenditure tax credits totaling
approximately $1,090,000 at December 31, 1999. As indicated above, these losses
and credits will have limitations.
F-14
<PAGE>
NOTE 9. NOTES PAYABLE:
In July 1998, Global entered into a three year revolving credit facility
with G.E. Capital, providing funding up to $5 million based on the levels of
accounts receivable and inventory. Amounts borrowed under this 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
0.125% per annum on the unused available portion of the credit line. At December
31, 1999, the Company had borrowings of $1,853,000 under this facility with
$1,927,000 of excess availability.
NOTE 10. LONG TERM DEBT:
<TABLE>
<CAPTION>
December 31,
------------------
(in thousands)
1999 1998
------ ----
<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................................ $ 680 $ --
3.75% loan payable to PIDC in 84 monthly installments of $3,672
commencing January 1, 1994, with a balance of $304,000 due on
December 1, 2000........................................................... 333 --
3.75% loan payable to PIDA (No. 2) in 180 monthly installments of $5,513
commencing September 1, 1997, through August 1, 2012....................... 666 --
5% loan payable to DRPA in 120 monthly installments of $3,712
commencing September 1, 1997, through August 1, 2007....................... 283 --
------ -----
$1,962 $ --
Less: Current portion of long-term debt...................................... 472 --
------- -----
$1,490 $ --
======= =====
</TABLE>
The PIDA (No. 1) loan is collateralized by land, building and building
improvements. The PIDC loan is collateralized by the Company's equipment. The
PIDA (No. 2) loan and the DRPA loan are collateralized by land, building and
building improvements, and additional collateral of $635,000 invested in
interest bearing certificates of deposit owned by the Company.
The PIDA loans contain financial and non-financial covenants, including
certain covenants regarding levels of employment which were not effective until
commencement of operations. The Company is in compliance with all loan
covenants.
Scheduled maturities of long-term as of December 31, 1999, are as follows,
in thousands:
2000................................................. $ 472
2001................................................. 144
2002 ................................................ 149
2003................................................. 153
2004................................................. 158
Thereafter........................................... 886
-----
Total ............................................ $1,962
======
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 13).
F-15
<PAGE>
NOTE 11. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office space under a noncancelable operating lease that
expires in 2002 with a renewal option of 3 years. Rent expense for the year
ended December 31, 1999, 1998 and 1997 was $155,000, $165,000 and $132,000,
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
December 31,
------------
2000.................................................. $165
2001.................................................. 165
2002................................................... 83
----
Total minimum lease payments.......................... $413
====
Richlyn Order
The Company is in compliance with a May 25, 1993 order, which was entered
by the United States District Court for the Eastern District of Pennsylvania
(the "Richlyn Order"). The Richlyn Order, among other things, permanently
enjoined Richlyn from introducing into commerce any drug manufactured,
processed, packed or labeled at its manufacturing facility unless it met certain
stipulated conditions. The Company, as a purchaser of the Richlyn facility,
remains obligated by the terms of the Richlyn Order.
Product liability and insurance
The Company assumed the liabilities of Richlyn in connection with Diethyl
Stilbestrol ("DES"), which was manufactured by Richlyn during the late 1950's
and early 1960's. DES was prescribed to pregnant women during the 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 that 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.
NOTE 12. MANDATORILY REDEEMABLE PREFERRED STOCK
The Company has authorized 2,000,000 shares of preferred stock, $0.01 par
value per share (the "Preferred Stock"). The Company issued 220,000 shares of
Preferred Stock all of which were outstanding at December 31, 1999, and are
classified as Mandatorily Redeemable Preferred Stock, as follows: 50,000 shares
of Series 1-A Preferred Stock and 170,000 shares of Series 1-B Preferred Stock
(collectively, the "Series 1 Preferred"). The remaining authorized but unissued
shares could be issued with or without mandatorily redeemable features.
In addition, pursuant to its certificate of incorporation, the Company will
be authorized to issue "blank check" preferred stock. This will enable the board
of directors of the Company, from time to time, to create one or more new series
of preferred stock in addition to the Series 1 Preferred. The new series of
preferred stock can have the rights, preferences, privileges and restrictions
designated by the 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 Company common stock.
F-16
<PAGE>
Dividends
The share of Series 1 Preferred are entitled to receive dividends on an
as-converted basis with the outstanding shares of common stock payable when and
as declared by the Company's Board of Directors.
Conversion
Each share of Series 1 Preferred is convertible into a number of shares of
the Company common stock. The number of shares of common stock is determined by
adding $100 plus the 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. 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 will
be adjusted for certain events, including: 1) Any subdivision, combinations or
reclassifications of the Company's common stock; 2) Any payment, issuance or
distribution by the Company of a stock dividend, debt securities or assets; and
3) 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.
Voting
Except as required by law, holders of the shares of Series 1 Preferred
Stock vote on an as converted basis, as a single class with all other
stockholders of the Company. Holders of Series 1 Preferred also have certain
voting rights with respect to major corporate transactions or reorganizations.
Liquidation
Each share of Series 1 Preferred Stock is entitled to liquidation
preference before any distributions to holders of common stock equal to the
greater of:
o $100 per share plus any accrued and unpaid dividends on the
Series 1 Preferred;
o the pro rata share of the assets of the Company, determined as if
the shares of Series 1 Preferred had been converted into common
stock; or
o a 12% annualized rate of return on the dollar value of their
initial investment.
Redemption
The Company is required to redeem, on March 31, 2004, all of the
outstanding shares of Series 1 Preferred at a price per share equal to $100 plus
all declared but unpaid dividends. The holders of the Series 1 Preferred can
also require the redemption of their preferred stock upon the happening of
certain events, including the sale of the 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 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 have preemptive rights entitling them to
purchase a pro rata share of any capital stock including securities convertible
into capital stock of the Company, issued by the Company in order for the
holders of Series 1 Preferred to retain their percentage interest in the
Company. However, the Company can issue shares of its capital stock under
certain circumstances without triggering the preemptive rights of the Series 1
Preferred, including the following: 1) As pro rata dividends to all holders of
common stock, 2) As stock options to employee, officers and directors, 3) In
connection with a merger, acquisition or business combination, 4) 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 5) Up
to 300,000 shares issued during the first five years in connection with a
business relationship.
F-17
<PAGE>
Repurchase
After two years, the Company has the right to purchase all of the
outstanding shares of Series 1 Preferred if the market price of a share of
Company common stock is at least equal to the higher of:
o 300% of the applicable conversion price of the Series 1 Preferred
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 days 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 any declared but unpaid dividends.
NOTE 13: STOCKHOLDERS' EQUITY
Convertible Preferred Stock
At December 31, 1998, the Company had the following convertible preferred
stock outstanding:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Series A, no par value, 1,600 shares authorized, 1,580 shares issues and outstanding
(liquidation value $1,580) $ 1,580
Series B, no par value, 500 shares authorized, 429 shares issued and outstanding
(liquidation value $2,050) 2,050
Series C, no par value, 600 shares authorized, 520 shares issues and outstanding
(liquidation value $4,559) 4,276
Series D, Subscriptions 4,300
-------
$12,206
=======
</TABLE>
In March 1999, the Company issued 3,400,000 shares of its Series D
convertible preferred stock at $5.00 per share for a total of $17,000,000.
Pursuant to the terms of the Merger Agreement, each issued and outstanding
share of Series A preferred stock, Series B preferred stock and Series C
preferred stock of Impax Pharmaceuticals, Inc. were converted into shares of
common stock, $0.01 par value, of the Company, as follows:
<TABLE>
<CAPTION>
Impax Pharmaceuticals, Inc Impax Laboratories, Inc
Shares Ratio Shares
-------------------------- ------ -----------------------
<S> <C> <C> <C>
Series A Preferred Stock: 1,580,000 3.3358 5,270,564
Series B Preferred Stock: 428,600 3.3358 1,429,724
Series C Preferred Stock: 519,631 5.8490 3,039,322
---------
Total 9,739,610
=========
</TABLE>
Pursuant to the terms of the Merger Agreement, each issued and outstanding
share of Series D preferred stock of Impax Pharmaceuticals, Inc. was converted
into .05 shares of Series 1-B convertible preferred stock of the Company.
Each share of Series A, B, C and D convertible preferred stock had certain
voting, dividend, liquidation, conversion and redemption rights. No dividends on
convertible preferred stock were declared by the Board since inception.
F-18
<PAGE>
Warrants for Convertible Preferred Stock
In connection with issuing revolving credit notes in July 1995 to the
Company's founders, the Company issued warrants to purchase 715,000 shares of
Series A convertible preferred stock for $1.00 per share. There were no warrants
outstanding at December 31, 1998 or 1999. 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 convertible preferred stock.
Common Stock
The Company Articles of Incorporation, as amended, authorize the Company to
issue 50,000,000 shares of common stock with $0.01 par value.
Warrants for Common Stock
The Company has outstanding warrants as follows:
Number of Shares Range of
Under Warrants Exercise Price
---------------- ------------------------
1,988,698 $0.75 to $2.00 per share
1,330,000 $2.01 to $4.00 per share
280,000 $4.01 to $13.18 per share
---------
3,598,698
=========
All the outstanding warrants are convertible into common stock. The
warrants expire five years from the date of issuance.
In connection with a deferred compensation agreement in 1998 with the
Company's founders, the Company issued warrants to purchase 1,734,616 shares of
Common Stock for $0.75 per share. Such warrants, which are included in the above
table, are outstanding at December 31, 1999, 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.
Unearned Compensation
In April 1999, the Company granted 836,285 options to employees to purchase
common stock for $0.75 per share. As a result of the grant, the Company recorded
$1,805,000 of unearned compensation in accordance with APB No. 25; $335,000 of
the unearned compensation was amortized to expense during the year ended
December 31, 1999. The Company amortizes unearned compensation over the vesting
period of the underlying option.
NOTE 14. 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 $12,000 in contributions under this plan for the
year ended December 31, 1999, and none for the years ended December 31, 1998 and
1997.
F-19
<PAGE>
NOTE 15. STOCK OPTION PLANS:
1996 Stock Option Plan
In September 1996, the Company adopted the 1996 Stock Option Plan (the
"1996 Plan"). The 1996 Plan provides for the granting of stock options to
employees and consultants of the Company. Options granted under the 1996 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 (pre-recapitalization) of Common Stock for issuance
under the 1996 Plan.
Effective June 1, 1998, the Company's Board of Directors approved the
re-pricing of all outstanding options to $0.75 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 $0.75 per
share.
As a result of the Merger, each outstanding and unexercised option to
purchase shares of common stock was converted into new options by multiplying
these options by 3.3358. Therefore, at December 31, 1999, 266,800 outstanding
and unexercised options under the 1996 Plan were converted into 889,991 new
options.
1999 Equity Incentive Plan (Pre-Merger)
In April 1999, the Company adopted the 1999 Equity Incentive Plan (the
"1999 Pre-Merger Plan"). The 1999 Pre-Merger Plan reserves for issuance
1,000,000 shares (pre-recapitalization) of common stock for issuance pursuant to
stock option grants, stock grants and restricted stock purchase agreements. As a
result of the Merger, each outstanding and unexercised option to purchase shares
of common stock was converted into new options by multiplying these options by
3.3358. Therefore, at December 31, 1999, 249,300 outstanding and unexercised
options under the 1999 Pre-Merger Plan were converted into 831,614 new options.
Global's 1995 Stock Incentive Plan
In 1995 Global's Board of Directors adopted the 1995 Stock Incentive Plan.
As a result of the merger, each outstanding and unexercised option to purchase
shares of common stock was converted into one Impax Laboratories option. At
December 31, 1999, 525,987 options are outstanding. As a result of the reverse
acquisition, the 525,987 options are reflected in the following table as option
acquired during 1999.
Impax Laboratories, Inc. 1999 Equity Incentive Plan
The Company's 1999 Equity Incentive Plan (the "Plan") was adopted by
Impax's Board of Directors for the purpose of offering equity-based compensation
incentives to eligible personnel with a view toward promoting the long-term
financial success of the Company and enhancing stockholder value, at December
31, 1999. At December 31, 1999, 342,030 options are outstanding.
To date, options granted under each of the above plans vest from three to
five years and have a maximum term of ten years.
F-20
<PAGE>
Stock option transactions in each of the past three years under the
aforementioned plans in total were:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------
Weighted- Weighted- Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1 955,707 $0.74 478,687 $1.95 520,385 $1.60
Acquired 525,987 $2.99 -- -- -- --
Granted 1,180,310 $1.68 582,098 1.71 75,056 2.63
Exercised (67,044) $0.75 (16,679) 0.75 (20,015) 0.50
Cancelled (5,338) $0.75 (88,399) 0.75 (96,739) 0.88
Rescinded -- -- (652,149) 2.50 -- --
Reissued -- -- 652,149 0.75 -- --
--------------------------------------------------------------------------------
Options outstanding at December 31 2,589,622 $1.62 955,707 $0.74 478,687 $1.95
Options exercisable at December 31 663,766 182,468 106,746
Options available for grant at December 31 336,364 675,500 1,169,198
</TABLE>
Fair value disclosures
Had compensation cost for the Company's Plans 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 loss would have been increased to the pro forma amounts
indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------------- ----------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net loss ($8,949) ($9,190) ($5,222) ($5,668) ($3,608) ($3,657)
Net loss per common share ($1.12) ($1.15) ($0.73) ($0.80) ($0.51) ($0.52)
(basic and diluted)
</TABLE>
The proforma results may not be 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. 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%, 5.01% to
5.95% and 5.06% to 6.33%, for the years ended December 31, 1999, 1998 and 1997,
respectively. The expected stock price volatility for the year ended December
31, 1999 was 50%. For the years ended December 31, 1998 and 1997, the Company's
common stock was not publicly traded. Accordingly, the Company used the minimum
value method and excluded expected stock price volatility for its calculation of
the fair value of options issued in those years. The weighted average fair value
of options granted during 1999, 1998 and 1997 was $2.27, $1.30, and $0.45,
respectively.
F-21
<PAGE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------
Weighted Average
Range of Number of Remaining Life Weighted Average Number of Weighted Average
Exercise Prices Options (Years) Exercise Price Options Exercise Price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.30 - $0.75 1,388,026 8.22 $0.74 342,086 $0.67
$0.82 - $2.06 388,800 9.21 $0.98 10,000 $1.56
$2.19 - $5.00 812,796 8.76 $3.44 311,680 $3.17
- --------------------------------------------------------------------------------------------------
$0.30 - $5.00 2,589,622 8.54 $1.62 663,766 $1.86
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE 16. SUBSEQUENT EVENTS
Private Placement of Equity
On March 23, 2000, the Company issued 150,000 shares of Mandatorily
Redeemable Convertible Series 2 Preferred Stock for aggregate proceeds of
$15,000,000.
At the option of the holder, each share of Series 2 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 $5.00 per share of common stock, subject to certain
anti-dilution provisions.
The Series 2 Preferred Stock will rank senior in all respects, including
payment on liquidation and redemption, to all other equity securities of the
Company, provided that it will rank pari passu with the Series 1-A Preferred
Stock and Series 1-B Preferred Stock.
At the option of the investor, the Company will pay liquidation value to
the investors if the following occur: (i) a sale of all or substantially all of
the operating assets of the Company; (ii) an event that causes the Company to
become insolvent; (iii) an event that takes the Company private; and (iv) a
merger or other business combination involving the Company in which shareholders
of the Company (as determined immediately prior to such transaction) cease to
own stock of the surviving entity (a) that possesses greater than 50% of the
voting power of all classes of stock of such entity that are entitled to vote or
(b) that constitutes greater than 50% of the total value of the equity
securities in such entity.
Patent Infringement Liability Insurance
On January 31, 2000, the Company obtained $5 million of insurance coverage
with American Intentional Specialty Lines Insurance Company (a member of AIG)
covering primarily potential claims brought against Impax under the Waxman-Hatch
Act provisions relating to Paragraph IV Certification. As of March 23, 2000, no
claims were filed against the Company.
F-22
CERTIFCATE OF AMENDMENT
OF
RESTATED CERTIFCATE OF INCORPORATION
OF
GLOBAL PHARMACEUTICAL CORPORTATION
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: Subparagraph (a) of paragraph FOURTH of the Restated Certificate
of Incorporation of the Corporation is hereby amended and replaced in its
entirety with the following:
"FOURTH:
Section 1. Authorization.
(a) The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is Nineteen Million (19,000,000) shares,
consisting of (i) Seventeen Million (17,000,000) 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: May 14, 1999
By: /s/ Barry R. Edwards
--------------------
Barry R. Edwards, President and
Chief Executive Officer
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)
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 Certficate 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.
<PAGE>
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: December 14, 1999
By: Barry R. Edwards
-------------------------------
Barry R. Edwards, President and
Chief Executive Officer
CERTIFICATE OF MERGER
OF
IMPAX PHARMACEUTICAL CORPORATION
AND
GLOBAL PHARMACEUTICAL CORPORATION
It is hereby certified that:
1. The constituent business corporations participating in the merger herein
certified are:
(i) Impax Pharmaceuticals, Inc., which is incorporated under the laws
of the State of California; and
(ii) Global Pharmaceutical Corporation, which is incorporated under
the laws of the State of Delaware.
2. An Agreement and Plan of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein certified is
Global Pharmaceutical Corporation, which will continue its existence upon the
effective date of said merger pursuant to the provisions of the General
Corporation Law of the State of Delaware.
4. The Certificate of Incorporation of Global Pharmaceutical Corporation
shall continue to be the Certificate of Incorporation of said surviving
corporation, pursuant to the provisions of the General Corporation Law of the
State of Delaware.
5. The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is on file at an office of the aforesaid surviving
corporation, the address of which is as follows:
Global Pharmaceutical Corporation
Castor and Kensington Avenues
Philadelphia, PA 19124
<PAGE>
6. A copy of the aforesaid Agreement and Plan of Merger will be furnished
by the aforesaid surviving corporation, on request and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Impax Pharmaceuticals, Inc. consists of
fifteen million (15,000,000) shares of Common Stock and fifteen million
(15,000,000) shares of Preferred Stock.
Dated: December 14, 1999.
IMPAX PHARMACEUTICALS, INC.
By: Larry Hsu
----------------------
Larry Hsu
President
Dated: December 14, 1999.
GLOBAL PHARMACEUTICAL CORPORATION
By: Barry R. Edwards
----------------------
Barry R. Edwards
Chief Executive Officer
2
GLOBAL PHARMACEUTICAL CORPORATION
FORM OF
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,
<PAGE>
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 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 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
-2-
<PAGE>
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.
-3-
<PAGE>
(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.
-4-
<PAGE>
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 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
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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 reclassifica tion 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).
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(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 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.
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(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
(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
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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
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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 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
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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) 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
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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.
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(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 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
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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
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
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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.
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<PAGE>
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 canceled 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 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
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<PAGE>
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 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
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<PAGE>
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 th
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).
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<PAGE>
"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.
"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.
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<PAGE>
"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:
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<PAGE>
(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 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, dissolu tion 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.
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<PAGE>
"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.
"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
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<PAGE>
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).
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<PAGE>
"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
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.
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<PAGE>
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
By: /s/ Cornel C. Spiegler
-------------------------------
Name: Cornel C. Spiegler
Title: Secretary
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IMPAX LABORATORIES, INC.
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES 2 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 Impax Laboratories,
Inc., a Delaware corporation (the "Corporation").
B. On March 2, 2000, the Board of Directors of the Corporation duly
adopted resolutions in order to designate the Series 2 Convertible Preferred
Stock (as set forth in the resolution below).
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 2 Convertible Preferred Stock (the "Series 2
Preferred Stock").
1. Designation. 200,000 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 2 Convertible Preferred Stock."
2. Dividends.
(a) Dividends on Series 2 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 2 Preferred Stock shall be entitled to receive from
<PAGE>
the Corporation, with respect to each share of Series 2 Preferred Stock held, a
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 2 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 2 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 2 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 2 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 2 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 2 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 2
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 2 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 2 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 2
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 2 Preferred Stock and
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<PAGE>
Common Stock on the basis of the number of shares of Common Stock into which
such Series 2 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 2 Liquidation Preference"). The "Liquidation Value"
means $100 per share with respect to the Series 2 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 2
Liquidation Preference for each share of Series 2 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 2 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.
(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 2 Preferred Stock at their
respective addresses as shall appear on the records of the Corporation.
