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<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
------------------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [x]
Filed by a Party Other than Registrant [ ]
Check the Appropriate Box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 'SS'240.14a-11(c) or 'SS'240.14a-12
FAULDING INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
------------------------
Payment of Filing Fee (Check the Appropriate Box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each Class of Securities to which transaction applies: Common
Stock $.01 par value, of Registrant.
______________________________________________________________________
2) Aggregate Number of Securities to which transaction applies:
5,863,368
______________________________________________________________________
3) Per unit price or the underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$13.50
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
84,284,260
______________________________________________________________________
5) Total fee paid:
$16,857
______________________________________________________________________
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid: $ .
2) Form, Schedule or Registration Statement No.: ____________
3) Filing Party: ________________________
4) Date Filed: ________________________
------------------------
COPIES OF ALL COMMUNICATIONS TO:
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WILLIAM R. GRIFFITH, ESQ. WILLIAM F. WYNNE, JR., ESQ.
PARKER DURYEE ROSOFF & HAFT WHITE & CASE
529 FIFTH AVENUE 1155 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10036
</TABLE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
________________________________________________________________________________
<PAGE>
<PAGE>
FAULDING INC.
FAULDING INC. 200 ELMORA AVENUE
A World of Health ELIZABETH, NEW JERSEY 07207
Dear Faulding Inc. Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Faulding Inc. (the 'Company' or 'Faulding') to be held on Tuesday, January 13,
1998 at 10:00 a.m. at the Newark Airport Marriott Hotel in Newark, New Jersey.
Enclosed is a Notice of Special Meeting and a Proxy Statement containing
detailed information regarding the matters to be acted upon at the Special
Meeting. Also enclosed is a proxy card which we urge you to complete and
promptly return to ensure that your shares are voted at the Special Meeting.
At the Special Meeting, you will be asked to consider and vote upon the
following proposals:
1. To approve, as a single proposal referred to herein as the
'Recapitalization Transaction', (i) an Agreement and Plan of
Recapitalization (the 'Recapitalization Agreement'), dated as of September
29, 1997, by and among the Company, FH Faulding & Co Limited ('Parent') and
Faulding Holdings Inc., a wholly-owned subsidiary of Parent ('Holdings'),
and (ii) an amendment to the Company's Certificate of Incorporation
provided for in the Recapitalization Agreement (the 'Recapitalization
Amendment'), pursuant to which the Company will effect a recapitalization
(the 'Recapitalization') which will result in Holdings becoming the sole
stockholder of the Company and each other existing holder of Common Stock,
$.01 par value per share (the 'Common Stock'), of the Company becoming
entitled to receive a cash payment of $13.50 (the 'Transaction
Consideration') for each share of Common Stock held by such holder at the
Effective Time of the Recapitalization.
The Recapitalization will be effected through a reverse stock split of
the Company's Common Stock (the 'Reverse Stock Split') whereby each
7,924,385 issued and outstanding shares of Common Stock as of the Effective
Time of the Recapitalization will be combined into one validly issued share
of common stock of the Company ('New Common Shares'), having a par value
per share equal to the quotient obtained by dividing (x) the product of (1)
the total number of shares of Common Stock issued and outstanding
immediately prior to the Effective Time of the Recapitalization, multiplied
by (2) $.01, by (y) the number of New Common Shares to be issued and
outstanding immediately following the Effective Time of the
Recapitalization. As a result of the Reverse Stock Split, holders of less
than 7,924,385 shares of Common Stock will be entitled to receive, in lieu
of fractional New Common Shares, the Transaction Consideration multiplied
by the number of shares of Common Stock held by such holders at the
Effective Time of the Recapitalization. The Recapitalization Amendment will
be filed with the Secretary of State of the State of Delaware at the time
of the closing of the Recapitalization and will (i) effectuate the Reverse
Stock Split and (ii) reduce the number of authorized shares of common stock
of the Company from 35,000,000 to 2.
2. To approve an amendment to the Company's Certificate of
Incorporation (the 'Par Value Amendment'), pursuant to which the par value
of the Company's Class B Preferred Stock (all of which is held by Holdings)
will be changed from $.01 per share to $.10433 per share.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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The Board of Directors of the Company, based, with respect to the
Recapitalization Transaction, upon the unanimous recommendation of a special
committee of independent directors of the Board (the 'Special Committee'), has
determined that the Recapitalization Transaction and the Par Value Amendment are
each fair to and in the best interests of the stockholders of the Company other
than Parent, Holdings and their affiliates (the 'Public Stockholders'), and
recommends that the stockholders approve the Recapitalization Transaction and
the Par Value Amendment. In arriving at its recommendation with respect to the
Recapitalization Transaction, the Special Committee considered a number of
factors described in the Proxy Statement, including, among other things, the
opinion of CIBC Oppenheimer Corp., financial advisor to the Special Committee,
that the consideration to be received by the Public Stockholders in connection
with the Recapitalization is fair to such holders from a financial point of
view. The full text of such opinion, which sets forth, among other things, the
opinion expressed, procedures followed, matters considered and limitations on
review undertaken in connection with such opinion, is attached as an annex to
the Proxy Statement. Stockholders are urged to read the opinion in its entirety.
The terms of the Recapitalization Agreement and other important information
concerning the Recapitalization Transaction, the Par Value Amendment, the
Company, Parent and Holdings are set forth in the Proxy Statement, which we urge
you to read carefully. A copy of the Recapitalization Agreement is attached as
an annex to the Proxy Statement, with copies of the Recapitalization Amendment
and the Par Value Amendment attached as exhibits thereto.
The Recapitalization Agreement provides that in order for the
Recapitalization Transaction to be effected, the Recapitalization Agreement and
the Recapitalization Amendment must be approved by the affirmative vote of (i)
the holders of a majority of the outstanding shares of Common Stock and (ii) the
holders of a majority of the outstanding shares of Common Stock held by the
Public Stockholders. In order for the Par Value Amendment to be approved, the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required. Holdings currently owns approximately 71% of the
issued and outstanding shares of Common Stock. Accordingly, Holdings owns a
sufficient number of shares to approve the Par Value Amendment, but not to
approve the Recapitalization Transaction without the separate approval of the
Public Stockholders.
It is important that your views with respect to the Recapitalization
Transaction and the Par Value Amendment be represented at the Special Meeting.
Whether or not you plan to attend the Special Meeting, you are urged to mark,
sign and date the enclosed proxy, which should be returned promptly in the
enclosed envelope. Completing and returning the proxy will not limit your right
to vote in person if you attend the Special Meeting.
If you have any questions regarding the Special Meeting or the matters
submitted for stockholder approval, please call the Company's proxy solicitation
agent, D.F. King & Co., Inc., toll free at (800) 549-6650.
We look forward to seeing you at the Special Meeting.
Sincerely,
Richard F. Moldin
President and Chief Executive Officer
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FAULDING INC.
200 ELMORA AVENUE
ELIZABETH, NEW JERSEY 07207
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
TO BE HELD ON JANUARY 13, 1998
To the Stockholders:
A Special Meeting of Stockholders of Faulding Inc., a Delaware corporation
(the 'Company' or 'Faulding'), will be held on Tuesday, January 13, 1998 at
10:00 A.M., Eastern time, at the Newark Airport Marriott Hotel, Newark
International Airport, Newark, New Jersey, to consider and vote upon the
following two proposals:
1. To approve, as a single proposal referred to herein as the
'Recapitalization Transaction', (i) an Agreement and Plan of
Recapitalization (the 'Recapitalization Agreement'), dated as of September
29, 1997, by and among the Company, FH Faulding & Co Limited ('Parent') and
Faulding Holdings Inc., a wholly-owned subsidiary of Parent ('Holdings'),
and (ii) an amendment to the Company's Certificate of Incorporation
provided for in the Recapitalization Agreement (the 'Recapitalization
Amendment'), pursuant to which the Company will effect a recapitalization
(the 'Recapitalization') which will result in Holdings becoming the sole
stockholder of the Company and each other existing holder of Common Stock,
$.01 par value per share (the 'Common Stock'), of the Company becoming
entitled to receive a cash payment of $13.50 (the 'Transaction
Consideration') for each share of Common Stock held by such holder at the
Effective Time of the Recapitalization.
The Recapitalization will be effected through a reverse stock split of
the Company's Common Stock (the 'Reverse Stock Split') whereby each
7,924,385 issued and outstanding shares of Common Stock as of the Effective
Time of the Recapitalization will be combined into one validly issued share
of common stock of the Company ('New Common Shares') having a par value per
share equal to the quotient obtained by dividing (x) the product of (1) the
total number of shares of Common Stock issued and outstanding immediately
prior to the Effective Time of the Recapitalization, multiplied by (2)
$.01, by (y) the number of New Common Shares to be issued and outstanding
immediately following the Effective Time of the Recapitalization. As a
result of the Reverse Stock Split, holders of less than 7,924,385 shares of
Common Stock will be entitled to receive, in lieu of fractional New Common
Shares, the Transaction Consideration multiplied by the number of shares of
Common Stock held by such holders at the Effective Time of the
Recapitalization. The Recapitalization Amendment will be filed with the
Secretary of State of the State of Delaware at the time of the closing of
the Recapitalization and will (i) effectuate the Reverse Stock Split and
(ii) reduce the number of authorized shares of common stock of the Company
from 35,000,000 to 2.
2. To approve an amendment to the Company's Certificate of
Incorporation (the 'Par Value Amendment'), pursuant to which the par value
of the Company's Class B Preferred Stock (all of which is held by Holdings)
will be changed from $.01 per share to $.10433 per share.
Only stockholders of record at the close of business on December 4, 1997
(the 'Record Date') are entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. The Recapitalization Agreement provides that in
order for the Recapitalization Transaction to be effected, the Recapitalization
Agreement and the Recapitalization Amendment must be approved by the affirmative
vote of (i) the holders of a majority of the outstanding shares of Common Stock
and (ii) the holders of a majority of the outstanding shares of Common Stock
other than shares held by Parent, Holdings or their affiliates (the 'Public
Stockholders'). In order for the Par Value Amendment to be approved, the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required. Holdings currently owns approximately 71% of the
issued and outstanding shares of Common Stock. Accordingly, Holdings owns a
sufficient number of shares to approve the Par Value
<PAGE>
<PAGE>
Amendment, but not to approve the Recapitalization Transaction without the
separate approval of the Public Stockholders.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. YOUR
VOTE IS IMPORTANT. TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND PROMPTLY MAIL YOUR PROXY IN THE RETURN ENVELOPE PROVIDED.
Submitting a proxy will not prevent you from voting in person, should you so
desire, but will help to secure a quorum and will avoid added solicitation
costs. You may revoke your proxy at any time before it is voted at the Special
Meeting.
By Order of the Board of Directors,
ANDREW M. BERDON
Secretary
December 9, 1997
PLEASE DO NOT SEND US YOUR STOCK CERTIFICATES AT THIS TIME. ONCE THE
RECAPITALIZATION BECOMES EFFECTIVE, YOU WILL BE ADVISED OF THE PROCEDURE FOR
SURRENDERING YOUR CERTIFICATES FOR THE TRANSACTION CONSIDERATION.
<PAGE>
<PAGE>
FAULDING INC.
200 ELMORA AVENUE
ELIZABETH, NEW JERSEY 07207
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
This Proxy Statement and enclosed proxy are being furnished to holders of
record of the common stock, par value $.01 per share (the 'Common Stock'), of
Faulding Inc., a Delaware corporation (the 'Company' or 'Faulding'), as of the
close of business December 4, 1997 (the 'Record Date') in connection with the
solicitation of proxies by the Board of Directors of the Company from holders of
Common Stock for use at a Special Meeting of Stockholders of the Company to be
held on January 13, 1998 for the following purposes:
1. To approve, as a single proposal referred to herein as the
'Recapitalization Transaction', (i) an Agreement and Plan of
Recapitalization (the 'Recapitalization Agreement'), dated as of September
29, 1997, by and among the Company, FH Faulding & Co Limited ('Parent') and
Faulding Holdings Inc., a wholly-owned subsidiary of Parent ('Holdings'),
and (ii) an amendment to the Company's Certificate of Incorporation
provided for in the Recapitalization Agreement (the 'Recapitalization
Amendment'), pursuant to which the Company will effect a recapitalization
(the 'Recapitalization') which will result in Holdings becoming the sole
stockholder of the Company and each other existing holder of Common Stock
becoming entitled to receive a cash payment of $13.50 (the 'Transaction
Consideration') for each share of Common Stock held by such holder at the
Effective Time (as hereinafter defined) of the Recapitalization.
The Recapitalization will be effected through a reverse stock split of
the Company's Common Stock (the 'Reverse Stock Split') whereby each
7,924,385 issued and outstanding shares of Common Stock as of the Effective
Time of the Recapitalization will be combined into one validly issued share
of common stock of the Company ('New Common Shares') having a par value per
share equal to the quotient obtained by dividing (x) the product of (1) the
total number of shares of Common Stock issued and outstanding immediately
prior to the Effective Time of the Recapitalization, multiplied by (2)
$.01, by (y) the number of New Common Shares to be issued and outstanding
immediately following the Effective Time of the Recapitalization. As a
result of the Reverse Stock Split, holders of less than 7,924,385 shares of
Common Stock will be entitled to receive, in lieu of fractional New Common
Shares, the Transaction Consideration multiplied by the number of shares of
Common Stock held by such holders at the Effective Time of the
Recapitalization. The Recapitalization Amendment will be filed with the
Secretary of State of the State of Delaware at the time of the closing of
the Recapitalization and will (i) effectuate the Reverse Stock Split and
(ii) reduce the number of authorized shares of common stock of the Company
from 35,000,000 to 2. The date and time of such filing of the
Recapitalization Amendment is referred to herein as the 'Effective Time' of
the Recapitalization.
2. To approve an amendment to the Company's Certificate of
Incorporation (the 'Par Value Amendment'), pursuant to which the par value
of the Company's Class B Preferred Stock (all of which is held by Holdings)
will be changed from $.01 per share to $.10433 per share. The form of the
Par Value Amendment is attached as an exhibit to the Recapitalization
Agreement, which is annexed hereto.
The Board of Directors, based, with respect to the Recapitalization
Transaction, upon the unanimous recommendation of a special committee of
independent directors of the Board (the 'Special Committee'), has determined
that the Recapitalization Transaction and the Par Value Amendment are each fair
to and in the best interests of the stockholders of the Company other than
Parent, Holdings and their affiliates (the 'Public Stockholders'), and
recommends that the stockholders approve the Recapitalization Transaction and
the Par Value Amendment. In arriving at its recommendation with respect to the
Recapitalization Transaction, the Special Committee considered a number of
factors
<PAGE>
<PAGE>
described in this Proxy Statement, including, among other things, the opinion of
CIBC Oppenheimer Corp. ('Oppenheimer'), financial advisor to the Special
Committee, that the Transaction Consideration to be received by the Public
Stockholders is fair to such holders from a financial point of view. The full
text of such opinion, which sets forth, among other things, the opinion
expressed, procedures followed, matters considered and limitations on review
undertaken in connection with such opinion, is attached hereto as Annex B.
Stockholders are urged to read the opinion in its entirety. See 'SPECIAL
FACTORS -- Financial Advisor; Fairness Opinion.'
As of the Record Date for determining stockholders entitled to receive this
Proxy Statement, there were 20,147,188 shares of Common Stock outstanding and
approximately 400 stockholders of record. As of the Record Date, Holdings owned
14,283,820 shares of Common Stock, or approximately 71% of such shares issued
and outstanding. The Recapitalization Agreement provides that in order for the
Recapitalization Transaction to be effected, the Recapitalization Agreement and
the Recapitalization Amendment must be approved by the affirmative vote of (i)
the holders of a majority of the outstanding shares of Common Stock and (ii) the
holders of a majority of the outstanding shares of Common Stock held by the
Public Stockholders. In order for the Par Value Amendment to be approved, the
affirmative vote of a majority of the outstanding shares of Common Stock is
required. Holdings owns a sufficient number of shares to to approve the Par
Value Amendment, but not to approve the Recapitalization Transaction without the
separate approval of the Public Stockholders.
This Proxy Statement is first being mailed to stockholders on or about
December 9, 1997.
PLEASE DO NOT SEND US YOUR STOCK CERTIFICATES AT THIS TIME. ONCE THE
RECAPITALIZATION BECOMES EFFECTIVE, YOU WILL BE ADVISED OF THE PROCEDURE FOR
SURRENDERING YOUR CERTIFICATES FOR THE TRANSACTION CONSIDERATION.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
AVAILABLE INFORMATION
The Company, Parent and Holdings have filed a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the 'Schedule 13E-3') with the Securities and
Exchange Commission (the 'Commission' or the 'SEC') with respect to the
transactions described in this Proxy Statement. As permitted by the rules and
regulations of the Commission, this Proxy Statement omits certain exhibits
contained in the Schedule 13E-3. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), and in accordance therewith files reports, proxy statements and other
information with the Commission. The Schedule 13E-3 and the exhibits thereto, as
well as such reports, proxy statements, and other information, can be inspected
and copied at the public reference facilities of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at its regional offices at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center,
13th Floor, New York, New York 10048. Any interested party may obtain copies of
such material at prescribed rates from the Public Reference Section of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. The Commission also maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES BY REFERENCE THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997 (THE 'COMPANY 10-K'), THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
(THE 'COMPANY 10-Q'), WHICH WERE PREVIOUSLY FILED
ii
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WITH THE COMMISSION, AND THE CURRENT REPORTS ON FORM 8-K FILED WITH THE
COMMISSION ON DECEMBER 5, 1997 AND DECEMBER 9, 1997 (THE 'FORM 8-K'S'). THE
COMPANY 10-K, THE COMPANY 10-Q AND THE FORM 8-K'S ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH, BUT ARE AVAILABLE (WITHOUT EXHIBITS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED HEREIN BY REFERENCE) TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS DELIVERED, WITHOUT CHARGE ON
WRITTEN REQUEST DIRECTED TO FAULDING INC., 200 ELMORA AVENUE, ELIZABETH, NEW
JERSEY, 07207, ATTENTION: SECRETARY, OR BY CALLING (908) 659-2515. COPIES OF
THE COMPANY 10-K AND/OR COMPANY 10-Q SO REQUESTED WILL BE SENT BY FIRST CLASS
MAIL, POSTAGE PAID.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
in this Proxy Statement and to be a part hereof from the respective dates of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained in any subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
------------------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED, OR INCORPORATED BY
REFERENCE, IN THIS PROXY STATEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OTHER PERSON. ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING
TO THE COMPANY HAS BEEN SUPPLIED BY THE COMPANY, AND ALL INFORMATION CONTAINED
IN THIS PROXY STATEMENT RELATING TO PARENT, HOLDINGS, AND THEIR AFFILIATES HAS
BEEN SUPPLIED BY PARENT.
iii
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TABLE OF CONTENTS
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INTRODUCTION................................................................................................. i
AVAILABLE INFORMATION........................................................................................ ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................................................. ii
SUMMARY...................................................................................................... 1
THE SPECIAL MEETING.......................................................................................... 8
General................................................................................................. 8
Date, Time and Place.................................................................................... 8
Voting Rights........................................................................................... 8
No Appraisal Rights..................................................................................... 8
Proxies; Revocation of Proxies.......................................................................... 8
SPECIAL FACTORS.............................................................................................. 9
The Recapitalization.................................................................................... 9
Background of the Recapitalization...................................................................... 10
Determinations of the Special Committee; Fairness of the Recapitalization............................... 16
Financial Advisor; Fairness Opinion..................................................................... 17
Position of Parent and Holdings......................................................................... 21
Purpose and Structure of the Recapitalization........................................................... 22
Certain Effects of the Recapitalization................................................................. 23
Certain Federal Income Tax Consequences to Stockholders................................................. 23
Plans for the Company after the Recapitalization........................................................ 24
Interests of Certain Persons in the Recapitalization.................................................... 24
Accounting Treatment of the Recapitalization............................................................ 25
Litigation.............................................................................................. 25
The Par Value Amendment................................................................................. 26
SOURCE AND AMOUNT OF FUNDS................................................................................... 26
THE RECAPITALIZATION AGREEMENT............................................................................... 26
Effective Time.......................................................................................... 27
Reverse Stock Split; Recapitalization................................................................... 27
Procedure for Payment................................................................................... 27
Payments Under Stock Options............................................................................ 28
Certain Representations and Warranties.................................................................. 28
Conduct of Business Pending the Closing................................................................. 28
Certain Other Covenants................................................................................. 29
Conditions to Consummation of the Recapitalization...................................................... 29
Termination............................................................................................. 30
Miscellaneous........................................................................................... 31
REGULATORY MATTERS........................................................................................... 31
CERTAIN INFORMATION CONCERNING THE COMPANY................................................................... 32
The Company............................................................................................. 32
Directors and Executive Officers........................................................................ 32
CERTAIN INFORMATION CONCERNING PARENT AND HOLDINGS........................................................... 33
Parent.................................................................................................. 33
Holdings................................................................................................ 33
Directors and Executive Officers........................................................................ 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................... 34
FEES AND EXPENSES............................................................................................ 36
MARKET PRICES AND DIVIDENDS.................................................................................. 36
Market Prices........................................................................................... 36
Dividends............................................................................................... 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................... 37
ANNEXES
A: AGREEMENT AND PLAN OF RECAPITALIZATION
B: OPINION OF CIBC OPPENHEIMER CORP.
</TABLE>
iv
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and is presented herein solely to furnish limited
introductory information regarding the Recapitalization Transaction, as well as
the parties thereto, and the Par Value Amendment. This Summary is not intended
to be complete and is qualified in its entirety by the more detailed information
contained, or incorporated by reference, in this Proxy Statement and the Annexes
hereto, to which reference is made for a complete statement of the matters
discussed below. Stockholders are urged to read this Proxy Statement, including
the Annexes hereto, and the documents incorporated herein by reference, in their
entirety and to consider them carefully. Unless otherwise defined herein,
capitalized terms used in this summary have the respective meanings ascribed to
them elsewhere in this Proxy Statement.
THE SPECIAL MEETING
Place, Time and Date. The Special Meeting of Stockholders of the Company
will be held on Tuesday, January 13, 1998 at the Newark Airport Marriott Hotel,
Newark International Airport, Newark, New Jersey at 10:00 a.m., local time (the
'Special Meeting').
Purpose of the Special Meeting. At the Special Meeting, stockholders of the
Company will be asked to consider and vote upon (i) the Recapitalization
Transaction and (ii) the Par Value Amendment.
THE BOARD OF DIRECTORS, BASED, WITH RESPECT TO THE RECAPITALIZATION
TRANSACTION, UPON THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS
DETERMINED THAT THE RECAPITALIZATION TRANSACTION AND THE PAR VALUE AMENDMENT ARE
FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S PUBLIC STOCKHOLDERS, AND HAS
APPROVED, ADOPTED AND DECLARED ADVISABLE THE RECAPITALIZATION TRANSACTION AND
THE PAR VALUE AMENDMENT. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE 'FOR' SUCH PROPOSALS.
Record Date; Stockholders Entitled to Vote. Only stockholders of record at
the close of business on December 4, 1997 will be entitled to notice of and to
vote at the Special Meeting. On the Record Date, there were 20,147,188 shares
of Common Stock outstanding and entitled to vote held by approximately 400
holders of record. See 'THE SPECIAL MEETING -- Voting Rights.'
Vote Required; Quorum. Holders of a majority of the shares of Common Stock
entitled to vote, represented in person or by proxy, 10,073,595 shares, will
constitute a quorum at the Special Meeting. As of the Record Date, Holdings
owned 14,283,820 shares of Common Stock, or approximately 71% of such shares
issued and outstanding. The Recapitalization Agreement provides that in order
for the Recapitalization Transaction to be effected, the Recapitalization
Agreement and the Recapitalization Amendment must be approved by the affirmative
vote of (i) the holders of a majority of the outstanding shares of Common Stock
and (ii) the holders of a majority of the outstanding shares of Common Stock
held by the Public Stockholders. In order for the Par Value Amendment to be
approved, the affirmative vote of a majority of the outstanding shares of Common
Stock is required. Holdings owns a sufficient number of shares to approve the
Par Value Amendment, but not to approve the Recapitalization Transaction without
the separate approval of the Public Stockholders. Consequently, votes cast by
stockholders other than Holdings will determine whether the Recapitalization
Transaction will be approved or disapproved. See 'THE SPECIAL MEETING -- Voting
Rights.'
No Appraisal Rights. The Company's Certificate of Incorporation does not
provide a stockholder with appraisal rights under Section 262 of the Delaware
General Corporation Law ('DGCL') with respect to the Recapitalization
Transaction in the event a stockholder votes against the Recapitalization
Transaction. Accordingly, stockholders voting against the Recapitalization
Transaction will not be entitled to such rights.
Proxy: Revocation of Proxies. The enclosed proxy provides that each
stockholder of the Company may specify that such stockholders' shares be voted
'for', 'against' or 'abstain' from voting with respect to the approval of the
Recapitalization Transaction and the Par Value Amendment. If properly executed
and returned in time for the Special Meeting, the enclosed proxy will be voted
in accordance with the choice specified. Where a signed proxy is returned, but
no choice is specified, the shares will be
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voted 'for' approval of the Recapitalization Transaction and 'for' approval of
the Par Value Amendment.
ANY STOCKHOLDER OF THE COMPANY WHO EXECUTES AND RETURNS A PROXY MAY REVOKE
IT AT ANY TIME BEFORE THE PROXY IS VOTED AT THE MEETING BY FILING WITH THE
SECRETARY OF THE COMPANY, AT 200 ELMORA AVENUE, ELIZABETH, NJ 07207, EITHER A
WRITTEN NOTICE OF REVOCATION BEARING A LATER DATE THAN THE PROXY OR A SUBSEQUENT
PROXY RELATING TO THE SAME SHARES OF COMMON STOCK, OR BY ATTENDING THE SPECIAL
MEETING AND VOTING IN PERSON (ALTHOUGH ATTENDANCE AT THE SPECIAL MEETING WILL
NOT IN AND OF ITSELF CONSTITUTE REVOCATION OF A PROXY). SEE 'THE SPECIAL
MEETING -- PROXIES; REVOCATION OF PROXIES.'
THE RECAPITALIZATION TRANSACTION
THE PARTIES
The Company
The Company, through its wholly-owned subsidiaries, is primarily engaged in
the development, manufacture and sale of human generic pharmaceutical products
and medical devices. See 'CERTAIN INFORMATION CONCERNING THE COMPANY.'
Holdings and Parent
Holdings is a holding company with no business operations of its own.
Holdings' primary asset is its ownership of 14,283,820 shares of Common Stock,
or approximately 71% of the outstanding shares of Common Stock, and all of the
outstanding shares of the Class B Preferred Stock. Holdings has determined to
convert all of the shares of Class B Preferred Stock into shares of Common Stock
immediately prior to the Effective Time of the Recapitalization (the
'Conversion'). As a result of the Conversion, Holdings will own approximately
73% of the outstanding shares of Common Stock as of the Effective Time of the
Recapitalization. Holdings is a wholly-owned subsidiary of Parent, an
international healthcare products and services company headquartered in
Adelaide, South Australia, the ordinary shares of which are traded on the
Australian Stock Exchange. See 'CERTAIN INFORMATION CONCERNING PARENT AND
HOLDINGS.'
