<PAGE> 1
As filed with the Securities and Exchange Commission on August 6, 1996.
- -------------------------------------------------------------------------------
Registration No. 333-06901
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DURAMED PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 2834 11-2590026
(State or other jurisdiction of (Primary standard industrial (IRS employer identification number)
incorporation or organization) classification code number)
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7155 EAST KEMPER ROAD
CINCINNATI, OH 45249
(513) 731-9900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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Timothy J. Holt with a copy to:
Senior Vice President
Finance & Administration Timothy E. Hoberg, Esq.
7155 East Kemper Road Taft, Stettinius & Hollister
Cincinnati, OH 45249 425 Walnut Street
(513) 731-9900 Cincinnati, OH 45202
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement and
the closing of the transaction described in the Proxy Statement/Prospectus
forming a part of this Registration Statement.
---------------------------
If any of the securities being registered on this form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
---------------------------
<PAGE> 2
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 3
DURAMED PHARMACEUTICALS, INC.
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K Showing the
Location in the Proxy Statement/Prospectus of the Information Required by Part I
of Form S-4.
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Location or Caption in
Item of Form S-4 Proxy Statement/Prospectus
---------------- --------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Facing Page of the Registration Statement; Outside
Outside Front Cover Page of Prospectus Front Cover of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of Available Information; Incorporation of Certain
Prospectus Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; Available Information
and Other Information
4. Terms of the Transaction Summary; Special Factors; The Transaction;
Description of Duramed Stock and Warrants;
Comparative Rights of Duramed Stockholders and
Hallmark Shareholders
5. Pro Forma Financial Information Pro Forma Financial Information
6. Material Contacts with the Company Being Special Factors
Acquired
7. Additional Information Required for Reoffering Resales - Selling Shareholders; Resales - Plan of
by Persons and Parties Deemed to be Distribution
Underwriters
8. Interests of Named Experts and Counsel Legal Opinion
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
1. Information With Respect to S-3 Registrants Information Concerning Duramed; Incorporation of
Certain Documents by Reference
2. Incorporation of Certain Information by Incorporation of Certain Documents by Reference
Reference
3. Information With Respect to S-2 or S-3 Not Applicable
registrants
4. Incorporation of Certain Information by Not Applicable
Reference
5. Information With Respect to registrants Other Not Applicable
Than S-3 or S-2 registrants
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
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Location or Caption in
Item of Form S-4 Proxy Statement/Prospectus
---------------- --------------------------
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1. Information With Respect to S-3 Companies Not Applicable
2. Information With Respect to S-2 or S-3 Not Applicable
Companies
3. Information With Respect to Companies Other Information Concerning Hallmark; Index to
Than S-3 or S-2 Companies Financial Statements
D. VOTING AND MANAGEMENT
INFORMATION
1. Information if Proxies, Consents or Outside Front Cover of Proxy Statement/Prospectus;
Authorizations Are to be Solicited Incorporation of Certain Documents by Reference;
Introduction; Special Factors; The Transaction;
Information Concerning Hallmark
2. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited, or in an
Exchange Offer
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<PAGE> 5
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 11, 1996
Dear Shareholder:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Hallmark Pharmaceuticals, Inc. ("Hallmark") will be held at 400 Campus Drive,
Somerset, New Jersey on September 11, 1996 at 1:00 p.m., local time, for the
following purposes:
1. To consider and act upon the proposed Plan of Liquidation and
Dissolution of Hallmark (the "Plan") providing for the sale of
substantially all of the assets of Hallmark (the
"Transaction") to Duramed Pharmaceuticals, Inc., a Delaware
corporation ("Duramed"), pursuant to the terms of the Asset
Purchase Agreement dated as of April 9, 1996 (the "Asset
Purchase Agreement").
2. To transact such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on July 15,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting or any adjournment or postponement
thereof.
The Board of Directors has unanimously approved the proposal to be
presented at the Special Meeting and recommends that you vote FOR it. The
accompanying Proxy Statement/Prospectus more fully describes the proposed Plan
and contains other information about Hallmark and Duramed. In view of the
significance of these matters, you are urged to study carefully the Proxy
Statement/Prospectus, as well as the Appendices thereto.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED WHETHER OR NOT YOU INTEND TO ATTEND THE MEETING. YOU MAY
REVOKE YOUR PROXY AT A LATER DATE OR ATTEND THE MEETING AND VOTE IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS,
V.G. Budharaju
President & Chief Executive Officer
August 8, 1996
<PAGE> 6
DURAMED PHARMACEUTICALS, INC.
COMMON STOCK, $.01 PAR VALUE
640,000 SHARES
COMMON STOCK WARRANTS
400,000 WARRANTS
PROSPECTUS
-----------------
HALLMARK PHARMACEUTICALS, INC.
PROXY STATEMENT
This Prospectus of Duramed Pharmaceuticals, Inc., a Delaware
corporation ("Duramed"), relates to 640,000 shares of Common Stock, $.01 par
value per share ("Duramed Common Stock"), of Duramed, warrants to purchase
400,000 shares of Duramed Common Stock (the "Warrants"), and the shares of
Duramed Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares") (the Warrant Shares, the Duramed Common Stock and the Warrants being
together referred to as the "Duramed Securities") which may be issued in the
Transaction (as defined herein) in exchange for substantially all of the assets
of Hallmark Pharmaceuticals, Inc., a New Jersey corporation ("Hallmark"). This
Prospectus also relates to the resale of the Duramed Common Stock, the Warrants
and the Warrant Shares for the account of and by the persons named under the
caption "Resales-Selling Shareholders." The Selling Shareholders have advised
Duramed that the Duramed Securities may be sold from time to time in the
over-the-counter market or in negotiated transactions, in each case at prices
satisfactory to the seller. See "Resales-Plan of Distribution." Duramed will not
receive any proceeds from such sales of Duramed Securities.
This Prospectus also serves as a proxy statement of Hallmark in
connection with the solicitation of proxies of holders of Hallmark Common Stock,
no par value ("Hallmark Common Stock"), by the Hallmark Board of Directors for
use at the Special Meeting of Hallmark shareholders (the "Special Meeting") to
be held on September 11, 1996, at 400 Campus Drive, Somerset, New Jersey,
commencing at 1:00 p.m., local time, and at any adjournment or postponement
thereof.
THE SECURITIES TO BE ISSUED IN THE TRANSACTION DESCRIBED HEREIN HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------------
All information contained in this Proxy Statement/Prospectus relating
to Hallmark has been supplied by Hallmark, and all information relating to
Duramed has been supplied by Duramed.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to shareholders of record of Hallmark as of July 15, 1996 on
or about August 9, 1996.
The date of this Proxy Statement/Prospectus is August 8, 1996.
<PAGE> 7
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF DURAMED OR
HALLMARK SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Duramed is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information filed by Duramed with the Commission can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Suite 1300, 7 World Trade Center, New York, New
York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also may be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates.
Duramed's Common Stock is quoted on the Nasdaq National Market and
reports and other information concerning Duramed also may be inspected and
copied at the offices of The Nasdaq Stock Market, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850.
Duramed has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933 (the "Securities Act") with respect to the Duramed
Securities to be issued pursuant to the Asset Purchase Agreement (the "Asset
Purchase Agreement"), dated as of April 9, 1996, between Duramed and Hallmark.
This Proxy Statement/Prospectus does not contain all the information set forth
in the Registration Statement. Such additional information may be obtained from
the Commission's principal office in Washington, D.C. Statements contained in
this Proxy Statement/Prospectus or in any document incorporated by reference in
this Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or
- ii -
<PAGE> 8
therein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, DIRECTED TO DURAMED PHARMACEUTICALS, INC., 7155 EAST KEMPER
ROAD, CINCINNATI, OHIO 45249 (TELEPHONE (513) 731-9900), ATTENTION: TIMOTHY J.
HOLT, SENIOR VICE PRESIDENT-FINANCE AND ADMINISTRATION. IN ORDER TO ENSURE
TIMELY DELIVERY, ANY REQUESTS SHOULD BE MADE BY SEPTEMBER 4, 1996.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Duramed (File No.
0-15242) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus:
1) Duramed's Annual Report on Form 10-K, as amended, for
the year ended December 31, 1995.