4. Voting. In addition to any voting rights provided in the
Corporation's Certificate of Incorporation or by law, the Series 2 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 2
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 2 Preferred Stock is then convertible. The
holders of Series 2 Preferred Stock shall be entitled to notice of any
stockholder's meeting in accordance with the By-Laws of the Corporation.
5. Conversion. The holders of shares of Series 2 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 2 Preferred
Stock shall have the right, at the option of
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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 2 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 2 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 2 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 office of
the Corporation or of any transfer agent for the Series 2 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 2
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 2 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 2 Preferred Stock is to be
made in connection with a public
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offering of Common Stock or any transaction described in Section 5(d)(vii)
hereof, the conversion of any shares of Series 2 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.
(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 reclassifica tion 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 2 Preferred Stock shall have the right to convert its
shares of Series 2 Preferred Stock into the number of shares of Common
Stock which it would have owned after the event had such shares of Series 2
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 2 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 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 2 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 2 Preferred 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
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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 2 Preferred Stock pursuant to Section 2(a) hereof.
(iii) (A) Issuance of Warrants or Other Rights. 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
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
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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 2 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
(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 2
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 2
Preferred Stock, if there is an
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antidilution adjustment (i) under any Convertible Securities other than the
Series 2 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 2 Preferred Stock is convertible
and the Conversion Price at which the Series 2 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 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,
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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.
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(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 2
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) 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 2 Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series 2 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 2 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 2 Preferred Stock shall agree
by an instrument in writing to deliver such stock, cash, securities or other
assets to the holders of the Series 2 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 2 Preferred Stock upon conversion of all or any portion of
their shares of Series 2 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 2 Preferred Stock by
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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 2 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 2 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 2 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 2 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 2 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 2 Preferred Stock against
impairment.
(f) No Fractional Shares Adjustments. No fractional shares
shall be issued upon conversion of the Series 2 Preferred Stock. If more
than one share of the Series 2 Preferred Stock is to be converted at one time by
the 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 2 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
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Market Price per share of Common Stock at the close of business on the day of
conversion which such fractional share of Series 2 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 2 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 2 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 2 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 2 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 2 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 2 Preferred Stock, the holder thereof shall be entitled to receive
any accrued but unpaid dividends in respect of the shares of Series 2 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 2 Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion of
any shares of Series 2 Preferred Stock in any manner which interferes with the
timely conversion of such shares of Series 2 Preferred Stock.
6. Redemption
(a) Redemption Price. Any redemption of the Series 2 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 2 Preferred
Stock pursuant to Section 6(d) shall be at a price per share equal to the Series
2 Liquidation Preference, except that, for purposes of calculation of the
redemption price under this Section 6(a), clause (ii) of the definition of
Series 2 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 2 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
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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 2 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 2
Preferred Stock at the Mandatory Redemption Price on March 31, 2005.
(c) Procedures for Redemption. In the event the Corporation shall
redeem shares of Series 2 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 2 Preferred Stock to be redeemed; (iii) the Mandatory
Redemption Price or Optional Redemption Price, as the case 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 2 Preferred Stock; (vi) the then current Conversion Price and the
date on which the right to convert such shares of Series 2 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 2 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 2
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 2 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
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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 2 Preferred Stock shall have the right, at the holder's option, to
require the Corporation to repurchase all of such holder's Series 2 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 2 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 2 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 2 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 2
Preferred Stock to have the Corporation repurchase shares of Series 2
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 2 Preferred Stock converted,
redeemed, repurchased or otherwise acquired by the Corporation shall be
retired and canceled 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 2 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 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
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<PAGE>
Series 2 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 2 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 2 Preferred Stock) by such holder of Series 2 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 500,000.
(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 2 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 2
Preferred Stock of such notice, the Corporation shall be deemed to have
irrevocably offered to sell to the holders of the Series 2 Preferred Stock a
sufficient number of shares of such capital stock so that the holders of the
Series 2 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 2 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 2 Preferred Stock, the Corporation shall sell such shares to holders of
the Series 2 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 2 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 2
Preferred Stock against receipt of the consideration therefor.
(c) Notwithstanding any other provision hereof, the preemptive rights
granted to holders of Series 2 Preferred Stock by this Section 8 shall terminate
with respect to a share of Series 2 Preferred Stock upon the conversion or
redemption of such share of Series 2 Preferred Stock in accordance with the
provisions hereof.
-15-
<PAGE>
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 2 Preferred Stock (the "Call"), provided,
however, that (i) the Market Price of a share of Common Stock is equal to, or
greater than, an amount equal to 300% of the then applicable Conversion Price
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 2 Preferred Stock pursuant to
this Section 9(a) shall be at a price per share of Series 2 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 2 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 2 Preferred Stock not less 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 2 Preferred Stock;
(v) the then current Conversion Price and the date on which the right to convert
such shares of Series 2 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 2 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 2 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
-16-
<PAGE>
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 2 Preferred Stock, (ii) Common
Stock to be issued upon conversion of the Series 1 Preferred Stock, (iii)
Common Stock to be issued upon the exercise of currently outstanding
warrants listed on Schedule 6 to the Stock Purchase Agreements, and (iv) up
to an aggregate of 750,000 shares of Common Stock to be issued pursuant to
the Corporation's 1995 Stock Incentive Plan or other similar equity plan
and (v) up to 2,400,000 shares of Common Stock to be issued pursuant to the
Corporation's 1999 Equity Incentive Plan and (b) from the date hereof until
the fifth anniversary hereof, up to 1,000,000 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 1,000,000 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.
-17-
<PAGE>
"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 2 Preferred Stock is convertible, as such
Conversion Price may be adjusted pursuant to Section 5 hereof. The initial
Conversion Price for the Series 2 Preferred Stock will be $5.00.
"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
2 Preferred Stock.
"Final Surrender Date" shall have the meaning set forth in Section 6(e).
"Fundamental Change" means any of the following events:
(i) the sale (or functional equivalent of a sale) of all or
substantially 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 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;
-18-
<PAGE>
(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 2 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 2 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).
-19-
<PAGE>
"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 2 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.
"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" means the Series 1 Preferred Stock and 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 2 Preferred
Stock, which expressly provides that it ranks pari passu with the Series 2
Preferred Stock as to dividends, other distributions, liquidation
preference or otherwise.
"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 2 Preferred
Stock being repurchased 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
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<PAGE>
holders of the Series 2 Preferred Stock as a dividend or distribution with
respect to, or as consideration for the sale of, such Series 2 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 2 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 2 Preferred
Stock. (For the avoidance of doubt, Cash Inflows and Cash Outflows with
respect to any Series 2 Preferred Stock not included in the Series 2
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 2 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.
"Repurchase Date" shall have the meaning set forth in Section 6(d).
"Series 2 Liquidation Preference" shall have the meaning set forth
in Section 3(a).
"Series 1 Preferred Stock" means, collectively, the Corporation's
Series 1-A Convertible Preferred Stock, par value $.01 per share, and the
Corporation's Series 1-B Convertible Preferred Stock, par value $.01 per
share.
"Series 2 Preferred Stock" shall have the meaning set forth in the
resolution paragraph in the preamble.
"Stock Purchase Agreements" means each of the six Stock Purchase
Agreements dated as of the date hereof between the Corporation and the
purchaser listed on the signature page to each such Agreement.
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
conversion given to the Corporation as contemplated in Section
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<PAGE>
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 2 Preferred Stock, to such holder at the address of such holder of the
Series 2 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.
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<PAGE>
IN WITNESS WHEREOF, IMPAX LABORATORIES, INC. has caused this Certificate of
Designations to be signed by its Co-Chief Executive Officer and attested to by
its Secretary, all as of the [___] day of [___________], 2000.
IMPAX LABORATORIES, INC.
By: ---------------------------------
Name: Barry R. Edwards
Title: Co-Chief Executive Officer
-23-
EXHIBIT 10.47
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--GROSS
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
May 5, 1997, is made
- ---------------
by and between YHS (USA) Inc., a California Corporation
-----------------------------------------
("Lessor")
- ----------------------------------------------------------------------
and Impax Pharmaceuticals, Inc., a California Corporation
-------------------------------------------------------------------
("Lessee"),
- ---------------------------------------------------------------------
(collectively the "Parties" or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 30831 Huntwood Avenue, Hayward
-------------------------------
located in the County of Alameda, State of California
--------- -----------------------
and generally described as (describe briefly the nature of the property)
an approximately 29,952 square foot
- -----------------------------------
freestanding warehouse facility, with 1.88 acres. Parcel No. 475-20-92
- ----------------------------------------------------------------------
- --------------------------------------------------------------------------------
("Premises"). (See Paragraph 2 for further provisions.)
- -------------------------
1.3 Term: 5 years and 0 months ("Original Term") commencing July 1, 1997
--- --- ------------
("Commencement Date") and ending June 30, 2002 ("Expiration Date"). (See
---------------
Paragraph 3 for further provisions.)
1.4 Early Possession: N/A ("Early Possession Date").
---
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $ 12,879.36 per month ("Base Rent"), payable on
--------------
the first day of each month commencing July 1, 1997
----------- --------------
- ------------------------------------------------------------------------------
(See Paragraph 4 for further provisions.)
- -----------------------------------
/x/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $ 12,879.36
---------------------------
as Base Rent for the period July 1, 1997 - July 31, 1997
---------------------------------
- ------------------------------------------------------------------------------
1.7 Security Deposit: $ 26,657.28 ("Security Deposit"). (See Paragraph 5
-----------
for further provisions.)
1.8 Permitted Use: The research/development and manufacturing of
-------------------------------------------------
pharmaceutical products and all other legal related administrative uses. (See
- ------------------------------------------------------------------------
Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $936 is the "Base
------
Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
Cushman & Wakefield of California, Inc. represents
- --------------------------------------------------------------------
/x/ Lessor exclusively ("Lessor's Broker"); /_/ both Lessor and Lessee, and
Colliers Parrish International, Inc. represents
- --------------------------------------------------------------------
/x/ Lessee exclusively ("Lessee's Broker"); /_/ both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by
--------------------------------------------------
Charles Hsiao ("Guarantor"). (See Paragraph 37 for
- -------------------------------------------
further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 55 and Exhibits
--- -- ----------------
N/A all of which constitute a part of this Lease.
- -----------------
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Dale, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the Improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined to Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
Initials ________
________
GROSS PAGE 1
(C)1990-American Industrial Real Estate Association FORM 105G-R-12/91
<PAGE>
3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, one is
specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term initially
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall he prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein to such other persons or at
such other addresses as Lessor may from time to time designate in writing to
Lessee.
Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
base rent or other rent or charges due hereunder, or otherwise defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorney's fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore sold Security Deposit to the full amount
required by this Lease. Any time the base rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts ere specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee. Its assignees and subtenants for a modification of
said permitted purpose for which the premises may be used or occupied, so long
as the same will not impair the structural integrity of the improvements on the
premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as used
in this Lease shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
form, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a reportable use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including but
not limited to, the installation (and removes on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a hazardous substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any hazardous substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
reportable uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect; defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing) removal,
remediation, restoration and/or abatement (hereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to hazardous substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance With Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days alter receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registration manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 8.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
Inspections.
7. Maintenance, Repairs; Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part there of in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or Involving any Hazardous Substance and/or storage lank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof end structural aspects of the Premises in
good order, condition and repair. Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, (n any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is used
in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work (hereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees end costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or become
the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations
and Utility Additions made to the Premises by Lessee shall be the property of
and owned by Lessee, but considered a part of the Premises. Lessor may, at any
time and at its option, elect in writing to Lessee to be the owner of all or any
specified part of the Lessee Owned Alterations and Utility Installations. Unless
otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon and be
surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
Installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, with all of
the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear end tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance Cost
Increase") occurring during the term of this Lease. "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance required under
Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("Required Insurance"), over and above the
Base Premium, as hereinafter defined, calculated on an annual basis. "Insurance
Cost Increase" shall include, but not be limited to, increases resulting from
the nature of Lessee's occupancy, any act or omission of Lessee, requirements of
the holder of a mortgage or deed of trust covering the Premises, increased
valuation of the Premises, and/or a premium rate increase. If the parties insert
a dollar amount in Paragraph 1.9, such amount shall be considered the "Base
Premium," in lieu thereof, if the Premises have been previously occupied, the
"Base Premium" shall be the annual premium applicable to the most recent
occupancy. If the Premises have never been occupied, the "Base Premium" shall be
the lowest annual premium reasonably obtainable for the Required Insurance as of
the commencement of the Original Term, assuming the most nominal use possible of
the Premises. In no event, however, shall Lessee be responsible for any portion
of the premium cost attributable to liability insurance coverage in excess of
$1,000,000 procured under Paragraph 8.2(b) (Liability Insurance Carried By
Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing prior to,
or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement or Expiration of the Lease term.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of Insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and properly damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not leas than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises"
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any Intra-Insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnify obligations under this
Lease. The limits of said Insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(n), above, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
8.3 Property Insurance--Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to the holders of any mortgages, deeds of trust
or ground losses on the Premises ("Lender(s)"), insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by Lenders, but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age of
the improvements involved, such taller amount is less than full replacement
cost. Lessee Owned Alterations and Utility Installations shall be insured by
Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to by demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall, in addition obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, wish loss
payable to Lessor and Lender(s), insuring the loss of the full rental and other
charges payable by Lessee to Lessor under this Lease for one (1) year (including
all real estate taxes, insurance costs, and any scheduled rental increases).
Said insurance shall provide that in the event the Lease is terminated by reason
of an insured loss, the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of the Premises, to
provide for one full year's loss of rental revenues front the date of any such
loss. Said insurance shall contain an agreed valuation provision in lieu of any
coinsurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, property taxes, insurance premium costs and
other expenses, if any, otherwise payable by Lessee, for the next twelve (12)
month period.
(c) Adjacent Premises. It the Premises are part of a larger building, or if
the Premises are part of a group of buildings owned by Lessor which are adjacent
to the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall by full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Losses for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+ , V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without effecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground Lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Except as hereinafter set forth,
Lessor shall not be liable for injury or damage to the person or goods, wares,
merchandise or other properly of Lessee, Lessee's employees, contractors,
invitees, customers, or any other person in or about the Premises, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether the said injury or damage
results from conditions arising upon the Premises or upon other portions of the
building of which the Premises are a part, or from other sources or places, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is accessible or not. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on the
Premises, other then Lessee Owned Alterations and Utility Installations, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or discovery
of a condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 8.2(a), in, on, or under the Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance (hereof, within ten (10) days following receipt of written notice of
such shortage and request therefor, if Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage-Uninsured Loss. If a Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shell terminate as of the date
specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option (or its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Properly Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, If required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to Paragraph
10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes to be
paid by lessee shall cover any period of time prior to or after the expiration
or earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either; (i) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
Real Property Taxes assessed by reason of Alterations or Utility Installations
placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds; levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government; or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
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10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
10.4 Personal Property Taxes. Lessee shell pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations. Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all Charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assignment") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the Control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The Involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessees assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of the execution by Lessor of
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall at Lessor's option, be a Default
curable after notice per Paragraph 13.1(c), or a noncurable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a noncurable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days written notice ("Lessor's Notice"), increase the monthly Base Rent to fair
market rental value or one hundred ten percent (110%) of the Bass Rent then in
effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall not:
(i) be effective without the express written assumption by such assignee or
subleassee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) after the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for properly similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such subleases to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No subleases shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee. who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breech. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
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and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease or of the rules adopted under Paragraph 40 hereof, that
are to be observed, complied with or performed by Lessee, other then those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by lessee
of any general arrangement or assignment for the benefit of creditors; (ii)
Lessee's becoming a "debtor" as defined in 11 U.S.C. ss.101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor wish written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined In Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of retailing, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breech of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a nonce and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1 (b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions;" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice ere reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
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14. Condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. It Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force end effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on
which there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $N/A) for brokerage services rendered by
said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agress that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to whet Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers In effect
at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this lease and may enforce that
right directly against lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (The "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or assignment
and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breech
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's (taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mall the notice shell be deemed given forty-eight (48) hours after the same is
addressed as required herein end mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initialed in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security, device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "mon-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "Prevailing
Party" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by
compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorney's fee award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to
attorney's fees, costs and expenses incurred in the preparation and service of
notices of Default and consultations in connection therewith, whether or not a
legal action is subsequently commenced in connection with such Default or
resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as lessor may reasonably deem necessary. Lessor may of any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, Install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such Interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgement that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises
and the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed end performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee
Initials
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GROSS PAGE 9 --------
<PAGE>
is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, If any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee Is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
end be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days alter such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shell have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. It at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of ail persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
<TABLE>
<S> <C>
Executed at City of Industry, CA Executed at Fremont, CA
------------------------------------ -----------------------------------------------
on June 20, 1997 on June 19, 1997
--------------------------------------------- --------------------------------------------
by LESSOR: by LESSEE:
YHS (USA) Inc., a California Corporation Impax Pharmaceuticals, Inc.,
- ------------------------------------------------ -----------------------------------------------
a California Corporation
- ------------------------------------------------ -----------------------------------------------
By /s/ Frank C. M. Fang By /s/ Larry Hsm
---------------------------------------------- --------------------------------------------
Title: President Title: President
----------------------------------------- ----------------------------------------
By By
---------------------------------------------- ---------------------------------------------
Name Printed: Name Printed:
----------------------------------- ----------------------------------
Title: Title:
------------------------------------------ -----------------------------------------
Address: 755 Epperson Drive Address: 42329 Osgood Rd. #E
--------------------------------------- --------------------------------------
Industry, CA 91748 Fremont, CA 94539
--------------------------------------- --------------------------------------
Tel. No. (818) 810-8731 Fax No. (818) 810-8231 Tel. No. (510) 252-0354 Fax No. (510) 252-0363
--- -------- --- ------- --- -------- --- --------
</TABLE>
GROSS PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association,
345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071.
(213) 687-8777. Fax. No. (213) 687-8616.
(c) Copyright 1990-By American Industrial Real Estate Association.
All rights reserved.
No part of the works may be reproduced in any form
without permission in writing.
<PAGE>
ADDENDUM NO. 1
This is an addendum ("Addendum") to that certain Standard Industrial/Commercial
Single-Tenant Lease-Gross dated May 5, 1997 by and between YHS (USA), Inc., a
California Corporation ("Lessor") and Impax Pharmaceuticals, Inc., a California
Corporation ("Lessee"). Notwithstanding any other terms, conditions or
provisions of the Lease to the contrary, the terms, conditions, and provisions
of this Addendum shall control. For good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree to amend the Lease as follows:
49. RENTAL SCHEDULE:
Lessee shall pay to Lessor as base rent for the Premises, without any
offset or deduction, except as set forth in Section 4.1 of this Lease, on
the first day of each month of the term hereof, monthly payments in advance
as follows:
July 1, 1997 through December 31, 1999 ........................ $12,879.36
January 1, 2000 through June 30, 2002 ......................... $13,777.92
50. OPTION TO EXTEND:
Lessee shall have the personal non-transferable right to extend the term of
the Lease for one (1) term of three (3) years at a flat rate of $14,676.48
per month gross. Provided that the Lease is in full force and effect and
that Lessee has not been in material default of the Lease at the time of
Lessee's election to extend the commencement of the extension period,
Lessee may exercise the option by providing Lessor written notice not less
than sixty (60) days prior to the expiration of the then current term.
Lessee's election shall be irrevocable.
51. BASIC IMPROVEMENTS:
Lessor and Lessee agree that the items set forth in this Section 51 need to
be made in order to make the Premises suitable for Lessee's occupancy
thereof. Except as set forth herein, said below-itemized list of
improvements is complete and Lessor shall not be required to provide or pay
for any additional items.
Lessor shall, at Lessor's sole cost and expense, deliver the Premises with
all HVAC, mechanical, and plumbing systems to be in good working order.
Lessee shall cause the following work to be performed on the Premises:
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<PAGE>
51.1 Repair roof leak in the conference room/kitchen area.
51.2 Replace carpets in the office area and open area.
51.3 Remove tile in the kitchen and open space area, seal the underlying
concrete against future leakage where necessary, and replace flooring
in the kitchen and open area.
51.4 Paint all office walls.
Lessee shall submit to Lessor documentation evidencing its expenditures in
connection with the foregoing improvements, and Lessor shall, within thirty (30)
days following receipt of such documentation, reimburse Lessee for its
expenditures in an amount not to exceed $6,115 (the "Reimbursement Amount").