RELATIONSHIPS AMONG THE PARTIES; POTENTIAL CONFLICTS OF INTEREST; INTERESTS OF
CERTAIN PERSONS
In addition to the controlling equity interest in the Company held
indirectly by Parent through Holdings, Parent is a party to several supply,
licensing, manufacturing, distribution and research and development agreements
with the Company and its subsidiaries. See 'CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.'
The Chairman of the Company's Board of Directors, Dr. Edward D. Tweddell,
is the Group Managing Director, a director and the Chief Executive Officer of
Parent, as well as a director and officer of Holdings. Alan G. McGregor, the
Chairman of the Board of Parent, serves as a member of the Company's Board of
Directors. William R. Griffith, a member of the Company's Board of Directors, in
addition to serving as outside legal counsel to the Company, has from time to
time acted as legal counsel to Parent and serves as a director and officer of
Holdings. These interlocking offices and positions may be viewed as giving rise
to potential conflicts of interest. See 'SPECIAL FACTORS -- Interests of Certain
Persons in the Recapitalization.'
Certain members of the Company's management and the Board may be deemed to
have certain interests in the Recapitalization that are in addition to their
interests as stockholders of the Company generally. In particular, (i) certain
of the directors of the Company are employees and/or directors of Parent,
Holdings, and various of their affiliates, and two of such persons have equity
interests or options to acquire equity interests in Parent which could increase
in value as a result of the Recapitalization, and (ii) pursuant to the
Recapitalization Agreement, each holder of outstanding stock options under the
Company's stock option plans ('Stock Options'), including those held by Richard
Moldin, the
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Company's Chief Executive Officer and a member of the Company's Board of
Directors, will receive, in consideration for the cancellation of such Stock
Options, whether or not such Stock Options have vested under the applicable
stock option plan, a payment equal to the product of (x) the excess of the
Transaction Consideration over the exercise price per share applicable to the
holder's Stock Option, multiplied by (y) the number of shares of Common Stock
underlying the holder's Stock Options. Mr. Moldin will receive $868,750 in
respect of the cancellation of his Stock Options pursuant to the
Recapitalization Agreement. For a discussion of these and other interests of
certain persons in the Recapitalization not shared pro rata by all stockholders
of the Company, see 'THE RECAPITALIZATION AGREEMENT -- Payments Under Stock
Options' and 'SPECIAL FACTORS -- Interests of Certain Persons in the
Recapitalization.' The Special Committee and the Board were aware of these
interests and considered them, among other matters, in approving the
Recapitalization Transaction. See 'SPECIAL FACTORS -- Determinations of the
Special Committee; Fairness of the Recapitalization.'
THE RECAPITALIZATION
Pursuant to the Recapitalization Agreement, the Company will effect the
Recapitalization, which will result in Holdings becoming the sole stockholder of
the Company and each other existing holder of Common Stock of the Company
becoming entitled to receive, in cash, the Transaction Consideration for each
share of Common Stock held by such holder at the Effective Time. Accordingly, as
a result of the Recapitalization, the Company will become a wholly-owned
subsidiary of Holdings, and indirectly, of Parent.
Reverse Stock Split. The Recapitalization will be effected through the
Reverse Stock Split, whereby each 7,924,385 issued and outstanding shares of
Common Stock as of the Effective Time of the Recapitalization will be combined
into one New Common Share, having a par value per share equal to the quotient
obtained by dividing (x) the product of (1) the total number of shares of Common
Stock issued and outstanding immediately prior to the Effective Time of the
Recapitalization, multiplied by (2) $.01, by (y) the number of New Common Shares
to be issued and outstanding immediately following the Effective Time of the
Recapitalization. As a result of the Reverse Stock Split, holders of less than
7,924,385 shares of Common Stock will be entitled to receive, in lieu of
fractional New Common Shares, the Transaction Consideration multiplied by the
number of shares of Common Stock held by such holders. The Recapitalization
Amendment will be filed with the Secretary of State of the State of Delaware at
the time of the closing of the Recapitalization and will (i) effectuate the
Reverse Stock Split and (ii) reduce the number of authorized shares of common
stock of the Company from 35,000,000 to 2. See 'SPECIAL FACTORS -- Certain
Effects of the Recapitalization.'
Effective Time. The Recapitalization will become effective when the
Recapitalization Amendment is filed with the Secretary of State of the State of
Delaware. It is currently anticipated that if the Recapitalization Transaction
is approved by the stockholders, such filing will be made at the time of the
satisfaction or waiver of all of the conditions set forth in the
Recapitalization Agreement. Accordingly, there can be no assurance as to when
and if the Recapitalization will be consummated. The Company and Parent
currently anticipate that the Effective Time will occur on or about January 13,
1998. See 'THE RECAPITALIZATION AGREEMENT -- Effective Time' and ' -- Conditions
to Consummation of the Recapitalization.'
Conditions to Consummation of the Recapitalization. The obligations of the
Company, Parent and Holdings to consummate the Recapitalization are subject to a
number of conditions (any or all of which may be waived by the parties thereto
to the extent permitted by applicable law), including: (i) the absence of any
statute, rule, regulation, order, decree or injunction that prohibits the
Recapitalization; (ii) the receipt of all material authorizations, consents and
approvals; (iii) the receipt of the requisite stockholder approval (including
the separate approval of the Public Stockholders); (iv) the accuracy of the
representations and warranties of each of the parties to the Recapitalization
Agreement and (v) the performance by each of the parties to the Recapitalization
Agreement of their respective obligations. See 'THE RECAPITALIZATION
AGREEMENT -- Conditions to Consummation of the Recapitalization.'
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The Company and Parent anticipate that, if the Recapitalization Transaction
does not occur for any reason, including the failure of a majority of the
outstanding shares of Common Stock held by the Public Stockholders to vote in
favor of the Recapitalization Agreement and the Recapitalization Amendment, the
Company will continue its operations in substantially the same manner as in
effect as of the date hereof.
Payment of Transaction Consideration; Surrender of Shares. Promptly after
the Effective Time, The Bank of New York (the 'Paying Agent') will send
instructions to stockholders of the Company holding less than 7,924,385 shares
of Common Stock with regard to the procedure for surrendering of certificates
representing shares of Common Stock together with a Letter of Transmittal and
other appropriate documents. In order to receive the Transaction Consideration
following the Effective Time, each holder of certificates representing less than
7,924,385 shares of Common Stock as of Effective Time will be required to
surrender such certificates, together with a duly executed Letter of Transmittal
and any other required documents, to the Paying Agent. Funds necessary to pay
the Transaction Consideration to stockholders will be deposited with the Paying
Agent at the Effective Time.
Federal Income Tax Consequences. The receipt of cash by a holder of shares
of Common Stock pursuant to the Recapitalization will be a taxable event to such
holder for federal income tax purposes and may also be a taxable event under
applicable local, state and foreign tax laws. For a more complete description of
certain federal income tax consequences of the Recapitalization, see 'SPECIAL
FACTORS -- Certain Federal Income Tax Consequences to Stockholders.'
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
BACKGROUND OF THE RECAPITALIZATION
For a description of the events leading to approval by the Board of the
Recapitalization Transaction, see 'SPECIAL FACTORS -- Background of the
Recapitalization.'
Determinations of the Special Committee; Fairness of the Recapitalization.
At its meeting held on September 28, 1997, the Board of Directors of the
Company, based upon the unanimous recommendation of the Special Committee and
the factors relied on by the Special Committee, determined that the
Recapitalization Transaction is fair to and in the best interest of the Public
Stockholders, and recommended that the stockholders approve the Recapitalization
Transaction. For a discussion of the factors that the Special Committee
considered in arriving at their determination, see 'SPECIAL
FACTORS -- Determinations of the Special Committee; Fairness of the
Recapitalization.' Parent and certain members of the Board have certain
interests in the Recapitalization Transaction that may present actual or
potential conflicts of interest with those of the Public Stockholders. See
'SPECIAL FACTORS -- Interests of Certain Persons in the Recapitalization.'
Financial Advisor; Fairness Opinion. The Special Committee engaged
Oppenheimer to act as its financial advisor to assist in its review of Parent's
proposal and to assist the Special Committee in its negotiations with Parent. At
the September 28, 1997 meeting of the Special Committee at which the
Recapitalization Transaction was approved by the Special Committee, Oppenheimer
delivered its oral presentation, followed by its written opinion, to the effect
that the Transaction Consideration to be received by the Public Stockholders in
connection with the Recapitalization is fair to such holders from a financial
point of view. On December 8, 1997, Oppenheimer reaffirmed its opinion. The
full text of the opinion of Oppenheimer, as reaffirmed as of December 8, 1997,
which sets forth the assumptions made, matters considered and limits on review
undertaken, is attached hereto as Annex B and is incorporated herein by
reference. STOCKHOLDERS ARE URGED TO READ THE OPINION OF OPPENHEIMER CAREFULLY
IN ITS ENTIRETY. For a discussion of the factors that Oppenheimer considered
in reaching its opinion, see 'SPECIAL FACTORS -- Financial Advisor; Fairness
Opinion.'
Position of Parent and Holdings. Parent and Holdings had no involvement in
the Special Committee's evaluation of the fairness of the Transaction
Consideration to be received by the Public Stockholders, and have not sought an
opinion of a financial advisor as to the fairness of the Transaction
Consideration. Although certain of the directors of the Company also serve as
directors and/or officers
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of Parent and Holdings, none served on the Special Committee. Parent and
Holdings, however, have considered the factors set forth under 'SPECIAL
FACTORS -- Determinations of the Special Committee; Fairness of the
Recapitalization,' and based on such factors, Parent and Holdings have each
determined that the Transaction Consideration is fair to and in the best
interests of the Public Stockholders. For a discussion of Parent's and Holdings'
position regarding the Recapitalization, see 'SPECIAL FACTORS -- Position of
Parent and Holdings.'
Purpose and Structure of the Recapitalization. Parent and Holdings entered
into the Recapitalization Agreement to acquire beneficial ownership of the
entire equity interest in the Company because they believe that the operation of
the Company, as a majority-owned subsidiary, requires undue expense and
regulatory compliance, given the existing public market for common shares of
Parent on the Australian Stock Exchange. In addition, consummation of the
Recapitalization would permit Parent and Holdings to better manage the product
development and expansion opportunities of the Company without the restrictions
on affiliated transactions and public disclosure burdens imposed upon public
companies in the United States. Accordingly, Parent believed that in order to
acquire the interest of the Public Stockholders, it would offer to do so at a
price that would be at a premium to the prevailing trading prices of a share of
Common Stock on the NASDAQ National Market.
Parent structured the transaction as a recapitalization because it believed
the Reverse Stock Split to be the most efficient means of acquiring the entire
public interest in the Company in a single transaction. Prior to determining to
proceed with the Recapitalization Transaction proposal, Parent also considered
the following alternatives: a tender offer (which it rejected because there
could be no assurance that it would result in Holdings acquiring the entire
equity interest in the Company), a transaction in which the consideration would
be securities of Parent (which it rejected because it believed that the Public
Stockholders might find any securities traded on a foreign exchange difficult to
evaluate and, accordingly, unattractive), and a merger between the Company and a
wholly-owned subsidiary of Holdings (which it rejected because such a
transaction may not have complied with certain requirements under Australian tax
law). See 'SPECIAL FACTORS -- Purpose and Structure of the Recapitalization.'
Plans for the Company After the Recapitalization. It is expected that,
following the Recapitalization, the business and operations of the Company will
be continued by the Company substantially as they have been and are currently
being conducted. After the Recapitalization, the Company will become a
wholly-owned subsidiary of Holdings and, indirectly, of Parent, and the public
will no longer own a minority equity interest in the Company. Accordingly,
Parent and Holdings will be able to direct and control the policies of the
Company and its subsidiaries, including with respect to any extraordinary
corporate transaction such as a merger, reorganization or liquidation involving
the Company or any of its subsidiaries, a sale or transfer of a material amount
of assets of the Company or any of its subsidiaries, a change in the
capitalization or other changes in the Company's corporate structure or business
or the composition of the Company's Board or management, without taking into
account the current public minority equity interest. Any such extraordinary
transaction may occur with affiliates of the Company, Parent or Holdings.
Neither Parent nor Holdings has any current plans to effectuate such a
transaction. However, it is anticipated that Messrs. Bruce C. Tully and Joseph
C. Minio, the members of the Special Committee, will not serve as directors of
the Company following the Effective Time of the Recapitalization. For a
discussion of the plans for the Company following the Recapitalization, see
'SPECIAL FACTORS -- Plans for the Company After the Recapitalization.'
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the transactions
contemplated by the Recapitalization Agreement and to pay related fees and
expenses is estimated to be approximately $85.4 million. Parent will provide
Holdings with such funds, which Parent obtained primarily from a rights offering
to its shareholders, which closed on December 1, 1997 (the 'Rights Offering').
Pursuant to the Rights Offering, Parent received approximately A$107 million.
The Rights Offering was underwritten by J.B. Were & Son, an investment banking
firm headquartered in Australia. The balance
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of the funds required for the Recapitalization will be provided by Parent from
its existing cash balances or from funds available to Parent from its
subsidiaries through the repayment of inter-company advances. See 'SOURCE AND
AMOUNT OF FUNDS.'
THE PAR VALUE AMENDMENT
Stockholders are also being asked at the Special Meeting to approve the Par
Value Amendment, pursuant to which the par value of the Company's Class B
Preferred Stock (all of which is held by Holdings) will change from $.01 per
share to $.10433 per share. There are currently 150,000 shares of Class B
Preferred Stock issued and outstanding, which are convertible at the option of
Holdings, at any time, into shares of Common Stock at a rate of 10.433 shares of
Common Stock for each share of Class B Preferred Stock. The Class B Preferred
Stock accrues a dividend of $4.50 per share per annum, or $675,000 per annum in
the aggregate. Holdings has determined to convert all of its Class B Preferred
Stock into Common Stock prior to the Effective Time of the Recapitalization.
Holdings will comply with certain Australian tax law requirements if the
aggregate par value of the issued and outstanding shares of the capital stock of
the Company immediately prior to the Conversion is identical to the aggregate
par value of the issued and outstanding shares of the capital stock of the
Company immediately after the Conversion. By effecting the Par Value Amendment
to amend the Certificate of Incorporation so as to change the par value of the
Class B Preferred Stock from $.01 to $.10433, no change in the aggregate par
value of the outstanding capital stock of the Company will result from the
Conversion.
The Board of Directors has determined that the filing of the Par Value
Amendment is fair to and in the best interests of the stockholders of the
Company, and recommends that the stockholders approve the Par Value Amendment.
MARKET PRICES AND DIVIDENDS
The Common Stock is traded on the NASDAQ National Market under the ticker
symbol 'FAUL.' On June 2, 1997, the last trading day before the public
announcement of Parent's proposal to the Company to acquire all of the
outstanding shares of Common Stock not already owned by Parent or Holdings, the
high and low sales prices of the Common Stock were $11.25, and $10.75,
respectively. On December 5, 1997, the last trading day before the printing of
this Proxy Statement, the high and low sales prices of the Common Stock were
$13.1875 and $13.125, respectively. The Transaction Consideration represents a
premium of 25.6% to the closing price of the Common Stock of $10.75 on June 2,
1997. The Company has never paid a dividend with respect to its Common Stock.
For information relating to market prices of the Common Stock during the current
fiscal year and the past two fiscal years, see 'MARKET PRICES AND DIVIDENDS.'
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON
STOCK.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data of the
Company and its subsidiaries for each of the five fiscal years ended June 30,
1993 through 1997. The data as at June 30, 1996 and 1997 and for the fiscal
years ended June 30, 1995, 1996 and 1997 have been derived from, should be read
in conjunction with, and are qualified in their entirety by, the audited
consolidated financial statements of the Company, including the notes thereto,
contained in the Company 10-K, which is incorporated herein by reference. See
'AVAILABLE INFORMATION' and 'INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.'
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------------- ------------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Data: (RESTATED(A)) (RESTATED(A))
Net sales................................... $102,127 $75,784 $64,905 $71,952 $70,508
Net income (loss)........................... 4,876 (5,001) (1,618) 3,992 9,160
Preferred stock dividends................... 2,755 2,307 2,080 2,080 2,080
Net income (loss), applicable to common
stock..................................... 2,121 (7,308) (3,698) 6,061(b) 7,080
Primary earnings per common share...........
Net income (loss)........................... $ 0.14 $ (0.49) $ (0.25) $ 0.41 $ 0.57
Balance Sheet Data: (RESTATED(A))
Working capital............................. $ 39,529 $36,296 $27,005 $24,221 $23,150
Total assets................................ 119,763 98,678 85,863 67,267 63,017
Total stockholders' equity.................. 85,465 82,923 72,079 54,860 48,060
</TABLE>
- ------------
(a) The February 29, 1996 acquisition of three companies, Faulding
Pharmaceutical Co. ('FPC'), Faulding Puerto Rico Inc. ('FPR') and Faulding
Medical Device Co. ('FMDC'), from Holdings was accounted for as similar to
a pooling of interests. Therefore, financial operating data presented for
the years ended June 30, 1995 and 1994 and balance sheet data as of June
30, 1995 have been restated as if the acquisitions took place as of July 1,
1993. The data reflect the accounts of Faulding Inc. and these acquired
companies.
Financial operating data presented for the year ended June 30, 1993 and
balance sheet data as of June 30, 1994 and 1993 have not been restated as
the restated amounts would not differ significantly from the amounts
presented.
As FPR and FPC did not commence operations until April 7, 1995, the
restated data for the year ended June 30, 1994 reflect only the operating
results of FMDC. The year ended June 30, 1995 reflects the full year's
results of FMDC and less than three months' results of FPR and FPC.
(b) Net income available for Common Stock for the year ended June 30, 1994
included the favorable cumulative effect of a change in accounting for
income taxes of $4,149,000.
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THE SPECIAL MEETING
GENERAL
This Proxy Statement and enclosed proxy are being furnished to holders of
record of shares of Common Stock, as of the Record Date, in connection with the
solicitation of proxies by the Board of Directors of the Company from the
holders of shares of Common Stock for use at a Special Meeting of Stockholders
of the Company to be held on January 13, 1998. At the Special Meeting, the
holders of record of such shares will vote to approve (i) the Recapitalization
Transaction, which encompasses the approval, as a single proposal, of the
Recapitalization Agreement, a copy of which is attached hereto as Annex A, and
the Recapitalization Amendment, a copy of which is attached to the
Recapitalization Agreement as Exhibit A, and (ii) the Par Value Amendment, a
copy of which is attached to the Recapitalization Agreement as Exhibit B.
DATE, TIME AND PLACE
The Special Meeting is scheduled to be held at 10:00 a.m., local time, on
Tuesday, January 13, 1998 at the Newark Airport Marriott Hotel, Newark
International Airport, Newark, New Jersey.
VOTING RIGHTS
The Board has fixed the close of business on December 4, 1997 as the Record
Date. On the Record Date, there were 20,147,188 shares of Common Stock
outstanding and entitled to vote held by approximately 400 holders of record.
Holders of record of shares of Common Stock are entitled to cast one vote per
share, either in person or by proxy, on each matter presented to the
stockholders of the Company at the Special Meeting. As of the Record Date,
Holdings owned 14,283,820 shares of Common Stock, or approximately 71% of the
issued and outstanding shares of Common Stock.
The Recapitalization Agreement provides that in order for the
Recapitalization Transaction to be effected, the Recapitalization Agreement and
the Recapitalization Amendment must be approved by the affirmative vote of (i)
the holders of a majority of the outstanding shares of Common Stock and (ii) the
holders of a majority of the outstanding shares of Common Stock held by the
Public Stockholders. In order for the Par Value Amendment to be approved, the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required. Holdings has agreed in the Recapitalization Agreement
to vote its shares of Common Stock in favor of the proposals to approve the
Recapitalization Transaction and the Par Value Amendment. Holdings owns a
sufficient number of shares to approve the Par Value Amendment, but not to
approve the Recapitalization Transaction without the separate approval of the
Public Stockholders. Consequently, votes cast by stockholders other than
Holdings will determine whether the Recapitalization Transaction will be
approved or disapproved.
NO APPRAISAL RIGHTS
The Company's Certificate of Incorporation does not provide appraisal
rights under Section 262 of the DGCL with respect to the Recapitalization
Transaction to stockholders who vote against the Recapitalization Transaction.
Accordingly, stockholders voting against the Recapitalization Transaction will
not be entitled to such rights.
PROXIES; REVOCATION OF PROXIES
All shares of Common Stock represented at the Special Meeting by properly
executed proxies received prior to the vote at the Special Meeting, unless
previously revoked (as described immediately below), will be voted in accordance
with the instructions thereon. Where a signed proxy is returned and no
instructions are given, proxies will be voted FOR approval of the
Recapitalization Transaction and FOR approval of the Par Value Amendment. No
matters other than the approval of the Recapitalization Transaction and the Par
Value Amendment are presently scheduled at the Special Meeting. A broker who
holds shares in street name will not be entitled to vote on the proposals
without
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instructions from the beneficial owner. This inability to vote is referred to as
a broker non-vote. Stockholder abstentions and broker non-votes will be counted
for purposes of determining the existence of a quorum at the Special Meeting.
Because the Recapitalization Agreement provides that the Recapitalization
Transaction must be approved by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote thereon and
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock held by the Public Stockholders, abstentions and broker
non-votes will have the same effect as a vote against the proposal. However,
because approval of the filing of the Par Value Amendment requires only approval
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock, and because Holdings holds a majority of the outstanding shares
of Common Stock, abstentions and broker non-votes will have no effect on the
approval of the Par Value Amendment.
Any proxy may be revoked by the person giving it at any time before it is
voted. A proxy may be revoked by filing with the Secretary of the Company (200
Elmora Avenue, Elizabeth, New Jersey, 07207) either a written notice of
revocation bearing a later date than the proxy or a subsequent proxy relating to
the same shares, or by attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy).
Proxies are being solicited by and on behalf of the Company. The Company
will solicit proxies by mail and the directors, officers and employees of the
Company may also solicit proxies by telephone, telegram or personal interview.
These persons will receive no additional compensation for these services, but
will be reimbursed for reasonable out-of-pocket expenses. The Company will bear
the costs of preparing and mailing the proxy materials to shareholders in
connection with the Special Meeting. Arrangements will be made to furnish copies
of the proxy materials to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of shares of Common Stock. Such persons will be
paid reasonable out-of-pocket expenses. The Company has retained D.F. King &
Co., Inc. to assist in the solicitation of proxies at an estimated cost of
$8,000, plus reimbursement of such firm's accountable expenses.
SPECIAL FACTORS
THE DISCUSSION IN THIS PROXY STATEMENT OF THE RECAPITALIZATION TRANSACTION
AND THE PAR VALUE AMENDMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND THE
DESCRIPTION OF THE PRINCIPAL TERMS THEREOF ARE SUBJECT TO AND QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE RECAPITALIZATION AGREEMENT, A COPY OF WHICH IS
ATTACHED AS ANNEX A TO THIS PROXY STATEMENT, THE RECAPITALIZATION AMENDMENT, A
COPY OF WHICH IS ATTACHED TO THE RECAPITALIZATION AMENDMENT AS EXHIBIT A, AND
THE PAR VALUE AMENDMENT, A COPY OF WHICH IS ATTACHED TO THE RECAPITALIZATION
AMENDMENT AS EXHIBIT B, EACH OF WHICH IS INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS ARE URGED TO READ THE RECAPITALIZATION AGREEMENT, THE
RECAPITALIZATION AMENDMENT AND THE PAR VALUE AMENDMENT IN THEIR ENTIRETY AND TO
CONSIDER THEM CAREFULLY.
THE RECAPITALIZATION
Pursuant to the Recapitalization Agreement, the Company will effect the
Recapitalization which will result in Holdings becoming the sole stockholder of
the Company and each other existing holder of Common Stock of the Company
becoming entitled to receive, in cash, the Transaction Consideration for each
share of Common Stock held by such holder at the Effective Time of the
Recapitalization. Accordingly, as a result of the Recapitalization, the Company
will become a wholly-owned subsidiary of Holdings, and, indirectly, of Parent.
The Recapitalization will be effected through the Reverse Stock Split,
whereby each 7,924,385 issued and outstanding shares of Common Stock as of the
Effective Time of the Recapitalization will be combined into one validly issued
New Common Share having a par value equal to the quotient obtained by dividing
(x) the product of (1) the total number of shares of Common Stock issued and
outstanding immediately prior to the Effective Time of the Recapitalization,
multiplied by (2) $.01, by (y) the number of New Common Shares to be issued and
outstanding immediately following the Effective Time of the Recapitalization. As
a result of the Reverse Stock Split, holders of less than 7,924,385 shares of
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Common Stock will be entitled to receive, in lieu of fractional New Common
Shares, the Transaction Consideration multiplied by the number of shares of
Common Stock held by such holders at the Effective Time of the Recapitalization.
The Recapitalization Amendment will be filed with the Secretary of State of the
State of Delaware at the time of the closing of the Recapitalization and will
(i) effectuate the Reverse Stock Split and (ii) reduce the number of authorized
shares of common stock of the Company from 35,000,000 to 2.
Pursuant to the Recapitalization Agreement, each holder of outstanding
Stock Options under the Company's stock option plans will receive, in
consideration for the cancellation of such Stock Options, whether or not such
options vested under the applicable benefit plan, a payment equal to the product
of (x) the excess of the Transaction Consideration over the exercise price per
share applicable to the holder's Stock Options, multiplied by (y) the number of
shares of Common Stock underlying the holder's Stock Options. The payments to
such option holders is expected to be made at the Effective Time of the
Recapitalization.
BACKGROUND OF THE RECAPITALIZATION
Through Holdings, Parent has held a majority of the outstanding shares of
Common Stock of the Company since 1990. During such period, the Company and
Parent, and their affiliates, have engaged in numerous cooperative supply,
licensing, manufacturing, distribution and research and development
arrangements. Members of management of Parent have also taken an active role on
the Board of Directors of the Company, including the Group Managing Director of
Parent, Dr. Edward D. Tweddell, who serves as Chairman of the Board of the
Company.
As a regular practice, Parent periodically reviews its investment in the
Company. In mid-March 1997, representatives of SBC Warburg Dillon Read Inc.
('SBC Warburg Dillon Read') met with representatives of Parent to discuss
various options relating to Parent's interest in the Company. A number of
options were preliminarily discussed during the meeting, including, among
others, the possibility of Parent acquiring all of the shares of Common Stock
not currently held by Holdings.
On April 22, 1997, Parent retained SBC Warburg Dillon Read to render
financial advisory and investment banking advice in connection with Parent's
evaluation of a possible acquisition of the Common Stock held by the Public
Stockholders and, in the event Parent determined to make an acquisition of the
Common Stock held by the Public Stockholders, to assist in conducting
negotiations with the Company.