2) Duramed's Current Reports on Form 8-K dated February 22
and April 11, 1996.
3) Duramed's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996.
4) The descriptions of Duramed's Common Stock and related
Preferred Stock Purchase Rights contained in Duramed's Forms
8-A dated December 11, 1986 and January 11, 1989, including
any amendments or reports filed for the purpose of updating
such descriptions.
All documents and reports subsequently filed by Duramed pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the termination of the offering made
hereunder shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents or reports. Any statement contained 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/Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or
- iii -
<PAGE> 9
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
- iv -
<PAGE> 10
TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION........................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................................................iii
SUMMARY ....................................................................................................... 1
THE COMPANIES.......................................................................................... 1
THE PROXY SOLICITATION................................................................................. 1
THE PLAN OF LIQUIDATION................................................................................ 3
DURAMED SUMMARY HISTORICAL FINANCIAL INFORMATION....................................................... 6
HALLMARK SUMMARY HISTORICAL FINANCIAL INFORMATION...................................................... 7
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION...................................................... 8
COMPARATIVE PER SHARE DATA............................................................................. 9
MARKET INFORMATION..................................................................................... 10
RECENT EVENTS.......................................................................................... 11
INTRODUCTION.................................................................................................... 13
General .............................................................................................. 13
Special Meeting........................................................................................ 13
Record Date; Shares Entitled to Vote; Vote Required.................................................... 14
Proxies; Proxy Solicitation............................................................................ 14
SPECIAL FACTORS................................................................................................. 15
Background of and Reasons for the Plan of Liquidation
and the Transaction........................................................................... 15
Description of Reasons for Business Combination with
Duramed....................................................................................... 17
Recommendation of Hallmark Board of Directors.......................................................... 18
Interests of Certain Persons........................................................................... 18
THE TRANSACTION................................................................................................. 20
Sale of the Assets..................................................................................... 20
Purchase Price......................................................................................... 20
Escrow .............................................................................................. 21
Closing of the Transaction............................................................................. 21
Representations and Warranties......................................................................... 21
Business of Hallmark Pending the Closing............................................................... 22
Conditions; Waivers.................................................................................... 23
Amendment; Termination................................................................................. 24
Accounting Treatment................................................................................... 25
Indemnification........................................................................................ 25
Treatment of Hallmark Stock Options.................................................................... 25
Expenses and Fees...................................................................................... 25
Certain Federal Income Tax Consequences................................................................ 26
Rights of Dissenting Shareholders...................................................................... 28
INFORMATION CONCERNING DURAMED.................................................................................. 30
INFORMATION CONCERNING HALLMARK................................................................................. 31
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION OF HALLMARK.................................................................. 34
SECURITY OWNERSHIP OF HALLMARK.................................................................................. 36
PRO FORMA FINANCIAL INFORMATION................................................................................. 38
DESCRIPTION OF DURAMED STOCK AND WARRANTS....................................................................... 43
Common Stock........................................................................................... 43
Preferred Stock........................................................................................ 44
Warrants .............................................................................................. 45
COMPARATIVE RIGHTS OF DURAMED STOCKHOLDERS
AND HALLMARK SHAREHOLDERS....................................................................................... 46
Appraisal Rights....................................................................................... 46
Transactions with Affiliates........................................................................... 47
Dividends.............................................................................................. 48
Liability of Directors................................................................................. 48
Indemnification........................................................................................ 49
RESALES - SELLING SHAREHOLDERS.................................................................................. 50
RESALES - PLAN OF DISTRIBUTION.................................................................................. 50
LEGAL OPINION................................................................................................... 51
EXPERTS ....................................................................................................... 51
INDEX TO HALLMARK FINANCIAL STATEMENTS.......................................................................... 52
Appendix A - Plan of Liquidation and Dissolution of Hallmark
Pharmaceuticals, Inc.
Appendix B - Asset Purchase Agreement
Appendix C - Section 14A:11-1 of the New Jersey Business
Corporation Act
Appendix D - Articles of Incorporation and By-laws of Hallmark
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<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained, or
incorporated by reference, in this Proxy Statement/Prospectus and the Appendices
hereto. Unless otherwise defined herein, capitalized terms used in this summary
have the respective meaning ascribed to them elsewhere in this Proxy
Statement/Prospectus. Hallmark shareholders are urged to read this Proxy
Statement/Prospectus and the Appendices hereto in their entirety.
THE COMPANIES
- -------------
DURAMED................ Duramed currently manufactures and sells
a limited line of prescription generic
drug products in tablet, capsule and
liquid forms to customers throughout the
United States. The principal executive
offices of Duramed are located at 7155
East Kemper Road, Cincinnati, Ohio
45249, and its telephone number is (513)
731-9900. See "INFORMATION CONCERNING
DURAMED."
HALLMARK............... Hallmark is a late-stage start-up
company engaged in the research,
development and manufacturing of generic
prescription drugs. Hallmark has also
developed proprietary drug delivery
systems designed to enable alternate
formulation of pharmaceutical compounds.
The principal executive offices of
Hallmark are located at 400 Campus
Drive, Somerset, New Jersey 08873, and
its telephone number is (908) 563-2245.
See "INFORMATION CONCERNING HALLMARK."
THE PROXY SOLICITATION
- ----------------------
This Proxy Statement/Prospectus is being furnished to shareholders of Hallmark
in connection with the Proxy Solicitation. During the Proxy Solicitation,
Hallmark shareholders will be asked to consider and vote upon a proposal to sell
substantially all of Hallmark's assets to Duramed and to liquidate Hallmark
following that sale.
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<PAGE> 13
TIME, DATE AND PLACE... The Special Meeting will be held on
September 11, 1996 at 400 Campus Drive,
Somerset, New Jersey at 1:00 p.m., local
time, subject to any adjournment or
postponement thereof. See "INTRODUCTION
-- Special Meeting."
PURPOSE OF THE MEETING. The purpose of the Special Meeting is to
consider and vote upon (i) a proposal to
adopt a Plan of Liquidation and
Dissolution of Hallmark (the "Plan")
providing for the sale of substantially
all of the assets of Hallmark to Duramed
(the "Transaction") and (ii) such other
matters as may properly be brought
before the Special Meeting. See
"INTRODUCTION - Special Meeting."
RECORD DATE; SHARES
ENTITLED TO VOTE...... Holders of record of shares of Hallmark
Common Stock at the close of business on
July 15, 1996, are entitled to notice of
and to vote at the Special Meeting. At
July 15, 1996, there were 6,156,240
shares of Hallmark Common Stock
outstanding, held by approximately 53
holders of record. Voting rights are
vested in the holders of Hallmark Common
Stock, with each share of Hallmark
Common Stock entitled to one vote on
each matter coming before the
shareholders. See "INTRODUCTION --
Record Date; Shares Entitled to Vote;
Vote Required."
VOTE REQUIRED.......... Under applicable law the approval by
Hallmark shareholders of the Transaction
will require the affirmative vote of the holders of a
majority of the outstanding shares of Hallmark Common
Stock. However, the Asset Purchase Agreement also
requires the affirmative vote of the holders of a
majority of the outstanding shares of Hallmark Common
Stock actually voted on the proposal, other than
shares of Hallmark Common Stock beneficially owned by
Duramed or its affiliates. See "INTRODUCTION --
Record Date; Shares Entitled to Vote; Vote Required."
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<PAGE> 14
THE PLAN OF LIQUIDATION
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BACKGROUND OF THE
TRANSACTION............ For a description of the events leading
to the approval of the Transaction by
the Board of Directors of Hallmark, see
"SPECIAL FACTORS -- Background and
Reasons for the Transaction and the Plan
of Liquidation."