Lessee and Lessor have received an estimate that the roof repair can be
accomplished for $1,050. In the event, that it is subsequently determined that
the roof leak cannot be repaired for $1,050, then (i) if the parties can
mutually agree upon an increased allocation for the roof repair, Lessee will
cause the roof repair to be performed and the Reimbursement Amount shall be
increased by the mutually agreed upon increased allocation; or (ii) Lessor shall
assume the obligation of such repair, and Lessee's right to reimbursement
hereunder shall be reduced to $5,065. Nothing herein shall alter, in any manner
whatsoever, Lessor's obligations to maintain the roof and structural aspects of
the Premises pursuant to Section 7.2 hereof. Moreover, Lessee makes no warranty
as to any roof repair performed pursuant to this Section 51.
52. LESSEE IMPROVEMENTS:
Lessor acknowledges that Lessee will be making substantial improvements
within the building including, but not limited to, rehabilitation of the
existing office area, as well as adding additional office space, wet labs
and pharmaceutical manufacturing areas. Said improvements shall be done at
Lessee's expense. Such improvements will require punching one or more holes
in the roofs and/or walls of the Premises. Lessee shall submit its plans to
Lessor for Lessor's prior approval, along with a certification from a
structural engineer, that the proposed holes in the roof or walls will not
weaken the structural integrity of the Premises. Subject to the submission
of the foregoing, Lessor shall not unreasonably withhold approval of the
Premises. In the event that this Lease terminates and Lessee does not
purchase the Premises, then Lessee shall fill the holes and provide an
additional certification from a structural engineer that the holes, as
filled, do not weaken the structural integrity of the Premises.
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<PAGE>
53. PROPERTY TAXES/PROPERTY INSURANCE/MAINTENANCE/UTILITIES:
Lessor shall be responsible for Real Property Taxes for the fiscal year
commencing July 1, 1997, property insurance, utilizing a base year of
calendar year 1997, and the structural integrity of the Premises,
including, without limitation, the foundation, walls and roof. Lessee shall
be responsible for any increases over the base year expenses. Lessee shall
be responsible for any other costs associated with the maintenance of the
property including but not limited to water, gas, electrical, landscaping,
phone, security alarm, etc.
54. The last sentence of Section 2.3 of the Lease is hereby deleted in its
entirety.
55. In line 6 of Section 3.3, the words "within ten (10) days thereafter," are
hereby deleted. In line 7, after the words "from all obligations
hereunder," the balance of the sentence which reads as follows is hereby
deleted: "provided, however, that if such written notice by Lessee is not
received by Lessor within said ten (10) day period, Lessee's right to
cancel this Lease shall terminate and be of no further force or effect."
56. In line 2 of Section 4.1, after the words "without offset or deduction",
the following words are inserted: "(except as hereinafter set forth)". At
the end of Section 4.1, the following sentence is hereby inserted:
"In the event Lessor fails to commence any repair or restoration
required to be made by Lessor pursuant to this Lease within thirty
(30) days following written request from Lessee, then Lessee shall be
entitled to make such repair or restoration and set-off the reasonable
costs incurred in connection with such repair and restoration against
future rent."
57. In Section 5, delete in its entirety, the sentence in the middle of the
paragraph which reads as follows:
"Any time the Base Rent increases during the term of this Lease,
Lessee shall, upon written request from Lessor, deposit additional
moneys with Lesser sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in
the Basic Provisions."
3
<PAGE>
In addition, the following shall be inserted to immediately prior to the
last sentence of Section 5.
"Notwithstanding the foregoing, in the event Lessee does not remove
all the Trade Fixtures in accordance with Section 7.4(d), then Lessor
shall be entitled to withhold the Security Deposit until the earlier
of (i) forty-five (45) days following the termination or expiration of
the Lease, and (ii) Lessor's dismantling and disposal of the Trade
Fixtures. Lessor shall be able to set-off against such Security
Deposit the costs incurred by Lessor in dismantling and disposing of
any Trade Fixtures abandoned by Lessee, and immediately thereafter,
shall refund the balance of the Security Deposit to Lessee."
58. In section 6.2, insert the following subparagraph (d):
"PERMITTED SUBSTANCES. Attached hereto as Addendum No. 3 is a List of
Chemicals and Gases which are necessary for the operation of Lessee's
business. Lessor hereby gives its express written consent to Lessee's
use of the chemicals, gases and other materials listed on Addendum No.
3, provided that Lessee's handling, transportation, storage,
treatment, disposal and use of such materials complies with all
applicable environmental laws."
59. In lines 3 and 4 of Section 6.3, the words "and the recommendations of
Lessor's engineers and/or consultants" are hereby deleted.
60. At the beginning of Section 6.4, the words "Upon twenty-four (24) hours
advance written notice," are inserted. In line 2, the words "at reasonable
times" are hereby replaced with "during normal business hours." In line 8,
"reasonable" is inserted in front of "costs."
61. The following new section 6.5 is hereby incorporated in this Lease:
"6.5 LESSOR'S REPRESENTATIONS. Lessor represents and warrants to
Lessee that, to the best of its knowledge, no Hazardous Substances
have been used, stored or disposed of in, upon or about the Premises
prior to the commencement of the term of this Lease except in
compliance with all applicable legal requirements. Lessor shall
indemnify Lessee
4
<PAGE>
against, and hold it harmless from, any liabilities, losses, claims,
damages, penalties, fines, attorney fees, expert fees, court costs,
remediation costs, investigation costs or other expenses resulting
from or arising out of the presence, storage, treatment,
transportation, release or disposal of Hazardous Substances on or
about the Premises prior to the commencement of the term of this
Lease."
62. In line 8 after "excluding foundations", the word "walls" is inserted. At
the end of the first sentence of Section 7.1(a), insert the following
sentence: "Lessee's obligations with respect to the driveways, parking
lots, sidewalks and parkways shall not require Lessee to make any painting,
paving, or other structural-type repairs, except to the extent such repairs
are needed because of Lessee's misuse of the Premises."
63. In the last line of Section 7.1(b), the words "and (vi) asphalt and parking
lot maintenance" are deleted.
64. In line 2 of Section 7.2, after "roof", the words "walls, parking lots,"
are inserted. In line 3, the words "paint the exterior surface of the
exterior walls or" are deleted.
65. In line 3 of Section 7.3 (a) following "plumbing" the words "(except any
water or plumbing system specifically required in connection with
development and manufacturing pharmaceutical products-specifically
deionized water system)" are inserted. In the third line, the sentence
which begins "The term "Trade Fixtures" shall mean . . ." is hereby
replaced with the following: "The term "Trade Fixtures" shall mean Lessee's
machinery, equipment and all other fixtures which are utilized by Lessee in
connection with its pharmaceutical (research, development, manufacturing
and storage activities."
66. In the next to the last line of Section 7.3(b), "one and one-half times" is
hereby replaced with "one hundred twenty percent (120%) of".
67. The last sentence of this Section 7.3(c) which reads as follows is hereby
deleted:
"In addition, Lessor may require Lessee to pay Lessor's attorney's
fees and costs in participating in such action if Lessor shall decided
it is to its best interest to do so."
5
<PAGE>
68. A new Section 7.4(d) as follows is hereby inserted:
"(D) OWNERSHIP AND REMOVAL OF TRADE FIXTURES. All Trade Fixtures
placed on the Premises shall at all times be and remain the personal
property of Lessee, and Lessee shall remove such Trade Fixtures prior
to termination or expiration of this Lease. Lessee shall, at Lessee's
sole expense, restore and repair any damage to the Premises caused or
occasioned by the removal of the fixtures. Such repair and restoration
shall be performed prior to any termination or expiration of this
Lease and shall be performed in compliance with the terms and
conditions of Section 7 relating to repairs. Should Lessee fail to
remove any Trade Fixtures, or any of them within said period, such
Trade Fixtures remaining on the Premises shall be deemed abandoned by
Lessee and Lessor may dismantle and dispose of the same. Lessee shall
reimburse Lessor for the costs of dismantling and disposing of
Lessee's Trade Fixtures within seven (7) days following receipt of an
itemized list of the costs incurred by Lessor."
69. Section 8.3 (b) is hereby deleted in its entirety.
70. Lessee's insurance coverage pursuant to Section 8.4 shall be based upon a
$5,000 per occurrence deductible.
71. In line 1 of Section 8.8, the words "Except as hereinafter set forth," is
inserted immediately before "Lessor shall not be liable . . ." The
following sentence is hereby inserted immediately before the last sentence
of Section 8.8: "Lessor's exemption from liability pursuant to this Section
8.8 shall not apply to any injury or damage to persons or property caused
by (i) Lessor's failure to comply with any applicable laws which are not
Lessee's responsibility hereunder; or (ii) any structural defect in the
Premises which are not caused by Lessee's improvements anticipated
hereunder."
72. In line 7 of Section 9.2, the words "funds to cover same," are hereby
replaced with "any incremental deficiency caused by such unique nature".
73. In line 2 of Section 9.5, "one (1) month" is replaced with "six (6)
months". In line 7, after the words "needed to make the repairs," the words
"but only as otherwise required in Section 9.2" are inserted.
74. Section 9.6(b) is hereby revised in its entirety to read as follows:
6
<PAGE>
"If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the
Premises within thirty (30) days, then Lessee may, in its discretion,
at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has
actual notice of Lessee's election to take any of the following
actions on a date not less than thirty (30) days following the giving
of such notice: (i) terminate this Lease on a date not less than
thirty (30) days following the giving of such notice; or (ii) repair
the damage and set-off the reasonable costs incurred in connection
with such repair and restoration against future rent.
If Lessee gives such notice to Lessor and such Lenders and such
repair or restoration is commenced within thirty (30) days after
receipt of such notice and completed within ninety (90) days following
the damages to the Premises, this Lease shall continue in full force
and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever first
occurs.
If the Premises are not or cannot be restored to their condition
prior to the damage within ninety (90) days following such damage,
Lessee may, at its discretion, (i) terminate this Lease within fifteen
(15) days after written notice to Lessor of its election to so
terminate, (ii) continue the Lease in effect, except that the rent
shall be reduced in proportion to the space not usable or (iii) repair
the damage and set-off the reasonable costs incurred in connection
with such repair and restoration against future rent."
75. Section 9.9 of the Lease is deleted in its entirety.
76. In lines 2 and 3 of Section 10.1(a), the words "the fiscal tax year during
which the Commencement Date occurs" are hereby replaced with the following:
"the actual Real Property Taxes for the fiscal tax year
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beginning July 1, 1997". The following sentence is hereby inserted to the
end of Section 10.1(a):
"Notwithstanding anything to the contrary express or implied herein,
Tax Increase shall not include any increase in Real Property Taxes
over the Real Property Taxes for the fiscal year beginning July 1,
1997, which arise out of a sale of the Premises by Lessor."
77. The second sentence of Section 12.1(b) is hereby replaced with the
following:
"For purposes of this Agreement, a "change in control" shall mean any
one or more stock issuances or transfers which results in persons who
are not shareholders of Lessee as of the date of this Agreement ("New
Shareholders"), beneficially owning or controlling more than fifty
percent (50%) of the outstanding equity of Impax."
78. In line 3 of Section 12.1(c), "twenty-five percent (25%)" is replaced with
"fifty percent (50%)".
79. In the last line of Section 13.1(b), after the word "where", the word "any"
is inserted.
80. In the next to last line of Section 13.1(g), beginning with the "equals or
exceeds", replace those words through the end of the sentence with the
following: "provides Lessor with a combined net worth for Lessee and
guarantor of not less than $5,000,000."
81. In line 9 of Section 14, the following sentence is deleted: "No reduction
of Base Rent shall occur if the only portion of the Premises taken is land
on which there is no building."
82. At the end of the second line in Section 30.2 after "be liable", insert "to
Lessee."
83. In Section 32, the following words are inserted at the beginning of the
first sentence: "Upon not less than 24 hours advanced written notice,".
Also in line 2, the words "at reasonable times" are replaced with "during
normal business hours".
84. The second sentence of Section 34 is hereby deleted in its entirety.
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85. Replace sub phrase (b) of Section 37.2 with the following: "reasonable
financial insurance that Guarantor has a net worth of not less than one
million dollars ($1,000,000),".
86. SALE OF THE PREMISES. In the event Lessor is considering the sale of the
Premises and is considering placing the Premises on the market for sale,
then Lessor shall first given written notice of such intention to Lessee,
and Lessor and Lessee shall negotiate in good faith the terms and
conditions of the sale of the Premises to Lessee. If Lessor and Lessee
cannot mutually agree upon the terms and conditions of sale of the Premises
to Lessee within thirty (30) days following notice of Lessor's intent to
market the Premises for sale, then Lessor shall be entitled to make the
Premises publicly available for sale.
87. CONTINGENCY REGARDING INSPECTION OF PHYSICAL CONDITION OF THE PREMISES.
Prior to the commencement date of the Lease, Lessee and its agents, shall
be entitled to enter the Premises and to conduct or cause to be conducted
thereon, such physical inspections and engineering, soils or other tests
and procedures, including without limitation an environmental audit of the
Premises, as Lessee deems appropriate. Lessee hereby indemnifies Lessor
against damage to the Premises or to persons on the Premises incurred as a
direct result of any such inspections, tests or procedures by Lessee.
Lessor acknowledges that Lessee is currently conducting a Phase II
environmental study with respect to the Premises, and Lessor hereby extends
Lessee's time to accept or reject the physical condition of the Premises,
solely as it relates to such Phase II environmental study, until July 11,
1997. Lessee agrees that its approval shall not be unreasonably withheld.
In the event that Lessee does not notify Lessor in writing by the close of
business on July 11, 1997, then Lessee shall be deemed to have approved the
physical condition of the Premises. In the event Lessee disapproves of the
physical condition of the Premises, and at the sole discretion of Lessee,
(i) this Lease will immediately terminate and be of no further force and
effect; and (ii) Lessor shall return Lessee's Security Deposit, subject to
Section 5 hereof, and shall reimburse Lessee for Lessee's pro rata portion
of unused Base Rent. Alternatively, Lessee and Lessor may mutually agree
upon specific terms and conditions whereby Lessor will, at Lessor's sole
expense, promptly perform appropriate environmental remediation sufficient
to remove any environmental contamination located on the Premises and,
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to bring the Premises in compliance with all applicable laws and
regulations. Upon such mutual agreement, and subject to Lessor's timely
performance of all terms and conditions specified therein, this Lease will
otherwise continue in full force and effect.
LESSOR: YHS (USA) INC.
By: Frank C. M. Fang, President
--------------------------------
(Print Name and Title)
LESSEE: IMPAX PHARMACEUTICALS, INC.
By: /s/ Larry Hsu
--------------------------------
Larry Hsu, President
--------------------------------
(Print Name and Title)
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GUARANTY OF LEASE [LOGO]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
90. WHEREAS YHS (USA) Inc., is a California Corporation, hereinafter referred to
as "Lessor", and Impax Pharmaceuticals, Inc., a California Corporation,
hereinafter referred to as *Lessee", are about to execute a document entitled
"Lease" dated May 5. 1997 concerning the premises commonly known as 30831
Huntwood Avenue, Hayward, CA wherein lessor will lease the premises to Lessee.
and
WHEREAS Charles Hsiao hereinafter referred to as "Guarantors" have a
financial interest in Lessee, and
WHEREAS, Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the foregoing
Lease by Lessor end as a material inducement to Lessor to execute said Lease.
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
the prompt payment by Lessee of all rentals and any other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each and
every one of the terms, conditions and covenants of said Lease to be kept and
performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantors, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or fault by Lessee or for the
enforcement of any rights which Lessor may have as against Lessee pursuant to or
under the terms of the within Lease or law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby wave (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or ???ad
any statute of limitations as to or relating to this Guaranty and the Lease,
(d) any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be ??med to also
require the Guarantors hereunder to do and provide the same relative to
Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the Lessor
In the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lease or any
part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the ???is. Issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantors under this Guaranty which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed of trust or assignment, of any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee or
purchaser.
The term "Lessee" whenever herainabove used, refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interests of said Lessee, assignee or
sublessee of such lease or any part thereof, either by assignment, sublease or
otherwise.
In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the successful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
If this Form has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by
the real estate broker or its agents or employees as to the legal
sufficiency, legal effect, or tax consequences of this Form or the
transaction relating thereto.
Executed at Fremont, California /s/ Charles Hsiao
---------------------- -----------------------------------
June 16, 1997 Charles Hsiao, Ph.D.
- ---------------------------------- -----------------------------------
Address 42307 Osgood Road, Suite I
- ---------------------------------- -----------------------------------
Femont, California 94539
- ---------------------------------- "GUARANTORS"
77-American Industrial Real Estate Association.
Rights reserved. No part of these works may be reproduced in any form without
permission in writing.
On this form write: American Industrial Real Estate Association,
345 S. Figueroa Street, M-1, Los Angeles, CA 90071 Form 600377
<PAGE>
ADDENDUM 3
LIST OF CHEMICALS AND GASES
I. MAJOR SOLVENTS
Isopropyl Alcohol
Ethanol
Acetone
II. MAJOR PRODUCTS
Various generic pharmaceutical products, all of which are currently
available on the market
III. MAJOR GASES
Compressed air
EMPLOYMENT AGREEMENT
This Employment Agreement, effective as of this 14th day of December,
1999 (the "Effective Date"), is by and among IMPAX LABORATORIES, INC., a
Delaware corporation, with a business address at 30831 Huntwood Ave., Hayward,
California 94544 (the "Company") and CHARLES HSIAO, Ph.D., with a mailing
address at 30831 Huntwood Avenue, Hayward, California 94544 ("Executive").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the Company and Executive agree as follows:
1. Nature of Employment.
1.1 Duties and Responsibilities. Executive shall serve as the Co-Chief
Executive Officer of the Company during the term of this Agreement, and use his
best efforts to promote the interests of the Company and shall devote his full
time and efforts to its business and affairs. Executive shall have general
executive powers and active management over the property, business, and affairs
of the Company, subject always to the direction of the Board of Directors (the
"Board") or its designe.
1.2 Other Business Activities. Executive will devote his full professional
time, attention and effort to Company's business. Notwithstanding the foregoing,
Executive shall be entitled to participate in other professional and business
activities to the extent such activities are reasonably likely to enhance
Executive's ability to perform his obligations hereunder, provided that such
activities do not compete with the business of the Company and do not
unreasonably interfere with the then performance of his duties hereunder.
1.3 Board of Directors Member. Each year during the term of this
Agreement, the Board of Directors of the Company (the "Board") shall designate
Executive as one of management's slate of candidates to the Board, shall
recommend Executive as a Director to its shareholders, and shall otherwise use
its best efforts to have Executive elected as a Director and to have him remain
as a Director during the entire term of this Agreement, in all instances subject
to satisfaction by the Board of Directors of its fiduciary duties and
obligations.
2. Compensation.
2.1 Salary. Excutive salary shall be at an initial annual rate of One
hundred Seventy-Five Thousand Dollars (175,000.00), subject to witholding and
further
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subject to discretionary increases in accordance with the Company's normal
review procedures and policies. The salary shall be paid in substantially equal
installments in accordance with the Company's standard payroll practices, as in
effect from time to time.
2.2 Bonus. Subject to the achievement of certain short-term and long-term
performance goals established by the Board of Directors of the Company from time
to time, Executive shall be paid quarterly and annual bonuses, payable in stock
and/or cash, to be determined by the Board of Directors of this Company or its
Compensation Committee. Each such bonus shall be paid at the same time as, and
be equal to, the bonus paid to Larry Hsu, Ph.D., and Barry Edwards for such
period.
2.3 Medical Insurance and Other Benefits. Executive shall be entitled to
receive full health, dental, vision, and disability insurance, as well as any
other benefits customarily offered to other senior executive officers of the
Company, all upon terms no less favorable to Executive, with all premiums and
costs to be paid by the Company. The Company shall also provide to Executive, at
Company's expense, life insurance coverage at standard premium rates having a
death benefit payable to a beneficiary selected by the Executive equal to
$1,000,000 and disability insurance at standard premium rates which provides
salary replacement benefits, not to exceed $250,000 in the aggregate, in the
event Executive becomes incapacitated. Executive shall be required to undergo a
yearly physical examination, at Company's expense, with a physician of
Executive's choosing, and upon Company's request, deliver a copy of such
physician's report from such examination.