On June 2, 1997, SBC Warburg Dillon Read submitted a presentation to the
management of Parent concerning the possible acquisition of the publicly held
shares of Common Stock. SBC Warburg Dillon Read's presentation included a
preliminary review of the value of the Common Stock utilizing various valuation
methodologies, and was based on information supplied by Parent, without any
independent verification thereof. In particular, SBC Warburg Dillon Read
reviewed the following: (i) historical and projected operating performance of
the Company; (ii) a comparable company analysis; (iii) the Company's historical
stock price performance; (iv) comparable minority buy-out transactions and the
premiums over the pre-announcement stock price; and (v) a discounted cash flow
analysis of the Company. A copy of the written materials provided by SBC Warburg
Dillon Read to the management of Parent has been filed with the SEC as an
exhibit to the Schedule 13E-3 in connection with the Recapitalization and is
available for inspection and copying at the principal place of business of
Parent during its regular business hours by any stockholder of the Company or
any representative of such stockholder who has been designated in writing.
At a meeting of the Board of Directors of Parent held on June 2, 1997,
management of Parent made a presentation in which management recommended the
acquisition by Parent of all of the shares of Common Stock held by the Public
Stockholders. As part of the presentation, management reviewed the preliminary
valuation analysis prepared by SBC Warburg Dillon Read, and addressed the
potential advantages of operating the Company as a wholly-owned subsidiary of
Parent, including the elimination or reduction in the regulatory expense and
compliance demands resulting from the existence of the publicly-held minority
interest in the Company. After discussing management's recommendation, the Board
of Directors of Parent authorized management to propose to the Company a
transaction in which
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Parent would acquire all of the shares of Common Stock held by the Public
Stockholders at price of $12.00 per share.
On June 3, 1997, Parent delivered to the Company a proposal to acquire all
of the outstanding shares of Common Stock not currently owned by Parent or
Holdings at a price of $12.00 per share (the 'Proposal').
In light of Holdings' equity interest in the Company and the existence of
common directors and officers among Parent, Holdings and the Company, Parent
suggested that the Company form a special committee of independent directors to
consider the Proposal. At a meeting held on June 3, 1997, the Board formed the
Special Committee, comprised of Bruce C. Tully and Joseph C. Minio, the
Company's two independent directors (i.e., the two directors who are not also
officers, directors or employees of Parent, Holdings, or their respective
affiliates, or employees or officers of the Company), to consider the Proposal
and its fairness to the Public Stockholders and to make a recommendation on the
transaction to the full Board of Directors. On June 3, 1997, the Company issued
a press release announcing the receipt of the Proposal and the formation by the
Board of the Special Committee.
Between June 3 and 6, 1997, four putative class-action lawsuits were filed
in the Delaware Court of Chancery (the 'Chancery Court'), under the captions
Aimee Dechter v. Edward D. Tweddell, Richard F. Moldin, Bruce C. Tully, William
R. Griffith, Faulding Inc., F.H. Faulding & Co Limited and Faulding Holdings
Inc., Civil Action No. 15722-NC (6/15/97); Michael J. Golde I/R/A, et al. v.
Faulding Inc., Edward D. Tweddell, Alan G. McGregor, Richard F. Moldin, David
Beretta and Bruce C. Tully, Civil Action No. 15728-NC (6/6/97); Harbor Finance
Partners et al. v. Edward D. Tweddell, Alan G. McGregor, Richard F. Moldin,
Joseph C. Minio, Bruce C. Tully, William R. Griffith, F.H. Faulding & Company
Limited [sic] and Faulding Inc. Civil Action No. 15724-NC (6/4/97); and Charles
Zimmerman et al. v. Richard f. Moldin, Edward D. Tweddell, Alan G. McGregor,
Joseph C. Minio, Bruce R. Tully, F.H. Faulding & Co Limited, William R.
Griffith, Faulding Holdings Inc. and Faulding Inc. Civil Action No. 15723-NC
(6/3/97) (the 'Actions'). The Actions claim that the Proposal was inadequate and
unfair. They also assert, among other things, that in violation of their
fiduciary duties to the Faulding shareholders, Parent, Holdings and the
individual members of the Board failed to maximize shareholder value, to act
independently and to ensure that no conflict existed between the defendants' own
interests and their duties to shareholders. Certain of the plaintiffs also
alleged that the defendants possessed non-public allegedly material information
regarding the future prospects of Faulding which had not been disclosed to
members of the putative class. Shortly after the Actions were commenced, the
Company was informed that the lawsuits might be consolidated and that the
plaintiffs had agreed to postpone the prosecution of the Actions pending the
determination of the Special Committee. The Actions sought to enjoin the
consummation of the transaction, and sought awards of damages and attorneys
fees.
On or about June 16, 1997, the Special Committee retained White & Case as
its legal counsel to render advice to the Special Committee on, among other
matters, the Special Committee's review of the Proposal. At the request of the
Special Committee, an agreement relating to indemnification and certain fees and
expenses was entered into with each member thereof.
On June 17, 1997 the Special Committee met with Dr. Tweddell to discuss
Parent's purpose in making the Proposal at that time, the information to be made
available to the Special Committee and its advisors, and other matters related
to the Proposal. Dr. Tweddell explained the reasons behind Parent's Proposal,
which are set forth herein under the heading 'SPECIAL FACTORS -- Purpose and
Structure of the Recapitalization'. He stated that Parent had felt that it had
not benefitted from having a minority listing for the Company in the United
States. Dr. Tweddell emphasized that Parent was under no obligation to complete
the transaction and that the Proposal was the result of an ongoing examination
of Parent's worldwide business. The Special Committee asked whether Parent would
consider using its shares as consideration for the acquisition of the shares
held by the Public Stockholders. Dr. Tweddell stated that Parent was not willing
to do so. Additionally, the Special Committee inquired as to whether Parent
would consider an alternative transaction in which the Company was sold to a
third party. Dr. Tweddell stated that Parent would not consider such a
transaction. Dr. Tweddell indicated that any information required by the Special
Committee from the Company would be made available to it.
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The Special Committee then requested five nationally recognized investment
banking firms to make proposals to serve as financial advisor to the Special
Committee. After a review and discussion of the proposals, the Special Committee
met on June 27, 1997 and selected Oppenheimer to serve as its financial advisor
for the purpose of advising the Special Committee and assisting the Special
Committee in negotiations with Parent with respect to the Proposal. Prior to its
retention by the Special Committee, Oppenheimer had not rendered financial
advisory or underwriting services to Parent, Holdings, the Company or any of
their affiliates. On June 30, 1997, the Special Committee instructed Oppenheimer
to commence its investigation and analysis of the value of the Common Stock.
On July 1, 1997, Company management presented its 1998 budget (including a
five year forecast and supporting financial data) to the Special Committee and
Oppenheimer.
During July 1997, Oppenheimer reviewed and discussed with senior executives
of the Company publicly available financial statements of the Company as well as
internal financial projections and operating data concerning the Company
prepared by the management of the Company. Oppenheimer also reviewed and
discussed certain issues regarding the assets and liabilities of the Company
with the Company's auditors, Deloitte & Touche. Among the matters discussed at a
meeting on July 25 among Company management, the Special Committee, Oppenheimer
and SBC Warburg Dillon Read were: greater than expected contributions of
recently launched products reflected in the Company's financial statements for
the fiscal year ended June 30, 1997; an expected delay in the launch of three
pending generic products, the accelerated launch of one product, and decreases
in profit contribution from certain products due to increased market competition
or poorer than anticipated demand reflected in the forecasted results. The
projections for the Company's fiscal years ended June 30, 1998, 1999, 2000, 2001
and 2002 utilized by Oppenheimer in its analysis as a result of the foregoing
and contained in its presentation to the Special Committee forecasted (i) net
sales of $144.5 million, $158.6 million and $197.6 million, $243.8 million and
$280.4 million, respectively, (ii) income from operations of $16.1 million,
$19.1 million, $35.5 million, $62.1 million and $81.4 million, respectively,
and (iii) net income available for Common Stock of $10.0 million, $11.9
million and $22.3 million, $39.2 million and $51.4 million, respectively.
On July 28, 1997, Oppenheimer met with the Special Committee and its
counsel to discuss Oppenheimer's preliminary views as to the consideration
offered in the Proposal. At the meeting, Oppenheimer reviewed various valuation
methodologies it was employing to assess the value of the Common Stock,
including: (i) the reported prices and trading activity of the Common Stock;
(ii) a comparison of the financial performance of the Company and the prices of
the Common Stock with that of certain other comparable publicly traded generic
drug companies; (iii) the financial terms of acquisition of comparable minority
interest transactions; (iv) the financial terms of comparable acquisition
transactions of selected generic drug companies; and (v) the discounted net
present value of the future projected cash flows of the Company. Oppenheimer
also reviewed with the Special Committee its preliminary views of the effects of
the Company's recent acquisitions on the valuation of the Common Stock.
Oppenheimer advised the Special Committee that, in its preliminary view,
Parent's original $12.00 per share offer was within the preliminary range of
fairness which Oppenheimer estimated to be $10.00 to $16.00 per share. The
Special Committee instructed Oppenheimer to continue to refine its analysis and
report the following day.
On July 29, 1997, Oppenheimer met with the Special Committee and its
counsel by conference telephone call to continue the discussion of Oppenheimer's
preliminary evaluation of the original offer of $12.00 per share in cash for the
Common Stock. At the conclusion of the meeting, the Special Committee asked
Oppenheimer to meet with SBC Warburg Dillon Read to discuss the facts and
circumstances relied upon by Parent and SBC Warburg Dillon Read in their
valuation of the Common Stock. The Special Committee informed Oppenheimer that
it was not then prepared to approve a transaction at $12.00 per share. The
Special Committee discussed with its counsel and Oppenheimer possible strategies
for pursuing an increase in the consideration offered in the Proposal.
Also on July 29, 1997, Parent's counsel, Skadden, Arps, Slate, Meagher &
Flom (International), sent a draft merger agreement to counsel to the Special
Committee for review and comment. The merger agreement called for the Company to
be merged with a newly organized, wholly-owned subsidiary of Holdings.
Thereafter, the Special Committee instructed its counsel to engage in
discussions
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with Parent's counsel regarding the terms of the merger agreement. Such
discussions continued through the execution of the Recapitalization Agreement.
On July 30, 1997, SBC Warburg Dillon Read met with Oppenheimer to discuss
the original offer of $12.00 per share in cash contained in the Proposal. SBC
Warburg Dillon Read summarized the various valuation methodologies it had
employed to assess the value of the Common Stock and the issues that Parent
considered in arriving at its Proposal. In particular, SBC Warburg Dillon Read
reviewed the following: (i) historical and projected operating performance of
the Company; (ii) a comparable company analysis; (iii) the Company's historical
stock price performance; (iv) comparable minority buy-out transactions and the
premiums over the pre-announcement stock price; and (v) a discounted cash flow
analysis.
On July 31, 1997, Oppenheimer met with the Special Committee by conference
telephone call to report on its meeting with SBC Warburg Dillon Read.
Oppenheimer identified the discount rates, terminal values and comparable
companies, and the assumptions relating thereto, used by the two investment
banking firms in their respective valuation models. Oppenheimer also noted that
SBC Warburg Dillon Read did not include an analysis of comparable mergers.
The Special Committee discussed with Oppenheimer the Company's historical
and projected business operations to be examined in connection with its
evaluation of the original Proposal.
On August 5, 1997, Oppenheimer met with the Special Committee and the
Special Committee's counsel to continue the evaluation of the original Proposal.
At the conclusion of this meeting, the Special Committee authorized Oppenheimer
to meet with SBC Warburg Dillon Read and make a counter offer of $15.00 per
share in cash. The Special Committee further authorized Oppenheimer to instruct
SBC Warburg Dillon Read that the Special Committee would require any transaction
to be approved by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock owned by the Public Stockholders.
Later on August 5, 1997, Oppenheimer met with SBC Warburg Dillon Read.
Oppenheimer summarized the various valuation methodologies that it was employing
to assess the value of the Common Stock and the issues that the Special
Committee considered in arriving at its counter offer. Oppenheimer stressed the
acquisition premiums paid above market prices in the recent acquisitions of
comparable generic pharmaceutical companies and in comparable minority interest
purchases by controlling parties. Oppenheimer also emphasized the Company's
recent success in obtaining FDA approvals of its newly introduced generic drugs
and the Company's success in meeting prior budgeted results in its overall solid
oral generic business so as to substantiate the validity of the Company's
forecasts and the discounted cash flow analysis by Oppenheimer based upon such
forecasts. Oppenheimer then informed SBC Warburg Dillon Read that the Special
Committee felt that the original Proposal's offer of $12.00 per share was
inadequate, and that the Special Committee made a counter offer of $15.00 per
share. Oppenheimer also advised SBC Warburg Dillon Read of the Special
Committee's additional requirement that any transaction be approved by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock owned by the Public Stockholders.
On August 11, 1997, SBC Warburg Dillon Read met with Oppenheimer to discuss
the counter offer of $15.00 per share. SBC Warburg Dillon Read discussed the
valuation methodologies used in arriving at the Proposal's original offer of
$12.00 per share and reiterated to Oppenheimer that Parent believed that such
original offer was fair. SBC Warburg Dillon Read informed Oppenheimer that
Parent had rejected the Special Committee's $15.00 per share counter offer, but
would be willing to increase its offer to $12.625 per share in cash if the
Special Committee would approve such a transaction.
Subsequent to the August 11 meeting, SBC Warburg Dillon Read and
Oppenheimer had several telephone conversations in which SBC Warburg Dillon Read
responded to Oppenheimer's valuation analysis and methodologies. SBC Warburg
Dillon Read suggested the comparable company analysis conducted by Oppenheimer
did not include some companies that had characteristics it felt were applicable
to the Company. In addition, SBC Warburg Dillon Read and Oppenheimer discussed
the other valuation methodologies being used by Oppenheimer, in particular the
assumptions used by Oppenheimer in performing a discounted cash flow analysis,
in order to better understand the position of the Special Committee. On August
19, 1997, the Special Committee authorized Oppenheimer to make a counter offer
of $14.50 per share of Common Stock, and to require that the transaction be
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approved by the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock owned by the Public Stockholders.
Oppenheimer and SBC Warburg Dillon Read continued to have discussions
during the next few days centered primarily on valuation methodologies.
Oppenheimer's representatives and SBC Warburg Dillon Read's representatives,
respectively, relayed the nature of these ongoing discussions to the Special
Committee and to the management of Parent, respectively. On August 22, 1997, SBC
Warburg Dillon Read informed Oppenheimer that Parent had rejected the Special
Committee's $14.50 counter-offer and they indicated that Parent would be willing
to increase its offer to $13.00 per share in cash. Representatives of
Oppenheimer and SBC Warburg Dillon Read then reported to the Special Committee
and Parent, respectively, that they were unable to narrow further their
positions over the appropriate price for a transaction. Thereafter, the Special
Committee and management of Parent determined that they would meet directly to
discuss their positions.
On August 28, 1997, Edward D. Tweddell, Group Managing Director of Parent,
met with the Special Committee in New York to review each party's respective
views of valuation and the valuation methodologies employed by Oppenheimer and
SBC Warburg Dillon Read. The Special Committee suggested that the parties
explore the feasibility of a price of $13.75 per share. The meeting concluded
without an agreement by the parties as to the per share price. At the conclusion
of the meeting, the Special Committee informed Dr. Tweddell that it would not
approve a transaction at a consideration of less than $13.50 per share and that
any such transaction must provide that it was subject to the separate approval
of Public Stockholders. Dr. Tweddell indicated that Parent might be prepared to
increase its offer from $13.00 per share if the Special Committee were to
approve the transaction as then proposed and if the Actions were favorably
resolved. No agreement was reached on the terms of the transaction.
The Special Committee and Parent and their respective advisors continued to
consider the proposed transaction and each party's respective views of valuation
following the August 28 meeting. In addition, discussions ensued between and
among the respective counsel for the plaintiffs in the Actions, the Special
Committee and Parent in relation to, among other things, the consideration to be
received by the Public Stockholders in connection with the Recapitalization and
the requirement that the Recapitalization be approved by the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock held by the
Public Stockholders.
On August 29, 1997, Parent's counsel sent a revised draft of an acquisition
agreement to the Special Committee's counsel for review and comment. The revised
agreement contemplated that the transaction be restructured as a
recapitalization, pursuant to which the Company's Certificate of Incorporation
would be amended in order to effectuate a reverse stock split, as a merger may
not have complied with certain requirements under Australian tax law. Parent
also considered a tender offer (which it rejected because there could be no
assurance that a tender offer would result in Parent's acquiring all of the
shares of Common Stock held by the Public Stockholders) and a transaction in
which the consideration would be securities of Parent (which it rejected because
it believed that the Public Stockholders might find any securities which were
traded on a foreign exchange difficult to evaluate, and accordingly,
unattractive).
In mid-September 1997, Parent's counsel advised counsel to the Special
Committee that, in accordance with the provisions of the Certificate of
Designation of the Class B Preferred Stock, Holdings desired to convert its
Class B Preferred Stock into Common Stock prior to the effective time of the
proposed recapitalization, and that Holdings would comply with Australian tax
law requirements if the Company's Certificate of Incorporation were amended
prior to such conversion to change the par value of the Class B Preferred Stock
so that the aggregate par value of the issued and outstanding shares of capital
stock of the Company (including the Common Stock and the Class B Preferred
Stock) immediately prior to such conversion would be equal to the aggregate par
value of the issued and outstanding shares of the Company's capital stock
immediately following such conversion. Accordingly, Parent proposed the Par
Value Amendment.
On September 23, 1997, Parent informed the Special Committee that provided
that the Actions were to be favorably resolved, it would be willing to increase
its offer to $13.50 in cash on the terms set forth in the proposed
Recapitalization Agreement. Parent requested that the Special Committee, if it
was willing to accept such an offer, approve such offer and recommend such offer
to the Board of
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Directors of the Company and that the Board of Directors approve such offer and
recommend its acceptance by the stockholders of the Company. The Special
Committee thereafter considered the foregoing negotiations with counsel to the
plaintiffs in the Actions continued in an attempt to resolve the Actions.
On September 28, 1997, the Special Committee met by conference telephone to
evaluate the final terms of the Recapitalization and to take action with respect
thereto. After a presentation to the Special Committee by its counsel reviewing
the legal standards applicable to making a determination that the
Recapitalization Transaction, including the Reverse Stock Split, the
Recapitalization Amendment and the Recapitalization Agreement, is fair to the
Public Stockholders and recommending that the Board of Directors of the Company
(i) approve and adopt the Recapitalization Agreement and the Recapitalization
Amendment and (ii) recommend that the stockholders vote their shares of Common
Stock to approve and adopt the Recapitalization Agreement and the
Recapitalization Amendment. Oppenheimer reviewed in detail its presentation to
the Special Committee which is described elsewhere in this proxy statement under
the caption 'SPECIAL FACTORS -- Financial Advisor; Fairness Opinion.'
At the meeting, the Special Committee was advised by Oppenheimer that, in
Oppenheimer's opinion, the Transaction Consideration to be received by the
Public Stockholders in connection with the Recapitalization was fair, from a
financial point of view, to such holders and Oppenheimer delivered to the
Special Committee its written opinion, dated September 28, 1997, stating that as
of such date and based upon the factors and assumptions set forth in such
opinion, the consideration to be received by the Public Stockholders was fair,
from a financial point of view, to such Public Stockholders. See 'SPECIAL
FACTORS -- Financial Advisor; Fairness Opinion'. After further discussions and
deliberation the Special Committee resolved that the Recapitalization
Transaction is fair to and in the best interests of the Public Stockholders and
to recommend that the Board of Directors of the Company (i) approve and adopt
the Recapitalization Agreement and the Recapitalization Amendment and (ii)
recommend that the Public Stockholders vote their shares of Common Stock to
approve and adopt the Recapitalization Agreement and the Recapitalization
Amendment.
On September 28, 1997, the Board of Directors met to consider the
Recapitalization Transaction, including the Reverse Stock Split, the
Recapitalization Amendment and the Recapitalization Agreement, and the Par Value
Amendment. At such meeting, Oppenheimer delivered the Oppenheimer Opinion to the
Board. See 'SPECIAL FACTORS -- Financial Advisor; Fairness Opinion'. The Board
of Directors (i) determined by the affirmative vote of all members present that
each of the Recapitalization Transaction, including the Recapitalization
Agreement, Reverse Stock Split and the Recapitalization Amendment, and the Par
Value Amendment are fair to and in the best interests of the Public
Stockholders, and (ii) adopted a resolution setting forth the terms thereof and
approving, adopting and declaring the advisability of, and recommending the
approval by the holders of the Common Stock of, the Recapitalization Transaction
and the Par Value Amendment, and the transactions contemplated thereby. Due to
scheduling conflicts, Alan G. McGregor was not in attendance at the Board
meeting. He had, however, advised Dr. Tweddell on September 28 that he approved
and declared advisable the proposed terms of the Recapitalization Transaction
and the Par Value Amendment, and the transactions contemplated by the
Recapitalization Transaction and the Par Value Amendment. Dr. Tweddell reported
to the Board that Mr. McGregor asked that the Board be informed of Mr.
McGregor's support for such proposals.
On September 28, 1997, the parties to all of the Actions executed a
Memorandum of Understanding setting forth the terms of their agreement in
principle to settle the Actions. Subject to final Court approval, the Memorandum
of Understanding provides for the dismissal of the Actions with prejudice and
the release of any known or unknown claims, state or federal, that have been or
could have been brought in any court by any member of the proposed class against
the defendants in the Actions and their predecessors, successors, parents,
subsidiaries, affiliates, agents or other persons relating to the transaction or
any matters that were or could have been asserted in the Actions arising out of
the subject matter thereof. The Memorandum of Understanding acknowledges that
Parent took into account the desirability of addressing the claims asserted in
the Actions in agreeing to the enhanced terms for Public Stockholders set forth
in the Recapitalization Agreement. The Memorandum
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of Understanding also provides that settling plaintiffs may seek up to $695,000
in attorney's fees and expenses.
Thereafter, representatives of Parent, Holdings and the Company executed
the Recapitalization Agreement.
On September 29, the Company and Parent issued a joint press release
announcing that, based on the recommendation of the Special Committee, the Board
of Directors of the Company had approved the Recapitalization based on Parent's
revised offer of $13.50 per share.
Subsequent to September 28, 1997, in accordance with the Memorandum of
Understanding, plaintiffs in the Actions took depositions and obtained documents
in addition to those previously provided, for the purpose of confirming that the
terms of the settlement were fair, reasonable and adequate. On November 15,
1997, the parties to the Actions executed a Stipulation and Agreement of
Compromise, Settlement and Release (the 'Settlement Agreement'). The
Chancery Court has scheduled a hearing to take place on December 11, 1997
to determine, among other things, whether the Actions should be certified
as a consolidated class action, whether the Settlement Agreement should be
approved, whether dismissals and releases should be granted and
whether plaintiffs' counsel should be awarded fees and expenses
not to exceed $695,000. Pending that hearing the Court has
temporarily determined that the Actions should be maintained as a consolidated
class action.
DETERMINATIONS OF THE SPECIAL COMMITTEE; FAIRNESS OF THE RECAPITALIZATION
In determining that the Recapitalization Transaction is fair to and in the
best interests of the Public Stockholders and in recommending to the Board of
Directors of the Company that it (i) approve and adopt the Recapitalization
Agreement and the Recapitalization Amendment, and (ii) recommend that the Public
Stockholders vote their shares of Common Stock to approve and adopt the
Recapitalization Agreement and the Recapitalization Amendment, the Special
Committee considered the following factors, each of which, in the Special
Committee's view, supported its determination to recommend the Recapitalization
Agreement and the Recapitalization Amendment:
(i) information with respect to the financial condition, results of
operations, business and prospects of the Company, as well as the risks
involved in achieving those prospects, and current industry, economic and
market conditions;
(ii) the opinion of Oppenheimer, delivered in writing to the Special
Committee on September 28, 1997, as to the fairness of the Transaction
Consideration to the Public Stockholders from a financial point of view,
and the analyses presented to the Special Committee by Oppenheimer in
support of its opinion (see ' -- Financial Advisor; Fairness Opinion');
(iii) the Company's financial information and historical financial
performance, as well as the informed judgment of the Special Committee,
after consideration of the financial analyses presented to the Special
Committee by Oppenheimer, in assessing whether or not the Recapitalization
was fair to the Public Stockholders;
(iv) the condition to the consummation of the Recapitalization (which
is not otherwise required by the DGCL or the Company's Certificate of
Incorporation or By-laws) that the Recapitalization Transaction be approved
separately by the affirmative vote of the majority of the shares of Common
Stock held by the Public Stockholders;
(v) the limited number of conditions to the obligations of Parent and
the fact that the Recapitalization Transaction is not subject to or
conditioned upon the fulfillment of any financing condition;
(vi) the history of the negotiations with respect to the
Recapitalization that, among other things, led to the belief of the Special
Committee that $13.50 per share of Common Stock was the best price that
could be obtained from Parent and that the Public Stockholders should be
given the opportunity to determine whether or not they wished to sell their
Common Stock at that price;
(vii) the Transaction Consideration represents a premium of
approximately 25.6% over the closing price of $10.75 per share of Common
Stock on June 2, 1997 (the date preceding the day of the public
announcement of Parent's Proposal to the Company), a premium of
approximately 26.8% over the reported average closing price of $10.65 per
shares during the 1-week period ending
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June 2, 1997, and a premium of approximately 42.8% over the reported
average closing price of $9.45 per share of Common Stock during the 12-week
period ending on June 2, 1997; and
(viii) the confirmation of Parent and Holdings to the Special
Committee that they have no current intention to sell control or cause the
sale of, the Company or all or substantially all of its assets (as a result
of which the Special Committee did not, and did not instruct Oppenheimer
to, solicit third party bids for the Company).
In light of the number and variety of factors the Special Committee
considered in connection with its evaluation of the Recapitalization, the
Special Committee did not find it practicable to assign relative weights to the
foregoing factors.
The Special Committee consulted with Oppenheimer during the course of its
work with respect to the financial analyses performed by Oppenheimer. In this
process, the Special Committee reviewed with Oppenheimer the relationship
between the Transaction Consideration and the values derived from the individual
financial analyses employed by Oppenheimer, as well as the relative
uncertainties of each such method. The Special Committee believes that
Oppenheimer's analysis was reasonable.
The Special Committee believes that the Recapitalization is procedurally
fair because: (i) the Special Committee is composed of directors who are not
also directors, officers or employees of Parent, Holdings or their affiliates,
who were appointed to represent the interests of, and to negotiate on an arm's
length basis with Parent on behalf of the Public Stockholders; (ii) the Special
Committee retained and was advised by independent legal counsel; (iii) the
Special Committee retained Oppenheimer as independent financial advisor to
assist it in evaluating the proposed Recapitalization Transaction; (iv) the
Recapitalization Transaction will be contingent upon the separate approval of
the Public Stockholders; and (v) the consummation of the Recapitalization
Transaction will not be predicated on the fulfillment of any financing
condition. In addition, the Special Committee believes that the Recapitalization
is procedurally fair because the Transaction Consideration and the other terms
and conditions of the Recapitalization are the result of active arm's length
bargaining between the Special Committee and Parent.