EFFECT OF THE
TRANSACTION............ Upon consummation of the Transaction,
pursuant to the Asset Purchase
Agreement, Duramed will acquire
substantially all of the assets of
Hallmark and will assume certain of
Hallmark's liabilities, including its
bank indebtedness and certain of its
accounts payable, and Hallmark's
indebtedness to Duramed ($3,480,520 at
July 15, 1996 in the aggregate) will be
released. Duramed will issue to
Hallmark for distribution to its
creditors and shareholders in accordance
with the Plan of Liquidation 640,000
shares of Duramed Common Stock and
warrants to purchase 400,000 shares of
Duramed Common Stock at $25.00 per share
(the "Warrants"). Hallmark will retain
certain of its liabilities, including
indebtedness to certain of its shareholders
($6,447,638 at July 15, 1996) and
obligations to a partnership owned by
certain of its shareholders ($367,059 at
July 15, 1996) (collectively, the
"Shareholder Debt"). Based on the April 10,
1996 closing price (the day prior to signing
the Asset Purchase Agreement) of $18.88 per
share, the aggregate market value of the
shares of Duramed Common Stock and the
Warrants to be issued in the Transaction
would have been approximately $12,940,000
(assuming a fair market value of $2.15 per
Warrant, as determined by an independent
appraiser retained by Duramed).
PLAN OF LIQUIDATION... Pursuant to the Plan of Liquidation,
Hallmark will distribute a portion of
the Duramed Common Stock (or cash
obtained upon the sale of such stock) to
its creditors as payment in full of its
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<PAGE> 15
obligations, other than those to be
assumed by Duramed. Hallmark estimates
that approximately 113,834 shares of
Duramed Common Stock and 400,000
Warrants will be available for
distribution to its shareholders.
OUTSTANDING DURAMED
COMMON STOCK........... As of July 15, 1996, there were
outstanding 10,687,821 shares of Duramed
Common Stock. In the Transaction,
640,000 shares of Duramed Common Stock
will be issued (1,040,000 shares if all
Warrants are exercised), which would
represent approximately 6.0% (9.7% if
all Warrants are exercised) of such
outstanding Duramed Common Stock.
DURAMED'S REASONS
FOR THE TRANSACTION.... Duramed desires to complete the
Transaction because it will bring to
Duramed a research and development
pipeline which includes controlled
release technology. Duramed believes
that combining Duramed and Hallmark
product development programs will
position Duramed for long-term growth
through the introduction of products
requiring sophisticated technology.
RECOMMENDATION OF
HALLMARK'S BOARD OF
DIRECTORS.............. The Board of Directors of Hallmark
ratified the Transaction at its April
12, 1996 Board Meeting and unanimously
recommends that Hallmark shareholders
vote in favor of the Transaction. See
"SPECIAL FACTORS -Background and Reasons
for the Plan of Liquidation and the
Transaction" and "SPECIAL FACTORS --
Recommendation of Hallmark Board of
Directors."
CLOSING OF THE
TRANSACTION............ It is expected that the Transaction will
be consummated as promptly as
practicable after the requisite approval
of Hallmark's shareholders has been
obtained and all other conditions to the
Transaction have been satisfied or
waived. See "THE TRANSACTION --
Conditions; Waivers."
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<PAGE> 16
CONDITIONS TO THE
TRANSACTION;
TERMINATION OF THE
ASSET PURCHASE
AGREEMENT............. The obligations of Duramed and Hallmark
to consummate the Transaction are
subject to the satisfaction, or in
certain cases waiver, of certain
conditions, including (i) obtaining
requisite shareholder and regulatory
approvals, and (ii) the absence of any
injunction prohibiting consummation of
the Transaction. See "THE TRANSACTION
-- Conditions; Waivers."
The Asset Purchase Agreement is
subject to termination at the option
of either Duramed or Hallmark if the
Transaction is not consummated on or
before September 30, 1996, and prior
to such time upon the occurrence of
certain other events. See "THE
TRANSACTION -- Amendment;
Termination."
APPRAISAL RIGHTS...... Holders of Hallmark Common Stock who do
not vote in favor of the Transaction and
who perfect their rights in accordance
with the requirements of New Jersey law
will be entitled to appraisal rights if
the Transaction is consummated. See
"THE TRANSACTION -- Appraisal Rights."
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES....... For a discussion of certain federal
income tax consequences of the
Transaction, see "THE TRANSACTION --
Certain Federal Income Tax
Consequences."
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<PAGE> 17
DURAMED SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial information of Duramed set forth below has been
derived from, and should be read in conjunction with, the financial statements
and other financial information which are incorporated into this Proxy
Statement/Prospectus by reference. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
DURAMED PHARMACEUTICALS, INC.
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
(unaudited)
1996 1995 1995 1994 1993 1992 1991
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STATEMENT OF OPERATIONS
DATA:
Net Sales $10,700 $12,581 $49,624 $45,274 $30,293 $16,685 $10,531
Operating (loss) income (1,610) 1,537 1,734 8,015 3,359 (1,577) (3,356)
Pretax (loss)
income (2,161) 1,037 (991) 5,765 1,240 (4,964) (4,229)
Net (loss)
income (2,161) 1,008 (991) 9,551 1,215 (4,964) (4,229)
Preferred dividends 275 --- 123 --- --- --- ---
Net (loss)
income applicable
to common
stockholders (2,436) 1,008 (1,114) 9,551 1,215 (4,964) (4,229)
Net (loss) income per
share of common stock:
Primary (.28) .09 (.14) .93 .14 (.77) (.67)
Fully diluted (.28) .09 (.14) .91 .13 (.77) (.67)
Cash dividends per
common share --- --- --- --- --- --- ---
BALANCE SHEET DATA:
Total assets $49,715 $41,546 $45,177 $37,002 $22,959 $16,128 $15,678
Long-term liabilities $16,194 $20,778 $19,837 $18,267 $23,201 $ 1,703 $ 769
Stockholders' equity $17,544 $ (134) $ 8,898 $(1,231) $(11,985) $(14,852) $(10,047)
</TABLE>
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HALLMARK SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial data of Hallmark set forth below as of and for
the years ended December 31, 1995, 1994 and 1993 has been derived from, and
should be read in conjunction with, Hallmark's audited financial statements and
notes thereto included elsewhere herein. The summary financial data of Hallmark
as of March 31, 1996 and for the three month periods ended March 31, 1996 and
1995 is unaudited and should be read in conjunction with Hallmark's interim
financial statements also included elsewhere herein. The unaudited balance sheet
data as of March 31, 1995 has been derived from Hallmark's interim balance sheet
not included herein. See "INDEX TO HALLMARK FINANCIAL STATEMENTS."
HALLMARK PHARMACEUTICALS, INC.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Years ended December 31,
------------------------------ -----------------------------
MARCH 31, 1996 MARCH 31, 1995 1995 1994 1993
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales $ 837 --- --- --- ---
Operating (loss) ($1,388) ($945) ($4,068) ($3,572) ($2,281)
Net (loss) ($1,585) ($1,071) ($4,815) ($3,981) ($2,607)
Net loss per common share ($.26) ($.18) ($.79) ($.71) ($.75)
BALANCE SHEET DATA:
Total assets $ 4,332 $3,913 $4,402 $3,508 $1,774
Bank and other debt $10,267 $5,360 $9,025 $4,148 $2,350
Stockholders' deficiency ($ 6,611) ($1,622) ($5,076) ($872) ($782)
</TABLE>
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<PAGE> 19
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The summary unaudited pro forma financial information set forth below
(i) gives effect to the proposed Transaction and (ii) should be read in
conjunction with the pro forma financial information appearing under "PRO FORMA
FINANCIAL INFORMATION." This pro forma information is not necessarily indicative
of actual or future operating results or financial position that would have
occurred or will occur upon consummation of the Transaction.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
AT OR FOR QUARTER ENDED MARCH 31, 1996 Duramed
- -------------------------------------- As Reported Pro forma
----------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $10,700 $10,700
Operating (loss) (1,610) (2,737)
Net (loss) (2,161) (3,319)
Net (loss) applicable to common
stockholders (2,436) (3,594)
Net (loss) per share of common stock ($ .28) ($ .39)
BALANCE SHEET DATA:
Total assets $49,715 $54,943
Long-term liabilities $16,194 $16,194
Stockholders' equity $17,544 $19,966
YEAR ENDED DECEMBER 31, 1995 Duramed
- ---------------------------- As Reported Pro forma
----------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $49,624 $49,624
Operating profit (loss) 1,734 (2,114)
Net (loss) (991) (4,963)
Net (loss) applicable to common stockholders (1,114) (5,086)
Net (loss) per share of common stock ($ .14) ($ .59)
</TABLE>
- 8 -
<PAGE> 20
COMPARATIVE PER SHARE DATA
The following table presents certain per share data derived from the
historical financial statements of Duramed and Hallmark and unaudited pro forma
per share data adjusted to reflect consummation of the Transaction. The pro
forma information is not necessarily indicative of actual or future operating
results or financial position that would have occurred or will occur upon
consummation of the Transaction. The information presented below should be read
in conjunction with the pro forma financial information appearing under "PRO
FORMA FINANCIAL INFORMATION" and the separate historical consolidated financial
statements of Duramed and Hallmark which are incorporated by reference or appear
herein.