2.4 Vacation. Executive shall be entitled to receive four (4) weeks of paid
vacation time annually, such vacation shall accrue daily, provided however, that
in the event the total vacation accrual ever reaches four (4) weeks, then no
further vacation time will accrue until Executive has used his current annual
allotment. Executive may not receive pay rather than vacation except when
Executive leaves the Company. Executive may schedule his vacations at his
discretion so long as the timing of such vacations does not interfere with his
responsibilities to the Company.
2.5 Reimbursement of Expenses. The Company shall reimburse
Executive for all out-of-pocket expenses incurred by Executive in performing his
obligations hereunder within thirty (30) days after the date on which Executive
delivers to the Company an itemized statement, accompanied by appropriate
receipts to the extent available, describing the reimbursable expenses incurred.
The expenses to be
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reimbursed include, without limitation, telephone, fax, air freight and travel
related expenses.
3. Term and Termination.
3.1 Term. The term of this Agreement shall commence on the Effective Date
and, unless terminated in accordance with this Section 3, shall continue until
the third anniversary of the Effective Date, and thereafter shall be
automatically renewed for successive periods of one year each, unless terminated
by either party by written notice of termination delivered to the other party at
least six (6) months prior to the expiration date of the initial term or any
renewal term of this Agreement (the "Term").
3.2 Termination by the Company. The Company shall have the right to
terminate this Agreement (i) for Cause, as defined below, at any time and
without prior notice, or (ii) for any other reason on thirty (30) days written
notice to Executive.
3.2.1 Termination for Cause. The phrase "Cause" means any of the following:
(i). any material breach by Executive of any provision of Sections
5, 6, 7 or 8 of this Agreement;
(ii) any material breach of any other provision of this Agreement by
Executive (other than any such breach resulting from Executive's incapacity due
to physical or mental illness, which shall be governed by Section 3.2.2
hereof), including without limitation the failure to satisfactorily perform his
duties as provided herein, if that breach is not remedied within thirty (30)
days after written notice to Executive describing the acts alleged to constitute
Cause;
(iii) any act of fraud, misappropriation, embezzlement or
similar willful and malicious conduct by Executive against the Company; or
(iv) indictment of Executive for a felony or any conviction of, or
guilty plea by Executive to, a crime involving moral turpitude if that crime of
moral turpitude tends or would reasonably tend to bring the Company into
disrepute.
3.2.2 Termination for Death or Disability. For purposes hereof, the term
"disability" shall mean such physical or mental illness as shall render
Executive incapable of substantially performing his duties hereunder on a
regular basis at the Company's offices for a period of three (3) consecutive
months or for a period of six (6) months in any twelve-month period, all as
determined by a
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physician or psychiatrist, as the case may be, selected by the Company.
3.3 Termination by the Executive. Executive may terminate this Agreement
for any reason upon thirty (30) days advance written notice to the Company.
4. Termination Payments.
4.1 No Payments. In the event of any termination of this
Agreement by Company for Cause, or by Executive without Good Reason, the
Company shall have no further payment obligations to Executive hereunder,
except for wages and benefits accrued to date and/or provided by applicable
law.
4.2 Continued Payments. If the Company terminates this Agreement for any
reason other than for Cause, or Executive terminates this Agreement for Good
Reason and in accordance with Section 3.3, then in lieu of any other payments
otherwise required hereunder, the Company shall, subject to Executive's
compliance with Sections 5, 6, 7 and 8 hereof, pay Executive, as liquidated
damages and not as a penalty, (a) within fifteen (15) days after the termination
date, all accrued and unpaid salary and benefits (including accrued but unused
vacation time) through the termination date and (b) the lesser of (i) an amount
equal to his salary payments at the time of the termination, in accordance with
the Company's then payment policy, and benefits provided for herein during the
six-month period following the termination date, and (ii) the entire amount of
the salary remaining due and payable from the date of such termination to the
scheduled expiration of this Agreement; provided, however, that if such
termination occurs prior to the first anniversary of the Effective Date, then in
addition to items (a) and (b) above, Executive shall be entitled to continue to
receive, in accordance with the Company's then payment policy, an amount equal
to his salary payments and, to the extent Executive is not otherwise employed,
health benefits, until the first anniversary of the Effective Date. In the event
that this Agreement is terminated due to the death or disability of Executive,
Company shall pay to Executive a portion of any bonus otherwise payable to
Executive in accordance with Section 2.2 hereof, prorated to reflect any early
termination of this Agreement relative to the performance period to which the
bonus relates.
4.3 Continued Medical Coverage. If the Company terminates this Agreement
for any reason other than for Cause, or Executive terminates this Agreement for
Good Reason and in accordance with Section 3.3, then Company shall maintain, at
Company's cost, Executive's health, dental, vision and disability insurance
described in Section
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2.3 hereof until the first to occur of (i) the expiration of eighteen (18)
months following such termination; or (ii) Executive accepts employment which
provides health insurance. If the Company terminates this Agreement for Cause,
or Executive terminates this Agreement for any reason other than Good Reason,
Executive shall have the right to maintain, at Executive's cost, the health,
dental, vision and disability insurance described in Section 2.3 hereof, for a
period not to exceed eighteen (18) months or such longer period as may be
required by applicable law, all to the extent permitted by the applicable
insurance carrier.
4.4 Certain Definitions.
4.4.1 Good Reason. For purposes of this Agreement, "Good Reason" means (i)
the assignment to Executive of any duties or the substantial reduction of
Executive's duties, either of which is inconsistent with Executive's position as
Co-Chief Executive Officer; (ii) any change in Executive's reporting
relationship which results in his not reporting to a member of the Board of
Directors of the Company; (iii) a material reduction in Executive's salary or
benefits not agreed to by Executive; (iv) a requirement of Executive to relocate
to an office that would increase Executive's one-way commute distance by more
than fifty (50) miles; or (v) a Change in Control of Company, as hereinafter
defined.
4.4.2 Change in Control of Company. For purposes of this Agreement, "Change
in Control of Company" shall mean the occurrence of any of the following:
(i) Any person or entity acquires ownership or control, directly or
indirectly, of securities of the Company (or a successor to the Company)
representing fifty percent (50%) or more of the combined voting power of the
then outstanding securities of the Company or such successor;
(ii) (a) a sale or disposition of assets of the Company involving fifty
percent (50%)or more in value of the assets of the Company; (b) any merger or
reorganization of Company (whether or not another entity is the survivor), in
which the Company's shareholders (immediately prior to the transaction) do not
own (immediately after the transaction), either directly or indirectly, at least
fifty-one percent (51%) of the voting power of the surviving or successor
corporation; (c) any transaction pursuant to which all of the shareholders of
the Company immediately prior to the transaction, hold (immediately after the
transaction) less than fifty-one percent (51%) of the combined voting power of
the Company or any successor Company; (d) any other event or transaction which
the Board determines, in its discretion, would
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materially alter the structure, ownership or control of the Company;
provided, however, that the consummation of the transactions contemplated by the
Agreement and Plan of Merger, dated as of July, 1999, between Indigo, Inc.,
a California corporation, and Gemstone, a Delaware corporation, shall not
constitute a Change in Control.
5. Proprietary Information an Inventions. Executive acknowledges that
during his employment he may create, make, derive, produce, obtain, make known
or learn about certain information which has commercial value in the business in
which the Company is engaged and which is treated by the Company as
confidential. This information may have been created, discovered or developed by
the Company or the Executive, in the course and scope of his employment, or
otherwise received by the Company from third parties subject to a duty to
maintain the confidentiality of such information. All such information is
hereinafter called "Proprietary Information."
5.1 Proprietary Information ion Defined. By way of illustration, but not
limitation, Proprietary Information includes trade secrets, ideas, processes,
drawings, specifications, data, formulations, computer programs, software, other
original works of authorship, know-how, improvements, discoveries, developments,
designs, innovations, techniques, business development strategies, marketing
plans, strategies, forecasts, new products, unpublished financial statements,
budgets, projections, licenses, prices, costs, strategic alliances, ventures,
and customer and supplier lists.The foregoing obligations of confidentiality and
non-use shall not apply to any Proprietary Information that:
5.1.1 was known to the Executive prior to the date of disclosure pursuant
to this Agreement and not obtained or derived directly or indirectly from the
Company;
5.1.2 is or becomes public or available to the general public otherwise
than through the act or default of the Executive;
5.1.3 is obtained subsequent to any disclosure under this Agreement from a
third party who is lawfully in possession of same and which information is not
subject to any confidential or non-use obligations owed to the Company or
others;
5.1.4 has been furnished by the Company to a third party without similar
restrictions on disclosure; or
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5.1.5 is required to be disclosed pursuant to requirements of
Federal, state or local statute, regulation or court order, provided that
Executive delivers prior written notice to Company of such pending disclosure,
and gives Company a reasonable opportunity to oppose such disclosure with the
applicable authority.
5.2 Ownership of Proprietary Information. inn, Executive
acknowledges that all Proprietary Information shall be the sole property of the
Company and its assignees (or, in some cases, its clients, suppliers or
customers), and the Company and its assignees (or, in some cases, its clients,
suppliers or customers) shall be the sole owner of all patents, copyrights,
trade secrets, and all other intellectual property rights in connection
therewith (collectively "Intellectual Property Rights"). The Company's
ownership includes any and all modifications, corrections, updates, changes,
improvements, derivatives and enhancements to the Proprietary Information and
the Intellectual Property Rights therein.
5.3 Non-Disclosure. At all times, both during Executive's
employment and after his termination, Executive shall keep in strictest
confidence and trust all Proprietary Information, and shall not reproduce or
disclose any Proprietary Information, or use such Proprietary Information for
his own account or the account of any third party, without the written consent
of the Company, except as may be necessary in the ordinary course of performing
duties as an employee of the Company.
5.4 Assignment of Inventions. Executive hereby assigns
and transfers to the Company, Executive's entire right, title and interest, now
or hereafter acquired, in and to all Proprietary Information and Intellectual
Property Rights therein, discovered, originated, made or conceived or learned by
Executive either alone or jointly with others, during the period of Executive's
employment which result, directly or indirectly, from (i) the use of premises or
equipment owned, leased or contracted for by the Company or supplies or
Proprietary Information of the Company, or (ii) work conducted on the time of
the Company, or (iii) work performed for the Company. Executive further
acknowledges that all original works of authorship which are made by Executive
(solely or jointly with others) within the scope of and during the period of his
employment with the Company and which are protectible by copyright are "works
made for hire," as that term is defined in the United States Copyright Act.
Executive understands and agrees that the decision whether or not to
commercialize or market any invention developed by him solely or jointly with
others is within the Company's sole discretion and for the Company's sole
benefit and that no royalty will be due to him as a result of the Company's
efforts to commercialize or market
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any such invention. Executive hereby waives all moral rights which he may have
or hereafter acquire in any Proprietary Information and any Intellectual
Property Rights therein. Executive will, at the Company's request, promptly
execute a written assignment of title to the Company for any Proprietary
Information and Intellectual Property Rights therein, and a written waiver of
all moral rights therein, and Executive will preserve all such Proprietary
Information as confidential information of the Company.
5.5 Notice of Inventions; Execution of Documents. Executive
agrees to give Company prompt written notice of his acquisition or creation of
any Proprietary Information. Executive further agrees as to all Proprietary
Information to assist the Company in every proper way (but at the Company's
expense) to obtain and from time to time enforce patents, copyrights and other
rights and protections relating to inventions in any and all countries, and to
that end agrees to execute all documents for use in applying for and obtaining
such patents, copyrights and other rights and protections on and enforcing
inventions as the Company may desire, together with any assignments thereof to
the Company or persons designated by it. Executive's obligations to assist the
Company in obtaining and enforcing patents, copyrights and other rights and
protections relating to Proprietary Information in any and all countries shall
continue beyond the termination of employment, but the Company shall compensate
Executive at a reasonable rate after such termination for time actually spent,
at the Company's request, on such assistance. In the event the Company is
unable, after reasonable effort, to secure signatures on any documents needed
to effect any assignment hereunder or to apply for or prosecute any patent,
copyright or other right or protection relating to an invention, whether
because of physical or mental incapacity or for any other reason whatsoever,
Executive hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as his agent and attorney-in-fact,to act for and
in his behalf and stead, to execute and file any such application or
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyrights or similar protections thereon
with the same legal force and effect as if executed by him.
5.6 Return of Proprietary Information. All Proprietary
Information, including, without limitation, all written materials, records and
documents or other tangible materials made by Executive or coming into his
possession as a result of his employment with Company concerning the business or
affairs of Company shall be the sole property of Company; and, upon the
termination of his employment with Company or upon the request of Company,
Executive shall promptly deliver the same to Company.
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5.7 Third Party Information. Executive recognizes that the Company has
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. Executive agrees that Executive owes the Company and such third
parties, during the term of this Agreement and thereafter, a duty to hold all
such confidential or proprietary information in the strictest confidence and not
to disclose it to any person, firm or corporation or to use it except as
necessary in carrying out the services for the Company consistent with the
Company's agreement with such third party.
6. Prior Inventions. Executive understands that all inventions, if any,
patented or unpatented, which Executive made prior to Executive's employment are
excluded from the scope of this Agreement. To preclude any possible uncertainty,
Executive has set forth on item 1 of Exhibit A attached hereto a complete list
of all of Executive's prior inventions, including numbers of all patents and
patent applications, and a brief description of all unpatented inventions which
are not the property of a previous employer. Executive represents and covenants
that the list is complete and that, if no items are on the list, Executive has
no such prior inventions. Executive agrees to notify the Company in writing
before Executive makes any disclosure or performs any work on behalf of the
Company which appears to threaten or conflict with proprietary rights which
Executive claims in any invention or idea. Executive agrees that if in the
course of performing services hereunder, Executive incorporates into the
Company's Proprietary Information or otherwise utilizes any invention,
improvement, development, concept, discovery or other proprietary information
owned by Executive or in which Executive has an interest, the Company is hereby
granted and shall have a non-exclusive, royalty-free, perpetual, irrevocable,
worldwide license to make, have made, modify, use and sell such item as part of
or in connection with such Proprietary Information.
7. Conflicting obligations.
7.1 Trade Secrets of Others. Executive represents that he has not brought,
and will not bring with him to Company, disclose to Company, or use in the
performance of his responsibilities, any devices, materials or documents of a
former employer or other party that are proprietary or are not generally
available to the public, unless he has obtained express written authorization
from such party for their possession and use. The only devices, materials or
documents of a former employer or other party that are
9
<PAGE>
proprietary or are not generally available to the public that Executive will
bring to the Company, if any, are identified on item 2 of Exhibit A attached
hereto, and as to each such item, Executive represents that Executive has
obtained express written authorization for their possession and use and has
delivered a copy of such written authorization to the Company.
7.2 Conflicting Confidentiality Agreements. Executive agrees
that during this employment, Executive will not breach any obligation of
confidentiality Executive has to former employers, clients, and others.
Executive represents that Executive's performance under the terms of this
Agreement, as Executive to the Company, does not and will not breach any
agreement to keep in confidence proprietary information acquired by Executive
in confidence or in trust. Executive has neither entered into, nor shall enter
into, any agreement, either written or oral, in conflict herewith.
8. Conflicting Confidentiality Agreement
8.1 During the term of this Agreement, Executive shall not,
directly or indirectly, engage or participate in any business, which is in
competition with any business in which the Company conducts or pursues during
the term of this Agreement. Moreover, in view of Executive's access to the
Company's trade secrets and proprietary information and know-how, Executive
further agrees that Executive will not, without the Company's prior written
consent, design or develop identical or substantially similar designs as those
developed for the Company during his employment for himself or any third party
during the term of this Agreement and for a period of twelve (12) months
following the termination of this Agreement.
8.2 Executive covenants and agrees that he will not, during
the term of this Agreement and continuing until the second anniversary of the
termination of this Agreement, whether for his own account or for the account of
any other person, interfere with the relationship of the Company with, or
endeavor to entice away from the Company, any person who at any time during the
term of Executive's engagement with the Company was an employee of the Company.
Furthermore, Executive covenants and agrees that he will not, whether during the
term of this Agreement or thereafter, whether for his own account or for the
account of any other person, interfere with the relationship of the Company
with, or endeavor to entice away from the Company, any person who at any time
during the term of Executive's engagement with the Company was a customer,
supplier or business partner of the Company.
10
<PAGE>
9. Key Man Insurance. The Company may, in its sole discretion, at any time
after the date hereof, apply for and procure as owner for its benefit, life
insurance on Executive, in such amount and in such form or forms as the
Corporation may determine. Executive shall, at the Company's request, subject to
such medical examinations, supply such information and execute such documents as
may be required by the insurance company or companies to whom the Company has
applied for such insurance.
10. General Provisions.
10.1 Mediation and Arbitration.
10.1.1 Mediation. No party to this Agreement may initiate litigation or
arbitration with regard to any dispute with respect to this Agreement until
after all remedies set forth in this Section have been exhausted. In the event
of any dispute arising over this Agreement, any party shall have the right by
giving written notice to the other parties hereto (the "Mediation Notice") to
initiate non-binding mediation to be conducted by a mediator mutually agreed to
by the parties or, in the event the parties are unable to reach such agreement
within thirty (30) days following the delivery of the Mediation Notice, by a
mediator appointed by the American Arbitration Association ("AAA") in accordance
with the rules and regulations of the AAA, or by any other body mutually agreed
upon by the parties. Mediation shall take place at Hayward, California or any
other location mutually agreeable to the parties. In the event the parties
resolve their dispute in mediation, they shall enter into a written agreement,
which shall be binding on all parties thereto.
10.1.2 EXCEPT AS PROVIDED IN SECTIONS 10.1 AND 10.10 HEREOF, EXECUTIVE AND
COMPANY AGREE THAT ANY DISPUTE OR CONTROVERSY ARISING OUT OF, OR RELATING TO
THIS AGREEMENT SHALL BE SETTLED BY ARBITRATION TO BE HELD IN ALAMEDA COUNTY,
CALIFORNIA, IN ACCORDANCE WITH THE EMPLOYMENT DISPUTE RESOLUTION RULES THEN IN
EFFECT OF THE AMERICAN ARBITRATION ASSOCIATION. THE ARBITRATOR MAY GRANT
INJUNCTIONS OR OTHER RELIEF IN SUCH DISPUTE OR CONTROVERSY. THE DECISION OF THE
ARBITRATOR SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES TO THE
ARBITRATION. JUDGMENT MAY BE ENTERED ON THE ARBITRATOR'S DECISION IN ANY COURT
HAVING JURISDICTION.
10.1.3 THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT
TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL
ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP (EXCEPT AS PROVIDED IN SECTION 7
HEREOF), INCLUDING, WITHOUT LIMITATION, THE FOLLOWING CLAIMS:
11
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10.1.3 (a) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT, BREACH
OF CONTRACT, EXPRESS OR IMPLIED, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR
DEALING, NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS,
MISREPRESENTATION, INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE,
DEFAMATION AND LIBEL;
10.1.3 (b) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL, STATE OR
MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT; AND
10.1.3 (c) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
10.1.4 EXECUTIVE UNDERSTAND THAT EACH PARTY'S COVENANT TO RESOLVE DISPUTES
BY ARBITRATION, AS OPPOSED TO THE JUDICIAL SYSTEM IS CONSIDERATION FOR THE OTHER
PARTY'S PROMISE. EXECUTIVE FURTHER UNDERSTANDS THAT HE HAS BEEN OFFERED
EMPLOYMENT BY THE COMPANY IN CONSIDERATION OF HIS PROMISE TO ARBITRATE DISPUTES.
10.2. Notification of New Employer. In the event that Executive leaves
the employ of the Company, Executive hereby consents to notification by the
Company to Executive's new employer about his rights and obligations under this
Agreement.
10.3 Notices. Except as expressly provided herein, all notices, requests
or other communications required hereunder shall be in writing and shall be
given personal delivery, national overnight courier service, or by U.S. mail,
certified or registered, postage prepaid, return receipt requested, addressed to
the respective party at the applicable address set forth above, or to any party
at such other addresses as shall be specified in writing by such party to the
other parties in accordance with the terms and conditions of this Section. All
notices, requests or communications shall be deemed effective upon personal
delivery, or five (5) days following deposit in the United States mail, or two
(2) business days following deposit with any national overnight courier service.
10 .4 Jurisdiction, Venue and Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California(regardless of that jurisdiction or any other jurisdiction's choice
of law principles). To the extent permitted by law and except as otherwise
provided in Section 10.1 hereof, the parties hereto agree that all actions or
proceedings arising
12
<PAGE>
in connection herewith, shall be litigated in the state and federal courts
located in the State of California, and each party hereby waives any right it
may have to assert the doctrine of Forum Non Conveniens or to object to venue.