FINANCIAL ADVISOR; FAIRNESS OPINION
On June 30, 1997, Oppenheimer was retained as financial advisor to the
Special Committee in connection with the proposed acquisition by Parent of all
of the outstanding shares of Common Stock not currently owned by Parent or its
affiliates. As part of its role as financial advisor to the Special Committee,
Oppenheimer rendered a written opinion to the Special Committee and to the Board
of Directors on September 28, 1997 that the consideration to be received by the
holders of the Common Stock (other than Parent or its affiliates) pursuant to
the Recapitalization Agreement was fair, from a financial point of view, to such
holders, subject to the assumptions, factors, limitations and other matters set
forth therein, At the request of the Special Committee Oppenheimer updated its
fairness opinion as of December 8, 1997. As updated, the Oppenheimer fairness
opinion is referred to herein as the 'Oppenheimer Opinion.'
THE FULL TEXT OF THE OPPENHEIMER OPINION IS ATTACHED HERETO AS ANNEX B.
HOLDERS OF COMMON STOCK ARE URGED TO READ THE OPPENHEIMER OPINION IN ITS
ENTIRETY FOR THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE LIMITS OF THE
REVIEW MADE BY OPPENHEIMER. THE FOLLOWING DISCUSSION OF THE OPPENHEIMER OPINION
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF ANNEX B. THE
OPPENHEIMER OPINION ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION TO BE
RECEIVED PURSUANT TO THE RECAPITALIZATION AGREEMENT, FROM A FINANCIAL POINT OF
VIEW, TO THE PUBLIC STOCKHOLDERS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
DIRECTOR OR ANY HOLDER OF COMMON STOCK AS TO HOW TO VOTE ON THE RECAPITALIZATION
TRANSACTION.
A copy of the Oppenheimer financial analysis discussed below has been filed
as an exhibit to the Schedule 13E-3 filed with the SEC with respect to the
Recapitalization, may be inspected and copied, and obtained by mail, from the
SEC as set forth in 'Available Information' and will be made available
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for inspection and copying at the principal executive offices of the Company at
200 Elmora Avenue, Elizabeth, New Jersey 07207 during regular business hours by
any interested stockholder of the Company or his or her representative who has
been so designated in writing.
The Recapitalization Agreement was determined by arm's length negotiations
between the Special Committee and Parent, during which negotiations
representatives of Oppenheimer advised the Special Committee. No limitations
were imposed by the Company, the Board of Directors or the Special Committee
upon Oppenheimer with respect to the investigations made or procedures followed
in its role as financial advisor to the Special Committee, except that in light
of Parent's determination, as expressed to the Special Committee, that Parent
had no current intention to sell the Company to a third party, Oppenheimer was
not authorized to, and did not, solicit any indications of potential interest
from any third party to acquire all or any part of the Company, its assets or
its capital stock.
In connection with the Oppenheimer Opinion, Oppenheimer, among other
things, (i) reviewed certain publicly available financial statements and other
information of the Company; (ii) reviewed certain internal financial statements
including projections and other financial and operating data concerning the
Company prepared by the management of the Company; (iii) discussed past and
current operations and the financial condition and prospects of the Company with
senior executives of the Company; (iv) reviewed and discussed with the Company's
auditors, Deloitte & Touche LLP, certain issues regarding the assets and
liabilities of the Company; (v) reviewed the Recapitalization Agreement; (vi)
reviewed the reported prices and trading activity for the Common Stock; (vii)
compared the financial performance of the Company and the prices and trading
activity of the Common Stock with that of certain other publicly traded
companies and their securities that Oppenheimer deemed comparable; (viii)
reviewed the financial terms, to the extent publicly available, of acquisition
of minority interest transactions that Oppenheimer deemed comparable; (ix)
reviewed the financial terms, to the extent publicly available, of acquisition
transactions of generic drug companies that Oppenheimer deemed comparable; and
(x) performed discounted cash flow and other such analyses, reviewed such other
information, and considered such other factors as Oppenheimer deemed
appropriate.
In rendering the Oppenheimer Opinion, Oppenheimer relied upon and assumed
the accuracy and completeness of all the financial and other information
reviewed by it for purposes of its opinion, without any independent verification
of such information. Without limiting the foregoing, Oppenheimer assumed, that
the financial forecasts prepared by the management of the Company and other
information as provided or otherwise discussed had been reasonably prepared on a
basis reflecting the best currently available judgments and estimates of the
Company. Oppenheimer did not make an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company or any of its
subsidiaries, and was not furnished with any such evaluation or appraisal, nor
did Oppenheimer make a physical inspection of any properties or assets of the
Company. The Oppenheimer Opinion is based on economic, market and other
conditions as in effect on, and the information made available to Oppenheimer as
of, the date of its opinion, and Oppenheimer was not requested, nor has
undertaken any responsibility, to update the Oppenheimer Opinion to reflect
future developments. Oppenheimer further assumed, that (i) the representations
and warranties contained in the Recapitalization Agreement are true and correct
in all material respects and (ii) the Recapitalization will be consummated in
accordance with the terms described in the Recapitalization Agreement, without
any amendment thereto, and without waiver by the Company of any of the
conditions to its obligation to close thereunder. The Oppenheimer Opinion does
not address the likely tax consequences of the Recapitalization to any holders
of shares of Common Stock.
The following is a summary of the material financial analyses performed by
Oppenheimer in connection with its opinion dated September 28, 1997, as
reaffirmed on December 8, 1997. Such opinion, as reaffirmed, is attached hereto
as Annex B.
Comparable Publicly Traded Company Analysis. Oppenheimer compared certain
historical and estimated earnings and operating and financial data, and ratios
and multiples of income statement and operating cash flow parameters of the
Company to certain other publicly traded generic drug companies that Oppenheimer
deemed to have operations similar to the Company. The publicly traded companies
selected by Oppenheimer for purposes of this analysis were: Alpharma Inc.; Barr
Laboratories, Inc.; Ivax Corporation; Mylan Laboratories Inc.; Taro
Pharmaceutical Industries Ltd.; Teva Pharmaceutical Industries Ltd.; and Watson
Pharmaceuticals, Inc. (collectively, the 'Faulding Inc. Comparable
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Companies'). Although Oppenheimer used the Faulding Inc. Comparable Companies
for comparative purposes, none of such companies is directly comparable to
Faulding Inc. Oppenheimer reviewed the enterprise value (defined as the sum of
the face value of a company's debt plus the market value of its equity
securities ('market capitalization') less cash and cash equivalents), for the
Faulding Inc. Comparable Companies as a multiple of the latest twelve-months'
('LTM') revenues, LTM earnings before interest, taxes, depreciation and
amortization ('EBITDA'), and LTM earnings before interest and taxes ('EBIT').
Such analysis indicated enterprise value as a multiple of LTM revenues that
ranged from 1.4x to 8.2x, with a median of 3.3x, compared to 2.9x implied for
the Company based upon a $13.50 per share price for the Common Stock (the
'Implied Enterprise Value'); enterprise value as a multiple of LTM EBITDA that
ranged from 9.4x to 25.1x, with a median of 16.5x, compared to 23.2x for the
Implied Enterprise Value; and enterprise value as a multiple of LTM EBIT that
ranged from 16.1x to 30.2x, with a median of 21.0x, compared to a 33.0x for the
Implied Enterprise Value. Oppenheimer also reviewed the market capitalization
for the Faulding Inc. Comparable Companies as a multiple of LTM earnings per
share, projected 1997 earnings per share and projected 1998 earnings per share.
Such analysis indicated market capitalization as a multiple of LTM earnings per
share that ranged from 23.4x to 45.3x, with a median of 35.1x, compared to 51.6x
implied for the Company at a market capitalization based upon a $13.50 per share
price for the Common Stock (the 'Implied Market Capitalization'); market
capitalization as a multiple of projected 1997 earnings per share that ranged
from 23.9x to 34.4x, with a median of 29.7x, compared to 37.5x for the Implied
Market Capitalization; and market capitalization as a multiple of projected 1998
earnings per share that ranged from 13.5x to 22.4x, with a median of 20.6x,
compared to 27.0x for the Implied Market Capitalization. All projected earnings
per share for the Faulding Inc. Comparable Companies were obtained from First
Call Corporation (a division of Thomson Financial Services), a third-party
service which summarizes the published estimates made by research analysts
employed by investment banking firms, including analysts employed by
Oppenheimer; projected earnings per share estimates for the Company were based
upon the Company's management estimates.
Oppenheimer noted that the price per share for the Company contemplated by
the Recapitalization was within this range of values. Oppenheimer drew no
specific conclusion from this analysis but subjectively factored its
observations from this analysis into its qualitative assessment of the relevant
facts and circumstances.
Comparable M&A Transaction Analysis. Oppenheimer reviewed the implied
valuation multiples of three transactions completed since January 1996 involving
companies in the generic drug industry. These generic drug transactions
consisted of the acquisitions by Watson Pharmaceutical, Inc. of Royce
Laboratories and Oclassen Pharmaceuticals, Inc., and the acquisition by Teva
Pharmaceutical Industries of Biocraft Laboratories, Inc. No company or
transaction used in the analysis described above was directly comparable to the
Company or the Recapitalization. Among other factors, Oppenheimer considered
that the generic drug industry strategic transaction environment varies over
time because of macroeconomic factors that include, but are not limited to,
interest rate and equity market fluctuations and microeconomic factors that
include, but are not limited to, industry results and growth expectations.
Accordingly, the analysis involved complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies that could affect public trading values.
To the extent that information was publicly available for these
transactions, Oppenheimer reviewed the aggregate transaction values (defined as
the sum of the total price paid for all equity securities of a company (the
'transaction value') plus the face value of a company's debt less cash and cash
equivalents) to LTM revenues and LTM EBITDA and the transaction value to LTM
earnings per share and projected earnings per share for one and two years after
the acquisition date and LTM tangible book value. Such analysis indicated
aggregate transaction value as a multiple of LTM revenues that ranged from 2.5x
to 4.5x, with a median of 3.9x, compared to 2.9x implied for the Company at an
aggregate transaction value based upon a $13.50 per share price for the Common
Stock (the 'Implied Aggregate Transaction Value'); and aggregate transaction
value as a multiple of LTM EBITDA of 78.2x (based solely on the acquisition of
Royce Laboratories by Watson Pharmaceuticals Inc.), compared to 23.2x for the
Implied Aggregate Transaction Value. Such analysis also indicated transaction
value as a multiple of LTM earnings per share of 73.1x (based solely on the
acquisition of Oclassen Pharmaceuticals Inc. by Watson Pharmaceuticals Inc.),
compared to 51.6x implied for the
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Company at a transaction value based upon a $13.50 per share price for the
Common Stock (the 'Implied Transaction Value'); transaction value as a multiple
of projected earnings per share one year after the acquisition indicated a value
of 78.2x (based solely as the acquisition of Royce Laboratories by Watson
Pharmaceuticals Inc.) compared to 37.5x for the Implied Transaction Value;
transaction value as a multiple of projected earnings per share two years after
the acquisition indicated a range of 25.0x and 44.4x with a median value of
34.7x compared to 27.0x for the Implied Transaction Value and transaction value
as a multiple of LTM tangible book value that ranged from 3.3x to 6.1x, with a
median of 6.0x, compared to 3.4x for the Implied Transaction Value.
Oppenheimer noted that the price per share for the Company contemplated by
the Recapitalization was within or below the range of values. Oppenheimer also
noted its belief that the multiples paid in these completed transactions should
be considered in light of negative pressure in valuations of mid-to
smaller-sized multisource generic drug companies, as evidenced by the pending
purchase of the Rugby Group Inc. unit of Hoechst Marion Roussel by Watson
Pharmaceuticals Inc.
Oppenheimer also reviewed the premiums represented by the transaction value
in comparison to the average of the equity market capitalization of the
companies subject to such acquisitions for the one day, one week and four week
periods ending the day prior to announcement of the transaction. Such analysis
indicated a premium that ranged from 1.0% to 53.0%, with a median of 27.0% for
the one day prior to announcement, as compared to 25.6% for the
Recapitalization; a premium that ranged from 19.9% to 55.1%, with a median of
37.5% for the one week prior to announcement, as compared to 22.7% for the
Recapitalization; and a premium that ranged from 32.7% to 47.8%, with a median
of 40.3% for the four weeks prior to announcement, as compared to 45.9% for the
Recapitalization. Oppenheimer noted that the premiums contemplated by the
Recapitalization were within the range of premiums in the transactions deemed
comparable.
Oppenheimer drew no specific conclusion from this analysis but subjectively
factored its observations from this analysis into its qualitative assessment of
the relevant facts and circumstances.
Discounted Cash Flow Analysis. Oppenheimer performed a discounted cash flow
analysis ('DCF') of the Company on a stand-alone basis. In conducting its
analysis, Oppenheimer relied on certain assumptions, financial forecasts and
other information provided by the Company's management; specifically,
Oppenheimer relied upon the internal forecast of future results of operations
developed by the Company's management for the fiscal years ending June 30, 1998
through June 30, 2002. Oppenheimer selected a range of terminal exit multiples
of 8.0x to 16.0x EBIT and a range of discount rates of 15% to 20% based upon its
subjective judgments about, among other things, the capital markets, the
Company's prospects and the generic drug industry in general. The terminal exit
multiple represents an estimate of the value of the Company's future projected
cash flows following the end of the three and five year periods used in this
analysis. Based on management's three year projections for the fiscal years
ending June 30, 1998 through June 30, 2000, the analysis implied an equity value
range of $8.33 to $17.92 per share of Common Stock. Based on management's five
year projections for the fiscal years ending June 30, 1998 through June 30,
2002, the analysis implied an equity value range of $14.32 to $32.36 per share
of Common Stock. Oppenheimer noted that the price contemplated by the
Recapitalization was within the range of the three year values but below the
range of the five year values. Oppenheimer also noted its belief that the DCF
for the three years was a better indication of value then the DCF for the five
years in light of the highly uncertain nature of the launch success, competitive
environment and profitability of the generic drug industry and the fact that the
Company has not yet commenced significant development work on several of the
generic products that are expected in the management forecasts to contribute to
cash flows in the fourth and fifth years of such forecasts.
Oppenheimer drew no specific conclusion from this analysis but subjectively
factored its observations from this analysis into its qualitative assessment of
the relevant facts and circumstances.
Premiums Paid on Comparable Minority Interest Transactions Analysis.
Oppenheimer also reviewed the premiums paid in transactions completed since
March 1995 in which owners of a majority interest acquired the remaining
publicly owned shares to achieve complete ownership. Such analysis indicated
that the prices paid for the equity in the 27 minority acquisition transactions
relative to the market price of the equity at the market closing price one day,
one week and four weeks prior to the
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announcement date of such transactions, yielded premiums (discounts) that ranged
from (2.6%) to 77.8%, with a median of 19.2%, 24.4% and 25.0% for the one day,
one week and four week periods, respectively. Oppenheimer noted that the price
contemplated by the Recapitalization yields premiums over the market value of
the Company's Common Stock for the periods comprised of one day, one week and
four weeks prior to the announcement date of June 3, 1997 of 25.6%, 22.7% and
45.9%, respectively. Oppenheimer drew no specific conclusion from this analysis
but subjectively factored its observations from this analysis into its
qualitative assessment of the relevant facts and circumstances.
The summary set forth above does not purport to be a complete description
of the analyses performed and factors considered by Oppenheimer, and is
qualified by reference to the full text of the Oppenheimer Opinion set forth in
Annex B hereto. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, an opinion is not readily susceptible to partial analysis or
summary description. Accordingly, notwithstanding the separate factors
summarized above, Oppenheimer believes that its analysis must be considered as a
whole and that selecting portions of its analysis and the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. Furthermore, in arriving
at its fairness opinion, Oppenheimer did not attribute any particular weight to
any analysis, or factor considered by it, but rather made subjective and
qualitative judgments as to the significance and relevance of each analysis and
factor.
In performing its analyses, Oppenheimer made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. Oppenheimer also relied upon the current and projected financial
results of the Company as provided by management. The Company does not publicly
disclose internal management forecasts of the type provided to Oppenheimer in
connection with the review of the Recapitalization Agreement. Such forecasts
were not prepared with a view toward public disclosure. The forecasts were based
on numerous variables and assumptions which are inherently uncertain, including,
without limitation, factors related to general economic and competitive
conditions. Accordingly, actual results could vary significantly from those set
forth in such forecasts. The analyses performed by Oppenheimer were solely for
the purposes of rendering the Oppenheimer Opinion and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. The range of valuation for any particular analysis should
not be taken to be the view of Oppenheimer of the actual value of the Company or
the Common Stock.
The Special Committee selected Oppenheimer as its financial advisor because
Oppenheimer is an internationally recognized investment banking firm and the
principals of Oppenheimer have substantial experience in transactions similar to
the Recapitalization, are familiar with the Company, Parent and their respective
businesses and are familiar with the generic drug industry in general. As part
of its investment banking business, Oppenheimer is continually engaged in the
valuation of businesses and their securities in connection with mergers,
acquisitions, negotiated underwritings, competitive biddings, secondary sales
and distributions of listed and unlisted securities, and private placements. In
the ordinary course of business, Oppenheimer and its affiliates may actively
trade the securities of the Company for its own account or for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to a letter agreement, dated as of June 30, 1997 (the 'Oppenheimer
Engagement Letter'), the Special Committee engaged Oppenheimer to act as its
financial advisor in connection with the proposed transaction with Parent. The
Company paid Oppenheimer $50,000 upon execution of the Oppenheimer Engagement
Letter; and an additional $400,000 upon delivery of the Oppenheimer Opinion to
the Special Committee. In addition, the Company has agreed to reimburse
Oppenheimer for its out-of-pocket fees and expenses (including, but not limited
to, reasonable fees and expenses of Oppenheimer's counsel) incurred in
connection with its engagement upon such consummation. The Company has also
agreed to indemnify Oppenheimer from and against certain liabilities and
expenses in connection with its engagement, including certain liabilities under
the federal securities laws.
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POSITION OF PARENT AND HOLDINGS
Parent and Holdings had no involvement in the Special Committee's
evaluation of the fairness of the Transaction Consideration to the Public
Stockholders in connection with the Recapitalization Transaction, and have not
sought an opinion of a financial advisor as to the fairness of the Transaction
Consideration. Parent and Holdings, however, have considered the factors set
forth above under ' -- Determinations of the Special Committee; Fairness of the
Recapitalization' and ' -- Financial Advisor; Fairness Opinion' and based on
such factors, Parent and Holdings have each determined that the Transaction
Consideration is fair to and in the best interests of the Public Stockholders.
In connection with its consideration of the determination by the Special
Committee, as part of its determination with respect to the fairness of the
consideration to be received by the Public Stockholders, Parent and Holdings
adopted the conclusion, and the analyses underlying such conclusion, of the
Special Committee, based upon its view as to the reasonableness of such
analyses.
In view of the wide variety of factors considered in connection with their
evaluation of the proposed Recapitalization Transaction, Parent and Holdings did
not find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the factors or determine that any factor was of particular
importance. Rather, Parent and Holdings each viewed its position as being based
on the totality of the information presented and considered by it.
Although certain of the directors of the Company also serve as directors
and/or officers of Parent or Holdings, none served on the Special Committee. The
Chairman of the Company's Board of Directors, Dr. Edward D. Tweddell, is the
Group Managing Director and Chief Executive Officer of Parent, as well as a
director of Holdings. Alan G. McGregor, the Chairman of the Board of Parent,
serves as a member of the Company's Board of Directors. William R. Griffith, a
member of the Company's Board of Directors, in addition to serving as outside
legal counsel to the Company, has from time to time acted as legal counsel to
Parent and serves as a director and officer of Holdings. See 'CERTAIN
INFORMATION CONCERNING THE COMPANY -- Directors and Executive Officers' and
'CERTAIN INFORMATION CONCERNING PARENT AND HOLDINGS -- Directors and Executive
Officers.'
PURPOSE AND STRUCTURE OF THE RECAPITALIZATION
Parent and Holdings entered into the Recapitalization Agreement in order to
acquire beneficial ownership of the entire equity interest in the Company
because the operation of the Company as a majority-owned, publicly-held
subsidiary requires undue additional expenses and regulatory compliance demands,
in light of the existing public market for the common shares of Parent on the
Australian Stock Exchange and the numerous affiliated party transactions engaged
in among the Company, Parent and their affiliates.
Parent structured the transaction as a recapitalization because it believed
the Reverse Stock Split to be the most efficient means of acquiring the entire
public interest in the Company in a single transaction. Prior to determining to
proceed with the Recapitalization Transaction proposal, Parent also considered
the following alternatives: a tender offer (which it rejected because there
could be no assurance that it would result in Holdings acquiring the entire
equity interest in the Company), a transaction in which the consideration would
be securities of Parent (which it rejected because it believed that the Public
Stockholders might find any securities traded on a foreign exchange difficult to
evaluate and, accordingly, unattractive), and a merger between the Company and a
wholly-owned subsidiary of Holdings (which it rejected because such a
transaction may not have complied with certain requirements under Australian tax
law).
After the Recapitalization, the Company will be a wholly-owned subsidiary
of Holdings and, indirectly, of Parent. Subject to applicable law and
contractual limitations, if any, Parent and Holdings will be able to distribute,
by way of dividend, loan or otherwise, some or all of the assets of the Company,
or otherwise make use of such assets for investment in affiliates or other
transactions as Parent and Holdings may in their sole discretion determine.
Parent believes that by acquiring the entire equity interest in the Company at
this time, it will be able to better manage the Company's development and
expansion opportunities because it will be able to do so without regard to the
short-term
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consequences to the Public Stockholders and short-term performance of the
trading price of the Common Stock. Moreover, the purchase of the shares held by
the Public Stockholders will allow Parent to provide the Company with access to
the technology rights of Parent for use by the Company on its behalf and on
behalf of its affiliates, as Parent in its sole discretion determines, and
without the burden of public disclosure imposed by securities laws and
regulations and the expense and delays associated therewith. See ' -- Plans for
the Company After the Recapitalization.'
For additional information concerning the purpose of the Recapitalization,
see ' -- Background of the Recapitalization,' and ' -- Determinations of the
Special Committee; Fairness of the Recapitalization.'
CERTAIN EFFECTS OF THE RECAPITALIZATION
Upon the filing of the Recapitalization Amendment, each 7,924,385 issued
shares of Common Stock shall be combined into one validly issued New Common
Share, the par value of which shall be equal to the quotient obtained by
dividing (x) the product of (1) the total number of shares of Common Stock
issued and outstanding immediately prior to the Effective Time of the
Recapitalization multiplied by (2) $.01, by (y) the number of New Common Shares
to be issued and outstanding immediately following the Effective Time of the
Recapitalization. The Recapitalization Amendment will prohibit the issuance of
scrip or fractional New Common Shares, but, in lieu thereof, each stockholder
who would otherwise be entitled to receive a fractional New Common Share will be
entitled to receive, in cash, the Transaction Consideration for each share of
Common Stock held by such holder as of the Effective Time. The Recapitalization
Amendment will also reduce the number of authorized shares of the Company's
common stock from 35,000,000 shares to 2 shares.
Pursuant to the Recapitalization Agreement, each holder of outstanding
Stock Options under the Company's stock option plans will receive, in
consideration for the cancellation of such Stock Options, whether or not such
Stock Options have vested under the applicable benefit plan, a payment equal to
the product of (x) the excess of the Transaction Consideration over the exercise
price per share applicable to the holder's Stock Options multiplied by (y) the
number of shares of Common Stock underlying the holder's Stock Options. The
payments to such option holders are expected to be made at the Effective Time of
the Recapitalization.
As a result of the Recapitalization, the Common Stock will no longer be
publicly traded and Holdings will become the sole stockholder of the Company.
Following the Recapitalization, the Public Stockholders will no longer have an
opportunity to continue their interests in the Company as an ongoing corporation
and therefore will not share in its future earnings and potential growth.
Trading in the shares of Common Stock on the NASDAQ National Market will cease
immediately following the Effective Time. At the Effective Time, the shares of
Common Stock will be delisted from the NASDAQ National Market. Registration of
the Common Stock under the Exchange Act also will be terminated, as will the
ongoing disclosure requirements thereunder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
In general, under the Internal Revenue Code of 1986, as amended (the
'Code'), the receipt of cash by a stockholder pursuant to the Recapitalization
will be a taxable event for Federal income tax purposes. Generally, a
stockholder will recognize capital gain or loss equal to the difference between
(i) the amount of cash received and (ii) such stockholder's tax basis in the
Common Stock surrendered in exchange therefor. Such gain or loss must be
calculated separately for each block of shares of Common Stock (e.g., shares
acquired at the same price in a single transaction) held by the stockholder.
Under the recently enacted Taxpayer Relief Act of 1997, net capital gain
(i.e., generally, capital gain in excess of capital loss) recognized by a
stockholder upon the disposition of Common Stock that has been held for more
than 18 months will generally be subject to tax at a rate not to exceed 20%. Net
capital gain recognized by a stockholder upon the disposition of Common Stock
that has been held for more than 12 months but for not more than 18 months will
continue to be subject to tax at a rate not to exceed 28% and capital gain
recognized from the disposition of Common Stock that has been held for 12 months
or less will continue to be subject to tax at ordinary income tax rates. In
addition, capital gain
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recognized by a corporate taxpayer will continue to be subject to tax at the
ordinary income tax rates applicable to corporations.
The preceding discussion describes the material Federal income tax
consequences of the Recapitalization, and does not address any potentially
applicable local, state or foreign tax laws. The discussion assumes that
stockholders hold their shares of Common Stock as capital assets within the
meaning of the Code. It does not, however, discuss all aspects of Federal income
taxation that may be relevant to a stockholder and may not apply to (i) Common
Stock acquired upon exercise of incentive stock options, non-qualified stock
options or otherwise as compensation; (ii) certain tax-exempt stockholders;
(iii) stockholders that are subject to special tax provisions, such as banks and
insurance companies; and (iv) certain nonresident aliens and foreign
corporations.
A stockholder may be subject to information reporting and to backup
withholding at a rate of 31% of all amounts paid to the stockholder, unless such
stockholder provides a correct taxpayer identification number or proof of an
applicable exemption to the Company, and otherwise complies with applicable
requirements under the Code.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON EXISTING LAW AS OF THE DATE OF THIS
PROXY STATEMENT. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE RECAPITALIZATION
(INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS).
PLANS FOR THE COMPANY AFTER THE RECAPITALIZATION
It is expected that following the Recapitalization, the business and
operations of the Company will be continued substantially as they have been and
are currently being conducted. The directors and officers of the Company
immediately prior to the Effective Time will continue to be the directors and
officers of the Company following the Recapitalization until their successors
shall have been elected, appointed and/or qualified or until their death,
resignation or removal in accordance with the Company's Certificate of
Incorporation and By-laws, except that Messrs. Tully and Minio will not continue
to serve as directors of the Company following the Effective Time of the
Recapitalization.