<TABLE>
<CAPTION>
At or for Quarter ended At or for Year ended
March 31, December 31,
------------------------ -----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
Historical: (Unaudited)
<S> <C> <C> <C> <C> <C>
Per share of Duramed Common
Stock:
Book value $ 1.79 $(.02) $1.10 $(.15) $(1.64)
Cash dividends --- --- --- --- -----
Net (loss) income $(.28) $.09 $(.14) $.91 $ .13
</TABLE>
<TABLE>
<CAPTION>
At or for Quarter ended At or for Year ended
March 31, December 31,
------------------------ -----------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Per share of Hallmark Common
Stock:
Book value $(1.07) $(.27) $(.83) $(.15) $(.16)
Cash dividends --- --- --- --- ---
Net (loss) $ (.26) $(.18) $(.79) $(.71) $(.75)
</TABLE>
<TABLE>
<CAPTION>
At or for Quarter ended At or for Year ended
Pro Forma: March 31, 1996 December 31, 1995
------------------------ --------------------
(Unaudited)
<S> <C> <C>
Per share of Duramed Common Stock:
Book value $1.91 $1.48
Cash dividends --- ---
Net (loss) $(.39) $(.59)
</TABLE>
- 9 -
<PAGE> 21
MARKET INFORMATION
During the 1994 period prior to September 16, 1994, the Duramed Common
Stock was traded in the over-the-counter market due to Duramed's inability to
meet certain listing requirements of the Nasdaq National Market ("Nasdaq"). On
September 16, 1994, trading of the Duramed Common Stock on the Nasdaq
recommenced under a listing exception from the Nasdaq's tangible net asset
requirements. On December 12, 1995 Duramed was notified that it was found to be
in compliance with all Nasdaq requirements, and the exception was removed. The
table below sets forth the high and low trades for the Duramed Common Stock as
reported by the Nasdaq. Quotations prior to September 16, 1994 are the high and
low bid quotations as reported by the National Quotation Bureau, Inc. and
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
<S> <C> <C> <C>
1994:
First Quarter 7.88 $ 5.50
Second Quarter 9.17 6.50
Third Quarter 18.25 7.38
Fourth Quarter 17.25 11.75
1995:
First Quarter 20.50 $14.25
Second Quarter 18.75 12.00
Third Quarter 25.50 14.00
Fourth Quarter 17.25 12.75
1996:
First Quarter 23.50 $14.00
Second Quarter 20.00 $14.50
Third Quarter 17.00 $13.75
(Through
August 5, 1996)
</TABLE>
As of July 15, 1996, Duramed had 1,185 stockholders of record. Duramed
has not paid any cash dividends on its Common Stock since its inception and does
not intend to pay cash dividends in the foreseeable future. Under the terms of
Duramed's current loan agreements with its bank, no dividend declaration is
permitted. In addition, the terms of Duramed's loan agreement with the State of
Ohio require that Duramed not pay any dividends to its stockholders unless an
amount equal to 30% of such dividends is paid to the State of Ohio as an
additional principal reduction.
- 10 -
<PAGE> 22
Duramed does not intend to list the Warrants for trading on Nasdaq or
any stock exchange. There can be no assurance that any over-the-counter trading
market for the Warrants will develop.
Hallmark Common Stock is held of record by 53 persons and no trading
market for Hallmark Common Stock exists. Hallmark has not paid any cash
dividends on its Common Stock since its inception and does not intend to pay
cash dividends in the foreseeable future. Under the terms of Hallmark's current
loan agreements with its bank, no dividend declaration is permitted.
On October 9, 1995, the last full day of trading before the issuance of
a press release by Duramed and Hallmark announcing that they had entered into a
letter of intent for the acquisition of Hallmark by Duramed, the reported
closing price per share of Duramed Common Stock was $13.88. On April 10, 1996,
the last full day of trading immediately preceding the public announcement of
the signing of the Asset Purchase Agreement the closing price of Duramed Common
Stock was $18.88. On August 5, 1996, the closing price per share of Duramed
Common Stock was $14.375.
RECENT EVENTS
On August 7, 1996, Duramed completed the issuance of 200,000 shares of
Series D Convertible Preferred Stock. The net proceeds of this offering of
approximately $19 million will be directed primarily toward Duramed's new
product development activities. Beginning October 16, 1996, the Series D
Preferred Shares are convertible at the option of the holders at 15% below the
average closing bid price of the common shares of the Company over the 10-day
trading period ending two days prior to the date of conversion (the "conversion
price"). No more than 2,130,895 common shares will be issued upon conversion,
and any Series D Shares which remain outstanding after the issuance of such
maximum number of common shares would not be converted but would be subject to
cash redemption at a redemption price designed to yield the same economic
benefit to the holders as the conversion price. The conversion price for the
Series D Preferred Shares may not be less than $7 per share, nor more than $20
per share. Series D Preferred Shares will pay a dividend of 8% annually, payable
quarterly in arrears, on all unconverted Preferred Shares. Any of the Series D
Preferred Shares which remain outstanding will be converted (or redeemed)
automatically on July 18, 1998.
Under the terms of agreements with Ortho-McNeil Pharmaceutical
Corporation, Duramed has non-exclusive distribution rights to the Ortho-McNeil
products Acetaminophen with Codeine, Tolmetin Sodium, Tolmetin Sodium DS,
Oxycodone with Acetaminophen and Estropipate. The term of the distribution
agreement for each of these products is ten years subject to reduction to three
years (if not extended) from date of first sale if the Duramed's conjugated
estrogens product has not been
- 11 -
<PAGE> 23
approved by the FDA by June 30, 1996. Such approval was not received by June 30,
1996. Duramed commenced marketing Estropipate during the fourth quarter of 1993
and the other Ortho-McNeil products during the fourth quarter of 1994. Duramed
is discussing an extension of these rights with Ortho-McNeil. Loss of these
distribution rights would be likely to have an adverse effect upon the Company's
results of operations.
As indicated in Duramed's Form 10-Q for the quarter ended March 31,
1996, Duramed has experienced a decline in the sales price of certain of its
products including its Methylprednisolone product. While net sales and gross
margins in the second quarter of 1996 are expected to exceed the first quarter
levels this is primarily attributable to unit increases of Duramed's
Methylprednisolone product resulting from the seasonal nature of the product.
Operating expenses increased in the second quarter as a result of increased
product development expenses. Duramed expects to report a pre-tax loss in the
second quarter in line with the first quarter. The competitive environment is
expected to remain intense which may result in further declines in the sales
prices of certain of Duramed's products including Methylprednisolone.
As of March 31, 1996, Duramed had a net deferred tax asset of $3.9
million. Full utilization of this deferred tax benefit would require future
taxable income of $10.3 million. Duramed evaluates the valuation of its deferred
tax asset on a quarterly basis. The evaluation excludes forecasted profits from
products under development or on file with the Food and Drug Administration.
Given Duramed's operating performance with its current product line and planned
expenditures resulting from its commitment to an expanded product development
program, Duramed may restore the valuation reserve associated with the deferred
tax asset which would result in a non-cash charge to earnings for the quarter
during which such action is taken.
- 12 -
<PAGE> 24
INTRODUCTION
GENERAL
The principal executive offices of Duramed Pharmaceuticals, Inc., a
Delaware corporation ("Duramed"), are located at 7155 East Kemper Road,
Cincinnati, Ohio 45249, and Duramed's telephone number is (513) 731-9900. The
principal executive offices of Hallmark Pharmaceuticals, Inc., a New Jersey
corporation ("Hallmark"), are located at 400 Campus Drive, Somerset, New Jersey
08873, and Hallmark's telephone number is (908) 563-2245.