The parties each hereby stipulate that the state and federal courts located in
the County of Alameda, State of California, shall have personal jurisdiction
and venue over each party for the purpose of litigating any such dispute,
controversy or proceeding arising out of or related to this Agreement. To the
extent permitted by law, service of process sufficient for personal
jurisdiction in any action against either party may be made by registered or
certified mail, return receipt requested.
10.5 No Assignment. This Agreement is personal to Executive, and Executive
may not assign any rights or delegate any responsibilities hereunder without the
prior approval of the Company.
10.6 Entire Agreement. This Agreement, including the exhibit which is
referenced herein and incorporated by this reference, is the entire agreement
between the Company and Executive with respect to the subject matter hereof and
cancels and supersedes any and all prior agreements regarding the subject matter
hereof between the parties, including without limitation that certain Employment
Agreement, dated September 30, 1996, between Impax Pharmaceuticals, Inc., and
Executive. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, heirs and permitted assigns. This
Agreement may not be altered, modified, changed or discharged except in writing
signed by both the parties.
10.7 Survival. Sections 4.2, 4.3, 5, 6, 7, 8 and 10, each inclusive, shall
survive termination or expiration of this Agreement.
10.8 Validity. If any one or more of the provisions (or any part thereof)
of this Agreement shall be held to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby.
10.9 No Waiver of Rights. The delay or failure of either party to enforce
at any time any provision of this Agreement shall in no way be considered a
waiver of any such provision, or any other provision, of this Agreement. No
waiver of, or delay or failure to enforce any provision of this Agreement shall
in any way be considered a continuing waiver or be construed as a subsequent
waiver of any such provision, or any other provision of this Agreement.
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10.10 Equitable Remedies. Employee specifically acknowledges that any
violation of Section 5, 6, 7 or 8 of this Agreement could cause irreparable
injury to Company and its business and property. Employee, therefore, agrees
that in the event of his breach of any of the terms and conditions of Section 5,
6, 7 or 8 of this Agreement, Company shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either at law or in equity, to enjoin him from further violation of such
provisions. The remedies provided herein shall be cumulative and in addition to
any and all other remedies which either party may have at law or in equity.
10.11 Attorneys' Fees. The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any action or
proceeding, including arbitration, brought to interpret this Agreement or to
enforce any right arising out of this Agreement. For purposes of this Section,
the prevailing party shall be that party that most closely obtains the relief
sought by it.
10.12 EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD THE OPPORTUNITY TO CONSULT
WITH THE ADVISOR OF HIS CHOICE AND THAT HE HAS FREELY AND VOLUNTARILY ENTERED
INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year written below.
IMPAX LABORATORIES, INC.
Date:__________________ By:_______________________
__________________________
(Print Name and Title)
Date:_________________ ___________________________
Charles Hsiao, Ph.D.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written below.
IMPAX LABORATORIES, NC.
Date: December 14, 1999 By: [ILLEGIBLE]
- --------------------------- ---------------------------
---------------------------
(Print Name and Title)
Date: December 14, 1999
------------------ By: /s/ C.Hsiao
-------------------------
Charles Hsiao, Ph.D.
<PAGE>
EXHIBIT A
IMPAX LABORATORIES, INC.,
a Delaware corporation
30831 Huntwood Ave.
Hayward, CA 94544
Dear Sir or Madam:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment with Impax Laboratories, Inc.,
a Delaware corporation (the "Company"), that have been made or conceived or
first reduced to practice by me, alone or jointly with others, prior to my
engagement by the Company:
[ ] No inventions or improvements.
[ ] See below:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[ ] Additional sheets attached.
2. I propose to bring to my employment (or consulting, if applicable)
the following devices, materials and documents of a former employer or other
party that are proprietary or are not generally available to the public, which
materials and documents may be used in my employment pursuant to the express
written authorization of my former employer or other party (a copy of which is
attached hereto)
[ ] No materials.
[ ] See below:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
15
Exhibit 10.49
EMPLOYMENT AGREEMENT
This Employment Agreement, effective as of this 14th day of December,
1999 (the "Effective Date"), is by and among IMPAX LABORATORIES, INC., a
Delaware corporation, with a business address at 30831 Huntwood Ave., Hayward,
California 94544 (the "Company") and BARRY R. EDWARDS, with a mailing address at
Castor and Kensington Avenues, Philadelphia, Pennsylvania 19124-5694
("Executive").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the Company and Executive agree as follows:
1. Nature of Employment.
1.1 Duties and Responsibilities. Executive shall serve as the
Co-Chief Executive Officer of the Company during the term of this Agreement, and
use his to promote the interests of the Company and shall devote his full time
and efforts to its business and affairs. Executive shall have general executive
powers and active management over the property, business, and affairs of the
Company, subject always to the direction of the Board of Directors (the "Board")
or its designee.
1.2 Other Business Activities. Executive will devote his full
professional time, attention and effort to Company's business. Notwithstanding
the foregoing, Executive shall be entitled to participate in other professional
and business activities to the extent such activities are reasonably likely to
enhance Executive's ability to perform his obligations hereunder, provided that
such activities do not compete with the business of the Company and do not
unreasonably interfere with the then performance of his duties hereunder.
1.3 Board of Directors Member. Each year during the term of
this Agreement, the Board of Directors of the Company (the "Board") shall
designate Executive as one of management's slate of candidates to the Board,
shall recommend Executive as a Director to its shareholders, and shall otherwise
use its best efforts to have Executive elected as a Director and to have him
remain as a Director during the entire term of this Agreement, in all instances
subject to satisfaction by the Board of Directors of its fiduciary duties and
obligations.
2. Compensation.
2.1 Salary. Executive's salary shall be at an initial annual
rate of One Hundred Seventy-Five Thousand Dollars ($175,000.00), subject to
withholding and further
<PAGE>
subject to discretionary increases in accordance with the Company's normal
review procedures and policies. The salary shall be paid in substantially equal
installments in accordance with the Company's standard payroll practices, as in
effect from time to time.
2.2 Bonus. Subject to the achievement of certain short-term
and long-term performance goals established by the Board of Directors of the
Company from time to time, Executive shall be paid quarterly and annual bonuses,
payable in stock and/or cash, to be determined by the Board of Directors of this
Company or its Compensation Committee. Each such bonus shall be paid at the same
time as, and be equal to, the bonus paid to Larry Hsu, Ph.D., and Charles Hsiao,
Ph.D. for such period.
2.3 Medical Insurance and Other Benefits.. Executive shall be
entitled to receive full health, dental, vision, and disability insurance, as
well as any other benefits customarily offered to other senior executive
officers of the Company, all upon terms no less favorable to Executive, with all
premiums and costs to be paid by the Company. The Company shall also provide to
Executive, at Company's expense, life insurance coverage at standard premium
rates having a death benefit payable to a beneficiary selected by the Executive
equal to $1,000,000 and disability insurance at standard premium rates which
provides salary replacement benefits, not to exceed $250,000 in the aggregate,
in the event Executive becomes incapacitated. Executive shall be required to
undergo a yearly physical examination, at Company's expense, with a physician of
Executive's choosing, and upon Company's request, deliver a copy of such
physician's report from such examination.
2.4 Vacation. Executive shall be entitled to receive four (4)
weeks of paid vacation time annually, such vacation shall accrue daily, provided
however, that in the event the total vacation accrual ever reaches four (4)
weeks, then no further vacation time will accrue until Executive has used his
current annual allotment. Executive may not receive pay rather than vacation
except when Executive leaves the Company. Executive may schedule his vacations
at his discretion so long as the timing of such vacations does not interfere
with his responsibilities to the Company.
2.5 Reimbursement of Expenses. The Company shall reimburse
Executive for all out-of-pocket expenses incurred by Executive in performing his
obligations hereunder within thirty (30) days after the date on which Executive
delivers to the Company an itemized statement, accompanied by appropriate
receipts to the extent available, describing the reimbursable expenses incurred.
The expenses to be
2
<PAGE>
reimbursed include, without limitation, telephone, fax, air freight and travel
related expenses. To the extent permitted by law, the Company will not withhold
Philadelphia city wage taxes for the days Executive travels out of town on
business.
2.6 Stock Option Grant. On or before the execution and
delivery of this Agreement, the Company shall grant Executive a stock option to
purchase 270,000 shares of Common Stock, at a price per share equal to the
closing market price of the Common Stock on the date the option is: granted.
Shares covered by the option shall vest and become exercisable on the following
schedule: (i) first year - 0%; (ii) second year - 10%; (iii) third year -40%;
and (iv) fourth year - 50%. Subject to the foregoing, the option shall be based
upon such terms and conditions as may be approved by the Board of Directors (or
an appropriate committee thereof).
3. Term and Termination.
3.1 Term. The term of this Agreement shall commence on the
Effective Date and, unless terminated in accordance with this Section 3, shall
continue until the third anniversary of the Effective Date, and thereafter shall
be automatically renewed for successive periods of one year each, unless
terminated by either party by written notice of termination delivered to the
other party at least six (6) months prior to the expiration date of the initial
term or any renewal term of this Agreement (the "Term").
3.2 Termination by the Company. The Company shall have the
right to terminate this Agreement (i) for Cause, as defined below, at any time
and without prior notice, or (ii) for any other reason on thirty (30) days
written notice to Executive.
3.2.1 Termination for Cause. The phrase "Cause"
means any of the following:
(i) any material breach by Executive of
any provision of Sections 5, 6, 7 or 8 of this Agreement;
(ii) any material breach of any other
provision of this Agreement by Executive (other than any such breach resulting
from Executive's incapacity due to physical or mental illness, which shall be
governed by Section 3.2.2 hereof), including without limitation the failure to
satisfactorily perform his duties as provided herein, if that breach is not
remedied within thirty (30) days after written notice to Executive describing
the acts alleged to constitute Cause;
3
<PAGE>
(iii) any act of fraud, misappropriation,
embezzlement or similar willful and malicious conduct by Executive against the
Company; or
(iv) indictment of Executive for a felony or any conviction
of, or guilty plea by Executive to, a crime involving moral turpitude if that
crime of moral turpitude tends or would reasonably tend to bring the Company
into disrepute.
3.2.2 Termination for Death or Disability. For
purposes hereof, the term "disability" shall mean such physical or mental
illness as shall render Executive incapable of substantially performing his
duties hereunder on a regular basis at the Company's offices for a period of
three (3) consecutive months or for a period of six (6) months in any
twelve-month period, all as determined by a physician or psychiatrist, as the
case may be, selected by the Company.
3.3 Termination by the Executive. Executive may terminate this
Agreement for any reason upon thirty (30) days advance written notice to the
Company.
4. Termination Payments.
4.1 No Payments. In the event of any termination of this
Agreement by Company for Cause, or by Executive without Good Reason, the Company
shall have no further payment obligations to Executive hereunder, except for
wages and benefits accrued to date and/or provided by applicable law.
4.2 Continued Payments. If the Company terminates this
Agreement for any reason other than for Cause, or Executive terminates this
Agreement for Good Reason and in accordance with Section 3.3, then in lieu of
any other payments otherwise required hereunder, the Company shall, subject to
Executive's compliance with Sections 5, 6, 7 and 8 hereof, pay Executive, as
liquidated damages and not as a penalty, (a) within fifteen (15) days after the
termination date, all accrued and unpaid salary and benefits (including accrued
but unused vacation time) through the termination date and (b) the lesser of (i)
an amount equal to his salary payments at the time of the termination, in
accordance with the Company's then payment policy, and benefits provided for
herein during the six-month period following the termination date, and (ii) the
entire amount of the salary remaining due and payable from the date of such
termination to the scheduled expiration of this Agreement; provided, however,
that if such termination occurs prior to the first anniversary of the Effective
Date, then in addition to items (a) and (b) above, Executive shall be entitled
to continue to receive, in accordance with the
4
<PAGE>
Company's then payment policy, an amount equal to his salary payments and, to
the extent Executive is not otherwise employed, health benefits, until the first
anniversary of the Effective Date. In the event that this Agreement is
terminated due to the death or disability of Executive, Company shall pay to
Executive a portion of any bonus otherwise payable to Executive in accordance
with Section 2.2 hereof, prorated to reflect any early termination of this
Agreement relative to the performance period to which the bonus relates.
4.3 Continued Medical Coverage. If the Company terminates this
Agreement for any reason other than for Cause, or Executive terminates this
Agreement for Good Reason and in accordance with Section 3.3, then Company shall
maintain, at Company's cost, Executive's health, dental, vision and disability
insurance described in Section 2.3 hereof until the first to occur of (i) the
expiration of eighteen (18) months following such termination; or (ii) Executive
accepts employment which provides health insurance. If the Company terminates
this Agreement for Cause, or Executive terminates this Agreement for any reason
other than Good Reason, Executive shall have the right to maintain, at
Executive's cost, the health, dental, vision and disability insurance described
in Section 2.3 hereof, for a period not to exceed eighteen (18) months or such
longer period as may be required by applicable law, all to the extent permitted
by the applicable insurance carrier.
4.4 Certain Definitions.
4.4.1 Good Reason. For purposes of this Agreement,
"Good Reason" means (i) the assignment to Executive of any duties or the
substantial reduction of Executive's duties, either of which is inconsistent
with Executive's position as Co-Chief Executive Officer; (ii) any change in
Executive's reporting relationship which results in his not reporting to a
member of the Board of Directors of the Company; (iii) a material reduction in
Executive's salary or benefits not agreed to by Executive; (iv) a requirement of
Executive to relocate to an office that would increase Executive's one-way
commute distance by more than fifty (50) miles; or (v) a Change in Control of
Company, as hereinafter defined.
4.4.2 Change in Control of Company. For purposes of
this Agreement, "Change in Control of Company" shall mean the occurrence of any
of the following:
(i) Any person or entity acquires ownership
or control, directly or indirectly, of securities of the Company (or a successor
to the Company) representing fifty percent (50%) or more of the combined voting
power of the
5
<PAGE>
then outstanding securities of the Company or such successor;
(ii) (a) a sale or disposition of assets of
the Company involving fifty percent (50%) or more in value of the assets of the
Company; (b) any merger or reorganization of Company (whether or not another
entity is the survivor), in which the Company's shareholders (immediately prior
to the transaction) do not own (immediately after the transaction), either
directly or indirectly, at least fifty-one percent (51%) of the voting power of
the surviving or successor corporation; (c) any transaction pursuant to which
all of the shareholders of the Company immediately prior to the transaction,
hold (immediately after the transaction) less than fifty-one percent (51%) of
the combined voting power of the Company or any successor Company; (d) any other
event or transaction which the Board determines, in its discretion, would
materially alter the structure, ownership or control of the Company;
provided, however, that the consummation of the transactions contemplated by the
Agreement and Plan of Merger, dated as of July, 1999, between Indigo, Inc., a
California corporation, and Gemstone, a Delaware corporation, shall not
constitute a Change in Control.
5. Proprietary Information and Inventions. Executive acknowledges that
during his employment he may create, make, derive, produce, obtain, make known
or learn about certain information which has commercial value in the business in
which the Company is engaged and which is treated by the Company as
confidential. This information may have been created, discovered or developed by
the Company or the Executive, in the course and scope of his employment, or
otherwise received by the Company from third parties subject to a duty to
maintain the confidentiality of such information. All such information is
hereinafter called "Proprietary Information."
5.1 Proprietary Information Defined. By way of illustration,
but not limitation, Proprietary Information includes trade secrets, ideas,
processes, drawings, specifications, data, formulations, computer programs,
software, other original works of authorship, know-how, improvements,
discoveries, developments, designs, innovations, techniques, business
development strategies, marketing plans, strategies, forecasts, new products,
unpublished financial statements, budgets, projections, licenses, prices, costs,
strategic alliances, ventures, and customer and supplier lists. The foregoing
obligations of confidentiality and non-use shall not apply to any Proprietary
Information that:
6
<PAGE>
5.1.1 was known to the Executive prior to the date of
disclosure pursuant to this Agreement and not obtained or derived directly or
indirectly from the Company;
5.1.2 is or becomes public or available to the
general public otherwise than through the act or default of the Executive;
5.1.3 is obtained subsequent to any disclosure under
this Agreement from a third party who is lawfully in possession of same and
which information is not subject to any confidential or non-use obligations owed
to the Company or others;
5.1.4 has been furnished by the Company to a third
party without similar restrictions on disclosure; or
5.1.5 is required to be disclosed pursuant to
requirements of Federal, state or local statute, regulation or court order,
provided that Executive delivers prior written notice to Company of such pending
disclosure, and gives Company a reasonable opportunity to oppose such disclosure
with the applicable authority.
5.2 Ownership of Proprietary Information. Executive
acknowledges that all Proprietary Information shall be the sole property of the
Company and its assignees (or, in some cases, its clients, suppliers or
customers), and the Company and its assignees (or, in some cases, its clients,
suppliers or customers) shall be the sole owner of all patents, copyrights,
trade secrets, and all other intellectual property rights in connection
therewith (collectively "Intellectual Property Rights"). The Company's ownership
includes any and all modifications, corrections, updates, changes, improvements,
derivatives and enhancements to the Proprietary Information and the Intellectual
Property Rights therein.
5.3 Non-Disclosure. At all times, both during Executive's
employment and after his termination, Executive shall keep in strictest
confidence and trust all Proprietary Information, and shall not reproduce or
disclose any Proprietary Information, or use such Proprietary Information for
his own account or the account of any third party, without the written consent
of the Company, except as may be necessary in the ordinary course of performing
duties as an employee of the Company.
5.4 Assignment of Inventions. Executive hereby assigns and
transfers to the Company, Executive's entire right, title and interest, now or
hereafter acquired, in and to all Proprietary Information and Intellectual
Property Rights therein, discovered, originated, made or conceived or learned by
Executive either alone or jointly with others,
7
<PAGE>
during the period of Executive's employment which result, directly or
indirectly, from (i) the use of premises or equipment owned, leased or
contracted for by the Company or supplies or Proprietary Information of the
Company, or (ii) work conducted on the time of the Company, or (iii) work
performed for the Company. Executive further acknowledges that all original
works of authorship which are made by Executive (solely or jointly with others)
within the scope of and during the period of his employment with the Company and
which are protectible by copyright are "works made for hire," as that term is
defined in the United States Copyright Act. Executive understands and agrees
that the decision whether or not to commercialize or market any invention
developed by him solely or jointly with others is within the Company's sole
discretion and for the Company's sole benefit and that no royalty will be due to
him as a result of the Company's efforts to commercialize or market any such
invention. Executive hereby waives all moral rights which he may have or
hereafter acquire in any Proprietary Information and any Intellectual Property
Rights therein. Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any Proprietary Information and
Intellectual Property Rights therein, and a written waiver of all moral rights
therein, and Executive will preserve all such Proprietary Information as
confidential information of the Company.
5.5 Notice of Inventions; Execution of Documents. Executive
agrees to give Company prompt written notice of his acquisition or creation of
any Proprietary Information. Executive further agrees as to all Proprietary
Information to assist the Company in every proper way (but at the Company's
expense) to obtain and from time to time enforce patents, copyrights and other
rights and protections relating to inventions in any and all countries, and to
that end agrees to execute all documents for use in applying for and obtaining
such patents, copyrights and other rights and protections on and enforcing
inventions as the Company may desire, together with any assignments thereof to
the Company or persons designated by it. Executive's obligations to assist the
Company in obtaining and enforcing patents, copyrights and other rights and
protections relating to Proprietary Information in any and all countries shall
continue beyond the termination of employment, but the Company shall compensate
Executive at a reasonable rate after such termination for time actually spent,
at the Company's request, on such assistance. In the event the Company is
unable, after reasonable effort, to secure signatures on any documents needed to
effect any assignment hereunder or to apply for or prosecute any patent,
copyright or other right or protection relating to an invention, whether because
of physical or mental incapacity or for any other reason whatsoever, Executive
hereby irrevocably designates and appoints the Company and its duly authorized
8
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officers and agents as his agent and attorney-in-fact, to act for and in his
behalf and stead, to execute and file any such application or applications and
to do all other lawfully permitted acts to further the prosecution and issuance
of patents, copyrights or similar protections thereon with the same legal force
and effect as if executed by him.