After the Recapitalization, the Company will become a wholly-owned
subsidiary of Holdings and, indirectly, of Parent, and the public will no longer
own a minority equity interest in the Company. Accordingly, Parent and Holdings
will be able to direct and control the policies of the Company and its
subsidiaries, including with respect to any extraordinary corporate transaction
such as a merger, reorganization or liquidation involving the Company or any of
its subsidiaries, a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries, a change in the capitalization or other
changes in the Company's corporate structure or business or the composition of
the Company's Board or management, without taking into account the current
public minority equity interest. Any such extraordinary transaction may occur
with affiliates of the Company, Parent or Holdings.
Except as described in this Proxy Statement, Parent and Holdings do not
have any present plans or proposals that relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving the Company or any of its subsidiaries, a sale or transfer
of a material amount of assets of the Company or any of its subsidiaries, a
change in the capitalization or other changes in the Company's corporate
structure or business or the composition of its Board or management.
The Company and Parent anticipate that, if the Recapitalization Transaction
does not occur for any reason, including the failure of a majority of the
outstanding shares of Common Stock held by the Public Stockholders to vote in
favor of the Recapitalization Agreement and the Recapitalization Amendment, the
Company will continue its operations in substantially the same manner as in
effect as of the date hereof.
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INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
In considering the Recapitalization Transaction, stockholders of the
Company should be aware that certain members of the Company's management and the
Board have certain interests in the Recapitalization that may present them with
actual or potential conflicts of interests with respect to the Recapitalization.
The Chairman of the Company's Board of Directors, Dr. Edward D. Tweddell,
is the Group Managing Director, a director and Chief Executive Officer of
Parent, as well as a director of Holdings. Alan G. McGregor, the Chairman of the
Board of Parent, serves as a member of the Company's Board of Directors. William
R. Griffith, a director of the Company, is also a director and officer of
Holdings, and has acted as legal counsel to each of the Company and Parent in
the past. The law firm of Parker Duryee Rosoff & Haft, of which Mr. Griffith is
a member, has acted as counsel to the Company with respect to the
Recapitalization Transaction.
Pursuant to a Compensation and Indemnification Agreement dated June 16,
1997, among the Company, Bruce C. Tully and Joseph C. Minio, Messrs. Tully and
Minio agreed to serve as members of the Special Committee, and the Company
agreed to compensate such persons for such services at the rate of $2,000 for
each half-day (or substantial portion thereof) of service. In addition, the
Company agreed to reimburse such persons for their reasonable out-of-pocket
costs incurred in connection with their service on the Special Committee and to
indemnify such persons against certain actions arising from their service on the
Special Committee.
Pursuant to the Recapitalization Agreement, Parent and Holdings agree that
all rights to indemnification existing in favor of the present and former
directors and officers of the Company (or any of its subsidiaries) as provided
in the Company's Certificate of Incorporation and By-laws or pursuant to other
agreements, or certificates of incorporation or by-laws or similar documents of
any of the Company's subsidiaries, as in effect as of the date of the
Recapitalization Agreement with respect to any matters occurring prior to the
Effective Time, will survive the Recapitalization and continue in full force and
effect for a period of six years. Subject to certain limitations, Parent or the
Company shall also maintain the Company's existing officers' and directors'
liability insurance for a period of not less than six years after the Effective
Time. See 'THE RECAPITALIZATION AGREEMENT -- Certain Other
Covenants -- Directors' and Officers' Insurance and Indemnification.'
Pursuant to the Recapitalization Agreement, each holder of outstanding
Stock Options under the Company's stock option plans, including those held by
Richard Moldin, the Company's Chief Executive Officer and a member of the
Company's Board of Directors, will receive, in consideration for the
cancellation of such Stock Options, whether or not such Stock Options have
vested under the applicable benefit plan, a payment equal to the product of (x)
the excess of the Transaction Consideration over the exercise price per share
applicable to the holder's Stock Options, multiplied by (y) the number of shares
of Common Stock underlying the holder's Stock Options. As a result of the
cancellation of Mr. Moldin's Stock Options, Mr. Moldin will receive a cash
payment of $868,750 at the Effective Time of the Recapitalization.
ACCOUNTING TREATMENT OF THE RECAPITALIZATION
The Recapitalization will be accounted for under the 'purchase' method of
accounting in accordance with generally accepted accounting principles.
Therefore, the aggregate consideration paid by Holdings in connection with the
Recapitalization will be allocated to the Company's identifiable assets and
liabilities based on their fair market values, with any excess being treated as
goodwill.
LITIGATION
Between June 3 and 6, 1997, four putative class-action lawsuits were filed
in the Delaware Court of Chancery (the 'Chancery Court'), under the captions
Aimee Dechter v. Edward D. Tweddell, Richard F. Moldin, Alan C. McGregor, Joseph
C. Minio, Bruce C. Tully, William R. Griffith, Faulding Inc., F.H. Faulding &
Co., Limited [sic] and Faulding Holdings Inc., Civil Action No. 15722-NC
(6/15/97); Michael J. Golde I/R/A, et al. v. Faulding Inc., Edward D. Tweddell,
Alan G. McGregor, Richard F. Moldin, David Beretta and Bruce C. Tully, Civil
Action No. 15728-NC (6/6/97); Harbor Finance Partners et al. v.
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Edward D. Tweddell, Alan G. McGregor, Richard F. Moldin, Joseph C. Minio, Bruce
C. Tully, William R. Griffith, F.H. Faulding & Company Limited [sic] and
Faulding Inc., Civil Action No. 15724-NC (6/4/97); and Charles Zimmerman et al.
v. Richard F. Moldin, Edward D. Tweddell, Alan G. McGregor, Joseph C. Minio,
Bruce C. Tully, F.H. Faulding & Co Limited, William R. Griffith, Faulding
Holdings Inc. and Faulding Inc., Civil Action No. 15723-NC (6/3/97) (the
'Actions'). The Actions claim that the Proposal was inadequate and unfair. They
also assert, among other things, that in violation of their fiduciary duties to
the Faulding shareholders, Parent, Holdings and the individual members of the
Board failed to maximize shareholder value, to act independently and to ensure
that no conflict existed between the defendants' own interests and their duties
to shareholders. Certain of the plaintiffs also alleged that the defendants
possessed non-public allegedly material information regarding the future
prospects of Faulding which had not been disclosed to members of the putative
class. The Actions sought to enjoin the consummation of the transaction, and
sought awards of damages and attorneys fees.
On September 29, 1997, the parties to all of the Actions executed a
Memorandum of Understanding setting forth the terms of their agreement in
principle to settle these Actions. Subject to final Court approval, the
Memorandum of Understanding provides for the dismissal of the Actions with
prejudice and the release of any known or unknown claims, state or federal, that
have been or could have been brought in any court by any member of the proposed
class against the defendants in the Actions and their predecessors, successors,
parents, subsidiaries, affiliates, agents or other persons relating to the
transaction or any matters that were or could have been asserted in the Actions
arising out of the subject matter thereof. The Memorandum of Understanding
acknowledges that Parent took into account the desirability of addressing the
claims asserted in the Actions in agreeing to the enhanced terms for
stockholders set forth in the Recapitalization Agreement. The Memorandum of
Understanding also provides that settling plaintiffs may seek up to $695,000 in
attorney's fees and expenses.
Subsequent to September 28, 1997, in accordance with the Memorandum of
Understanding, plaintiffs in the Actions took depositions and obtained documents
in addition to those previously provided, for the purpose of confirming that the
terms of the settlement were fair, reasonable and adequate. On
November 15, 1997, the parties to the Actions executed a Stipulation
and Agreement of Compromise, Settlement and Release (the
'Settlement Agreement'). The Chancery Court has scheduled a hearing
to take place on December 11, 1997 to determine, among other things, whether the
Actions should be certified as a consolidated class action, whether the
Settlement Agreement should be approved, whether dismissals and releases should
be granted and whether plaintiffs' counsel should be awarded fees and expenses
not to exceed $695,000. Pending that hearing the Court has temporarily
determined that the Actions should be maintained as a consolidated class action.
THE PAR VALUE AMENDMENT
Stockholders are also being asked at the Special Meeting to approve an
amendment to the Company's Certificate of Incorporation, the Par Value
Amendment, pursuant to which the par value of the Company's Class B Preferred
Stock (all of which is held by Holdings) will be changed from $.01 per share to
$.10433 per share. There are currently 150,000 shares of Class B Preferred Stock
issued and outstanding, which are convertible at the option of Holdings, at any
time, into shares of Common Stock at a rate of 10.433 shares of Common Stock for
each share of Class B Preferred Stock. The Class B Preferred Stock accrues a
dividend of $4.50 per share per annum, or $675,000 per annum in the aggregate.
Holdings has determined to convert all of its Class B Preferred Stock into
Common Stock prior to the Effective Time of the Recapitalization, and the
Recapitalization Agreement provides for the Conversion to occur prior to the
Effective Time. Holdings will comply with certain Australian tax law
requirements if the aggregate par value of the issued and outstanding shares of
the capital stock of the Company immediately prior to the Conversion is
identical to the aggregate par value of the issued and outstanding shares of the
capital stock of the Company immediately after the Conversion. By effecting the
Par Value Amendment to amend the Certificate of Incorporation so as to change
the par value of the Class B Preferred Stock from $.01 to $.10433, no change in
the aggregate par value of the outstanding stock of the Company will result from
the Conversion. The Par Value Amendment will be filed with the Secretary of
State of the State of Delaware prior to the Effective Time of the
Recapitalization, in order that Holdings may effect the Conversion prior to the
Effective Time.
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The Board of Directors has also determined that the filing of the Par Value
Amendment is fair to and in the best interests of the stockholders of the
Company, and recommends that the stockholders approve the Par Value Amendment.
In considering such amendment, the Board noted that the Par Value Amendment
would facilitate the conversion of the Class B Preferred Stock, thereby
eliminating the obligation of the Company to pay the $675,000 annual dividend
and eliminate the $15,000,000 liquidation preference attributable to the Class B
Preferred Stock.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the transactions
contemplated by the Recapitalization Agreement and to pay related fees and
expenses is estimated to be approximately $85.4 million. Parent will provide
Holdings with such funds, which Parent obtained primarily from a rights offering
to its shareholders, which closed on December 1, 1997 (the 'Rights Offering').
Pursuant to the Rights Offering, Parent received approximately A$107 million.
The Rights Offering was underwritten by J.B. Were & Son, an investment banking
firm headquartered in Australia. The balance of the funds required for the
Recapitalization will be provided by Parent from its existing cash balances or
from funds available to Parent from its subsidiaries through the repayment of
inter-company advances.
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THE RECAPITALIZATION AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE
RECAPITALIZATION AGREEMENT NOT SUMMARIZED ELSEWHERE IN THIS PROXY STATEMENT. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
RECAPITALIZATION AGREEMENT, WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT
AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO READ THE
RECAPITALIZATION AGREEMENT IN ITS ENTIRETY AND TO CONSIDER IT CAREFULLY.
EFFECTIVE TIME
The Recapitalization will become effective, and the Effective Time will
occur, upon the filing of the Recapitalization Amendment with the Secretary of
State of the State of Delaware as required by the Delaware General Corporation
Law ('DGCL'). The closing of the Recapitalization will occur on a date to be
specified by the parties to the Recapitalization Agreement, which date shall not
be later than the second business day after the satisfaction or waiver of all of
the conditions set forth in the Recapitalization Agreement, or such other time
as agreed by the Company, Parent and Holdings (the 'Closing Date'). There can be
no assurance as to when and if the Recapitalization will be consummated. If the
Recapitalization has not been consummated on or prior to February 27, 1998, the
Recapitalization Agreement may be terminated by either the Company or Parent and
Holdings. See ' -- Conditions to Consummation of the Recapitalization' and
' -- Termination.'
REVERSE STOCK SPLIT; RECAPITALIZATION
Upon the filing of the Recapitalization Amendment, each 7,924,385 issued
shares of Common Stock shall be combined into one validly issued New Common
Share, having a par value per share equal to the quotient obtained by dividing
(x) the product of (1) the total number of shares of Common Stock issued and
outstanding immediately prior to the effective time of the Recapitalization
multiplied by (2) $.01, by (y) the number of New Common Shares to be issued and
outstanding immediately following the Effective Time of the Recapitalization.
The Recapitalization Amendment will prohibit the issuance of scrip or fractional
New Common Shares, but, in lieu thereof, each person who would otherwise be
entitled to receive a fractional New Common Share will be entitled to receive,
in cash, the product of (a) the number of shares of Common Stock held by such
person, multiplied by (b) the Transaction Consideration. The Recapitalization
Amendment will also reduce the number of authorized shares of the Company's
Common Stock from 35,000,000 shares to 2 shares.
Stockholders will be entitled to receive the Transaction Consideration in
cash, without interest, upon surrender of the Certificates formerly representing
such shares of Common Stock. See ' -- Procedure for Payment.' All such shares of
Common Stock will no longer be outstanding and will automatically be canceled
and retired and will cease to exist, and each holder of a Certificate
representing any such shares will cease to have any rights with respect thereto,
except the right to receive the Transaction Consideration therefor upon the
surrender of such Certificate.
PROCEDURE FOR PAYMENT
Prior to the effective time, Parent shall designate a bank or trust company
to act as the paying agent (the 'Paying Agent') to receive the funds, as needed,
to effect the payment of the Transaction Consideration. Promptly after the
Effective Time, the Paying Agent will mail to each record holder of a
certificate or certificates, which immediately prior to the Effective Time
represented less than 7,924,385 outstanding shares of Common Stock (the
'Certificates'), who have the right to receive the Transaction Consideration, a
letter of transmittal (which will specify that delivery will be effected, and
risk of loss and title to the Certificates will pass, only upon delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Transaction
Consideration. Upon surrender of a Certificate to the Paying Agent for
cancellation, together with such letter of transmittal, duly executed, the
holder of such Certificate will receive in exchange therefor the Transaction
Consideration for each share of Common Stock formerly represented by such
Certificate, to be mailed as soon as practicable following the receipt thereof,
and the Certificate so surrendered shall forthwith be canceled.
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STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE PAYING AGENT UNTIL THEY
HAVE RECEIVED TRANSMITTAL FORMS.
If payment of the Transaction Consideration is to be made to a person other
than the person in whose name the surrendered Certificate is registered, it will
be a condition of payment that the Certificate so surrendered be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes required by
reason of the payment of the Transaction Consideration to a person other than
the registered holder of the Certificate surrendered or shall have established
to the satisfaction of the Paying Agent and the Company that such tax either has
been paid or is not applicable. Until surrendered, each Certificate (other than
Certificates representing Common Stock held by holders of at least 7,924,385
shares of Common Stock) will be deemed at any time after the Effective Time to
represent only the right to receive the Transaction Consideration.
In the event any Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificate the Transaction Consideration deliverable
in respect thereof, provided that the person to whom the Transaction
Consideration is paid shall, as a condition precedent to the payment thereof,
give the Company a bond in such sum as it may direct or otherwise indemnify the
Company in a manner satisfactory to it against any claim that may be made
against the Company with respect to the Certificate claimed to have been lost,
stolen or destroyed.
PAYMENTS UNDER STOCK OPTIONS
Pursuant to the Recapitalization Agreement, each holder of outstanding
Stock Options under the Company's stock option plans will receive, in
consideration for the cancellation of such Stock Options, whether or not such
options vested under the applicable benefit plan, a payment equal to the product
of (x) the excess of the Transaction Consideration over the exercise price per
share applicable to the holder's Stock Options, multiplied by (y) the number of
shares of Common Stock underlying the holder's Stock Options. The payments to
such option holders is expected to be made at the Effective Time of the
Recapitalization.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Company. Pursuant to the Recapitalization Agreement, the Company has
made representations and warranties regarding, among other things, (i) the
Company's organization, existence and qualification to do business and similar
corporate matters, (ii) the Company's capitalization, (iii) the Company's
authority to enter into and perform its obligations under the Recapitalization
Agreement, the Recapitalization Amendment and the Par Value Amendment, (iv) the
absence of conflict of the Recapitalization Agreement and the transactions
contemplated thereby or by the Recapitalization Amendment or the Par Value
Amendment with the Company's Certificate of Incorporation, by-laws, certain
agreements and applicable laws, (v) certain regulatory consents and approvals,
(vi) certain filings with the SEC and the financial statements contained
therein, (vii) the accuracy of certain information contained in this Proxy
Statement and certain other SEC filings relating to the transactions
contemplated by the Recapitalization Agreement and the Recapitalization
Amendment and (viii) the opinion of the Special Committee's financial advisor.
Parent and Holdings. Pursuant to the Recapitalization Agreement, Parent and
Holdings have jointly and severally made representations and warranties
regarding, among other things, (i) Parent's and Holdings' organization,
existence and qualification to do business and similar corporate matters, (ii)
Parent's and Holdings' authority to enter into and perform their respective
obligations under the Recapitalization Agreement, the Recapitalization Amendment
and the Par Value Amendment, (iii) the absence of conflict of the
Recapitalization Agreement and the transactions contemplated thereby and by the
Recapitalization Amendment and the Par Value Amendment with Parent's and
Holdings' respective certificates of incorporation, by-laws, certain agreements
and applicable laws, (iv) certain regulatory consents and approvals and (v) the
accuracy of certain information, supplied by Parent and Holdings including its
financial and legal advisors, contained in this Proxy Statement and certain
other
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SEC filings relating to the transactions contemplated by the Recapitalization
Agreement, by the Recapitalization Amendment and the Par Value Amendment.
CONDUCT OF BUSINESS PENDING THE CLOSING
The Recapitalization Agreement provides that except as otherwise expressly
contemplated by the Recapitalization Agreement or as agreed to in writing by
Parent, after the date of the Recapitalization Agreement and prior to the
Effective Time, the business of the Company and its subsidiaries shall be
conducted only in the ordinary and usual course. In particular, prior to the
Effective Time, the Company will not, without the prior written consent of
Parent, directly or indirectly, (i) issue, sell, deliver, or agree or commit to
issue, sell or deliver, any share of any class or any other security (except as
permitted by the Recapitalization Agreement); (ii) amend its Certificate of
Incorporation or By-laws; (iii) split, combine or reclassify any shares of its
Common Stock (except in connection with the Recapitalization and the Par Value
Amendment); (iv) pay any dividend or other distribution payable in cash, stock
or property with respect to its capital stock (except for its regular quarterly
dividend on the Class B Preferred Stock); or (v) redeem or otherwise acquire any
of its securities or any securities of its subsidiaries.
CERTAIN OTHER COVENANTS
Further Action; Reasonable Efforts. Pursuant to the Recapitalization
Agreement, each of the parties has also agreed to use its reasonable efforts to
take, or cause to be taken, all actions necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by the Recapitalization Agreement, the
Recapitalization Amendment and the Par Value Amendment, including using
reasonable efforts to satisfy the conditions precedent to the obligations of any
of the parties, to obtain all necessary authorizations, consents and approvals,
and to effect all necessary registrations and filings. In addition, Parent,
Holdings and the Company shall use their respective reasonable efforts to
resolve such objections, if any, as may be asserted with respect to the
transactions contemplated by the Recapitalization Agreement, by the
Recapitalization Amendment and the Par Value Amendment under the laws, rules,
guidelines or regulations of any federal, state, local or foreign court,
legislative, executive or regulatory authority or agency (a 'Governmental
Entity').
Consents and Approvals. Parent has agreed to vote, or cause to be voted all
of the shares of Common Stock owned by it or Holdings with respect to the
approval and adoption of the Recapitalization Agreement, the Recapitalization
Amendment and the Par Value Amendment. Parent has agreed to provide the Company,
upon the request of the Company, with all information concerning Parent or
Holdings necessary to be included in this Proxy Statement.
Publicity. The Recapitalization Agreement also provides that no party to
the Recapitalization Agreement will issue or cause the publication of any press
release or other announcement with respect to the Recapitalization, the
Recapitalization Agreement or the other transactions contemplated thereby
without the prior consultation of the other parties, except as may be required
by law or by any listing agreement with a national securities exchange if all
reasonable efforts have been made to consult with the other parties.
Directors' and Officers' Insurance and Indemnification. Parent and Holdings
agree that all rights to indemnification existing in favor of the present or
former directors and officers of the Company or any of its subsidiaries as
provided in the Company's Certificate of Incorporation or by-laws or pursuant to
other agreements, or certificates of incorporation or by-laws or similar
documents of any of the Company's subsidiaries, as in effect as of the date of
the Recapitalization Agreement, with respect to matters occurring prior to the
Effective Time, shall survive the Recapitalization and continue in full force
and effect for a period of six years, from and after the Effective Time. In
addition, Parent shall maintain the existing officers and directors' liability
insurance for a period of not less than six years after the Effective Time in
relation to actions and omission occurring prior to the Effective Time. Parent
may substitute therefor policies of substantially similar coverage and amounts
containing terms no less favorable to such former directors or officers;
provided, that in no event shall Parent or the Company be required to pay annual
premiums for insurance in excess of 250% of that which the Company spent
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on directors' and officers' liability insurance policies during the fiscal year
ended June 30, 1997; provided further, however, that if the annual premiums for
such insurance coverage exceed said amount, Parent shall be obligated to obtain
a policy with the greatest coverage at a cost which is no greater than 250% of
that which the Company spent on directors' and officers' liability insurance
policies during the fiscal year ended June 30, 1997.
CONDITIONS TO CONSUMMATION OF THE RECAPITALIZATION
The Recapitalization Agreement provides that the respective obligation of
each party to the Recapitalization Agreement to effect the Recapitalization is
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions (any or all of which may be waived by the parties thereto
to the extent permitted by applicable law): (i) no statute, rule, regulation,
order, decree or injunction shall have been enacted, entered, promulgated or
enforced by a Governmental Entity that prohibits the consummation of the
Recapitalization and shall be in effect; (ii) other than filing the
Recapitalization Amendment and the Par Value Amendment in accordance with the
DGCL, all material authorizations, consents and approvals required to be
obtained prior to consummation of the Recapitalization shall have been obtained;
(iii) the Recapitalization Transaction and the transactions contemplated thereby
(other than the Par Value Amendment and the transactions contemplated thereby)
shall have been approved and adopted by the affirmative vote of (a) the holders
of a majority of the outstanding shares of Common Stock and (b) the holders of a
majority of the outstanding shares held by the Public Stockholders; (iv) the
representations and warranties of each of the parties to the Recapitalization
Agreement shall be true and correct in all material respects at and as of the
Closing Date, except where the breach or inaccuracy thereof would not,
individually or in the aggregate, have a Material Adverse Effect except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date; (v) each of the
parties to the Recapitalization Agreement shall have performed in all material
respects its obligations under the Recapitalization Agreement required to be
performed at or prior to the Closing Date pursuant to the terms of the
Recapitalization Agreement, and (vi) at the time of the mailing of the Proxy
Statement, Oppenheimer shall have reaffirmed in writing the fairness opinion
previously prepared and delivered by it to the Special Committee and shall not
have withdrawn such fairness opinion prior to the Effective Time.
The respective obligations of each party to effect the transactions
contemplated by the Par Value Amendment is subject to the satisfaction on or
prior to the Closing Date of the condition that the Par Value Amendment and the
transactions contemplated thereby is approved and adopted by the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock.
TERMINATION
The Recapitalization Agreement may be terminated and the Recapitalization
may be abandoned at any time prior to the Effective Time, whether before or
after stockholder approval thereof:
(a) By the written mutual consent of Parent, Holdings and the Company.
(b) By either the Company, on the one hand, or Parent and Holdings, on
the other hand, if: (i) the Recapitalization has not been consummated on or
prior to February 27, 1998; provided, however, that such right shall
not be available to any party whose failure to fulfill
any obligation under the Recapitalization Agreement has been the
cause of, or resulted in, the failure of the Recapitalization to occur on
or prior to such date; (ii) the stockholders of the Company required to
approve and adopt the Recapitalization Amendment and the transactions
contemplated thereby fail to approve and adopt the Recapitalization
Amendment and the transactions contemplated thereby; provided, however,
that such right shall not be available to any party whose failure to
fulfill any obligation under the Recapitalization Agreement has been the
cause of, or resulted in, the failure of the stockholders of the Company to
approve and adopt the Recapitalization Amendment; (iii) prior to the
consummation of the Recapitalization, any Governmental Entity shall have
issued a statute, order, decree or regulation or taken any other action, in
each case permanently restraining, enjoining or otherwise prohibiting the
Recapitalization and such statute, order, decree, regulation or other
action shall have become final and
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non-appealable; or (iv) Oppenheimer shall have withdrawn, modified or
amended its fairness opinion.
(c) By Parent if, prior to the consummation of the Recapitalization,
the Board or the Special Committee has withdrawn, or modified or changed in
any manner adverse to Parent or Holdings its approval, adoption or
declaration of advisability of the Recapitalization Amendment or the
transactions contemplated thereby, including the Recapitalization, or its
recommendation that shareholders of the Company adopt and approve the
Recapitalization Amendment and the transactions contemplated thereby,
including the Recapitalization.
Upon termination, the Recapitalization Agreement will become null and void,
without liability on the part of any party thereto, except as set forth below.
See ' -- Miscellaneous; Fees and Expenses.' Nothing shall relieve any party,
however, from any liability or obligation with respect to any willful breach of
the Recapitalization Agreement.
MISCELLANEOUS
Fees and Expenses. Except as expressly contemplated by the Recapitalization
Agreement, the Recapitalization Agreement provides that all costs and expenses
incurred in connection with the recapitalization Agreement and the consummation
of the transactions contemplated thereby will be paid by the party incurring
such expenses.
Amendment; Waiver; Termination. Notwithstanding any provision of the
Recapitalization Agreement to the contrary, without the approval of the Special
Committee, the Company shall not amend, terminate or waive any right under the
Recapitalization Agreement (including the right to terminate or any actual or
potential cause of action).
The Recapitalization Agreement may be amended by the parties thereto at any
time before or after approval by the stockholders of the Company of the matters
presented in connection with the Recapitalization, but after any such approval
no amendment may be made without the approval of such stockholders if such
approval is required by law or if such amendment reduces the Transaction
Consideration Price or alters or changes any of the other terms or conditions of
the Recapitalization Agreement if such alteration or change would adversely
affect the rights of the Public Stockholders.
At any time prior to the Effective Time, the parties to the
Recapitalization Agreement may (i) extend the time for the performance of any of
the obligations or other acts of the other parties thereto, (ii) waive any
inaccuracies in the representations and warranties of the other parties
contained therein or in any document, certificate or writing delivered pursuant
thereto or (iii) waive compliance with any of the agreements or conditions of
the other parties thereto contained therein.
REGULATORY MATTERS
The Company, Parent and Holdings are not aware of any governmental consents
or approvals that are required prior to the parties' consummation of the
Recapitalization. It is presently contemplated that if such governmental
consents and approvals are required, such consents and approvals will be sought.