As used herein, Duramed means Duramed Pharmaceuticals, Inc.
and its subsidiaries, unless the context indicates otherwise.
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to Hallmark
shareholders in connection with the solicitation of proxies (the "Proxy
Solicitation") by the Board of Directors of Hallmark for use at a Special
Meeting of Shareholders of Hallmark to be held on September 11, 1996,
commencing at 1:00 p.m., local time, at 400 Campus Drive, Somerset, New Jersey
and at any adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, Hallmark shareholders will consider and vote
upon a proposal to approve the proposed Plan of Liquidation and Dissolution of
Hallmark (the "Plan") providing for the sale of substantially all of the assets
of Hallmark to Duramed (the "Transaction") pursuant to the terms of the Asset
Purchase Agreement dated as of April 9, 1996 between Hallmark and Duramed (the
"Asset Purchase Agreement"). Pursuant to the Asset Purchase Agreement, upon
consummation of the Transaction, Duramed will acquire substantially all of the
assets of Hallmark and will assume certain of Hallmark's liabilities, including
its bank indebtedness and certain of its accounts payable, and Hallmark's
indebtedness to Duramed ($3,480,520 at July 15, 1996) will be released. Duramed
will issue an aggregate of 640,000 shares of Duramed Common Stock and warrants
to purchase 400,000 shares of Duramed Common Stock at $25.00 per share (the
"Warrants") as consideration for the Transaction. Pursuant to the Plan of
Liquidation, Hallmark will distribute a portion of the Duramed Common Stock (or
cash obtained upon the sale of such stock) to its creditors as payment in full
of its obligations, other than those to be assumed by Duramed. Hallmark
estimates that approximately 113,834 shares of Duramed Common Stock and 400,000
Warrants will be available for distribution to its shareholders.
Holders of Hallmark Common Stock who do not vote in favor of the
Transaction and who perfect their rights in accordance with the requirements of
New Jersey Law will be entitled to demand
- 13 -
<PAGE> 25
appraisal rights as a result of the Transaction. See "THE TRANSACTION --
Appraisal Rights."
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on July 15, 1996 (the "Record Date") has been
fixed as the record date for determination of the holders of Hallmark Common
Stock who are entitled to notice of, and to vote at, the Special Meeting. As of
the Record Date, there were 6,156,240 shares of Hallmark Common Stock
outstanding. The holders of record of shares of Hallmark Common Stock on the
Record Date are entitled to one vote per share on each matter submitted to a
vote at the Special Meeting. The presence in person or by proxy of the holders
of a majority of the outstanding shares of Hallmark Common Stock entitled to
vote is necessary to constitute a quorum for the transaction of business at the
Special Meeting. Under the New Jersey Business Corporation Law ("NJBCL"), the
holders of a majority of the outstanding shares of Hallmark Common Stock must be
voted in favor of the Transaction for it to be approved. The Asset Purchase
Agreement also provides that the Transaction must be approved by the affirmative
vote of the holders of a majority of the outstanding shares of Hallmark Common
Stock actually voting on the proposal, other than shares of Hallmark Common
Stock beneficially owned by Duramed or its affiliates (collectively, the
"Required Company Vote"). As of the Record Date, Duramed and its affiliates
owned no shares of Hallmark Common Stock. Certain directors of Hallmark, who
owned 3,870,493 shares of Hallmark Common Stock as of the Record Date,
constituting approximately 63% of the outstanding Hallmark Common Stock, have
agreed to vote in favor of the Transaction.
PROXIES; PROXY SOLICITATION
Shares of Hallmark Common Stock represented by properly executed
proxies received at or prior to the Special Meeting and which have not been
revoked will be voted at the Special Meeting in accordance with the instructions
contained therein. Shares of Hallmark Common Stock represented by properly
executed proxies for which no instruction is given will be voted FOR approval of
the Transaction. Hallmark shareholders are requested to complete, sign, date and
return promptly the enclosed proxy in the postage prepaid envelope provided for
this purpose in order to ensure that their shares are voted. A shareholder may
revoke a proxy by submitting at any time prior to the vote on the Transaction a
later dated proxy with respect to the same shares, by delivering written notice
of revocation to the Secretary of Hallmark at any time prior to such vote or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not in and of itself revoke a proxy.
- 14 -
<PAGE> 26
If fewer shares of Hallmark Common Stock are voted in favor of approval
of the Transaction than the number required for approval, it is expected that
the Special Meeting will be postponed or adjourned for the purpose of allowing
additional time for obtaining additional proxies or votes, and, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the meeting (except for any proxies which have theretofore been revoked or
withdrawn), notwithstanding that they may have been voted on the same or any
other matter at a previous meeting.
Hallmark will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, directors, officers and
employees of Hallmark and Duramed may solicit proxies by telephone, facsimile or
otherwise. Such directors, officers and employees of Hallmark and Duramed will
not be additionally compensated for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith.
SPECIAL FACTORS
BACKGROUND OF AND REASONS FOR THE PLAN OF LIQUIDATION AND THE
TRANSACTION
Hallmark was organized in 1992 and by May 1995 had developed commercial
readiness for the production and sale of initial products. Hallmark's
manufacturing facility had been constructed, ANDA's for Captopril and Glipizide
had been filed and several other products were under development. Hallmark's
Board of Directors determined that it needed substantial additional expansion
capital to enable Hallmark to commercialize its products. Accordingly, Hallmark
decided to seek a strategic partner.
During the spring of 1995, Duramed and Hallmark engaged in discussions
concerning the marketing of Hallmark's drug, Captopril. During the summer of
1995, these discussions extended beyond the marketing and distribution of
Captopril into discussions concerning a possible merger. Due diligence commenced
during the summer of 1995 culminating in a Letter of Intent in October 1995 as
described below.
Hallmark's initial research and development efforts were directed
primarily toward immediate release solid oral dosage form drugs. Based on
changing market conditions and its experience with immediate release solid oral
dosage form drugs, the Board of Directors of Hallmark determined in early 1994
to expand its research and development efforts into sustained release solid oral
dosage form drugs.
- 15 -
<PAGE> 27
In order to fund Hallmark's expansion of its research and development
efforts into sustained release solid oral dosage form drugs, Hallmark considered
several alternatives including (1) an initial public offering; (2) additional
debt and equity financing from existing stockholders; (3) strategic partners
willing to invest expansion capital; and (4) product joint ventures. In order to
provide immediate capital, Hallmark sought equity financing from its
stockholders during the summer of 1994. Hallmark raised approximately $7,500,000
during that offering. Hallmark also explored during that time strategic partners
and product joint ventures with various pharmaceutical companies although no
such arrangements were consummated.
During the fall of 1994, Hallmark contacted several financial advisory
firms for assistance in raising capital to fund its research and development
expansion efforts. Hallmark engaged three financial advisory firms in late 1994
to assist it in raising capital: Commercial Financial Corporation, Joseph A.
Watters and Windward Partners. In January 1995, the Board of Directors
terminated those engagements after they proved unsuccessful. At that time, the
Board of Directors determined (i) to engage Deloitte & Touche, LLP to identify
potential financing sources and (ii) to seek bridge financing from Hallmark's
existing stockholders until financing sources were identified. Hallmark raised
$3 million from its stockholders in early 1995 through the issuance of notes.
Hallmark terminated its relationship with Deloitte & Touche in August 1995 after
its financing efforts proved to be unsuccessful.
In September 1995, Hallmark received a proposal on behalf of an
European pharmaceutical company expressing an interest in a $15 million equity
investment in Hallmark in exchange for a controlling interest in the Company and
requesting an exclusive negotiating period. The Hallmark Board of Directors
declined to grant an exclusive negotiating period but consented to due
diligence. In October 1995, the Hallmark Board of Directors retained Armata
Partners, an investment banking firm, to assist the Board in evaluating
alternative proposals. After exploring all alternative proposals, the Board of
Directors determined to proceed with the Duramed proposal.