5.6 Return of Proprietary Information. All Proprietary
Information, including, without limitation, all written materials, records and
documents or other tangible materials made by Executive or coming into his
possession as a result of his employment with Company concerning the business or
affairs of Company shall be the sole property of Company; and, upon the
termination of his employment with Company or upon the request of Company,
Executive shall promptly deliver the same to Company.
5.7 Third Party Information. Executive recognizes that the
Company has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. Executive agrees that Executive owes the Company and
such third parties, during the term of this Agreement and thereafter, a duty to
hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to use
it except as necessary in carrying out the services for the Company consistent
with the Company's agreement with such third party.
6. Prior Inventions. Executive understands that all inventions, if any,
patented or unpatented, which Executive made prior to Executive's employment are
excluded from the scope of this Agreement. To preclude any possible uncertainty,
Executive has set forth on item 1 of Exhibit A attached hereto a complete list
of all of Executive's prior inventions, including numbers of all patents and
patent applications, and a brief description of all unpatented inventions which
are not the property of a previous employer. Executive represents and covenants
that the list is complete and that, if no items are on the list, Executive has
no such prior inventions. Executive agrees to notify the Company in writing
before Executive makes any disclosure or performs any work on behalf of the
Company which appears to threaten or conflict with proprietary rights which
Executive claims in any invention or idea. Executive agrees that if in the
course of performing services hereunder, Executive incorporates into the
Company's Proprietary Information or otherwise utilizes any invention,
improvement, development, concept, discovery or other proprietary information
owned by Executive or in which
9
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Executive has an interest, the Company is hereby granted and shall have a
non-exclusive, royalty-free, perpetual, irrevocable, worldwide license to make,
have made, modify, use and sell such item as part of or in connection with such
Proprietary Information.
7. Conflicting Obligations.
7.1 Trade Secrets of Others. Executive represents that he has
not brought, and will not bring with him to Company, disclose to Company, or use
in the performance of his responsibilities, any devices, materials or documents
of a former employer or other party that are proprietary or are not generally
available to the public, unless he has obtained express written authorization
from such party for their possession and use. The only devices, materials or
documents of a former employer or other party that are proprietary or are not
generally available to the public that Executive will bring to the Company, if
any, are identified on item 2 of Exhibit A attached hereto, and as to each such
item, Executive represents that Executive has obtained express written
authorization for their possession and use and has delivered a copy of such
written authorization to the Company.
7.2 Conflicting Confidentiality Agreements. Executive agrees
that during this employment, Executive will not breach any obligation of
confidentiality Executive has to former employers, clients, and others.
Executive represents that Executive's performance under the terms of this
Agreement, as Executive to the Company, does not and will not breach any
agreement to keep in confidence proprietary information acquired by Executive in
confidence or in trust. Executive has neither entered into, nor shall enter
into, any agreement, either written or oral, in conflict herewith.
8. Covenant Not to Compete; Non-Interference.
8.1 During the term of this Agreement, Executive shall not,
directly or indirectly, engage or participate in any business, which is in
competition with any business in which the Company conducts or pursues during
the term of this Agreement. Moreover, in view of Executive's access to the
Company's trade secrets and proprietary information and know-how, Executive
further agrees that Executive will not, without the Company's prior written
consent, design or develop identical or substantially similar designs as those
developed for the Company during his employment for himself or any third party
during the term of this Agreement and for a period of twelve (12) months
following the termination of this Agreement.
10
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8.2 Executive covenants and agrees that he will not, during
the term of this Agreement and continuing until the second anniversary of the
termination of this Agreement, whether for his own account or for the account of
any other person, interfere with the relationship of the Company with, or
endeavor to entice away from the Company, any person who at any time during the
term of Executive's engagement with the Company was an employee of the Company.
Furthermore, Executive covenants and agrees that he will not, whether during the
term of this Agreement or thereafter, whether for his own account or for the
account of any other person, interfere with the relationship of the Company
with, or endeavor to entice away from the Company, any person who any time
during the term of Executive's engagement with Company was a customer, supplier
or business partner of Company.
9. Key Man Insurance. The Company may, in its sole discretion, at any
time after the date hereof, apply for and procure as owner for its benefit, life
insurance on Executive, in such amount and in such form or forms as the
Corporation may determine. Executive shall, at the Company's request, subject to
such medical examinations, supply such information and execute such documents as
may be required by the insurance company or companies to whom the Company has
applied for such insurance.
10. General Provisions.
10.1 Mediation and Arbitration.
10.1.1 Mediation. No party to this Agreement may
initiate litigation or arbitration with regard to any dispute with respect to
this Agreement until after all remedies set forth in this Section have been
exhausted. In the event of any dispute arising over this Agreement, any party
shall have the right by giving written notice to the other parties hereto (the
"Mediation Notice") to initiate non-binding mediation to be conducted by a
mediator mutually agreed to by the parties or, in the event the parties are
unable to reach such agreement within thirty (30) days following the delivery of
the Mediation Notice, by a mediator appointed by the American Arbitration
Association ("AAA") in accordance with the rules and regulations of the AAA, or
by any other body mutually agreed upon by the parties. Mediation shall take
place at Hayward, California or any other location mutually agreeable to the
parties. In the event the parties resolve their dispute in mediation, they shall
enter into a written agreement, which shall be binding on all parties thereto.
10.1.2 EXCEPT AS PROVIDED IN SECTIONS 10.1 AND 10.10
HEREOF, EXECUTIVE AND COMPANY AGREE THAT ANY DISPUTE OR CONTROVERSY ARISING OUT
OF, OR RELATING TO THIS
11
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AGREEMENT SHALL BE SETTLED BY ARBITRATION TO BE HELD IN ALAMEDA COUNTY,
CALIFORNIA, IN ACCORDANCE WITH THE EMPLOYMENT DISPUTE RESOLUTION RULES THEN IN
EFFECT OF THE AMERICAN ARBITRATION ASSOCIATION. THE ARBITRATOR MAY GRANT
INJUNCTIONS OR OTHER RELIEF IN SUCH DISPUTE OR CONTROVERSY. THE DECISION OF THE
ARBITRATOR SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES TO THE
ARBITRATION. JUDGMENT MAY BE ENTERED ON THE ARBITRATOR'S DECISION IN ANY COURT
HAVING JURISDICTION.
10.1.3 THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER
OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL
DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP (EXCEPT
AS PROVIDED IN SECTION 7 HEREOF), INCLUDING, WITHOUT LIMITATION, THE FOLLOWING
CLAIMS:
10.1.3(a) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE
OF EMPLOYMENT, BREACH OF CONTRACT, EXPRESS OR IMPLIED, BREACH OF THE COVENANT OF
GOOD FAITH AND FAIR DEALING, NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL
DISTRESS, MISREPRESENTATION, INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE, DEFAMATION AND LIBEL;
10.1.3(b) ANY AND ALL CLAIMS FOR VIOLATION OF ANY
FEDERAL, STATE OR MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION, TITLE VII OF
THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF
1990, THE FAIR LABOR STANDARDS ACT; AND
10.1.3(c) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
10.1.4 EXECUTIVE UNDERSTAND THAT EACH PARTY'S
COVENANT TO RESOLVE DISPUTES BY ARBITRATION, AS OPPOSED TO THE JUDICIAL SYSTEM
IS CONSIDERATION FOR THE OTHER PARTY'S PROMISE. EXECUTIVE FURTHER UNDERSTANDS
THAT HE HAS BEEN OFFERED EMPLOYMENT BY THE COMPANY IN CONSIDERATION OF HIS
PROMISE TO ARBITRATE DISPUTES.
10.2. Notification of New Employer. In the event that
Executive leaves the employ of the Company, Executive hereby consents to
notification by the Company to Executive's new employer about his rights and
obligations under this Agreement.
10.3 Notices. Except as expressly provided herein, all
notices, requests or other communications required hereunder shall be in writing
and shall be given personal delivery, national overnight courier service, or by
U.S. mail, certified or registered, postage prepaid, return
12
<PAGE>
receipt requested, addressed to the respective party at the applicable address
set forth above, or to any party at such other addresses as shall be specified
in writing by such party to the other parties in accordance with the terms and
conditions of this Section. All notices, requests or communications shall be
deemed effective upon personal delivery, or five (5) days following deposit in
the United States mail, or two (2) business days following deposit with any
national overnight courier service.
10.4 Jurisdiction, Venue and Governing Law. This Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of California (regardless of that jurisdiction or any other
jurisdiction's choice of law principles). To the extent permitted by law and
except as otherwise provided in Section 10.1 hereof, the parties hereto agree
that all actions or proceedings arising in connection herewith, shall be
litigated in the state and federal courts located in the State of California,
and each party hereby waives any right it may have to assert the doctrine of
Forum Non Conveniens or to object to venue. The parties each hereby stipulate
that the state and federal courts located in the County of Alameda, State of
California, shall have personal jurisdiction and venue over each party for the
purpose of litigating any such dispute, controversy or proceeding arising out of
or related to this Agreement. To the extent permitted by law, service of process
sufficient for personal jurisdiction in any action against either party may be
made by registered or certified mail, return receipt requested.
10.5 No Assignment. This Agreement is personal to Executive,
and Executive may not assign any rights or delegate any responsibilities
hereunder without the prior approval of the Company.
10.6 Entire Agreement. This Agreement, including the exhibit
which is referenced herein and incorporated by this reference, is the entire
agreement between the Company and Executive with respect to the subject matter
hereof and cancels and supersedes any and all prior agreements regarding the
subject matter hereof between the parties, including without limitation that
certain Employment Agreement, dated March 25, 1998, between Global
Pharmaceutical Corporation and Executive. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors, heirs
and permitted assigns. This Agreement may not be altered, modified, changed or
discharged except in writing signed by both the parties.
10.7 Survival. Sections 4.2, 4.3, 5, 6, 7, 8 and 10, each
inclusive, shall survive termination or expiration of this Agreement.
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10.8 Validity. If any one or more of the provisions (or any
part thereof) of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions (or any part thereof) shall not in any way be affected or
impaired thereby.
10.9 No Waiver of Rights. The delay or failure of either party
to enforce at any time any provision of this Agreement shall in no way be
considered a waiver of any such provision, or any other provision, of this
Agreement. No waiver of, or delay or failure to enforce any provision of this
Agreement shall in any way be considered a continuing waiver or be construed as
a subsequent waiver of any such provision, or any other provision of this
Agreement.
10.10 Equitable Remedies. Employee specifically acknowledges
that any violation of Section 5, 6, 7 or 8 of this Agreement could cause
irreparable injury to Company and its business and property. Employee,
therefore, agrees that in the event of his breach of any of the terms and
conditions of Section 5, 6, 7 or 8 of this Agreement, Company shall be entitled,
if it so elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either at law or in equity, to enjoin him from further
violation of such provisions. The remedies provided herein shall be cumulative
and in addition to any and all other remedies which either party may have at law
or in equity.
10.11 Attorneys' Fees. The prevailing party shall be entitled
to recover from the losing party its attorneys' fees and costs incurred in any
action or proceeding, including arbitration, brought to interpret this Agreement
or to enforce any right arising out of this Agreement. For purposes of this
Section, the prevailing party shall be that party that most closely obtains the
relief sought by it.
10.12 No Waiver of Rights. The delay or failure of either
party to enforce at any time any provision of this Agreement shall in no way be
considered a waiver of any such provision, or any other provision, of this
Agreement. No waiver of, or delay or failure to enforce any provision of this
Agreement shall in any way be considered a continuing waiver or be construed as
a subsequent waiver of any such provision, or any other provision of this
Agreement.
10.13 EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD THE OPPORTUNITY
TO CONSULT WITH THE ADVISOR OF HIS CHOICE AND THAT HE HAS FREELY AND VOLUNTARILY
ENTERED INTO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year written below.
IMPAX LABORATORIES, INC.
Date: December 14, 1999 By: /s/ [ILLEGIBLE]
----------------- --------------------------------
------------------------------------
(Print Name and Title)
Date: December 14. 1999 /s/ Barry R. Edwards
----------------- ------------------------------------
Barry R. Edwards
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EXHIBIT A
---------
IMPAX LABORATORIES, INC.,
a Delaware corporation
30831 Huntwood Ave.
Hayward, CA 94544
Dear Sir or Madam:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment with Impax Laboratories, Inc., a
Delaware corporation (the "Company"), that have been made or conceived or first
reduced to practice by me, alone or jointly with others, prior to my engagement
by the Company:
[ ] No inventions or improvements.
[ ] See below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] Additional sheets attached.
2. I propose to bring to my employment (or consulting, if applicable)
the following devices, materials and documents of a former employer or other
party that are proprietary or are not generally available to the public, which
materials and documents may be used in my employment pursuant to the express
written authorization of my former employer or other party (a copy of which is
attached hereto):
[ ] No materials.
[ ] See below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16
EMPLOYMENT AGREEMENT
This Employment Agreement, effective as of this 14th day of December, 1999
(the "Effective Date"), is by and among IMPAX LABORATORIES, INC., a Delaware
corporation, with a business address ,at 30831 Huntwood Ave., Hayward,
California 94544 (the "Company") and Larry Hsu, Ph.D., with a mailing address at
30831 Huntwood Avenue, Hayward, California 94544 ("Executive").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, the Company and Executive agree as follows:
1. Nature of Employment.
1.1 Duties and Responsibilities. Executive shall serve as the
President of the Company during the term of this Agreement, and use his
best efforts to promote the interests of the Company and shall devote his full
time and efforts to its business and affairs. Executive shall have general
executive powers and active management over the property, business, and affairs
of the Company, subject always to the direction of-the hoard of Directors (the
"Board") or its designee.
1.2 Other Business Activities. Executive will devote his full
professional time, attention and effort to Company's business.
Notwithstanding the foregoing, Executive shall be entitled to participate in
other professional and business activities to the extent such activities are
reasonably likely to enhance Executive's ability to perform his obligations
hereunder, provided that such activities do not compete with the business of the
Company and do not unreasonably interfere with the then performance of his
duties hereunder.
1.3 Board of Directors Member. Each year during the term of this
Agreement, the Board of Directors of the Company (the "Board") shall
designate Executive as one of management's slate of candidates to the Board,
shall recommend Executive as a Director to its shareholders, and shall otherwise
use its best efforts to have Executive elected as a Director and to have him
remain as a Director during the entire term of this Agreement, in all instances
subject to satisfaction by the Board of Directors of its fiduciary duties and
obligations.
2. Compensation.
2.1 Salary. Executive's salary shall be at an initial annual rate of
One Hundred Seventy-Five Thousand Dollars ($175,000.00), subject to
withholding and further
<PAGE>
subject to discretionary increases in accordance with the Company's normal
review procedures and policies. The salary shall be paid in substantially equal
installments in accordance with the Company's standard payroll practices, as in
effect from time to time.
2.2 Bonus. Subject to the achievement of certain short-term and
long-term performance goals established by the Board of Directors of the
Company from time to time, Executive shall be paid quarterly and annual bonuses,
payable in stock and/or cash, to be determined by the Board of Directors of this
Company or its Compensation Committee. Each such bonus shall be paid at the same
time as, and be equal to, the bonus paid to Charles Hsiao, Ph.D., and Barry
Edwards for such period.
2.3 Medical Insurance and Other Benefits. Executive shall be
entitled to receive full health, dental, vision, and disability insurance,
as well as any other benefits customarily offered to other senior executive
officers of the Company, all upon terms no less favorable to Executive, with all
premiums and costs to be paid by the Company. The Company shall also provide to
Executive, at Company's expense, life insurance coverage at standard premium
rates having a death benefit payable to a beneficiary selected by the Executive
equal to $1,000,000 and disability insurance at standard premium rates which
provides salary replacement benefits, not to exceed $250,000 in the aggregate,
in the event Executive becomes incapacitated. Executive shall be required to
undergo a yearly physical examination, at Company's expense, with a physician of
Executive's choosing, and upon Company's request, deliver a copy of such
physician's report from such examination.
2.4 Vacation. Executive shall be entitled to receive four (4) weeks
of paid vacation time annually, such vacation shall accrue daily, provided
however, that in the event the total vacation accrual ever reaches four (4)
weeks, then no further vacation time will accrue until Executive has used his
current annual allotment. Executive may not receive pay rather than vacation
except when Executive leaves the Company. Executive may schedule his vacations
at his discretion so long as the timing of such vacations does not interfere
with his responsibilities to the Company.
2.5 Reimbursement of Expenses. The Company shall reimburse Executive
for all out-of-pocket expenses incurred by Executive in performing his
obligations hereunder within thirty (30) days after the date on which Executive
delivers to the Company an itemized statement, accompanied by appropriate
receipts to the extent available, describing the reimbursable expenses incurred.
The expenses to be
2
<PAGE>
reimbursed include, without limitation, telephone, fax, air freight and
travel related expenses.
3. Term and Termination.
3.1 Term. The term of this Agreement shall commence on the Effective
Date and, unless terminated in accordance with this Section 3, shall
continue until the third anniversary of the Effective Date, and thereafter shall
be automatically renewed for successive periods of one year each, unless
terminated by either party by written notice of termination delivered to the
other party at least six (6) months prior to the expiration date of the initial
term or any renewal term of this Agreement (the "Term").
3.2 Termination by the Company. The Company shall have the right to
terminate this Agreement (i) for Cause, as defined below, at any time and
without prior notice, or (ii) for any other reason on thirty (30) days written
notice to Executive.
3.2 1 Termination for Cause. The phrase "Cause" means any of
the following:
(i) any material breach by Executive of any provision
of Sections 5, 6, 7 or 8 of this Agreement;
(ii) any material breach of any other provision of
this Agreement by Executive (other than any such breach resulting from
Executive's incapacity due to physical or mental illness, which shall be
governed by Section 3.2.2 hereof), including without limitation the failure to
satisfactorily perform his duties as provided herein, if that breach is not
remedied within thirty (30) days after written notice to Executive describing
the acts alleged to constitute Cause;
(iii) any act of fraud, misappropriation, embezzlement
or similar willful and malicious conduct by Executive against the Company;
or
(iv) indictment of Executive for a felony or any
conviction of, or guilty plea by Executive to, a crime involving moral
turpitude if that crime of moral turpitude tends or would reasonably tend to
bring the Company into disrepute.
3.2.2 Termination for Death Disability. For purposes hereof,
the term "disability" shall mean such physical or mental illness as shall render
Executive incapable of substantially performing his duties hereunder on a
regular basis at the Company's offices for a period of three (3) consecutive
months or for a period of six (6) months in any twelve-month period, all as
determined by a
3
<PAGE>
physician or psychiatrist, as the case may be, selected by the Company.
3.3 Termination by the Executive. Executive may terminate
this Agreement for any reason upon thirty (30) days advance written notice to
the Company.
4. Termination Payments.
4.1 No Payments. In the event of any termination of this
Agreement by Company for Cause, or by Executive without Good Reason, the
Company shall have no further payment obligations to Executive hereunder,
except for wages and benefits accrued to date and/or provided by applicable
law.
4.2 Continued Payments . I f the Company terminates this Agreement
for any reason other than for Cause, or Executive terminates this Agreement
for Good Reason and in accordance with Section 3.3, then in lieu of any other
payments otherwise required hereunder, the Company shall, subject to Executive's
compliance with Sections 5, 6, 7 and 8 hereof, pay Executive, as liquidated
damages and not as a penalty, (a) within fifteen (15) days after the termination
date, all accrued and unpaid salary and benefits (including accrued but unused
vacation time) through the termination date and (b) the lesser of (i) an amount
equal to his salary payments at the time of the termination, in accordance with
the Company's then payment policy, and benefits provided for herein during the
six-month period following the termination date, and (ii) the entire amount of
the salary remaining due and payable from the date of such termination to the
scheduled expiration of this Agreement; provided, however, that if such
termination occurs prior to the first anniversary of the Effective Date, then in
addition to items (a) and (b) above, Executive shall be entitled to continue to
receive, in accordance with the Company's then payment policy, an amount equal
to his salary payments and, to the extent Executive is not otherwise employed,
health benefits, until the first anniversary. of the Effective Date. In the
event that this Agreement is terminated due to the death or disability of
Executive, Company shall pay to Executive a portion of any bonus otherwise
payable to Executive in accordance with Section 2.2 hereof, prorated to reflect
any early termination of this Agreement relative to the performance period to
which the bonus relates.