There can be no assurance that any such consents and approvals will be obtained.
32
<PAGE>
<PAGE>
CERTAIN INFORMATION CONCERNING THE COMPANY
THE COMPANY
The Company, through its wholly-owned subsidiaries, is primarily engaged in
the development, manufacture and sale of human generic pharmaceutical products
and medical devices.
The principal executive offices of the Company are located at 200 Elmora
Avenue, Elizabeth, New Jersey 07207, and its telephone number is (908) 527-9100.
Additional information concerning the Company and its subsidiaries is
contained in the Company 10-K and its other public filings. See 'AVAILABLE
INFORMATION' and 'INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.'
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the name, age, business address, present principal
occupation or employment and five-year employment history of each director and
executive officer of the Company. All directors serve terms of one year or until
the election of their respective successors. Unless otherwise indicated, the
business address of each person listed below is 200 Elmora Avenue, Elizabeth,
New Jersey 07207.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Edward D. Tweddell............. 56 Chairman of the Board of Directors and a Director
Richard F. Moldin.............. 50 Chief Executive Officer, President and a Director
William R. Griffith............ 49 Director
Alan A. McGregor............... 61 Director
Joseph C. Minio................ 54 Director
Bruce C. Tully................. 48 Director
Paul Astley.................... 51 Chief Financial Officer
</TABLE>
EDWARD D. TWEDDELL, M.D. was elected a director of the Company in November
1990 and was subsequently elected Chairman of the Board. He joined Parent as
Managing Director of its Faulding Pharmaceuticals Division in September 1988. He
was elected to the Board of Directors of Parent in
March 1989 and served as Executive Director of the Faulding Pharma Group from
1990 to November 1993 when he was appointed Group Managing Director and Chief
Executive Officer of Parent. From July 1987, until joining Parent, he held the
position of Chairman and Chief Executive Officer of Pharmol Pacific Ltd., an
Australian biotechnology company. Prior thereto and from April 1986, he was
President and Chief Executive Officer of Homecare Japan, LTD. Dr. Tweddell, who
holds a Bachelor of Science degree in addition to an honors degree in Medicine,
spent his early career in medical practice and, in 1976, joined the
multinational pharmaceutical company, Pfizer International Inc., where he held a
number of senior management positions. Dr. Tweddell is also Chief Executive
Officer and a director of Holdings.
RICHARD F. MOLDIN was appointed President and Chief Executive Officer of
the Company and President of Purepac on July 17, 1995 and was appointed to serve
as a director and Chief Operating Officer of the Company on July 24, 1995. From
October 1994 until July 1995, he served as Managing Director, Australia & New
Zealand for Wellcome Australia Limited. From May 1993 until his appointment as
Managing Director, he was Divisional Manager, Primary Manufacturing, for
Wellcome Foundation Limited, U.K. Prior thereto, and from September 1979, he
served in various executive positions at Burroughs Wellcome Co., U.S.A.,
including from October 1991 to February 1993 as Vice President, Logistics &
Primary Manufacturing.
WILLIAM R. GRIFFITH was elected a director of the Company in February 1997.
He served as Secretary of the Company from October 1993 to February 12, 1997.
Mr. Griffith has been a practicing attorney for more than ten years. Mr.
Griffith is a member of Parker Duryee Rosoff & Haft which serves as U.S. counsel
to Parent, and has also served as counsel to the Company. Mr. Griffith is also a
director and secretary of Holdings.
33
<PAGE>
<PAGE>
ALAN G. MCGREGOR, a director of the Company since June 1988, is Chairman of
Parent. Mr. McGregor is also Chairman and director of James Hardie Industries
Ltd. and Burns Philp & Co. Limited and a director of other companies. He has
served as a partner in two major Adelaide, South Australia law firms and was a
Crown Prosecutor with the South Australian Crown Solicitor's Office.
JOSEPH C. MINIO has served as director of the Company since his appointment
on January 3, 1997. He has been President and Chief Executive Officer and a
director of Belle Haven Management, Ltd. in Greenwich, Connecticut since 1986.
Belle Haven is engaged in the business of acquiring controlling positions in,
and assuming management control over, small and medium-sized under-performing
companies. He also served as President and Chief Executive Officer and a
director of Interstate Distribution, Inc. a wholesale distributor of health and
beauty aids, fragrances and pharmaceuticals from 1990 to 1991. In addition, he
served as President and Chief Executive Officer and a director of Intelligent
Business Communications Corporation ('IBC') from 1986 to 1989. IBC was engaged
in the design, development, manufacture and marketing of advanced satellite data
control equipment, as well as vertical circuit switches and T-1 multiplexers for
both data and voice communications. From 1981 until 1986, Mr. Minio was
President and Chief Executive Officer and a director of Publicker Industries,
Inc. of Greenwich, Connecticut, which was a manufacturer of alcohol and related
products. Since 1983, he has served as a director of Alba-Waldensian, Inc. and
since 1993 he has served as a director of Wellco Enterprises, Inc.
BRUCE C. TULLY, a director of the Company since April 1989, has been a
Managing Director of BT Alex. Brown Incorporated, a subsidiary of Bankers Trust
New York Corporation in New York, New York, since September 1989. From October
1986 until September 1989, he was Managing Director of Bankers Trust Company
and, for four years prior thereto, was a Vice President of Bankers Trust
Company.
PAUL ASTLEY was appointed Chief Financial Officer of the Company on March
25, 1997. Mr. Astley has held various positions with Parent since commencing
with the Company in 1973. From June 1984 to February 1988, he was the Chief
Accountant for Parent. From February 1988 to November 1993, he was Manager for
Accounting and Information Services at Parent's Corporate Head Office, and from
November 1993 until joining the Company in March 1997, he was General Manager,
Group Accounting at Parent's Corporate Head Office.
CERTAIN INFORMATION CONCERNING PARENT AND HOLDINGS
PARENT
Parent, a corporation organized under the laws of the State of South
Australia, Commonwealth of Australia, is an international healthcare products
and services company headquartered in Adelaide, South Australia. Parent conducts
its international business operations through various wholly-owned subsidiaries,
including Holdings. The ordinary shares of Parent are traded on the Australian
Stock Exchange. The business address and telephone number of Parent is 115
Sherriff Street, Underdale, South Australia 5032, Australia and (61-8)
8205-6500.
HOLDINGS
Holdings, a Delaware corporation, is a holding company with no business
operations of its own. Holdings's primary material asset is its ownership of
14,283,820 shares of Common Stock, or approximately 71% of the outstanding
shares of Common Stock, and all of the shares of the Company's Class B Preferred
Stock. Holdings is a wholly-owned subsidiary of Parent.
The principal business address and telephone number of Holdings is 529
Fifth Avenue, New York, New York 10017 and (212) 599-0500.
34
<PAGE>
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
HOLDINGS
Set forth below are the name, age and business address of each director and
executive officer of Holdings. All directors serve terms of one year or until
the election of their respective successors. The business address of each person
listed below is 529 Fifth Avenue, New York, New York 10017.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
- --------------------------------------------------- --- -------------------- --------------
<S> <C> <C> <C>
Edward D. Tweddell................................. 56 Director, President 1993
William R. Griffith................................ 49 Director, Secretary 1987
Josephine M. Dundon................................ 41 Vice President
</TABLE>
For additional information concerning the present principal occupation or
employment and five-year employment history of these individuals, see 'CERTAIN
INFORMATION CONCERNING THE COMPANY.'
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the years ended June 30, 1997, 1996 and 1995, the Company paid
Parent $7,010,000, $4,057,000 and $2,289,000, respectively, for materials and
finished goods purchases (pursuant to agreements to market injectable and oral
products, both described herein), $0, $287,000 and $918,000, respectively, for
research and development services, and $0, $603,000 and $326,000, respectively,
for interest expense on loan advances associated with Faulding Medical Device
Co. ('FMDC'), Faulding Pharmaceutical Co. ('FPC'), and Faulding Puerto Rico,
Inc. ('FPR') prior to their acquisition by the Company. In addition, during the
years ended June 30, 1997, 1996 and 1995, the Company paid Faulding Services
Inc., a wholly-owned subsidiary of Holdings ('FSI'), $0, $296,000 and $266,000,
respectively, for business development services (pursuant to an agreement with
FSI which terminated on December 31, 1995 and described herein).
During the years ended June 30, 1997, 1996, and 1995, the Company was
reimbursed $0, $466,000 and $1,919,000, respectively, by Parent for materials
and services related to research and development projects.
Additionally, during the years ended June 30, 1997 and 1996, the Company
recorded revenues of $1,354,000 and $1,018,000, respectively, for contract
manufacturing of KADIAN'r' (pursuant to an agreement with FSI, described
herein).
Included in other assets at June 30, 1997 and 1996 is $2,903,000 paid by
the Company to Parent in June 1992 to acquire proprietary technology, including
scientific information and expertise, processes and procedures, relating to the
manufacture and sale of the generic version of a modified-release pharmaceutical
product. The acquired technology is restricted to use, on an exclusive basis, in
the United States of America and its territories. Amortization of this
technology commenced in fiscal 1997. Pursuant to the terms of the agreement
between the Company and Parent dated December 5, 1992 in which Parent
transferred this technology to the Company, Parent is indemnifying the Company
in relation to the Company's costs of defending the action entitled Hoechst
Marion Roussel Inc. and Carderm Capital L.P. v. Faulding Inc. and Purepac
Pharmaceutical Co.
Amounts due from (due to) affiliated companies are payable on demand and
were as follows for the 1997 and 1996 fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Parent................................................................... $(3,886) $(1,881)
FSI...................................................................... 27 1,034
------- -------
$(3,859) $ (847)
------- -------
------- -------
</TABLE>
35
<PAGE>
<PAGE>
Purepac Pharmaceutical Co., a wholly-owned subsidiary of the Company
('Purepac'), entered into an agreement with Parent as of December 5, 1992,
pursuant to which Purepac agreed to provide services to Parent for the tableting
of pellets and micropellets on a time and materials basis. During the year ended
June 30, 1997, no related services were provided by Purepac to Parent.
In addition, Purepac and Parent entered into a three-year agreement, also
dated as of December 5, 1992, which is automatically renewable for successive
two-year periods, pursuant to which Parent granted Purepac a non-exclusive
license to import, distribute and market an erythromycin oral product in the
United States.
On January 1, 1993, Purepac and FSI entered into a consulting agreement,
pursuant to which Purepac retained FSI to serve as a business development
consultant and advisor on a non-exclusive basis. The consulting agreement
terminated on December 31, 1995.
On August 1, 1993, Purepac entered into a ten-year agreement with FSI,
pursuant to which Purepac would manufacture KADIAN'r' utilizing Parent's
technology, processes and manufacturing methods licensed to FSI. FSI, at its
sole cost, has sought all necessary approvals and/or registrations from the
appropriate regulatory authority to enable the sale of the product, which was
approved by the FDA on July 3, 1996. The parties amended this agreement in
December 1994 to resolve certain inconsistencies between this agreement and an
agreement between FSI and an unrelated third party, to distribute the product
manufactured by Purepac. On June 27, 1995, the Company and FSI entered into a
Services Agreement pursuant to which Purepac would provide certain services on
FSI's behalf that FSI had agreed to provide under the agreement with the third
party. Pursuant to the terms of the manufacturing agreement between Purepac and
Parent relating to KADIAN'r', Faulding is indemnifying the Company in relation
to the costs of defense of the action entitled Purdue Pharma L.P. and the Purdue
Frederick Company vs. FH Faulding and Company Ltd [sic], Faulding Inc., Purepac
Pharmaceutical Co. and Zeneca Inc.
On March 15, 1995, Purepac and Parent entered into a three-year license
agreement pursuant to which Parent granted Purepac the non-exclusive right to
import and distribute doxycycline, a delayed-release product, in the United
States in exchange for certain payments to Parent for its supply of the product
to Purepac.
Purepac and Parent entered into two agreements as of June 26, 1995 in
relation to two products that had been under ongoing development review for
several years. One is a licensing agreement pursuant to which Parent granted to
Purepac an exclusive ten-year license to utilize certain technology to complete
the development of a modified-release product and to manufacture and sell the
product in the United States. In relation to the development of the product,
Purepac paid to Parent prior to June 30, 1994 most of the technology licensing
fees relating to the development of the product, with the balance paid during
the year ended June 30, 1996. All such payments were expensed as research and
development costs. In addition, Purepac is obligated under the terms of the
agreement to pay royalties related to net sales of the product. As of June 30,
1997, development activity regarding this agreement has been discontinued due to
changes in market conditions and the viability of the product involved.
The second agreement, entered as of June 26, 1995, is a ten-year
Co-development, Supply and Licensing Agreement pursuant to which Parent is to
develop and deliver a component pellet of a modified-release product for
Purepac's use in developing, manufacturing and distributing the product in the
United States. Parent is to supply Purepac with pellets at prices set forth in
the agreement. If the parties later concur that Purepac should manufacture the
pellets, Parent will grant Purepac an exclusive license to the pellet technology
for the remainder of the term of the agreement in consideration of a technology
transfer fee of $250,000 and ongoing royalty payments. As of June 30, 1997,
development activity under this agreement has been discontinued due to changes
in market conditions and the viability of the product.
On January 23, 1996, FPC and Parent entered into a Supply Agreement for
injectable products developed and manufactured by Parent for sale by FPC in the
United States. Supply of six anti-cancer products under this agreement commenced
in fiscal 1996. Abbreviated New Drug Application submissions for additional
products covered by this agreement have been filed with the U.S. Food and Drug
Administration. Additional products are under development by Parent.
36
<PAGE>
<PAGE>
On January 23, 1996, FMD and Parent entered into a Licensing and Supply
Agreement for the medical device products developed by FMDC. Initial sales were
reported in the 1997 fiscal year, and products utilizing these technologies have
received regulatory approval in some other markets.
On February 29, 1996, the Company acquired all of the outstanding capital
stock of each of FMDC, FPC and FPR from Holdings, a wholly-owned subsidiary of
Parent, in exchange for 2,438,712 shares of Common Stock. As part of the
acquisition, the Company created the Class B Preferred Stock, consisting of
150,000 authorized shares, all of which were issued to Holdings for a cash
purchase price of $100 per share, resulting in net proceeds to the Company of
$15 million.
FEES AND EXPENSES
Estimated fees and expenses incurred or to be incurred by the Company in
connection with the Recapitalization are approximately as follows:
<TABLE>
<S> <C>
Investment banking fees and expenses............................................ $ 500,000
Legal fees and expenses......................................................... $ 400,000
SEC filing fee.................................................................. $ 16,857
Accounting fees................................................................. $ 12,000
Printing and mailing fees....................................................... $ 50,000
Miscellaneous expenses.......................................................... $ 131,143
----------
Total................................................................. $1,110,000
----------
----------
</TABLE>
MARKET PRICES AND DIVIDENDS
MARKET PRICES
The principal market on which the Common Stock is traded is the Nasdaq
National Market under the ticker symbol 'FAUL.' Until February 29, 1997, the
Common Stock had traded on the Nasdaq National Market under the ticker symbol
'PURE.' On June 2, 1997, the last trading day before the public announcement of
the Proposal, the high and low sales prices of the Common Stock were $11.25 and
$10.75, respectively. On December 5, 1997, the last trading day before the
printing of this Proxy Statement, the high and low sales prices of the Common
Stock were $13.1875 and $13.125, respectively. STOCKHOLDERS ARE URGED TO OBTAIN
A CURRENT MARKET QUOTATION FOR THE COMMON STOCK.
The following table sets forth, for the calendar quarters indicated, the
high and low closing prices per share of the Common Stock as reported by the
Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Fiscal 1996
First Quarter................................................................. $10.875 $7.750
Second Quarter................................................................ 8.750 4.625
Third Quarter................................................................. 7.750 5.000
Fourth Quarter................................................................ 7.125 4.125
Fiscal 1997
First Quarter................................................................. $ 7.125 $4.000
Second Quarter................................................................ 7.500 5.625
Third Quarter................................................................. 9.375 5.750
Fourth Quarter................................................................ 13.000 8.250
</TABLE>
DIVIDENDS
The Company has never declared or paid dividends with respect to shares of
its Common Stock. Any decision as to the future payment of Common Stock
dividends will depend on the earnings and financial position of the Company and
such other factors as the Board of Directors deems relevant. No dividends are
payable on the Common Stock until all declared and accrued dividends have been
paid in full on the Company's issued and outstanding shares of preferred stock,
all of which are owned by Holdings.
37
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of December 4, 1997, the total number of
shares of Common Stock beneficially owned, and the percent so owned, by each
director of the Company, by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, by
each named executive officer and by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ----------------------------------------------------------------------- ------------------ ----------
<S> <C> <C>
Faulding Holdings Inc. ................................................ 15,848,770(1) 73.0%(1)
529 Fifth Avenue
8th Floor
New York, New York 10017
Edward D. Tweddell..................................................... 0(2) *
Alan G. McGregor....................................................... 0(2) *
Joseph C. Minio........................................................ 0 *
Bruce C. Tully......................................................... 0 *
Richard F. Moldin...................................................... 82,500(3) *
William R. Griffith.................................................... 0 *
All executive officers and directors as a group (7 persons)............ 82,500(2)(3) *
</TABLE>
- ------------
(1) Includes 1,564,950 shares issuable under conversion of 150,000 shares of the
Company's Class B Preferred Stock.
(2) Mr. McGregor is Chairman and a director, and Dr. Tweddell is Group Managing
Director, Chief Executive Officer and a director, respectively, of Parent,
the sole stockholder of Holdings. Dr. Tweddell is also Chief Executive
Officer and a director of Holdings. Each of Dr. Tweddell and Mr. McGregor,
however, disclaims any beneficial interest in or voting or dispositive
control over the shares of the Company's Common Stock owned by Holdings.
(3) Includes 72,500 shares issuable upon the exercise of presently exercisable
Stock Options, that have been granted to Mr. Moldin under the Company's 1994
Stock Option Plan. Excludes 127,500 shares issuable upon the exercise of
such Stock Options granted under the 1994 Stock Option Plan that are not
presently exercisable.
* Equals a percentage less than 1% of the outstanding shares of the Company's
Stock.
38
<PAGE>
<PAGE>
ANNEX A
________________________________________________________________________________
AGREEMENT AND PLAN OF RECAPITALIZATION
BY AND AMONG
FAULDING INC.,
FAULDING HOLDINGS INC.
AND
FH FAULDING & CO LIMITED
DATED AS OF
SEPTEMBER 29, 1997
________________________________________________________________________________
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I
THE RECAPITALIZATION
SECTION 1.1 Certificate of Amendment................................................................... 1
SECTION 1.2 Closing.................................................................................... 1
SECTION 1.3 The Amendment.............................................................................. 1
SECTION 1.4 Payment for Shares......................................................................... 2
SECTION 1.5 Company Stock Options...................................................................... 3
ARTICLE II
THE CLASS B PREFERRED STOCK
SECTION 2.1 Certificate of Amendment for Change of Par Value of Class B Preferred Stock................ 3
SECTION 2.2 The Conversion............................................................................. 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization............................................................................... 3
SECTION 3.2 Capitalization............................................................................. 4
SECTION 3.3 Authorization; Validity of Agreement and Certificate of Amendment.......................... 4
SECTION 3.4 No Violations; Consents and Approvals...................................................... 5
SECTION 3.5 SEC Reports and Financial Statements....................................................... 5
SECTION 3.6 Absence of Certain Changes................................................................. 6
SECTION 3.7 Proxy Statement; Information in Schedule 13E-3............................................. 6
SECTION 3.8 Opinion of Financial Advisor............................................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND HOLDINGS
SECTION 4.1 Organization............................................................................... 6
SECTION 4.2 Authorization; Validity of Agreement....................................................... 6
SECTION 4.3 Consents and Approvals; No Violations...................................................... 7
SECTION 4.4 Information in Proxy Statement and Schedule 13E-3.......................................... 7
ARTICLE V
COVENANTS
SECTION 5.1 Interim Operations of the Company.......................................................... 7
SECTION 5.2 Further Action; Reasonable Efforts......................................................... 9
SECTION 5.3 Consents and Approvals..................................................................... 9
SECTION 5.4 Notification of Certain Matters............................................................ 10
SECTION 5.5 Publicity.................................................................................. 10
SECTION 5.6 Meeting of Shareholders of the Company..................................................... 10
SECTION 5.7 Directors' and Officers' Insurance and Indemnification..................................... 10
SECTION 5.8 Brokers or Finders......................................................................... 11
SECTION 5.9 Certificates of Amendment.................................................................. 11
SECTION 5.10 Par Value.................................................................................. 11
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Recapitalization....................... 12
SECTION 6.2 Conditions to the Obligation of the Company to Effect the Recapitalization................. 12
SECTION 6.3 Conditions to Obligations of Parent and Holdings to Effect the Recapitalization............ 12
SECTION 6.4 Condition to Each Party's Obligation to Effect the Change in Par Value..................... 13
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VII
TERMINATION
SECTION 7.1 Termination................................................................................ 13
SECTION 7.2 Effect of Termination...................................................................... 13
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Fees and Expenses.......................................................................... 14
SECTION 8.2 Amendment; Waiver; Termination............................................................. 14
SECTION 8.3 Nonsurvival of Representations and Warranties.............................................. 14
SECTION 8.4 Notices.................................................................................... 14
SECTION 8.5 Interpretation............................................................................. 15
SECTION 8.6 Headings................................................................................... 15
SECTION 8.7 Counterparts............................................................................... 15
SECTION 8.8 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership........................ 15
SECTION 8.9 Severability............................................................................... 15
SECTION 8.10 Governing Law.............................................................................. 15
SECTION 8.11 Assignment................................................................................. 15
</TABLE>
iii
<PAGE>
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
affiliates................................................................................................. 15
Agreement.................................................................................................. 1
Amendment.................................................................................................. 1
Amendments................................................................................................. 3
Applicable Amount.......................................................................................... 3
beneficial ownership....................................................................................... 15
Board...................................................................................................... 4
Certificate of Amendment................................................................................... 1
Certificates............................................................................................... 2
Certificates of Amendment.................................................................................. 3
Class A Preferred Stock.................................................................................... 4
Class B Preferred Stock.................................................................................... 4
Closing.................................................................................................... 1
Closing Date............................................................................................... 1
Common Stock............................................................................................... 1
Company.................................................................................................... 1
Company SEC Documents...................................................................................... 5
Conversion................................................................................................. 3
DGCL....................................................................................................... 1
Dillon Read................................................................................................ 11
Effective Time............................................................................................. 1
Exchange Act............................................................................................... 5
Exchange Agent............................................................................................. 2
Fund....................................................................................................... 2
GAAP....................................................................................................... 5
Governmental Entity........................................................................................ 5
Holdings................................................................................................... 1
include.................................................................................................... 15
Indemnified Parties........................................................................................ 10
Laws....................................................................................................... 5
made available............................................................................................. 15
Material Adverse Effect.................................................................................... 4
New Common Shares.......................................................................................... 1
Oppenheimer................................................................................................ 6
Option Holder.............................................................................................. 3
Par Value Amendment........................................................................................ 3
Par Value Certificate of Amendment......................................................................... 3
Par Value Effective Time................................................................................... 3
Parent..................................................................................................... 1
Person..................................................................................................... 4
Pre-Amendment Certificate.................................................................................. 1
Pre-Par Value Amendment Certificate........................................................................ 3
Preferred Stock............................................................................................ 2
Preferred Stock............................................................................................ 2
Proxy Statement............................................................................................ 9
Reverse Stock Split........................................................................................ 1
Schedule 13E-3............................................................................................. 6
Securities Act............................................................................................. 5
Special Committee.......................................................................................... 1
Stock Option............................................................................................... 3
Subsidiary................................................................................................. 4
Transaction Consideration.................................................................................. 1
Unaffiliated Holders....................................................................................... 2
without limitation......................................................................................... 15
</TABLE>
iv
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF RECAPITALIZATION
AGREEMENT AND PLAN OF RECAPITALIZATION, dated as of September 29, 1997 (the
'Agreement') by and among Faulding Inc., a Delaware corporation (the 'Company'),
FH Faulding & Co. Limited, a corporation organized under the laws of the State
of South Australia, Commonwealth of Australia ('Parent') and Faulding Holdings
Inc., a wholly owned subsidiary of Parent and a Delaware corporation
('Holdings').
WHEREAS, the Board of Directors of the Company upon the recommendation of
its special committee of independent directors (the 'Special Committee'), and
the Boards of Directors of Parent and Holdings have each approved the Amendments
(as defined in Section 2.1) and this Agreement and the transactions contemplated
thereby and hereby in accordance with the terms, and subject to the conditions,
of the Amendments and this Agreement, and deem it advisable and in the best
interests of their respective stockholders to consummate the transactions
contemplated by the Amendments and this Agreement upon the terms and subject to
the conditions set forth therein and herein and in accordance with the General
Corporation Law of the State of Delaware (the 'DGCL');
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE RECAPITALIZATION
The actions set forth in this Article I, subject to the conditions set
forth in Article VI hereof, shall be taken or caused to be taken by the Company
as provided in this Article I, and such actions shall be referred to
collectively as the 'Recapitalization.'
SECTION 1.1 Certificate of Amendment for Recapitalization. At the time of
the Closing (as defined in Section 1.2 hereof), the Company shall effect an
amendment to its Certificate of Incorporation (the 'Amendment') by filing with
the Secretary of State of the State of Delaware (the 'Secretary of State') a
certificate of amendment substantially in the form attached hereto as Exhibit A
(the 'Certificate of Amendment'), in accordance with applicable provisions of
the DGCL and the Company's Certificate of Incorporation as theretofore amended
and in effect at the time immediately prior to such filing (the 'Pre-Amendment
Certificate'). The Recapitalization shall become effective on the date on which,
and at the time at which, the Certificate of Amendment has been duly filed with
the Secretary of State or such time as is agreed upon by the parties and
specified in the Certificate of Amendment, and such time is hereinafter referred
to as the 'Effective Time'.
SECTION 1.2 Closing. The closing of the Recapitalization (the 'Closing')
will take place at 10.00 a.m., New York time, on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
or waiver of all of the conditions set forth in Article VI hereof (the 'Closing
Date'), at the offices of Parker Duryee Rosoff & Haft, 529 Fifth Avenue, New
York, New York 10017, unless another date, time or place is agreed to in writing
by the parties hereto.
SECTION 1.3 The Amendment. The Amendment shall provide for the amendment of
the Pre-Amendment Certificate substantially as provided in Sections 1.3(a)
through 1.3(b) below.