Discussions with Duramed continued and in early October, 1995, Duramed
and Hallmark entered into a Letter of Intent which contemplated that Duramed
would acquire Hallmark in a merger in exchange for approximately $30.5 million
in Duramed Common Stock based on future market value (but not more than
1,250,000 shares of Duramed Common Stock). The purchase price was to be paid in
two installments, 50% at closing and 50% on February 15, 1996. 20% of the
consideration was to be held in escrow for a period of 18 months. The Letter of
Intent also contemplated that Duramed would assume Hallmark's bank debt and
repay the Hallmark Shareholder Debt (then approximately $5,800,700). Duramed
agreed to advance Hallmark $100,000 immediately and up to $400,000 per
- 16 -
<PAGE> 28
month thereafter to finance Hallmark's operations, and Hallmark granted Duramed
exclusive marketing rights in North America to Hallmark's Captopril product. The
transaction was to be subject to customary conditions, including completion of
due diligence, execution of definitive agreements and consummation of the merger
on or before January 31, 1996.
Negotiations and due diligence continued into December 1995. However,
in mid-December, Duramed advised Hallmark that it was unable to proceed with the
transaction at that time because of uncertainties relating to claims asserted by
Deloitte & Touche, LLP for fees in connection with the transaction, which fees
Duramed was unwilling to assume. In addition, unexpectedly intense competition
with generic Captopril products produced by other manufacturers dramatically
eroded margins on sales of Hallmark's Captopril product and, in Duramed's view,
substantially impaired the value of Hallmark.
Negotiations resumed in late February 1996 and in early March 1996,
Hallmark and Duramed entered into a revised Letter of Intent which incorporated
the terms of the current Transaction. The revised terms reflected Duramed's
views as to the decreased value of Hallmark and Duramed's refusal to assume any
liability to Deloitte & Touche. After further negotiations, the parties entered
into the Asset Purchase Agreement and other definitive documentation on April
11, 1996 (as of April 9, 1996).
DESCRIPTION OF REASONS FOR BUSINESS COMBINATION WITH DURAMED
The Hallmark Board of Directors unanimously approved and authorized the
Transaction and recommends approval of the Transaction by Hallmark shareholders
based on the Hallmark Board's determination that the aggregate consideration to
be received by the Hallmark shareholders is fair to them from a financial point
of view and the Transaction is in the best interests of Hallmark, its
shareholders and its nonshareholder constituencies. In making its recommendation
and those determinations, the Hallmark Board of Directors considered the advice
of its management, its financial advisor and legal counsel and the following
factors:
(a) The strategic and synergistic effect of a business
combination with Duramed including the compatibility of management teams;
Duramed's established sales and marketing infrastructure; Duramed's customer
base and Duramed's ability to access global marketing opportunities.
(b) The lack of operating capital for Hallmark's continued
research and development efforts and Hallmark's absence of sales and marketing
personnel and lack of funds to establish a sales force.
- 17 -
<PAGE> 29
(c) The desire of Hallmark shareholders to realize liquidity
in their investment and the unwillingness of Hallmark shareholders to invest
further in Hallmark or to continue to guarantee Hallmark's indebtedness.
(d) The existence of a public market for Duramed's common
stock, the trading history of Duramed common stock and Duramed's ability to
continue to access the public markets for funding of business expansion.
(e) Information with respect to the management, business
operations, financial condition, financial performance, and business and
financial prospects of Duramed as well as the likelihood of achieving those
prospects compared to the going-concern value of Hallmark as reflected by its
historical operating results.
(f) The likelihood that the Transaction would be
consummated, including the experience, reputation and financial
capability of Duramed.
(g) The risks associated with Hallmark's ability to locate a
strategic partner or joint venture partner or other source for operating funds.
(h) Industry trends toward consolidation of suppliers
and the perceived willingness of customers to deal only with a
limited number of suppliers.
RECOMMENDATION OF HALLMARK BOARD OF DIRECTORS
The Board of Directors of Hallmark unanimously recommends that
shareholders of Hallmark vote in favor of the Transaction (see "SPECIAL FACTORS
- -- Background of and Reasons for the Transaction).
INTERESTS OF CERTAIN PERSONS
Hallmark Leasing Associates, a partnership owned by certain of
Hallmark's shareholders and directors ("HLA"), leases certain equipment to
Hallmark pursuant to agreements dated September 1, 1992, November 16, 1992,
March 20, 1993, May 17, 1994 and December 28, 1994 (the "Lease Agreements"). The
aggregate annual rental payments under the Lease Agreements are $454,564. At
July 15, 1996, $140,000 of such rental obligations that had become due were
unpaid. Pursuant to an agreement dated as of April 9, 1996 between HLA and
Duramed (the "HLA Agreement"), HLA agreed to sell such equipment to Duramed at
the closing of the Transaction for a purchase price of approximately $494,000,
which is equal to its net book value as of the date of execution of the HLA
Agreement. The Lease Agreements will be canceled, and Duramed will not assume
any liability for unpaid rental obligations.
- 18 -
<PAGE> 30
Pursuant to various transactions over the last three years, Hallmark
has borrowed funds from HLA and certain of its shareholders. The outstanding
balance of such indebtedness to HLA at July 15, 1996 was $227,059. Duramed will
not assume any obligation of Hallmark with respect to such indebtedness to HLA
or the shareholders. Pursuant to the Plan, such creditors will be paid in full
by Hallmark from the proceeds of the Transaction, in shares of Duramed Common
Stock or in cash.
Certain shareholders and directors of Hallmark have guaranteed
indebtedness of Hallmark to Mid-State Bank in the aggregate amount of
approximately $1,672,000, of which approximately $1,256,351 was still owed at
July 15, 1996. Duramed has agreed to cause all such indebtedness to be repaid at
the closing of the Transaction (the "Closing").
Two Hallmark directors have also guaranteed certain of Hallmark's
obligations in connection with its lease of computer equipment, which lease will
be assumed by Duramed. Duramed has agreed to use all reasonable efforts to
obtain the release of such guarantees and to indemnify such directors against
any claims pursuant to such guarantees if they are not released.
Pursuant to the Asset Purchase Agreement, Duramed will assume
Hallmark's obligations under employment agreements with Mr. V. G. Budharaju,
President and Chief Executive Officer of Hallmark, Dr. Kamlesh Shah, Hallmark's
Director of Research and Development, and Dr. Guohua Zhang, Hallmark's Director
of Research and Development and Special Projects. Each of these agreements
provides for a five-year term, specified base salary ($150,000 for Mr. Raju and
approximately $105,000 for each of Drs. Shah and Zhang), other benefits and
grants of Hallmark Common Stock all of which Common Stock has been granted.
Prior to the execution of the Asset Purchase Agreement, Duramed
advanced $2,085,012 in product development costs to Hallmark in exchange for
product marketing rights to Captopril and another generic prescription
pharmaceutical product. Pursuant to the Asset Purchase Agreement, since April 1,
1996, Duramed has advanced to Hallmark amounts necessary to meet Hallmark's
operating expenses and interest payments to its bank at a rate not exceeding an
aggregate of $314,000 per month. Accordingly, at July 15, 1996, Hallmark owed
Duramed $3,480,520, represented by promissory notes, certain of which notes are
secured by Hallmark's rights in Captopril and such other product. The Asset
Purchase Agreement provides that such indebtedness will be released at the
Closing. If the Transaction is not consummated, Hallmark will be obligated to
repay such amounts to Duramed.
The Asset Purchase Agreement also provides that under certain
circumstances Duramed will advance to Hallmark additional funds to pay all
reasonable costs of its biostudy with respect to
- 19 -
<PAGE> 31
such other product. By July 15, 1996, Duramed had advanced $245,508 towards the
cost of this biostudy, which amount is included in the $3,480,520 owed by
Hallmark to Duramed at that date.
As of July 12, 1996, Duramed agreed to advance to Hallmark up to
$290,000 to cover the costs of its biostudy with respect to a third generic
prescription pharmaceutical product, in exchange for product marketing rights to
such product. As of July 15, 1996, Duramed had advanced no funds to Hallmark
toward the cost of this biostudy.
As of July 8, 1996, Duramed issued options to purchase an aggregate of
75,000 shares of common stock to certain consultants and employees of Hallmark
including V. G. Budharaju, Guohua Zhang, Kamlesh B. Shah, Mike Adone, Leonid
Freytor and Vijay R. Dandu. The options will be exercisable at $15.50, the
market price of Duramed common stock as of July 8, 1996. The options will vest
over a five year period contingent upon the individuals continuing to provide
services, either as consultants or employees, during the vesting period.