4.3 Continued Medical Coverage If the Company terminates this
Agreement for any reason other than for Cause, or Executive terminates this
Agreement for Good Reason and in accordance with Section 3.3, then Company shall
maintain, at Company's cost, Executive's health, dental, vision and disability
insurance described in Section
4
<PAGE>
2.3 hereof until the first to occur of (i) the expiration of eighteen (18)
months following such termination; or (ii) Executive accepts employment which
provides health insurance. If the Company terminates this Agreement for Cause,
or Executive terminates this Agreement for any reason other than Good Reason,
Executive shall have the right to maintain, at Executive's cost, the health,
dental, vision and disability insurance described in Section 2.3 hereof, for a
period not to exceed eighteen (18) months or such longer period as may be
required by applicable law, all to the extent permitted by the applicable
insurance carrier.
4.4 Certain Definitions.
4.4.1 Good Reason. For purposes of this Agreement, "Good
Reason" means (i) the assignment to Executive of any duties or the
substantial reduction of Executive's duties, either of which is inconsistent
with Executive's position as President; (ii) any change in Executive's reporting
relationship which results in his not reporting to a member of the Board of
Directors of the Company; (iii) a material reduction in Executive's salary or
benefits not agreed to by Executive; (iv) a requirement of Executive to relocate
to an office that would increase Executive's one-way commute distance by more
than fifty (50) miles; or (v) a Change in Control of Company, as hereinafter
defined.
4.4.2 Change in Control of Company. For purposes of this
Agreement, "Change in Control of Company" shall mean the occurrence of any
of the following:
(i) Any person or entity acquires ownership or control,
directly or indirectly, of securities of the Company (or a successor to the
Company) representing fifty percent (50%) or more of the combined voting power
of the then outstanding securities of the Company or such successor;
(ii) (a) a sale or disposition of assets of the Company
involving fifty percent (50%) or more in value of the assets of the
Company; (b) any merger or reorganization of Company (whether or not another
entity is the survivor), in which the Company's shareholders (immediately prior
to the transaction) do not own (immediately after the transaction), either
directly or indirectly, at least fifty-one percent (51%) of the voting power of
the surviving or successor corporation; (c) any transaction pursuant to which
all of the shareholders of the Company immediately prior to the transaction,
hold (immediately after the transaction) less than fifty-one percent (51%) of
the combined voting power of the Company or any successor Company; (d) any other
event or transaction which the Board determines, in its discretion, would
5
<PAGE>
materially alter the structure, ownership or control of the Company;
provided, however, that the consummation of the transactions come plated by the
Agreement and Plan of Merger, dated as of July, 1999, between Indigo, Inc., a
California corporation, and Gemstone, a Delaware corporation, shall not
constitute a Change in Control.
5. Proprietary Information and Inventions. Executive acknowledges that
during his employment he may create, make, derive, produce, obtain, make
known or learn about certain information which has commercial value in the
business in which the Company is engaged and which is treated by the Company as
confidential. This information may have been created, discovered or developed by
the Company or the Executive, in the course and scope of his employment, or
otherwise received by the Company from third parties subject to a duty to
maintain the confidentiality of such information. All such information is
hereinafter called "Proprietary Information."
5.1 Proprietary Information Defined. By way of illustration, but not
limitation, Proprietary Information includes trade secrets,- ideas,
- -processes, drawings, specifications, data, formulations, computer programs,
software, other original works of authorship, know-how, improvements,
discoveries, developments, designs, innovations, techniques, business
development strategies, marketing plans, strategies, forecasts, new products,
unpublished financial statements, budgets, projections, licenses, prices, costs,
strategic alliances, ventures, and customer and supplier lists. The foregoing
obligations of confidentiality and non-use shall not apply to any Proprietary
Information that:
5.1.1 was known to the Executive prior to the date of
disclosure pursuant to this Agreement and not obtained or derived directly
or indirectly from the Company;
5.1.2 is or becomes public or available to the general
public otherwise than through the act or default of the Executive;
5.1.3 is obtained subsequent to any disclosure under this
Agreement from a third party who is lawfully in possession of same and
which information is not subject to any confidential or non-use obligations owed
to the Company or others;
5.1.4 has been furnished by the Company to a third party
without similar restrictions on disclosure; or
6
<PAGE>
5.1.5 is required to be disclosed pursuant to requirements
of Federal, state or local statute, regulation or court order, provided
that Executive delivers prior written notice to Company of such pending
disclosure, and gives Company a reasonable opportunity to oppose such disclosure
with the applicable authority.
5.2 Ownership of Proprietary Information. Executive acknowledges that
all Proprietary Information shall be the sole property of the Company and
its assignees (or, in some cases, its clients, suppliers or customers), and the
Company and its assignees (or, in some cases, its clients, suppliers or
customers) shall be the sole owner of all patents, copyrights, trade secrets,
and all other intellectual property rights in connection therewith (collectively
"Intellectual Property Rights"). The Company's ownership includes any and all
modifications, corrections, updates, changes, improvements, derivatives and
enhancements to the Proprietary Information and the Intellectual Property Rights
therein.
5.3 Non-Disclosure. At all times, both during Executive's employment
and after his termination, Executive shall keep in strictest confidence and
trust all Proprietary Information, and shall not reproduce or disclose any
Proprietary Information, or use such Proprietary Information for his own account
or the account of any third party, without the written consent of the Company,
except as may be necessary in the ordinary course of performing duties as an
employee of the Company.
5.4 Assignment of Inventions. Executive hereby assigns and transfers
to the Company, Executive's entire right, title and interest, now or
hereafter acquired, in and to all Proprietary Information and Intellectual
Property Rights therein, discovered, originated, made or conceived or learned by
Executive either alone or jointly with others, during the period of Executive's
employment which result, directly or indirectly, from (i) the use of premises or
equipment owned, leased or contracted for by the Company or supplies or
Proprietary Information of the Company, or (ii) work conducted on the time of
the Company, or (iii) work performed for the Company. Executive further
acknowledges that all original works of authorship which are made by Executive
(solely or jointly with others) within the scope of and during the period of his
employment with the Company and which are protectible by copyright are "works
made for hire," as that term is defined in the United States Copyright Act.
Executive understands and agrees that the decision whether or not to
commercialize or market any invention developed by him solely or jointly with
others is within the Company's sole discretion and for the Company's sole
benefit and that no royalty will be due to him as a result of the Company's
efforts to commercialize or market
7
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any such invention. Executive hereby waives all moral rights which he may
have or hereafter acquire in any Proprietary Information and any Intellectual
Property Rights therein. Executive will, at the Company's request, promptly
execute a written assignment of title to the Company for any Proprietary
Information and Intellectual Property Rights therein, and a written waiver of
all moral rights therein, and Executive will preserve all such Proprietary
Information as confidential information of the Company.
5.5 Notice of Inventions; Execution of Documents. Executive agrees
to give Company prompt written notice of his acquisition or creation of any
Proprietary Information. Executive further agrees as to all Proprietary
Information to assist the Company in every proper way (but at the Company's
expense) to obtain and from time to time enforce patents, copyrights and other
rights and protections relating to inventions in any and all countries, and to
that end agrees to execute all documents for use in applying for and obtaining
such patents, copyrights and other rights and protections on and enforcing
inventions as the Company may desire, together with any assignments thereof to
the Company or persons designated by it. Executive's obligations to assist the
Company in obtaining and enforcing patents, copyrights and other rights
and-protections relating to Proprietary Information in any and all countries
shall continue beyond the termination of employment, but the Company shall
compensate Executive at a reasonable rate after such termination for time
actually spent, at the Company's request, on such assistance. In the event the
Company is unable, after reasonable effort, to secure signatures on any
documents needed to effect any assignment hereunder or to apply for or prosecute
any patent, copyright or other right or protection relating to an invention,
whether because of physical or mental incapacity or for any other reason
whatsoever, Executive hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as his agent and attorney-in-fact, to
act for and in his behalf and stead, to execute and file any such application or
applications and to do all other lawfully permitted acts to further the
prosecution and, issuance of patents, copyrights or similar protections thereon
with the same legal force and effect as if executed by him.
5.6 Return of Pronrietary Information. All Proprietary Information,
including, without limitation, all written materials, records and documents
or other tangible materials made by Executive or coming into his possession as a
result of his employment with Company concerning the business or affairs of
Company shall be the sole property of Company; and, upon the termination of his
employment with Company or upon the request of Company, Executive shall promptly
deliver the same to Company.
8
<PAGE>
5.7 Third Party Information. Executive recognizes that the Company
has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. Executive agrees that Executive owes the Company and
such third parties, during the term of this Agreement and thereafter, a duty to
hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to use
it except as necessary in carrying out the services for the Company consistent
with the Company's agreement with such third party.
6. Prior Inventions. Executive understands that all inventions, if any,
patented or unpatented, which Executive made prior to Executive's
employment are excluded from the scope of this Agreement. To preclude any
possible uncertainty, Executive has set forth on item 1 of Exhibit A attached
hereto a complete list of all of Executive's prior inventions, including numbers
of all patents and patent applications, and a brief description of all
unpatented inventions which are no-t the property of a previous employer.
Executive represents and covenants that the list is complete and that, if no
items are on the list, Executive has no such prior inventions. Executive agrees
to notify the Company in writing before Executive makes any disclosure or
performs any work on behalf of the Company which appears to threaten or conflict
with proprietary rights which Executive claims in any invention or idea.
Executive agrees that if in the course of performing services hereunder,
Executive incorporates into the Company's Proprietary Information or otherwise
utilizes any invention, improvement, development, concept, discovery or other
proprietary information owned by Executive or in which Executive has an
interest, the Company is hereby granted and shall have a non-exclusive,
royalty-free, perpetual, irrevocable, worldwide license to make, have made,
modify, use and sell such item as part of or in connection with such Proprietary
Information.
7. Conflicting Obligations.
7.1 Trade Secrets of Others. Executive represents that he has not
brought, and will not bring with him to Company, disclose to Company, or
use in the performance of his responsibilities, any devices, materials or
documents of a former employer or other party that are proprietary or are not
generally available to the public, unless he has obtained express written
authorization from such party for their possession and use. The only devices,
materials or documents of a former employer or other party that are
9
<PAGE>
proprietary or are not generally available to the public that Executive
will bring to the Company, if any, are identified on item 2 of Exhibit A
attached hereto, and as to each such item, Executive represents that Executive
has obtained express written authorization for their possession and use and has
delivered a copy of such written authorization to the Company.
7.2 Conflicting Confidentiality Agreements. Executive agrees that
during this employment, Executive will not breach any obligation of
confidentiality Executive has to former employers, clients, and others.
Executive represents that Executive's performance under the terms of this
Agreement, as Executive to the Company, does not and will not breach any
agreement to keep in confidence proprietary information acquired by Executive in
confidence or in trust. Executive has neither entered into, nor shall enter
into, any agreement, either written or oral, in conflict herewith.
8. Covenant Not to Compete; Non-Interference.
8.1 During the term of this Agreement, Executive shall not, directly
or indirectly, engage or participate in any business, which is in
competition with any business in which the Company conducts or pursues during
the term of this Agreement. Moreover, in view of Executive's access to secrets
and proprietary information and further agrees that Executive will not, without
the Company's prior written consent, design or develop identical or
substantially similar designs as those developed for the Company during his
employment for himself or any third party during the term of this Agreement and
for a period of twelve (12) months following the termination of this Agreement.
8.2 Executive covenants and agrees that he will not, during the term
of this Agreement and continuing until the second anniversary of the
termination of this Agreement, whether for his own account or for the account of
any other person, interfere with the relationship of the Company with, or
endeavor to entice away from the Company, any person who at any time during the
term of Executive's engagement with the Company was an employee of the Company.
Furthermore, Executive covenants and agrees that he will not, whether during the
term of this Agreement or thereafter, whether for his own account or for the
account of any other person, interfere with the relationship of the Company
with, or endeavor to entice away from the Company, any person who at any time
during the term of Executive's engagement with the Company was a customer,
supplier or business partner of the Company.
10
<PAGE>
9. Key Man Insurance. The Company may, in its sole discretion, at any
time after the date hereof, apply for and procure as owner for its benefit,
life insurance on Executive, in such amount and in such form or forms as the
Corporation may determine. Executive shall, at the Company's request, subject to
such medical examinations, supply such information and execute such documents as
may be required by the insurance company or companies to whom the Company has
applied for such insurance.
10. General Provisions.
10.1 Mediation an Arbitration.
10.1.1 Mediation. No party to this Agreement may initiate
litigation or arbitration with regard to any dispute with respect to this
Agreement until after all remedies set forth in this Section have been
exhausted. In the event of any dispute arising over this Agreement, any party
shall have the right by giving written notice to the other parties hereto (the
"Mediation Notice") to initiate nonbinding mediation to be conducted by a
mediator mutually agreed to by the parties or, in the event the parties are
unable to reach such agreement within thirty (30) days following the delivery of
the Mediation Notice, by a mediator appointed by the American Arbitration
Association ("AAA") in accordance with the rules and regulations of the AAA, or
by any other body mutually agreed upon by the parties. Mediation shall take
place at Hayward, California or any other location mutually agreeable to the
parties. In the event the parties resolve their dispute in mediation, they shall
enter into a written agreement, which shall be binding on all parties thereto.
10.1.2 EXCEPT AS PROVIDED IN SECTIONS 10.1 AND 10.10 HEREOF,
EXECUTIVE AND COMPANY AGREE THAT ANY DISPUTE OR CONTROVERSY ARISING OUT OF,
OR RELATING TO THIS AGREEMENT SHALL BE SETTLED BY ARBITRATION TO BE HELD IN
ALAMEDA COUNTY, CALIFORNIA, IN ACCORDANCE WITH THE EMPLOYMENT DISPUTE RESOLUTION
RULES THEN IN EFFECT OF THE AMERICAN ARBITRATION ASSOCIATION. THE ARBITRATOR MAY
GRANT INJUNCTIONS OR OTHER RELIEF IN-SUCH DISPUTE OR CONTROVERSY. THE DECISION
OF THE ARBITRATOR SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES TO THE
ARBITRATION. JUDGMENT MAY BE ENTERED ON THE ARBITRATOR'S DECISION IN ANY COURT
HAVING JURISDICTION.
10.1.3 THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF
EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL
DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP (EXCEPT
AS PROVIDED IN SECTION 7 HEREOF), INCLUDING, WITHOUT LIMITATION, THE FOLLOWING
CLAIMS:
11
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10.1.3 (a) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT, BREACH OF CONTRACT, EXPRESS OR IMPLIED, BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL
DISTRESS, MISREPRESENTATION, INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE, DEFAMATION AND LIBEL;
10.1.3 (b) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL,
STATE OR MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT; AND
10.1.3 (c) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS
AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
10.1.4 EXECUTIVE UNDERSTAND THAT EACH PARTY'S COVENANT
TO RESOLVE DISPUTES BY ARBITRATION, AS OPPOSED TO THE JUDICIAL SYSTEM IS
CONSIDERATION FOR THE OTHER PARTY'S PROMISE. EXECUTIVE FURTHER UNDERSTANDS THAT
HE HAS BEEN OFFERED EMPLOYMENT BY THE COMPANY IN CONSIDERATION OF HIS PROMISE TO
ARBITRATE DISPUTES.
10.2 Notification of New Employer. In the event that Executive
leaves the employ of the Company, Executive hereby consents to notification
by the Company to Executive's new employer about his rights and obligations
under this Agreement.
10.3 Notices. Except as expressly provided herein, all notices,
requests or other communications required hereunder shall be in writing and
shall be given personal delivery, national overnight courier service, or by U.S.
mail, certified or registered, postage prepaid, return receipt requested,
addressed to the respective party at the applicable address set forth above, or
to any party at such other addresses as shall be specified in writing by such
party to the other parties in accordance with the terms and conditions of this
Section. All notices, requests or communications shall be deemed effective upon
personal delivery, or five (5) days following deposit in the United States mail,
or two (2) business days following deposit with any national overnight courier
service.
10.4 Jurisdiction. Venue and Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of California (regardless of that jurisdiction or any other jurisdiction's
choice of law principles). To the extent permitted by law and except as
otherwise provided in Section 10.1 hereof, the parties hereto agree that all
actions or proceedings arising
12
<PAGE>
in connection herewith, shall be litigated in the state and federal courts
located in the State of California, and each party hereby waives any right it
may have to assert the doctrine of Forum Non Conveniens or to object to venue.
The parties each hereby stipulate that the state and federal courts located in
the County of Alameda, State of California, shall have personal jurisdiction and
venue over each party for the purpose of litigating any such dispute,
controversy or proceeding arising out of or related to this Agreement. To the
extent permitted by law, service of process sufficient for personal jurisdiction
in any action against either party may be made by registered or certified mail,
return receipt requested.
10.5 No Assignment. This Agreement is personal to Executive, and
Executive may not assign any rights or delegate any responsibilities
hereunder without the prior approval of the Company.
10.6 Entire Agreement. This Agreement, including the exhibit which is
referenced herein and incorporated by this reference, is the entire
agreement between the Company and Executive with respect to the subject matter
hereof and cancels and supersedes any and all prior agreements regarding the
subject matter hereof between the parties, including without limitation that
certain Employment Agreement, dated September 30, 1996, between Impax
Pharmaceuticals, Inc., and Executive. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, heirs and
permitted assigns. This Agreement may not be altered, modified, changed or
discharged except in writing signed by both the parties.
10.7 Survival. Sections 4.2, 4.3, 5, 6, 7, 8 and 10, each inclusive,
shall survive termination or expiration of this Agreement.
10.8 Validity. If any one or more of the provisions (or any part
thereof) of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions (or any part thereof) shall not in any way be affected or
impaired thereby.
10.9 No Waiver of Rights. The delay or failure of either party to
enforce at any time any provision of this Agreement shall in no way be
considered a waiver of any such provision, or any other provision, of this
Agreement. No waiver of, or delay or failure to enforce any provision of this
Agreement shall in any way be considered a continuing waiver or be construed as
a subsequent waiver of any such provision, or any other provision of this
Agreement.
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<PAGE>
10.10 Equitable Remedies , Employee specifically acknowledges that
any violation of Section 5, 6, 7 or 8 of this Agreement could cause
irreparable injury to Company and its business and property. Employee,
therefore, agrees that in the event of his breach of any of the terms and
conditions of Section 5, 6, 7 or 8 of this Agreement, Company shall be entitled,
if it so elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either at law or in equity, to enjoin him from further
violation of such provisions. The remedies provided herein shall be cumulative
and in addition to any and all other remedies which either party may have at law
or in equity.
10.11 Attorneys' Fees. The prevailing party shall be entitled to
recover from the losing party its attorneys' fees and costs incurred in any
action or proceeding, including arbitration, brought to interpret this Agreement
or to enforce any right arising out of this Agreement. For purposes of this
Section, the prevailing party shall be that party that most closely obtains the
relief sought by it.
10.12 EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD THE OPPORTUNITY TO
CONSULT WITH THE ADVISOR OF HIS CHOICE AND THAT HE HAS FREELY AND
VOLUNTARILY ENTERED INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written below.
IMPAX LABORATORIES, INC.
Date: December 14, 1999 By:
--------------------------- --------------------------------
------------------------------------
(Print Name and Title)
Date: December 14, 1999 /s/ Larry Hsu, Ph.D.
--------------------------- ------------------------------------
Larry Hsu, Ph.D.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written below.
IMPAX LABORATORIES, INC.
Date: December 14, 1999 By: [ILLEGIBLE]
---------------------------- --------------------------------
------------------------------------
(Print Name and Title)
Date: December 14, 1999 /s/ Larry Hsu, Ph.D.
---------------------------- ------------------------------------
Larry Hsu, Ph.D.
<PAGE>
EXHIBIT A
---------
IMPAX LABORATORIES, INC.,
a Delaware corporation
30831 Huntwood Ave.
Hayward, CA 94544
Dear Sir or Madam:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment with Impax Laboratories,
Inc., a Delaware corporation (the "Company"), that have been made or conceived
or first reduced to practice by me, alone or jointly with others, prior to my
engagement by the Company:
[ ] No inventions or improvements.
[ ] See below:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[ ] Additional sheets attached.
2. I propose to bring to my employment (or consulting, if applicable)
the following devices, materials and documents of a former employer or
other party that are proprietary or are not generally available to the public,
which materials and documents may be used in my employment pursuant to the
express written authorization of my former employer or other party (a copy of
which is attached hereto):
[ ] No materials.
[ ] See below:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15
IMPAX PHARMACEUTICALS, INC.