(a) Reverse Stock Split. The Amendment shall provide for a reverse stock
split (the 'Reverse Stock Split') of the Company's Common Stock, par value
US$0.01 per share (the 'Common Stock'), whereby at the Effective Time each
7,924,385 issued shares of Common Stock shall be combined into one validly
issued share of common stock of the Company, the par value per share of which
shall be the quotient obtained by dividing (i) the product of (a) the total
number of shares of Common Stock issued and outstanding immediately prior to the
Effective Time, multiplied by (b) .01, by (ii) the number of shares of new
common stock of the Company to be issued and outstanding immediately following
the Effective Time ('New Common Shares'). The Amendment will prohibit the
issuance of scrip or fractional New Common Shares, but in lieu thereof each
person who would otherwise be entitled to receive a fractional New Common Share
pursuant to the provisions of the Amendment shall be entitled to receive an
amount in cash equal to the product of (x) the number of shares of Common Stock
held by such person immediately prior to the Effective Time, multiplied by (y)
US$13.50 (the 'Transaction Consideration').
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(b) Reduction of Authorized Capital Stock. The Amendment shall provide that
the total number of shares of all classes of stock which the Company shall have
authority to issue shall be 1,834,190, consisting of 2 New Common Shares and
1,834,188 shares of preferred stock (the 'Preferred Stock). After the Effective
Time, the New Common Shares and the Preferred Stock shall have the same powers,
preferences and rights as the Common Stock and Preferred Stock, respectively,
immediately prior to the Effective Time.
SECTION 1.4 Payment for Shares.
(a) Prior to the Effective Time, Parent shall designate a bank or trust
company to act as agent for the holders of shares of Common Stock not
beneficially owned by Parent or any of its Subsidiaries (the 'Unaffiliated
Holders') in connection with the Reverse Stock Split (the 'Exchange Agent') to
receive the funds, as needed, to which the Unaffiliated Holders of Common Stock
shall become entitled pursuant to Section 1.3(a). At the Effective Time, Parent
shall deposit or cause to be deposited, in trust with the Exchange Agent, for
the benefit of the Unaffiliated Holders, the funds necessary to make the
payments contemplated by Section 1.3(a) hereof (the 'Fund') as and when
certificates which formerly represented shares of Common Stock (the
'Certificates') are surrendered. Such funds shall be invested by the Exchange
Agent as directed by the Company. All interest earned on such funds shall be
paid to the Company. Any amount remaining in the Fund after six months after the
Effective Time may be refunded to the Company at its option; provided, however,
that the Company shall be liable for any cash payments required to be made
thereafter pursuant to Section 1.3(a) hereof, without any interest thereon.
Notwithstanding the foregoing, the Company shall not be liable to any former
holder of Common Stock for any amount paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. Any portion of the Fund
remaining unclaimed by holders of Certificates as of a date which is immediately
prior to such time as such portion would otherwise escheat to or become property
of any governmental entity shall, to the extent permitted by applicable law,
become the property of the Company, free and clear of any claims or interest of
any Person (as defined in Section 3.1 hereof) previously entitled thereto.
(b) At the Effective Time, Parent will instruct the Exchange Agent to
promptly mail to each Unaffiliated Holder of record a form letter of transmittal
and instructions for use in effecting the surrender of such Certificate or
Certificates which, as a result of the Amendment, represents only the right to
receive cash as contemplated by Section 1.3(a) hereof. Such letter of
transmittal shall specify that delivery shall be effected, and risk of loss and
title to a Certificate shall pass, only upon delivery of a Certificate to the
Exchange Agent and shall be in such form and have such other provisions as the
Company may reasonably specify. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal, duly executed and
completed in accordance with the instructions set forth therein, the holder of
such Certificate shall be entitled to receive in exchange therefor the
Transaction Consideration, to be mailed as soon as practicable following the
receipt of any such Certificate and such letter of transmittal, and such
Certificate shall forthwith be cancelled. No interest will be paid or accrue on
the cash payable upon the surrender of a Certificate. If payment is to be made
to a person other than the person in whose name a surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of any payment to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Exchange Agent and the Company that such
tax either has been paid or is not applicable. Until surrendered as contemplated
by this Section 1.4, each Certificate held by an Unaffiliated Holder shall be
deemed at any time after the Effective Time to represent only the right to
receive the Transaction Consideration as contemplated by this Section 1.4.
(c) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person (as defined in
Section 3.1) claiming such Certificate to be lost, stolen or destroyed, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Transaction Consideration deliverable in respect thereof as
determined in accordance with Section 1.3(a) hereof, provided that the Person to
whom the Transaction Consideration is paid shall, as a condition precedent to
the payment thereof, give the Company a bond in such sum as it may direct or
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otherwise indemnify the Company in a manner satisfactory to it against any claim
that may be made against the Company with respect to the Certificate claimed to
have been lost, stolen or destroyed.
(d) After the Effective Time, the stock transfer books of the Company
relating to the Common Stock shall be closed and there shall be no transfers on
the stock transfer books of the Company of shares of Common Stock which were
outstanding immediately prior to the Effective Time and which, as a result of
the Amendment, have been converted into the right to receive cash as
contemplated by Section 1.3(a) hereof. If, after the Effective Time, a
Certificate is presented to the Company for transfer, it shall be cancelled and
exchanged for the Transaction Consideration as provided herein.
SECTION 1.5 Company Stock Options. Except as Parent or Holdings and the
holder of any option ('Option Holder') to purchase Common Stock ('Stock Option')
otherwise agree, the Company shall take all actions necessary to provide that,
upon the Effective Time, (i) each outstanding Stock Option, whether or not then
exercisable or vested, shall become fully exercisable and vested, (ii) each
outstanding Stock Option shall be cancelled and (iii) in consideration of such
cancellation the Company shall pay to each Option Holder an amount in respect
thereof equal to the product of (A) the Applicable Amount, multiplied by (B) the
number of shares subject thereto. The term 'Applicable Amount' shall mean the
excess, if any, of the Transaction Consideration over the applicable exercise
price of each such Stock Option.
ARTICLE II
THE CLASS B PREFERRED STOCK
SECTION 2.1 Certificate of Amendment for Change of Par Value of Class B
Preferred Stock. Prior to the Closing, the Company shall effect an amendment to
its Certificate of Incorporation (the 'Par Value Amendment', and together with
the Amendment, the 'Amendments') so as to change the par value of its Class B
Preferred Stock (as defined in Section 3.2) from US$0.01 per share to US$0.10433
per share, by filing with the Secretary of State a certificate of amendment
substantially in the form attached hereto as Exhibit B (the 'Par Value
Certificate of Amendment', and together with the Certificate of Amendment, the
'Certificates of Amendment'), in accordance with applicable provisions of the
DGCL and the Company's Certificate of Incorporation as theretofore amended and
in effect at the time immediately prior to such filing (the 'Pre-Par Value
Amendment Certificate'). The Par Value Amendment shall become effective on the
date on which, and the time at which, the Par Value Certificate of Amendment has
been duly filed with the Secretary of State or such time as is agreed upon by
the parties and specified in the Par Value Certificate of Amendment, and such
time is hereinafter referred to as the 'Par Value Effective Time'; provided,
however, that the Par Value Certificate of Amendment shall be filed with the
Secretary of State prior to the Certificate of Amendment, and the Par Value
Effective Time shall be prior to the Effective Time.
SECTION 2.2 The Conversion. Immediately following the Par Value Effective
Time, but prior to the Effective Time, Holdings shall convert all of the shares
of Class B Preferred Stock that it owns into shares of Common Stock (the
'Conversion') in accordance with the applicable provisions of the Pre-Par Value
Amendment Certificate and the Certificate of Designation, Preferences and Rights
of Class B Preferred Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Holdings, as of the date
hereof and as of and at the Closing Date, as follows:
SECTION 3.1 Organization. Each of the Company and its Subsidiaries
(hereinafter defined) is a corporation duly organized, validly existing, and in
good standing under the laws of Delaware, and has all requisite corporate power
and authority to own, lease, use and operate its properties and to carry on its
business as it is now being conducted. Each of the Company and its Subsidiaries
is qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which it owns real property or in which the
nature of the business conducted by it makes such qualification or
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licensing necessary, except where the failure to be so qualified or licensed
individually and in the aggregate would not have or result in a Material Adverse
Effect. The term 'Material Adverse Effect' means a material adverse effect on
the business, assets, liabilities, results of operations, financial condition or
business prospects (other than those prospects arising as a result of general
economic or industry conditions) of the Company and its Subsidiaries, taken as a
whole. The term 'Subsidiary' means, with respect to any Person, any corporation
or other entity of which 50% or more of the securities or other interests having
by their terms ordinary voting power for the election of directors or others
performing similar functions with respect to such entity is directly owned by
such Person or such Person's Subsidiaries. The term 'Person' means any natural
person, firm, individual, partnership, joint venture, business trust, trust,
association, corporation, company, unincorporated entity or Governmental Entity
(as defined in Section 3.4(b)).
SECTION 3.2 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (a) 35,000,000 shares of Common Stock, of which
20,127,188 shares are issued and outstanding and (b) 1,834,188 shares of
Preferred Stock, of which (i) 834,188 shares have been designated as Class A
Preferred Stock, par value US$0.01 per share (the 'Class A Preferred Stock'),
none of which are issued and outstanding, and (ii) 150,000 shares have been
designated as Class B Preferred Stock, par value US$0.01 per share (the 'Class B
Preferred Stock'), all of which are issued and outstanding. Following the
Conversion but prior to the Effective Time, there shall be 21,692,138 shares of
Common Stock issued and outstanding (subject to increases upon the exercise of
Stock Options) and no shares of Class B Preferred Stock issued and outstanding.
All the outstanding shares of the Company's capital stock are duly authorized,
validly issued, fully paid and nonassessable. There are no existing (i) options,
warrants, calls, preemptive rights, subscriptions or other rights, convertible
securities, agreements or commitments of any character obligating the Company or
any of its Subsidiaries to issue, transfer or sell any shares of capital stock
or other equity interest in, the Company or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or equity interests
(other than (A) Stock Options to purchase 875,000 shares of Common Stock
(subject to decreases upon the exercise of any such options), (B) prior to the
Conversion, the Class B Preferred Stock, and (C) the obligation to issue the New
Common Shares to Holdings pursuant to this Agreement), (ii) contractual
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any capital stock of the Company or any of its Subsidiaries or
(iii) voting trusts or similar agreements to which the Company or any of its
Subsidiaries is a party with respect to the voting of the capital stock of the
Company or any of its Subsidiaries.
SECTION 3.3 Authorization; Validity of Agreement and Certificate of
Amendment.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and, subject to approval of its stockholders as
contemplated by Section 6.1(b) hereof, to consummate the transactions
contemplated hereby and by the Amendments. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby and by the Amendments have been duly
authorized by the Board of Directors of the Company (the 'Board') and, other
than approval and adoption of the Amendments by the holders of the outstanding
shares of Common Stock contemplated by Section 6.1(b) hereof, no other corporate
proceedings on the part of the Company are necessary to authorize the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby and by the Amendments.
This Agreement has been duly executed and delivered by the Company and, assuming
due authorization, execution and delivery of this Agreement by Parent and
Holdings, is a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except that such enforcement may be
subject to or limited by (i) bankruptcy, insolvency or other similar laws, now
or hereafter in effect, affecting creditors' rights generally, and (ii) the
effect of general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The Certificates of Amendment
have been duly and validly approved, adopted and declared advisable in a
resolution of the Board and, when approved by the holders of Common Stock as
contemplated by Section 6.1(b) hereof and when filed in accordance with Section
103 of the DGCL, shall become effective in accordance with the DGCL and shall
have the effect of amending the Certificate of Incorporation.
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(b) The Board, at a meeting duly called and held and acting on the
unanimous recommendation of the Special Committee, comprised entirely of
non-management, non-affiliated independent directors, has (i) unanimously
determined that each of the Amendments, this Agreement and the Recapitalization,
including the Reverse Stock Split, are fair to and in the best interests of the
Unaffiliated Holders, and (ii) adopted a resolution setting forth the terms of
the Amendments and approving, adopting and declaring the advisability of, and
recommending the approval by the holders of the Common Stock of, the Amendments
and this Agreement and the transactions contemplated thereby and hereby,
including the Recapitalization, and such resolution is sufficient to satisfy the
provisions of any applicable laws of the State of Delaware.
SECTION 3.4 No Violations; Consents and Approvals.
(a) Neither the execution, delivery and performance of this Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby or by the Amendments will (i) violate any provision of the certificate of
incorporation or by-laws of the Company or its Subsidiaries, (ii) conflict with,
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration or to the imposition of any lien) under,
or result in the acceleration or trigger of any payment, time of payment,
vesting (other than in the case of the employee stock options as provided in
Section 1.5 hereof) or increase in the amount of any compensation or benefit
payable pursuant to, the terms, conditions or provisions of any note, bond,
mortgage, indenture, guarantee or other evidence of indebtedness, lease,
license, contract, agreement, plan or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of them or any
of their assets may be bound or (iii) conflict with or violate any federal,
state, local or foreign order, writ, injunction, judgment, award, decree,
statute, law, rule or regulation (collectively, 'Laws') applicable to the
Company, any of its Public Subsidiaries or any of their properties or assets;
except in the case of clauses (ii) or (iii) for such conflicts, violations,
breaches, defaults or liens which individually and in the aggregate would not
have or result in a Material Adverse Effect or materially impair or delay the
consummation of the transactions contemplated hereby or by the Amendments.
(b) No filing or registration with, declaration or notification to, or
order, authorization, consent or approval of, any federal, state, local or
foreign court, legislative, executive or regulatory authority or agency (a
'Governmental Entity') is required in connection with the execution, delivery
and performance of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby or by the Amendments, except (i)
applicable requirements under the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), (ii) the filing of the Certificate of Amendments with the
Secretary of State, and (iii) such other consents, approvals, orders,
authorizations, notifications, registrations, declarations and filings the
failure of which to be obtained or made individually and in the aggregate would
not have or result in a Material Adverse Effect or materially impair or delay
the consummation of the transactions contemplated hereby or by the Amendments.
SECTION 3.5 SEC Reports and Financial Statements. The Company has filed
with the SEC, all forms and documents required to be filed by it since June 30,
1994 under the Exchange Act and has heretofore made available to Parent (i) its
Annual Reports on Form 10-K for the years ended June 30, 1995, June 30, 1996 and
June 30, 1997, respectively, and (ii) all proxy statements relating to meetings
of stockholders of the Company since January 1, 1994 and (iii) all other forms,
reports and registration statements filed by the Company with the SEC since
January 1, 1994. The documents described in clauses (i)-(iii) above (whether
filed before, on or after the date hereof) are referred to in this Agreement
collectively as the 'Company SEC Documents'. As of their respective dates, the
Company SEC Documents (a) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading and (b) complied in all material respects
with the applicable requirements of the Exchange Act and the Securities Act of
1933, as amended (the 'Securities Act'), as the case may be, and the applicable
rules and regulations of the SEC thereunder. The consolidated financial
statements included in the Company SEC Documents have been prepared in
accordance with generally accepted accounting principles ('GAAP') applied on a
consistent basis during the periods involved (except as otherwise disclosed
therein) and present fairly in all material
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respects the consolidated financial position and the consolidated results of
operations and cash flows of the Company and its consolidated Subsidiaries as of
and at the dates thereof or for the periods presented therein.
SECTION 3.6 Absence of Certain Changes. Except as contemplated by this
Agreement or disclosed in the Company SEC Documents, since the fiscal year ended
June 30, 1997, the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary course and in a manner consistent with past
practices and, since such date, (i) there has not been any material adverse
change in the business, assets, liabilities, results of operations, financial
condition or business prospects (other than those prospects arising as a result
of general economic or industry conditions) of the Company and its Subsidiaries
taken as a whole, and (ii) there has not been any change by the Company or any
of its Subsidiaries in accounting principles or methods.
SECTION 3.7 Proxy Statement; Information in Schedule 13E-3.
(a) The Proxy Statement (as defined in Section 5.3(b)) (and any amendment
thereof or supplement thereto), including any information incorporated therein
by reference, at the date mailed to stockholders of the Company and at the
Effective Time, (i) will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading and (ii) will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder; except that no representation is made by the Company with respect to
statements made in the Proxy Statement based on information supplied by Parent
or Holdings relating to Parent or Holdings specifically for inclusion therein.
(b) The information relating to the Company or the Special Committee,
including its financial and legal advisors, provided by the Company specifically
for use in any Rule 13e-3 Transaction Statement on Schedule 13E-3 to be filed
with the SEC under the Exchange Act in connection with the Recapitalization (the
'Schedule 13E-3') (and any amendment thereto or supplement thereof), including
any information referred to in Section 3.7(a) which is incorporated by reference
therein, at the date filed with the SEC, will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
SECTION 3.8 Opinion of Financial Advisor. The Special Committee has
received an opinion of Oppenheimer & Co. Inc. ('Oppenheimer') to the effect
that, as of the date hereof, the Transaction Consideration to be received by the
Unaffiliated Holders is fair, from a financial point of view, to such holders.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND HOLDINGS
Parent and Holdings jointly and severally represent and warrant to the
Company, as of the date hereof and as of and at the Closing Date, as follows:
SECTION 4.1 Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of South Australia,
Commonwealth of Australia, and Holdings is a corporation duly organized, validly
existing and in good standing under the laws of Delaware.
SECTION 4.2 Authorization; Validity of Agreement. Each of Parent and
Holdings has the requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby and by the
Amendments. The execution, delivery and performance by Parent and Holdings of
this Agreement and the consummation by Parent and Holdings of the transactions
contemplated hereby and by the Amendments have been duly authorized by the
respective Boards of Directors of Parent and Holdings and no other corporate
proceedings on the part of Parent or Holdings are necessary to authorize the
execution, delivery and performance of this Agreement by Parent and Holdings and
the consummation by Parent and Holdings of the transactions contemplated hereby
and by the Amendments. This Agreement has been duly executed and delivered by
Parent and Holdings and, assuming due authorization, execution and delivery of
this Agreement by the Company,
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is a valid and binding obligation of each of Parent and Holdings, enforceable
against each of them in accordance with its terms, except that such enforcement
may be subject to or limited by (i) bankruptcy, insolvency or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). As of the
date hereof, Holdings is the owner of 14,283,820 shares of Common Stock and
150,000 shares of Class B Preferred Stock, and, other than as provided for
herein, does not own any other interest in any other shares of the Common Stock
or Preferred Stock. Following the Conversion but prior to the Effective Time,
Holdings will be the owner of 15,848,770 shares of Common Stock and no shares of
Class B Preferred Stock.
SECTION 4.3 Consents and Approvals; No Violations.
(a) Neither the execution, delivery and performance of this Agreement by
Parent and Holdings nor the consummation by Parent and Holdings of the
transactions contemplated hereby or by the Amendments will (i) violate any
provision of the respective certificate of incorporation or by-laws of Parent or
Holdings, (ii) conflict with, result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or to the
imposition of any lien) under, or result in the acceleration or trigger of any
payment, time of payment, vesting or increase in the amount of any compensation
or benefit payable pursuant to, the terms, conditions or provisions of any note,
bond, mortgage, indenture, guarantee or other evidence of indebtedness, lease,
license, contract, agreement, plan or other instrument or obligation to which
Parent or Holdings is a party or by which any of them or any of their assets may
be bound, or (iii) conflict with or violate any Laws applicable to Parent or
Holdings or any of their properties or assets; except in the case of clauses
(ii) and (iii) for such conflicts, violations, breaches, defaults or liens which
individually and in the aggregate would not have or result in a material adverse
effect on the financial condition of Parent and Holdings, taken as a whole, or
materially impair or delay the consummation of the transactions contemplated
hereby or by the Amendments.
(b) No filing or registration with, declaration or notification to, or
order, authorization, consent or approval of, any Governmental Entity is
required in connection with the execution, delivery and performance of this
Agreement by Parent or Holdings or the consummation by Parent or Holdings of the
transactions contemplated hereby or by the Amendments, except (i) applicable
requirements under the Exchange Act, (ii) the filing of the Certificates of
Amendment with the Secretary of State and (iii) such other consents, approvals,
orders, authorizations, notifications, registrations, declarations and filings
the failure of which to be obtained or made individually and in the aggregate
would not have a material adverse effect on the financial condition of Parent
and Holdings, taken as a whole, or materially impair or delay the consummation
of the transactions contemplated hereby or by the Amendments.
SECTION 4.4 Information in Proxy Statement and Schedule 13E-3.
(a) The information relating to Parent and/or Holdings supplied by Parent
or Holdings specifically for inclusion in the Proxy Statement (and any amendment
thereof or supplement thereto), at the date mailed to stockholders of the
Company and at the Effective Time, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(b) The information relating to Parent and/or Holdings, including its
financial and legal advisors, provided by Parent or Holdings specifically for
inclusion in the Schedule 13E-3 (and any amendment thereto or supplement
thereof), including any information referred to in Section 4.4(a) which is
incorporated by reference therein, at the date filed with the SEC, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE V
COVENANTS
SECTION 5.1 Interim Operations of the Company. The Company covenants and
agrees that, between the date of this Agreement and the Effective Time, except
as otherwise expressly contemplated by this
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Agreement or as agreed to in writing by Parent, the Company and its Subsidiaries
will each conduct its operations according to its ordinary and usual course of
business and consistent with past practice, and the Company and its Subsidiaries
will each use its reasonable efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with licensors, licensees, suppliers,
contractors, distributors, customers, lessors and others having business
relationships with it. Without limiting the generality of the foregoing, and
except as otherwise expressly provided in this Agreement, prior to the Effective
Time, neither the Company nor any of its Subsidiaries will, without the prior
written consent of Parent:
(a) amend its Certificate of Incorporation or By-laws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities, except (i) as required by any employee
benefit plan or arrangement as in effect as of the date hereof, (ii) in
connection with the Recapitalization, or (iii) in connection with the
Conversion, or amend any of the terms of any such securities or agreements
outstanding as of the date hereof;
(c) split, combine or reclassify any shares of its capital stock (except in
connection with the Recapitalization and the Par Value Amendment), declare, set
aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock (except for
its regular quarterly dividend on the Preferred Stock), or redeem or otherwise
acquire any of its securities or any securities of its Subsidiaries;
(d) (i) incur or assume any long-term debt or, except in the ordinary
course of business consistent with past practice under existing lines of credit,
incur or assume any short-term debt (except any trade debt incurred in the
ordinary course of business consistent with past practice); (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except in the
ordinary course of business and except for obligations of wholly owned
Subsidiaries of the Company which, if incurred by the Company, would be
permitted under clause (i) above; (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than to wholly
owned Subsidiaries of the Company);
(e) enter into, adopt or (except as may be required by law) amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee, or (except for normal increases in
the ordinary course of business that are consistent with past practices and
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company) increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights or performance units) or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing;
(f) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets which in the aggregate are material to the
Company and its Subsidiaries taken as a whole or enter into any commitment or
transaction outside the ordinary course of business;
(g) change any of the accounting principles or practices used by it, except
as required by generally accepted accounting principles;
(h) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(i) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) enter into any material contract or agreement other than in the
ordinary course of business; (iii) except as previously authorized by the
Company and its Board of Directors, authorize any new capital expenditure or
expenditures; or
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(iv) enter into or amend any contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this Section 5(i);
(j) make any material tax election or settle or compromise any material
income tax liability;
(k) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in the consolidated financial statements (or the notes thereto)
of the Company and its consolidated Subsidiaries or incurred in the ordinary
course of business and consistent with past practice; or
(l) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through 5.1(k) or any action which would make any
of the representations or warranties of the Company contained in this Agreement
untrue or incorrect as of the date when made or as of a future date or would
result in any of the conditions set forth in Sections 6.1 or 6.3 not being
satisfied.
SECTION 5.2 Further Action; Reasonable Efforts.
(a) Upon the terms and subject to the conditions herein provided, and
subject to the fiduciary duties of the Board, each of the parties hereto shall
use its reasonable efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement and the Amendments, including using reasonable
efforts to satisfy the conditions precedent to the obligations of any of the
parties hereto, to obtain all necessary authorizations, consents and approvals,
and to effect all necessary registrations and filings. Each of the parties
hereto shall promptly consult with the other parties with respect to, provide
any necessary information that is not subject to legal privilege with respect
to, and provide the other parties (or their counsel) copies of, all filings made
by such party with any Governmental Entity or any other information supplied by
such party to a Governmental Entity in connection with this Agreement and the
transactions contemplated hereby and by the Amendments. Each of the parties
hereto shall promptly inform the other of any communication from any
Governmental Entity regarding any of the transactions contemplated by this
Agreement or by the Amendments. If such party receives a request from any such
Governmental Entity with respect to the transactions contemplated by this
Agreement or by the Amendments, then such party will endeavor in good faith to
make, or cause to be made, as soon as reasonably practicable and after
consultation with the other parties, an appropriate response in compliance with
such request.
(b) Parent, Holdings and the Company shall use their respective reasonable
efforts to resolve such objections, if any, as may be asserted with respect to
the transactions contemplated hereby and by the Amendments under the laws,
rules, guidelines or regulations of any Governmental Entity.
SECTION 5.3 Consents and Approvals; Proxy Statement; Schedule 13E-3.
(a) Parent will (i) vote, or cause to be voted, all of the Shares owned by
it or Holdings in favor of the approval and adoption of the Amendments and the
Recapitalization Agreement and the transactions contemplated thereby and by this
Agreement, including the Recapitalization, and (ii) as promptly as practicable
after the date hereof and upon the request of the Company, provide the Company
with all information concerning Parent or Holdings necessary to be included in
the Proxy Statement.
(b) As promptly as practicable after the date hereof, the Company shall
prepare and file with the SEC, and Parent and Holdings shall cooperate with the
Company in such preparation and filing, a preliminary proxy statement relating
to this Agreement and the Amendments and the transactions contemplated hereby
and thereby, and shall furnish the information required, in the reasonable
judgment of Parent and the Company, to be included in the Proxy Statement by the
Exchange Act and the rules and regulations promulgated thereunder and, after
consultation with Parent, to respond promptly to any comments made by the SEC
with respect to the preliminary proxy statement and cause a definitive Proxy
Statement (the 'Proxy Statement') to be mailed to its stockholders.
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(c) The Company, Parent and Holdings shall cooperate with one another in
the preparation and filing of the Schedule 13E-3 and shall use all reasonable
efforts to promptly obtain and furnish the information required, in the
reasonable judgment of Parent and the Company, to be included in the Schedule
13E-3 by the Exchange Act and the rules and regulations promulgated thereunder
and to respond promptly to any comments or requests made by the SEC with respect
to the Schedule 13E-3. Each party hereto shall promptly notify the other parties
of the receipt of comments of, or any requests by, the SEC with respect to the
Schedule 13E-3, and shall promptly supply the other parties with copies of all
correspondence between such party (or its representatives) and the SEC (or its
staff) relating thereto. The Company, Parent and Holdings each shall correct any
information provided by it for use in the Schedule 13E-3 which shall have
become, or is, false or misleading.
SECTION 5.4 Notification of Certain Matters.