THE TRANSACTION
The descriptions of the Plan and the Asset Purchase Agreement set forth
in this section do not purport to be complete and are qualified in their
entirety by reference to the Plan and the Asset Purchase Agreement, which are
attached as Appendices A and B, respectively, to this Proxy Statement/Prospectus
and are incorporated by reference herein.
SALE OF THE ASSETS
At the Closing, Duramed will purchase all of Hallmark's right, title
and interest in and to the assets used in its business, including without
limitation, all real property leases, leasehold improvements, equipment,
personal property, inventory, furniture, fixed assets, fixtures, raw materials,
supplies and other tangible property, governmental licenses, permits and
authorizations, contracts, agreements, leases, intellectual property, cash, bank
accounts, accounts receivable, insurance policies, all rights in and to the name
"Hallmark Pharmaceuticals, Inc." and all goodwill.
PURCHASE PRICE
At the Closing, Duramed will issue 640,000 shares of Duramed Common
Stock and the 400,000 Warrants, less certain amounts thereof to be placed in
escrow as described below. Hallmark will distribute the shares and Warrants as
provided in the Plan. Duramed will also assume certain obligations of Hallmark,
including those arising under assigned contracts, agreements and leases, certain
specified accounts payable and Hallmark's bank
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<PAGE> 32
debt ($1,256,351 at July 15, 1996), and will release all of Hallmark's
indebtedness to Duramed ($3,480,520 at July 15, 1996). Duramed will not assume
any other liabilities of Hallmark, including any potential obligation of
Hallmark to pay a finder's fee to Deloitte & Touche, LLP in connection with the
Transactions, any Hallmark Shareholder Debt, any obligation relating to any
stock options issued by Hallmark, any obligation under any Hallmark employee
benefit plan, any Hallmark obligation for taxes or any liability to any Hallmark
shareholder exercising appraisal rights.
ESCROW
At the Closing, the parties will enter into an agreement (the "Escrow
Agreement") providing that 10% of the Duramed Common Stock and the Warrants to
be issued will be placed in escrow (the "Escrow") with The Provident Bank (the
"Escrow Agent") for a period of 12 months, as security for Hallmark's
obligations to Duramed with respect to its representations, warranties and
covenants in the Asset Purchase Agreement. The Escrow Agreement permits Hallmark
to cause the sale of all or part of such securities, in which event the proceeds
of sale will be held in the Escrow.
CLOSING OF THE TRANSACTION
If the Transaction is approved by the requisite vote of Hallmark
shareholders and the other conditions to the Transaction are satisfied or waived
(where permissible), the Closing will be held as soon as practicable after the
Special Meeting. It is presently contemplated that the Closing will occur
promptly after obtaining the necessary approval of Hallmark shareholders. See
"THE TRANSACTION -- Conditions; Waivers."
REPRESENTATIONS AND WARRANTIES
The Asset Purchase Agreement contains various representations and
warranties of each of the parties thereto as to (i) its corporate organization,
standing and power; (ii) its capitalization; (iii) the authorization by Duramed
of its Common Stock and Warrants to be issued in the Transaction, (iv) the
authorization of the Asset Purchase Agreement; (v) the Asset Purchase
Agreement's non-contravention of any agreement, law or charter or by-law
provision and the absence of the need (except as specified) for governmental or
third party consents as to the Transaction; (vi) the conduct of its business in
the ordinary and usual course and the absence of any material adverse change in
its business; (vii) the absence of undisclosed liabilities; (viii) the
composition and condition of the assets to be purchased, and Hallmark's title
thereto; (ix) the absence of certain events relating to Hallmark's business
since December 31, 1995; (x) the absence of certain improper commercial
practices relating to Hallmark's business; (xi) transactions between
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<PAGE> 33
Hallmark and related parties; (xii) Hallmark's insurance policies; (xiii)
Hallmark's contracts and agreements, including the absence of material defaults
thereunder; (xiv) certain tax matters; (xv) pending or threatened litigation;
(xvi) compliance with law; (xvii) certain environmental matters; (xviii)
Hallmark's labor relations; (xix) employee benefit plans maintained by Hallmark;
(xx) the accuracy of financial statements and filings with the Commission; (xxi)
certain matters relating to Hallmark's Food and Drug Administration ("FDA")
filings; (xxii) Hallmark's intellectual property; and (xxiii) the accuracy of
information to be supplied for inclusion in filings with the Commission required
by the transactions contemplated by the Asset Purchase Agreement.
The respective representations and warranties of Duramed and Hallmark
will survive the Closing for 12 months.
BUSINESS OF HALLMARK PENDING THE CLOSING
Hallmark has agreed that, among other things, prior to the Closing or
earlier termination of the Asset Purchase Agreement, except as contemplated by
the Asset Purchase Agreement, it will not (i) intentionally make any material
change in its operations, (ii) purchase any significant property or assets other
than in the ordinary course of business, (iii) sell, transfer or otherwise
intentionally dispose of any significant properties or assets which would result
in Hallmark owning in the aggregate an amount of properties and assets less than
the aggregate amount of properties and assets owned by Hallmark on April 9,
1996, except for decreases in such aggregate amount due solely to market
conditions, (iv) form any subsidiary or (v) intentionally take any action which
would make any of its representations and warranties incorrect in any material
respect as of the Closing.
Hallmark has further agreed not to (i) amend its Certificate of
Incorporation or By-laws, (ii) issue or sell any shares of, or rights of any
kind to acquire any shares of or to receive any payment based on the value of,
its capital stock or any securities convertible into shares of any such capital
stock (including, without limitation, any further stock options or stock
appreciation rights), except upon the exercise of presently outstanding options
or rights to acquire shares of Hallmark Common Stock, in each case in accordance
with their present terms, (iii) increase the amount of Hallmark's outstanding
bank indebtedness, (iv) otherwise incur any material indebtedness other than in
the ordinary course of business or in furtherance of its obligations under the
Asset Purchase Agreement, (v) acquire, directly or indirectly, by redemption or
otherwise, any shares of its capital stock or (vi) modify any existing contract,
agreement, commitment or arrangement with respect to any of the foregoing.
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<PAGE> 34
Hallmark has agreed to use all reasonable efforts to conduct its
business only in the ordinary course and consistent with past practice, to
preserve intact its business organization, to keep available the services of its
current officers and key employees, and to preserve the goodwill of those having
business relationships with it. Hallmark has further agreed not to (i) increase
in any manner the compensation of any of its executive officers except pursuant
to binding obligations, (ii) increase in any manner the compensation of any of
its other officers or employees, except pursuant to binding obligations or in
the ordinary course of business and, in the case of such officers and employees
whose present annual compensation exceeds Fifty Thousand Dollars ($50,000),
after consultation with Duramed, or pursuant to the terms of agreements or plans
as currently in effect, (iii) pay or agree to pay any pension, retirement
allowance or other employee benefit not required by any existing plan, agreement
or arrangement to any director, officer or key employee, whether past or
present, (iv) except as required by the terms of any existing plan, agreement or
arrangement, adopt or commit itself to or enter into any additional pension,
profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement or
other employee benefit plan, agreement or arrangement, or into any employment or
consulting agreement with or for the benefit of any director, officer or
employee, whether past or present, (v) amend any such plan, agreement or
arrangement, (vi) enter into any collective bargaining agreement, (vii) enter
into or modify any employment agreement or agreement with a related party or
(viii) with certain exceptions, make or commit to make any capital expenditures.
CONDITIONS; WAIVERS
The respective obligations of Hallmark and Duramed to effect the
Transaction are subject to the satisfaction of certain conditions at or prior to
the Closing, including: (a) approval of the Transaction by the holders of (i) a
majority of the outstanding shares of Hallmark Common Stock, and (ii) a majority
of the outstanding shares of Hallmark Common Stock actually voted on the
Transaction, other than shares of Hallmark Common Stock beneficially owned by
Duramed or its affiliates; (b) no court or governmental or regulatory authority
of competent jurisdiction having been enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or other
order or taken any action prohibiting or seeking to prohibit or adversely affect
the consummation of the transactions contemplated by the Asset Purchase
Agreement; (c) the absence of any stop order suspending the effectiveness of the
Registration Statement on Form S-4 of which this Proxy Statement/Prospectus is a
part; (d) all filings required to be made, and all consents, approvals, permits
and authorizations required to be obtained from governmental and regulatory
authorities in connection with
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<PAGE> 35
the Asset Purchase Agreement and the consummation of the transactions
contemplated thereby, having been made or obtained without restrictions; (e) the
closing of the transaction contemplated by the HLA Agreement; and (f) the
execution of the Escrow Agreement.