1999 EQUITY INCENTIVE PLAN
1. Purposes. The purposes of the Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to Employees, Directors and Consultants of the Company and
its Affiliates. The persons eligible to receive Stock Awards are the Employees,
Directors and Consultants of the Company and its Affiliates. The Plan provides a
means whereby eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
2. Administration.
2.1 Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
Section 2.3.
2.2 Powers of Board. The Board may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper.
Subject to the provisions of the Plan, the Board shall have the following power
and authorities, subject to the Plan:
2.2.1 to determine to which of the eligible individuals, and the
time or times at which, Stock Awards shall be granted.
2.2.2 to determine the number of shares of Common Stock to be
subject to Stock Awards to be granted to each Participant.
2.2.3 to determine the price to be paid for the shares of Common
Stock pursuant to each Stock Award.
2.2.4 to determine the term and the exercise schedule of each Stock
Award.
2.2.5 to determine the expiration/termination rate of the Company's
repurchase right, if any, with respect to any Stock Award, and to designate
certain events which will trigger an acceleration of such expiration and the
rate of such acceleration.
2.2.6 to determine the terms and conditions of each Stock Award
(which need not be identical) entered into between the Company and any
Participant, subject to Sections 5, 6 and 11 hereof.
<PAGE>
2.2.7 to interpret the Plan and Stock Awards granted under it, and
to establish, amend and revoke rules and regulations for its administration. The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Stock Award Agreement, in a manner and to
the extent it shall deem necessary or expedient to make the Plan fully
effective.
2.2.8 to accelerate the exercise date or schedule with respect to
any Stock Award; to accelerate the vesting or expiration of the Company's
repurchase right with respect to any Shares issued pursuant to any Stock Award
granted under the Plan; or, with the consent of the holder thereof, to modify or
amend any such Stock Award.
2.2.9 to make all determinations deemed necessary or advisable for
the administration of the Plan.
2.2.10 to determine whether a Participant's Continuous Service has
been interrupted or terminated.
2.2.11 to determine whether an Optionee, who is an Employee,
Director, Consultant or Officer of the Company or any Parent or Affiliate of the
Company.
2.2.12 To amend the Plan or a Stock Award as provided in Section
11.
2.2.13 To adopt forms of agreement for use under the Plan.
2.2.14 To reduce the exercise price of any Stock Award to the then
current Fair Market Value if the Fair Market Value of the Common Stock subject
to such Stock Award has declined since the date the Stock Award was originally
granted or the exercise price thereof was last adjusted.
2.2.15 To allow Participants to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of a Stock Award that number of Shares having a Fair Market Value equal
to the amount required to be withheld. All elections pursuant to this Section
2.2.15 shall be made in such form and under such conditions as the Board may
deem appropriate or advisable.
2.2.16 Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
2
<PAGE>
2.3 Delegation to Committee.
2.3.1 General. The Board may delegate administration of the Plan to
a Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers 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
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
2.3.1 Committee Composition when Common Stock is Publicly Traded.
At such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board may (i) delegate to a committee of one or more members of
the Board who are not Outside Directors the authority to grant Stock Awards to
eligible persons who are either (1) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income resulting
from such Stock Award or (2) not persons with respect to whom the Company wishes
to comply with Section 162(m) of the Code and/or) (ii) delegate to a committee
of one or more members of the Board who are not Non-Employee Directors the
authority to grant Stock Awards to eligible persons who are not then subject to
Section 16 of the Exchange Act.
2.4 Binding Affect of Decisions. All decisions, determinations and
interpretations of the Board shall be final and binding on all Participants.
3. Share Reserve.
3.1 Aggregate Shares. The aggregate number of shares of Common Stock
that may be issued pursuant to Stock Awards issued pursuant to this Plan is
1,000,000 Shares, subject to adjustment as provided in this Plan. If any Stock
Award, expires or is terminated without being exercised in whole or in part, the
unexercised or released shares from such Stock Award shall be available for
future grant and purchase under this Plan. However, if any Common Stock acquired
pursuant to the exercise of an Option
3
<PAGE>
shall for any reason be repurchased by the Company under an unvested share
repurchase option provided under the Plan, the stock repurchased by the Company
under such repurchase option shall not revert to and again become available for
issuance under the Plan. At all times during the term of this Plan, the Company
shall reserve and keep available such number of Shares as shall be required to
satisfy the requirements of outstanding Options under this Plan.
3.2 Limitation. Prior to the Listing Date, at no time shall the total
number of shares issuable upon exercise of all outstanding Options and the total
number of shares provided for under any stock bonus or similar plan of the
Company exceed the applicable percentage as calculated in accordance with the
conditions and exclusions of Section 260.140.45 of Title 10 of the California
Code of Regulations, based on the shares of the Company which are outstanding at
the time the calculation is made.
4. Eligibility.
4.1 Generally. Stock Awards may be granted to Employees, Officers,
Directors, and Consultants (provided such Consultants render bona fide services
not in connection with the offer and sale of securities in a capital-raising
transaction) of the Company or any Parent, Subsidiary or Affiliate of the
Company. Incentive Stock Options may be granted only to Employees of the Company
or a Parent or Subsidiary of the Company. The Company may also, from time to
time, assume outstanding stock awards granted by another company, whether in
connection with an acquisition of such other company or otherwise, by either (a)
granting a Stock Award under this Plan in replacement of the stock award assumed
by the Company, or (b) treating the assumed stock award as if it had been
granted under this Plan if the terms of such assumed stock award could be
applied to a Stock Award granted under this Plan. Such assumption shall be
permissible if the holder of the assumed stock award would have been eligible to
be granted a stock award hereunder if the other company had applied the rules of
this Plan to such grant.
4.2 Eligibility for Specific Stock Awards. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
4.3 Section 162(m) Limitation. Subject to the provisions of Section 10
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than Five Hundred Thousand (500,000) shares of
the Common Stock during any calendar year. This Section shall not apply prior to
the Listing Date and, following the Listing Date, this Section shall not apply
until (i) the earliest of: (1) the first material
4
<PAGE>
modification of the Plan (including any increase in the number of shares
reserved for issuance under the Plan in accordance with Section 3.1); (2) the
issuance of all of the shares of Common Stock reserved for issuance under the
Plan; (3) the expiration of the Plan; or (4) the first meeting of shareholders
at which Directors of the Company are to be elected that occurs after the close
of the third calendar year following the calendar year in which occurred the
first registration of an equity security under Section 12 of the Exchange Act;
or (ii) such other date required by Section 162(m) of the Code and the rules
and regulations promulgated thereunder.
5. Terms and Conditions of Options.
5.1 Option Grant. Each option granted under the Plan shall be evidenced
by a written stock option grant. Each such agreement shall designate the option
thereby granted as a Common Stock option. Each such Option shall be subject to
the terms and conditions set forth in this Section 5, and to such other terms
and conditions not inconsistent herewith as the Board may deem appropriate in
each case.
5.2 Date of Grant. The date of grant of an Option shall be the date on
which the Board makes the determination to grant such Option unless otherwise
specified by the Board. The document representing the Option will be delivered
to Optionee with a copy of this Plan within a reasonable time after the granting
of the Option.
5.3 Exercise Price. The exercise price of an Option shall be not less
than 100% of the Fair Market Value of the Shares on the date the Option is
granted. The exercise price of any Option granted to a person owning more than
10% of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not
be less than 110% of the Fair Market Value of the Shares on the date the Option
is granted. For purposes of Sections 5.3 and 5.4, in determining stock
ownership, an Optionee shall be considered as owning the voting capital stock
owned, directly or indirectly, by or for his brothers and sisters, spouse,
ancestors and lineal descendants. Voting capital stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust shall be
considered as being owned proportionately by or for its shareholders, partners
or beneficiaries, as applicable. Common Stock with respect to which any such
Optionee holds an Option shall not be counted. Additionally, for purposes of
Sections 5.3 and 5.4, outstanding capital stock shall include all capital stock
actually issued and outstanding immediately after the grant of the Option to the
Optionee. Outstanding capital stock shall not include capital stock authorized
for issue under outstanding Options held by the Optionee or by any other person.
5
<PAGE>
5.4 Exercise Period. Subject to the limitations set forth herein,
Options shall be exercisable within the times or upon the events determined by
the Board as set forth in the Option. Notwithstanding the foregoing, the term of
any Incentive Stock Option granted to any Ten Percent Shareholder shall not
exceed five (5) years. In no event shall the right to exercise be at a rate less
than twenty percent (20%) per year over five (5) years from the date the Option
is granted. No Option shall be exercisable after the expiration of ten (10)
years from the date the Option is granted.
5.5 Limitations on Exercise. Notwithstanding the exercise periods set
forth in the Option, exercise of an Option shall always be subject to the
following:
5.5.1 If Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason except death or
disability, Optionee may exercise such Optionee's Options to the extent (and
only to the extent) that they would have been exercisable upon the date of
termination, within ninety (90) days after the date of termination; but in any
event no later than the expiration date of the Options.
5.5.2 If Optionee's employment with the Company or any Parent,
Subsidiary, or Affiliate of the Company is terminated because of the death of
Optionee or Disability of Optionee, Optionee's Options may be exercised to the
extent (and only to the extent) that they would have been exercisable by
Optionee on the date of termination, by Optionee (or Optionee's legal
representative) within one year after the date of termination, but in any event
no later than the expiration date of the Options.
An Optionholder's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionholder's Continuous Service (other
than upon the Optionholder's death or Disability) would be prohibited at any
time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in Section 5.4
or (ii) the expiration of a period of three (3) months after the termination of
the Optionholder's Continuous Service during which the exercise of the Option
would not be in violation of such registration requirements.
5.6 Options Non-Transferable. Options granted under this Plan, and
any interest therein, shall not be transferable or assignable by Optionee, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified
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domestic relations order as defined by the Code or Title 1 of the Employee
Retirement Income Security Act, or the rules thereunder, and shall be
exercisable during the lifetime of the Optionee only by Optionee.
5.7 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 will be adjusted appropriately
pursuant to the Code. In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 4), 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.
5.8 Additional Terms and Conditions to Which Incentive Stock Options
Are Subject. Options granted under this Plan which are designated as incentive
stock options shall be subject to the following additional terms and conditions:
5.8.1 Annual Limitation. The aggregate fair market value
(determined as of the date an incentive stock option is granted) of the stock
with respect to which incentive stock options granted are exercisable for the
first time by an employee during any one (1) calendar year (under this Plan and
under all other incentive stock option plans of the Company and of any Parent or
Subsidiary corporation) shall not exceed One Hundred Thousand Dollars
($100,000).
5.8.2 Disqualifying Dispositions. If Common Stock acquired by
exercise of an Incentive Stock Option granted pursuant to this Plan is disposed
of within two (2) years from the date of grant of the option or within one (1)
year after the transfer of the Common Stock to the Optionee, the holder of the
Common Stock immediately prior to the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the disposition as the Company may reasonably
require.
5.9 Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option.
Subject to the "Repurchase Limitation" in Section 9.7, any unvested shares so
purchased may be subject to an unvested share repurchase option in favor of the
Company or to any other restriction the Board determines to be appropriate.
5.10 Right of Repurchase. Subject to the "Repurchase Limitation" in
Section 9.7, the Option may, but need not, include
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a provision whereby the Company may elect, prior to the Listing Date, to
repurchase all or any part of the vested shares acquired by the Optionholder
pursuant to the exercise of the Option.
5.11 Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this Section, such right of first
refusal shall otherwise comply with any applicable provisions of the Bylaws of
the Company.
5.12 Re-Load Options. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in Section 5.8.1 and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under Section 3.1 and the
"Section 162(m) Limitation" on the grants of Options under Section 4.3 and shall
be subject to such other terms and conditions as the Board may determine which
are not inconsistent with the express provisions of the Plan regarding the terms
of Options.
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6. Provisions of Stock Awards Other than Options.
6.1 Stock Bonus Awards. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) Consideration. A stock bonus shall be awarded in consideration
for past services actually rendered to the Company for its benefit.
(ii) Vesting. Subject to the "Repurchase Limitation" in Section
9.7, shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participant's Continuous Service. Subject to
the "Repurchase Limitation" in Section 9.7, in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) Transferability. For a stock bonus award made before the
Listing Date, rights to acquire shares under the stock bonus agreement shall not
be transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Participant only by the
Participant. For a stock bonus award made on or after the Listing Date, rights
to acquire shares under the stock bonus agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the stock
bonus agreement, as the Board shall determine in its discretion, so long as
stock awarded under the stock bonus agreement remains subject to the terms of
the stock bonus agreement.
6.2 Restricted Stock Awards. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
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6.2.1 Purchase Price. Subject to the provisions of Section 5.3
regarding Ten Percent Shareholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated. For restricted stock
awards made on or after the Listing Date, the purchase price shall not be less
than eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated.
6.2.2 Consideration. The purchase price of stock acquired pursuant
to the restricted stock purchase agreement shall be paid either:
(i) in cash at the time of purchase;
(ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the Participant; or
(iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; provided, however, that at any time
that the Company is incorporated in Delaware, then payment of the Common Stock's
"par value," as defined in the Delaware General Corporation Law, shall not be
made by deferred payment.
6.2.3 Vesting. Subject to the "Repurchase Limitation" in Section
9.7, shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
6.2.4 Termination of Participant's Continuous Service. Subject to
the "Repurchase Limitation" in Section 9.7, in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
6.2.5 Transferability. For a restricted stock award made before
the Listing Date, rights to acquire shares under the restricted stock purchase
agreement shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a restricted stock award made on or after the
Listing Date, rights to acquire shares under the restricted
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stock purchase agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as stock
awarded under the restricted stock purchase agreement remains subject to the
terms of the restricted stock purchase agreement.
7. Covenants of the Company.
7.1 Availability of Shares. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
7.2 Securities Law Compliance. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
8. Use of Proceeds from Stock. Proceeds from the sale of stock pursuant to
Stock Awards shall constitute general funds of the Company.
9. Miscellaneous.
9.1 Acceleration of Exercisability and Vesting. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
9.2 Shareholder Rights. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
9.3 No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant or other holder of Stock
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Awards any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Stock Award was granted or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
9.4 Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. 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 comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
9.5 Withholding Obligations. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Participant by the Company)
or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares from the shares of the Common Stock
otherwise issuable to the participant as a result of the exercise or acquisition
of stock under the Stock Award; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
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9.6 Information Obligation. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This Section shall not apply to key Employees whose duties in
connection with the Company assure them access to equivalent information.
9.7 Repurchase Limitation. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations, any repurchase option contained in a Stock Award
granted prior to the Listing Date to a person who is not an Officer, Director or
Consultant shall be upon the terms described below:
9.7.1 Fair Market Value. If the repurchase option gives the
Company the right to repurchase the shares upon termination of employment at not
less than the Fair Market Value of the shares to be purchased on the date of
termination of Continuous Service, then (i) the right to repurchase shall be
exercised for cash or cancellation of purchase money indebtedness for the shares
within ninety (90) days of termination of Continuous Service (or in the case of
shares issued upon exercise of Stock Awards after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period as
may be agreed to by the Company and the Participant (for example, for purposes
of satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
become publicly traded.
9.7.2 Original Purchase Price. If the repurchase option gives the
Company the right to repurchase the Shares upon termination of Continuous
Service at the original purchase price, then (i) the right to repurchase at the
original purchase price shall lapse at the rate of at least twenty percent (20%)
of the shares per year over five (5) years from the date the Stock Award is
granted (without respect to the date the Stock Award was exercised or became
exercisable) and (ii) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares within ninety (90)
days of termination of Continuous Service (or in the case of shares issued upon
exercise of Options after such date of termination, within ninety (90) days
after the date of the exercise) or such longer period as may be agreed to by the
Company and the Participant (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code regarding "qualified small
business stock").
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10. Adjustments upon Changes in Stock.
10.1 Capitalization Adjustments. If any change is made in the stock
subject to the Plan, or subject to any Stock 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 will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to Section 3.1 and the maximum number of securities subject to award to
any person pursuant to Section 4.3, and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of securities and price per
share of stock subject to such outstanding Stock 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.)
10.2 Change in Control-Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
10.3 Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (i) a sale of 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 Stock Awards outstanding
under the Plan or shall substitute similar stock awards (including an award to
acquire the same consideration paid to the shareholders in the transaction
described in this Section for those outstanding under the Plan. In the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then with respect to Stock Awards held by Participants whose Continuous
Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock
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Awards shall terminate if not exercised (if applicable) prior to such event.
11. Amendment of the Plan and Stock Awards.
11.1 Amendment of Plan. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any NASDAQ or securities exchange listing requirements.
11.2 Shareholder Approval. The Board may, in its sole discretion,
submit any other amendment to the Plan for shareholder approval, including, but
not limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
12. Termination or Suspension of the Plan.
12.1 Plan Term. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
12.2 No Impairment of Rights. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.
13. Effective Date of Plan. The Plan shall become effective upon
approval by the Board, but no Stock Award shall be exercised (or, in the case of
a stock bonus, shall be granted) unless and until the Plan has been approved by
the shareholders of the Company, which approval shall be within twelve (12)
months before or after the date the Plan is adopted by the Board.
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 "Board" means the Board of Directors of the Company.
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14.3 "Code" means the Internal Revenue Code of 1986, as amended.
14.4 "Committee" means a Committee appointed by the Board in
accordance with Section 2.3.
14.5 "Common Stock" means the common stock of the Company.
14.6 "Company" means Impax Pharmaceuticals, Inc., a California
Corporation.
14.7 "Consultant" means any person, including an advisor, (i) engaged
by the Company or an Affiliate to render consulting or advisory services and who
is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
14.8 "Continuous Service" means that the Participant's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in the Board's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
14.9 "Covered Employee" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
14.10 "Director" means a member of the Board of Directors of the
Company.
14.11 "Disability" means (i) before the Listing Date, the inability of
a person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that
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person's position with the Company or an Affiliate of the Company because of the
sickness or injury of the person and (ii) after the Listing Date, the permanent
and total disability of a person within the meaning of Section 22(e)(3) of the
Code.
14.12 "Employee" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
14.13 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
14.14 "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.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock
shall be determined in a manner consistent with Section 260.140.50 of Title 10
of the California Code of Regulations.
14.15 "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
14.16 "Listing Date" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(0) of the California Corporate
Securities Law of 1968.
14.17 "Non-Employee Director" means a Director of the Company who
either (i) is not a current Employee or Officer of the
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Company or its parent or a subsidiary, does not receive compensation (directly
or indirectly) from the Company or its parent or a subsidiary for services
rendered as a consultant or in any capacity other than as a Director (except for
an amount as to which disclosure would not be required under Item 404(a) of
Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")),
does not possess an interest in any other transaction as to which disclosure
would be required under Item 404(a) of Regulation S-K and is not engaged in a
business relationship as to which disclosure would be required under Item 404(b)
of Regulation S-K; or (ii) is otherwise considered a "non-employee director"
for purposes of Rule 16b-3.
14.18 "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
14.19 "Officer" means (i) before the Listing Date, any person
designated by the Company AS an officer and (ii) on and after the Listing Date,
a person who is an officer of the Company within the meaning of Section 16 of
the Exchange Act and the rules and regulations promulgated thereunder.
14.20 "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
14.21 "Option Agreement" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
14.22 "Optionholder" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
14.23 "Outside Director" means a Director of the Company who either (i)
is not a current employee of the Company or an "affiliated corporation" (within
the meaning of Treasury Regulations promulgated under Section 162 (m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in any
capacity other than as a Director or (ii) is otherwise considered an "outside
director" for purposes of Section 162 (m) of the Code.
14.24 "Participant" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
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14.25 "Plan" means this Impax Pharmaceuticals, Inc. 1999 Equity
Incentive Plan.
14.26 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.
14.27 "Securities Act" means the Securities Act of 1933, as amended.
14.28 "Shares" means shares of Common Stock of the Company.
14.29 "Stock Award" means any right granted under the Plan, including
an Option, a stock bonus and a right to acquire restricted stock.
14.30 "Stock Award Agreement" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
14.31 "Subsidiary" shall mean a subsidiary, as defined in Section
424(f) of the Code.
14.32 "Ten Percent Shareholder" 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.
19
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-81883, 333-71809, 333-69395, 333-44217 and
333-35569) and Form S-8 (Nos. 333-72965, 333-58345 and 333-41595) of Impax
Laboratories, Inc. of our report dated February 11, 2000, except as to Note 16,
which is as of March 23, 2000, relating to the financial statements of Impax
Laboratories, Inc. which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 28, 2000
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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