(a) The Company shall give prompt notice to Parent and Parent shall give
prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would cause any representation or
warranty of the Company, or of Parent and Holdings, as the case may be,
contained in this Agreement to be untrue or inaccurate in any material respect
at the Effective Time, and (ii) any material failure of the Company, or of
Parent or Holdings, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
(b) If at any time prior to the Effective Time any event or circumstance
relating to the Company or any of its Subsidiaries or affiliates, or their
respective officers or directors, should be discovered by the Company that is
required to be set forth in a supplement to the Proxy Statement, the Company
shall promptly inform Parent and Holdings, and, after consulting with Parent, so
supplement the Proxy Statement (subject to the provisions of Section 5.3(b)
hereof) and mail such supplement to its stockholders. If at any time prior to
the Effective Time any event or circumstance relating to Parent or Holdings or
their respective officers or directors, should be discovered by Parent that is
required to be set forth in a supplement to the Proxy Statement, Parent shall
promptly inform the Company; and upon receipt of such information the Company
shall promptly supplement the Proxy Statement and mail such supplement to its
stockholders.
SECTION 5.5 Publicity. Neither the Company, Parent nor any of their
respective affiliates shall issue or cause the publication of any press release
or other announcement with respect to the Recapitalization, this Agreement or
the other transactions contemplated hereby without the prior consultation of the
other party, except as may be required by law or by any listing agreement with a
securities exchange if all reasonable efforts have been made to consult with the
other party.
SECTION 5.6 Meeting of Shareholders of the Company. The Company shall as
promptly as reasonably practicable take all action necessary in accordance with
Delaware law and its Certification of Incorporation and By-laws duly to call,
convene and hold a special meeting of the holders of Common Stock for the
purpose of seeking the approval of such holders of the Amendments and the
transactions contemplated thereby and by this Agreement. The Company shall,
subject to the fiduciary obligations of the Company's directors under applicable
law as advised by outside counsel, recommend approval of the Amendments and the
transactions contemplated thereby and by this Agreement, including the
Recapitalization, use its reasonable efforts to solicit from holders of the
Common Stock proxies in favor of the Amendments and the transactions
contemplated thereby and by this Agreement, and take such other action as is
necessary or advisable to secure the vote of such holders required by Delaware
law and under this Agreement to approve the Amendments and effect the
transactions contemplated thereby and by this Agreement, including the
Recapitalization.
SECTION 5.7 Directors' and Officers' Insurance and Indemnification.
(a) Parent and Holdings agree that all rights to indemnification existing
in favor of the present or former directors and officers of the Company or any
of its Subsidiaries (collectively, the 'Indemnified Parties') as provided in the
Company's Certificate of Incorporation or By-Laws or pursuant to other
agreements, or certificates of incorporation or by-laws or similar documents of
any of the Company's
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Subsidiaries, as in effect as of the date hereof with respect to matters
occurring prior to the Effective Time, shall survive the Recapitalization and
shall continue in full force and effect for a period of six years from and after
the Effective Time or longer to the extent required in the Compensation and
Indemnification Agreement dated June 16, 1997 between the Company and certain
directors of the Company.
(b) Parent shall maintain the existing officers' and directors' liability
insurance applicable to the Indemnified Parties for a period of not less than
six years after the Effective Time in relation to actions and omissions
occurring prior to the Effective Time; provided, that the Parent may substitute
therefor policies of substantially similar coverage and amounts containing terms
no less favorable to such former directors or officers; provided, further, that
in no event shall Parent be required to pay annual premiums for insurance under
this Section in excess of 250% of that which the Company spent on directors' and
officers' liability insurance policies during the fiscal year ended June 30,
1997; and provided further, however, that if the annual premiums for such
insurance coverage exceed said amount, Parent shall be obligated to obtain a
policy with the greatest coverage at a cost which is no greater than 250% of
that which the Company spent on directors' and officers' liability insurance
policies during the fiscal year ended June 30, 1997.
(c) With respect to any actions, suits, proceedings or investigations
relating hereto or to the transactions contemplated hereby that are commenced,
whether before or after the Effective Time, the parties hereto agree to
cooperate and use their reasonable efforts vigorously to defend against and
respond thereto.
(d) In the event that, following the Recapitalization, the Company or any
of its successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Company shall
assume the obligations set forth in this Section 5.7.
SECTION 5.8 Brokers or Finders. Each of Parent and the Company represents,
as to itself, its Subsidiaries and its affiliates (other than, in the case of
Parent, the Company and its Subsidiaries, and, in the case of the Company,
Parent or any of its affiliates, other than the Company and its Subsidiaries),
that, with the exception of Dillon, Read & Co., Inc. ('Dillon Read') (in the
case of Parent) and Oppenheimer (in the case of the Company), no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any brokers' or finders' fee or any other commission or similar fee
in connection with any of the transactions contemplated by the Amendments and
this Agreement, and each of Parent and the Company shall indemnify and hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any other fees, commissions or expenses asserted by any person,
other than by Dillon Read (in the case of Parent) or by Oppenheimer (in the case
of the Company), on the basis of any act or statement alleged to have been made
by such party or its affiliates.
SECTION 5.9 Certificates of Amendment. As soon as practicable following the
date hereof, the Company will cause to be filed the Certificates of Amendment
pursuant to Section 103 of the DGCL; provided, however, that the Par Value
Certificate of Amendment shall be so filed prior to the Certificate of
Amendment.
SECTION 5.10 Par Value. The Company will take such actions as reasonably
requested by Parent or Holdings, including making any amendments to the Proxy
Statement, the Schedule 13E-3 or any other document relating to the transactions
contemplated by this Agreement and the Amendments, to ensure that the aggregate
par value of the shares of Common Stock immediately prior to the Effective Time
is equal to the aggregate par value of the shares of New Common Shares
immediately following the Effective Time, so long as such actions would not
adversely affect the rights of the Unaffiliated Holders under this Agreement.
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ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation To Effect the
Recapitalization. The respective obligation of each party to effect the
Recapitalization shall be subject to the satisfaction on or prior to the Closing
Date of each of the following conditions (any or all of which may be waived by
the parties hereto in writing, in whole or in part, to the extent permitted by
applicable law):
(a) No statute, rule, regulation, order, decree or injunction shall have
been enacted, entered, promulgated or enforced by a Governmental Entity and be
in effect which prohibits the consummation of the Recapitalization; provided,
however, that the parties hereto shall use their reasonable efforts to have any
such order, decree or injunction terminated;
(b) The Amendment and the Recapitalization Agreement and the transactions
contemplated thereby and hereby (other than the Par Value Amendment and the
transactions contemplated thereby) shall have been approved and adopted by the
affirmative vote of (i) the holders of a majority of the outstanding shares of
Common Stock and (ii) the holders of a majority of the outstanding shares of
Common Stock entitled to vote thereon, other than shares of Common Stock held by
Parent and its affiliates (as such term is defined in Rule 12b-2 promulgated
under the Exchange Act); and
(c) At the time of the mailing of the Proxy Statement, Oppenheimer shall
have reaffirmed in writing the fairness opinion previously prepared and
delivered by it to the Special Committee and shall not have withdrawn such
fairness opinion prior to the Effective Time.
SECTION 6.2 Conditions to the Obligation of the Company to Effect the
Recapitalization. The obligation of the Company to effect the Recapitalization
is further subject to the satisfaction or waiver at or prior to the Closing Date
of the following conditions:
(a) The representations and warranties of Parent and Holdings contained in
this Agreement shall be true and correct at and as of the date hereof, and true
and correct at and as of the Closing Date as if made at and as of such time,
except where the breach or inaccuracy thereof would not, individually or in the
aggregate, have a Material Adverse Effect at and as of the Effective Time as if
made at and as of such time, except that those representations and warranties
which address matters only as of a particular date shall remain true and correct
as of such date;
(b) Each of Parent and Holdings shall have performed in all material
respects its respective obligations under this Agreement required to be
performed by it at or prior to the Closing Date pursuant to the terms hereof;
and
(c) Other than filing the Certificates of Amendment in accordance with the
DGCL, all authorizations, consents and approvals required to be obtained prior
to consummation of the Recapitalization shall have been obtained, except for
such authorizations, consents and approvals the failure of which to be obtained
individually or in the aggregate would not result in the prohibition of the
payment of the Transaction Consideration to the Unaffiliated Holders.
SECTION 6.3 Conditions to Obligations of Parent and Holdings to Effect the
Recapitalization. The obligations of Parent and Holdings to effect the
Recapitalization are further subject to the satisfaction or waiver at or prior
to the Closing Date of the following conditions:
(a) The representations and warranties of the Company contained in this
Agreement shall be true and correct at and as of the date hereof, and true and
correct at and as of the Closing Date as if made at and as of such time, except
where the breach or inaccuracy thereof would not, individually or in the
aggregate, have a Material Adverse Effect at and as of the Effective Time as if
made at and as of such time, except that those representations and warranties
which address matters only as of a particular date shall remain true and correct
as of such date;
(b) The Company shall have performed in all material respects each of its
obligations under this Agreement required to be performed by it at or prior to
the Closing Date pursuant to the terms hereof;
(c) The Certificate of Amendment shall have been filed with the Secretary
of State in accordance with Section 103 of the DGCL; and
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(d) Other than filing the Certificates of Amendment in accordance with the
DGCL, all authorizations, consents and approvals required to be obtained by the
Company prior to consummation of the Recapitalization shall have been obtained,
except for such authorizations, consents and approvals the failure of which to
be obtained individually and in the aggregate would not have or result in the
prohibition of the filing of the Certificate of Amendment.
SECTION 6.4 Condition to Each Party's Obligation to Effect the Change in
Par Value. The respective obligations of each party to effect the transactions
contemplated by the Par Value Amendment shall be subject to the satisfaction on
or prior to the Closing Date of the condition that the Par Value Amendment and
the transactions contemplated thereby shall have been approved and adopted by
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. Subject to Section 8.2(c), this Agreement may be
terminated and the Recapitalization may be abandoned at any time prior to the
Effective Time, whether before or after stockholder approval thereof:
(a) By the written mutual consent of Parent, Holdings and the Company.
(b) By either the Company, on the one hand, or Parent and Holdings, on
the other hand, if:
(i) the Recapitalization has not been consummated on or prior to
the date which is 150 days from the date hereof; provided, however, that
the right to terminate this Agreement under this Section 7.1(b)(i) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure
of the Recapitalization to occur on or prior to such date;
(ii) the stockholders of the Company required to approve and adopt
the Amendment and the transactions contemplated thereby fail to approve
and adopt the Amendment and the transactions contemplated thereby;
provided, however, that the right to terminate this Agreement under this
Section 7.1(b)(ii) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the stockholders of the Company to approve
and adopt the Amendment;
(iii) prior to the consummation of the Recapitalization, any
Governmental Entity shall have issued a statute, order, decree or
regulation or taken any other action, in each case permanently
restraining, enjoining or otherwise prohibiting the Recapitalization and
such statute, order, decree, regulation or other action shall have
become final and non-appealable;
(iv) Oppenheimer shall have withdrawn, modified or amended its
fairness opinion.
(c) By Parent if, prior to the consummation of the Recapitalization,
the Board or the Special Committee shall have withdrawn, or modified or
changed in any manner adverse to Parent or Holdings its approval, adoption
or declaration of advisability of the Amendment or the transactions
contemplated thereby, including the Recapitalization, or its recommendation
that shareholders of the Company adopt and approve the Amendment and the
transactions contemplated thereby, including the Recapitalization.
SECTION 7.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 7.1, written notice thereof shall forthwith be
given by the terminating party or parties to the other party or parties
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall forthwith become null and void, and there shall be no
liability on the part of Parent, Holdings or the Company (except as set forth in
this Section 7.2 and Sections 5.5, 5.7(c), 5.8 and 8.1 hereof, each which shall
survive any termination of this Agreement); provided that nothing herein shall
relieve any party from any liability or obligation with respect to any willful
breach of this Agreement.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Fees and Expenses. Except as contemplated by this Agreement,
all costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the party
incurring such expenses.
SECTION 8.2 Amendment; Waiver; Termination.
(a) Subject to Section 8.2(c), this Agreement may be amended by the parties
hereto at any time before or after approval by the stockholders of the Company
of the Agreement and the transactions contemplated hereby, but after any such
approval no amendment shall be made without the approval of such stockholders if
required by law or if such amendment reduces the Transaction Consideration or
alters or changes any of the other terms or conditions of this Agreement if such
alteration or change would adversely affect the rights of the Unaffiliated
Holders. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
(b) Subject to Section 8.2(c), at any time prior to the Effective Time, the
parties may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions of the other parties hereto
contained herein. Any agreement on the part of any party to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Any such waiver shall constitute a waiver only with
respect to the specific matter described in such writing and shall in no way
impair the rights of the party granting such waiver in any other respect or at
any other time. Neither the waiver by any of the parties hereto of a breach of
or a default under any of the provisions of this Agreement, nor the failure by
any of the parties, on one or more occasions, to enforce any of the provisions
of this Agreement or to exercise any right or privilege hereunder, shall be
construed as a waiver of any other breach or default of a similar nature, or as
a waiver of any of such provisions, rights or privileges hereunder. The rights
and remedies herein provided are cumulative and none is exclusive of any other,
or of any rights or remedies that any party may otherwise have at law or in
equity.
(c) Notwithstanding any provision of this Agreement to the contrary,
without the approval of the Special Committee, the Company shall not amend,
terminate or waive any right under this Agreement (including any right to
terminate or any actual or potential cause of action).
SECTION 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
SECTION 8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand, (c) the expiration of ten business
days after the day when mailed by certified or registered air mail, postage
prepaid, or (d) delivery in person, addressed at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to the Company, to:
Faulding Inc.
200 Elmora Avenue
Elizabeth, New Jersey 07207
U.S.A.
Telephone: (908) 527-9100
Facsimile: (908) 355-7048
Attention: Richard F. Moldin, President and Chief Executive Officer
and the Special Committee of the Board of Directors
with a copy to:
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White & Case
1155 Avenue of the Americas
New York, New York 10036
Telephone: (212) 819-8200
Facsimile: (212) 354-8113
Attention: William F. Wynne, Jr., Esq.
(b) if to the Parent or Holdings, to:
F.H. Faulding & Co. Limited
115 Sherriff Street
Underdale, South Australia 5032
Australia
Telephone: (618) 8205-6500
Facsimile: (618) 8234-8230
Attention: Josephine M. Dundon, Vice President, Corporate Services
with a copy to:
Skadden, Arps, Slate, Meagher & Flom (International)
Level 26, Colonial Centre
52 Martin Place
Sydney, N.S.W. 2000
Australia
Telephone: (612) 9224-6000
Facsimile: (612) 9224-6044
Attention: Ronald C. Barusch, Esq.
SECTION 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words 'include', 'includes' or 'including' are
used in this Agreement they shall be deemed to be followed by the words 'without
limitation'. The phrase 'made available' when used in this Agreement shall mean
that the information referred to has been made available to the party to whom
such information is to be made available. The word 'affiliates' when used in
this Agreement shall have the meaning ascribed to it in Rule 12b-2 under the
Exchange Act. The phrase 'beneficial ownership' and words of similar import when
used in this Agreement shall have the meaning ascribed to it in Rule 13d-3 under
the Exchange Act.
SECTION 8.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
be considered one and the same agreement.
SECTION 8.8 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (including the documents and the instruments referred
to herein): (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided in Section 5.7
is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
SECTION 8.9 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
SECTION 8.10 Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
SECTION 8.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties; provided, however, Parent or Holdings may assign
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this Agreement to any Subsidiary of Parent or Holdings. No such assignment shall
relieve either Parent or Holdings of its obligations under this Agreement.
Subject to the first sentence of this Section 8.11, this Agreement will be
binding upon, inure to the benefit of and be enforceable by, the parties hereto
and their respective successors and assigns.
IN WITNESS WHEREOF, Parent, Holdings and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
FAULDING INC.
By: /s/ RICHARD F. MOLDIN
...................................
NAME: Richard F. Moldin
TITLE: President and
Chief Executive Officer
FH FAULDING & CO LIMITED
By: /s/ E. D. TWEDDELL
...................................
NAME: E. D. Tweddell
TITLE: Group Managing Director
FAULDING HOLDINGS INC.
By: /s/ E. D. TWEDDELL
...................................
NAME: E. D. Tweddell
TITLE: President
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LIST OF EXHIBITS
A. The Certificate of Amendment
B. The Par Value Certificate of Amendment
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EXHIBIT A
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
FAULDING INC.
------------------------------------------------
PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------------------------
FAULDING, INC., a Delaware corporation (the 'Corporation'), does hereby
certify as follows:
FIRST: that this Amendment shall provide for a reverse stock split
(the 'Reverse Stock Split') of the Corporation's common stock, par value
$0.01 per share (the 'Old Common Stock'), whereby each 7,924,385 issued
shares of Old Common Stock shall be combined into one validly issued share
of new common stock, the par value per share of which shall be the quotient
obtained by dividing (i) the product of (a) the total number of shares of
Old Common Stock issued and outstanding immediately prior to the Effective
Time, multiplied by (b) .01, by (ii) the number of shares of new common
stock to be issued and outstanding immediately following the Reverse Stock
Split (the 'Common Stock'). No scrip or fractional shares of the Common
Stock will be issued, but in lieu thereof each person who would otherwise
be entitled to receive a fractional share of Common Stock shall be entitled
to receive an amount in cash equal to the product of (x) the number of
shares of Old Common Stock held by such person immediately prior to the
time this Amendment becomes effective (the 'Effective Time'), multiplied by
(y) $13.50.
SECOND: that this Amendment shall further provide that the total
number of shares of all classes of stock which the Company shall have
authority to issue shall be 1,834,190, consisting of (i) 2 shares of Common
Stock and (ii) 1,834,188 shares of preferred stock (the 'Preferred Stock'),
which shall be comprised of (a) 834,188 shares of Class A Preferred Stock,
par value $0.01 per share (the 'Class A Preferred Stock'), and (b)
1,000,000 shares of additional Preferred Stock (the 'Additional Preferred
Stock'), of which 150,000 shares shall be designated as Class B Preferred
Stock, par value $0.10433 per share (the 'Class B Preferred Stock'). After
the Effective Time, the Common Stock and the Preferred Stock shall have the
same powers, preferences and rights as the Common Stock and Preferred
Stock, respectively, immediately prior to the Effective Time.
THIRD: that the first paragraph of Article FOURTH of the Corporation's
Certificate of Incorporation, as amended, is hereby amended so that it
shall read as follows:
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 1,834,190, which shall consist of (i) 2
shares, par value $ per share,* designated as Common Stock
(the 'Common Stock'), and (ii) 1,834,188 shares designated as Preferred
Stock (the 'Preferred Stock'), which shall be comprised of (a) 834,188
shares of Class A Preferred Stock, par value $0.01 per share (the 'Class
A Preferred Stock'), and (b) 1,000,000 shares of additional Preferred
Stock (the 'Additional Preferred Stock'), of which 150,000 shares shall
be designated as Class B Preferred Stock, par value $0.10433 per share
(the 'Class B Preferred Stock'). All cross-references in each Part of
this Article FOURTH refer to other Sections in such Article unless
otherwise indicated.
THIRD: that this Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
- ------------
* The par value of each such share shall be the quotient obtained by dividing
(i) the product of (a) the total number of shares of Old Common Stock issued
and outstanding immediately prior to the Effective Time, multiplied by (b)
.01, by (ii) the number of shares of Common Stock to be issued and outstanding
as a result of the Reverse Stock Split.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of Certificate of Incorporation on the day of September, 1997, and
affirms that the statements contained herein are true under the penalty of
perjury.
FAULDING INC.
By:
...................................
RICHARD F. MOLDIN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
ATTEST
By:
.................................
ANDREW M. BERDON,
SECRETARY
2
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<PAGE>
EXHIBIT B
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
FAULDING INC.
------------------------
PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
------------------------
FAULDING, INC., a Delaware corporation (the 'Corporation'), does hereby
certify as follows:
FIRST: that this Amendment shall provide for a change of the par value
of the Corporation's Class B Preferred Stock, par value $0.01 per share,
from $0.01 per share to $0.10433 per share.
SECOND: that the first paragraph of Article FOURTH of the
Corporation's Certificate of Incorporation, as amended, is hereby amended
so that it shall read as follows:
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 36,834,188, which shall consist of (i)
35,000,000 shares, par value $0.01 per share, designated as Common Stock
(the 'Common Stock'), and (ii) 1,834,188 shares designated as Preferred
Stock (the 'Preferred Stock'), which shall be comprised of (a) 834,188
shares of Class A Preferred Stock, par value $0.01 per share (the 'Class
A Preferred Stock'), and (b) 1,000,000 shares of Additional Preferred
Stock (the 'Additional Preferred Stock'), of which 150,000 shares shall
be designated as Class B Preferred Stock, par value $0.10433 per share
(the 'Class B Preferred Stock'). All cross-references in each Part of
this Article Fourth refer to other Sections in such Article unless
otherwise indicated.
THIRD: that this Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of Certificate of Incorporation on the day of September, 1997, and
affirms that the statements contained herein are true under the penalty of
perjury.
FAULDING INC.
By:
...................................
RICHARD F. MOLDIN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
ATTEST
By:
.................................
ANDREW M. BERDON,
SECRETARY
<PAGE>
<PAGE>
ANNEX B
________________________________________________________________________________
OPINION OF OPPENHEIMER
________________________________________________________________________________
<PAGE>
<PAGE>
December 8, 1997
The Special Committee of the Board of Directors and
the Board of Directors
FAULDING INC.
200 Elmora Avenue
Elizabeth, NJ 07207
Members of the Board of Directors:
We understand that Faulding Inc. (the 'Company'), FH Faulding & Co Limited
('Buyer') and Faulding Holdings Inc., wholly owned subsidiary of Buyer
('Acquisition Sub') have entered into an Agreement and Plan of Recapitalization
(the 'Recapitalization Agreement'), which provides, among other things, for a
recapitalization of the Company to be effected pursuant to a reverse stock split
(the 'Recapitalization'). Pursuant to the Recapitalization, each outstanding
share of common stock, par value $0.01 per share (the 'Common Stock') of the
Company, other than shares held in treasury or held by Buyer or any subsidiary
of Buyer, will be converted into the right to receive $13.50 per share in cash.
We understand that approximately 73% of the outstanding shares of Common Stock,
on a fully-diluted basis, is beneficially owned by Buyer. We further understand
hat the Recapitalization is conditioned upon among other things, the approval of
the holders of more than 50% of the Company's Common Stock (other than the Buyer
and its affiliates). The terms and conditions of the Recapitalization are more
fully set forth in the Recapitalization Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock (other than Buyer and its
subsidiaries) pursuant to the Recapitalization Agreement is fair, from a
financial point of view, to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements including
projections and other financial and operating data concerning the Company
prepared by the management of the Company;
(iii) discussed past and current operations and the financial
condition and prospects of the Company with senior executives of the
Company;
(iv) reviewed and discussed with the Company's auditors, Deloitte &
Touche, certain issues regarding the assets and liabilities of the Company;
(v) reviewed the Recapitalization Agreement;
(vi) reviewed the reported prices and trading activity for the Common
Stock;
(vii) compared the financial performance of the Company and the prices
and trading activity of the Common Stock with that of certain other
publicly traded companies and their securities that we deemed comparable;
(viii) reviewed the financial terms, to the extent publicly available,
of acquisition of minority interest transactions that we deemed comparable;
(ix) reviewed the financial terms, to the extent publicly available,
of acquisition transactions of generic drug companies that we deemed
comparable; and
(x) performed discounted cash flow and other such analyses, reviewed
such other information, and considered such other factors as we deemed
appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of all of the information reviewed by us for the
purposes of this opinion. With respect to the financial projections, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available information, estimates and judgments of the Company's
management. We have not made any independent valuation or appraisal of the
assets or liabilities of the Company nor
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have we been furnished with any such appraisals. In addition, we have assumed
that the Recapitalization will be consummated in accordance with the terms set
forth in the Recapitalization Agreement. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
CIBC Oppenheimer Corp., as part of its investment banking services, is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities and private placements. CIBC Oppenheimer Corp. has been
engaged by the Special Committee of the Board of Directors of the Company to
render financial advisory services to the Special Committee of the Board of
Directors in connection with the Recapitalization and will receive a fee for its
services, including a fee upon the delivery of this opinion. In the ordinary
course of business, CIBC Oppenheimer Corp. may actively trade the securities of
the Company for its own account or for the account of its customers and
accordingly may at any time hold a long or short position in the Common Stock.
It is understood that our opinion is intended for the benefit and use of
the Special Committee of the Board of Directors of the Company in its evaluation
of the Recapitalization, and our opinion is not intended to be and does not
constitute a recommendation to the Special Committee of the Board of Directors,
the Board of Directors or any stockholder with respect to whether to vote in
favor of the Recapitalization. We understand that this opinion will be included
in the proxy statement and schedule 13E-3 filed with the Securities and Exchange
Commission and distributed to stockholders in connection with the approval of
the Recapitalization. We hereby consent to the foregoing use of the opinion in
its entirety. Otherwise, our opinion may not be published or otherwise used or
referred to without our written consent.
Based on the foregoing, we are of the opinion that the consideration to be
received by the holders of shares of Common Stock (other than the Buyer and its
subsidiaries) pursuant to the Recapitalization Agreement is fair, from a
financial point of view, to such holders.
Very truly yours,
/s/ CIBC Oppenheimer Corp.
...........................
CIBC OPPENHEIMER CORP.
<PAGE>
<PAGE>
APPENDIX 1
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FAULDING INC.
The undersigned stockholder of Faulding Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and
Proxy Statement, each dated December 9, 1997, and hereby appoints Paul Astley
and Andrew Berdon, and each of them, proxies and attorneys-in-fact with full
power to each of them of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Special Meeting of Stockholders
of Faulding Inc., to be held on January 13, 1998 at 10:00 a.m., local time, at
the Newark Airport Marriott Hotel, Newark International Airport, Newark, New
Jersey, and at any adjournment or adjournments thereof, and to vote all shares
of Common Stock which the undersigned would be entitled to vote if then and
there personally present, on the matters set forth below:
1. PROPOSAL TO APPROVE THE RECAPITALIZATION TRANSACTION (AS DEFINED IN THE
NOTICE OF SPECIAL MEETING):
___ FOR ___ AGAINST ___ ABSTAIN
2. PROPOSAL TO APPROVE THE PAR VALUE AMENDMENT (AS DEFINED IN THE NOTICE OF
SPECIAL MEETING):
___ FOR ___ AGAINST ___ ABSTAIN
and upon such other matter or matters which may properly come before the meeting
or any adjournment or adjournments thereof.
(to be signed on reverse side)
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<PAGE>
(continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED, IN FAVOR OF EACH OF THE PROPOSALS SET FORTH ABOVE, AND
AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
A majority of such attorneys or substitutes as shall be present and shall
act at said meeting or any adjournment or adjournments thereof (or if only one
shall be present and act, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.
Dated:___________________________, 199_
________________________________________
Signature
________________________________________
Signature
(This proxy should be marked, dated, and
signed by the stockholder(s) exactly as his
name appears hereon, and returned promptly
in the enclosed envelope. Persons signing
in a fiduciary capacity should so indicate.
If shares are held by joint tenants or as
community property, both should sign.)
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as .............. 'r'
The section symbol shall be expressed as............................ 'SS'