The obligations of Duramed and Hallmark to effect the Transaction are
also subject to certain conditions which are normal and customary for
transactions such as the Transaction, including, in the case of Duramed's
obligations, compliance by Hallmark with the New Jersey Industrial Site Recovery
Act and the Employment Agreements being in full force and effect.
The Asset Purchase Agreement provides that any or all conditions to any
party's obligations may, at any time prior to the Effective Time, be waived by
such party in whole or in part, to the extent permitted by applicable law.
AMENDMENT; TERMINATION
At any time prior to the Closing, Duramed and Hallmark may amend the
Asset Purchase Agreement by mutual written agreement.
The Asset Purchase Agreement may be terminated at any time prior to the
Closing: (a) by mutual consent of Duramed and Hallmark; (b) by either Duramed or
Hallmark if the Transaction shall not have been consummated by September 30,
1996; (c) by either Duramed or Hallmark if the other is in material breach of
any representation, warranty, covenant and agreement which has not been cured in
a specified time period after notice; (d) by either Duramed or Hallmark if any
permanent injunction or other order of a court or other competent authority
enjoining or otherwise preventing the consummation of the transactions
contemplated by the Asset Purchase Agreement shall have become final and
non-appealable; (e) by either Duramed or Hallmark if the Required Company Vote
shall not have been obtained; (f) by Duramed if the Board of Directors of
Hallmark shall or shall resolve to (i) not recommend, or withdraw its approval
or recommendation of, the Asset Purchase Agreement or any of the transactions
contemplated hereby, (ii) modify such approval or recommendation in a manner
adverse to Duramed or any of its affiliates or (iii) adopt a Third-Party
Resolution (as defined below); or (g) by Hallmark if an entity or group (other
than Duramed or any of its affiliates) (a "Third Party") shall have made a bona
fide proposal (a "Third-Party Proposal") to acquire all or a substantial portion
of the outstanding shares of Hallmark Common Stock or the assets of Hallmark and
the Board of Directors of Hallmark adopts a resolution (a "Third-Party
Resolution") that states that it believes in good faith that such a proposal is
more favorable, from a financial point of view, to the holders of Hallmark
Common Stock than the Transaction. Hallmark is required, prior to such
termination, to provide
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<PAGE> 36
Duramed with notice of the terms and conditions of such Third-Party Proposal and
the identity of such Third Party.
ACCOUNTING TREATMENT
It is expected that the Transaction will be accounted for by Duramed as
a purchase.
INDEMNIFICATION
Hallmark has agreed to indemnify Duramed for any damages resulting from
any misrepresentation or breach of warranty by Hallmark or any Hallmark
liability not assumed by Duramed. Duramed may assert an indemnification claim
within one year after the Closing and only to the extent of the shares of
Duramed Common Stock, Warrants and proceeds therefrom held in the Escrow.
Duramed has agreed to indemnify Hallmark in certain circumstances, including for
any breach of warranty by Duramed or any Hallmark liability specifically assumed
by Duramed.
TREATMENT OF HALLMARK STOCK OPTIONS
Hallmark currently has outstanding options to purchase 1,500,000 shares
of its Common Stock at an exercise price of $1.00 per share, and options to
purchase 620,100 shares of its Common Stock at an exercise price of $5.00 per
share. All of the outstanding options are currently exercisable. In connection
with this proxy solicitation, Hallmark will notify all persons holding options
to purchase common stock of the Transaction, giving them a period of not less
than 30 days from the date of the notice in which to exercise their options and
participate in the Transaction as shareholders. Options that are not exercised
within 30 days of the notice will be canceled.
EXPENSES AND FEES
Except as described below, each party to the Asset Purchase Agreement
will pay its own expenses in connection with the Transaction. If the Transaction
is consummated, Duramed also will assume and pay $50,000 of the fees of Armata
Partners, financial advisor to Hallmark. If the Asset Purchase Agreement is
terminated due to (i) failure by Hallmark to obtain the approval of Hallmark
shareholders, (ii) a determination by the Hallmark Board of Directors to pursue
a transaction with a Third Party, (iii) failure to consummate the transaction
contemplated by the HLA Agreement or (iv) breach by Hallmark of any of its
representations, warranties and agreements under the Asset Purchase Agreement,
Hallmark has agreed to pay all actual out-of-pocket fees and expenses incurred
by Duramed in connection with the Transaction, up to $500,000.
If the Asset Purchase Agreement is terminated for any reason (other
than its material breach by Hallmark), Hallmark may
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<PAGE> 37
repurchase all marketing rights to its products which have been granted to
Duramed by repaying all funds previously advanced by Duramed.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE TRANSACTION. The Transaction will constitute a taxable sale. In
accordance with section 1060 of the Internal Revenue Code (the "Code"), to
determine the amount and character of the gain or loss recognized by Hallmark as
the result of the sale, the consideration paid by Duramed must be allocated
among the assets sold. Hallmark will recognize a gain under section 1001(a) of
the Code on the sale of an asset to the extent the consideration allocated to
the asset exceeds Hallmark's basis in the asset. Hallmark will recognize a loss
under section 1001(a) of the Code on the sale of an asset to the extent
Hallmark's basis in the asset exceeds the fair market value of the consideration
allocated to the asset.
Hallmark currently has net operating losses and net operating loss
carryovers that can be applied against, and thereby reduce or eliminate, gains
recognized by Hallmark as a result of the Transaction.
ESCROW FUND. Hallmark will be treated for tax purposes as the owner of
the Escrow Fund. Consequently, income from the securities or cash held in the
Escrow Fund will be included in Hallmark's taxable gross income.
PAYMENT OF LIABILITIES WITH DURAMED COMMON STOCK. Assuming the fair
market value of the shares of Duramed Common Stock does not change from the time
Hallmark receives them until Hallmark transfers a portion of them to its
creditors, such transfer will not result in any tax consequences to Hallmark. If
during such time the fair market value of the Duramed Common Stock transferred
to the creditors does change, Hallmark will recognize taxable gain or loss equal
to such change.
The transfer of Duramed Common Stock to Hallmark's creditors may cause
some of the creditors to recognize gain. A creditor will recognize gain to the
extent that the fair market value of the portion of the Duramed Common Stock
received by the creditor exceeds the creditor's basis in Hallmark's
indebtedness to the creditor. Although a creditor's basis in a debt owed the
creditor is generally equal to the amount of the debt, under certain
circumstances the creditor's basis may be less than the amount of the debt. One
such circumstance may arise where the creditor is a shareholder of the debtor,
and the debtor is an S corporation at any time during which the debt is
outstanding. In such a case, in accordance with section 1367(b)(2) of the Code
the creditor's basis in the indebtedness of the S corporation to the creditor
may be reduced under certain circumstances including
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<PAGE> 38
the recognition of losses and deductions by the S corporation when the
shareholder's basis in his stock is zero.
Hallmark was at one time an S corporation. During such time, some of
the creditors' bases in the debts owed them by Hallmark were reduced.
Consequently, such creditors will recognize gain upon Hallmark's satisfaction of
the debts owed them.
LIQUIDATION OF HALLMARK. Hallmark will not recognize any gain or loss
as a result of its liquidation unless the fair market value of the Duramed
Common Stock and Warrants changes from the time of their transfer to Hallmark to
the time of Hallmark's transfer of them to its shareholders. If the fair market
value of the Duramed Common Stock and Warrants does change during such time,
then under section 336(a) of the Code, Hallmark will recognize gain or loss
(recognition of loss is limited under certain circumstances) equal to the
difference between its basis in the Duramed Common Stock and Warrants (their
fair market value when received by Hallmark) and the fair market value of the
Duramed Common Stock and Warrants on the date they are distributed to the
shareholders.
In accordance with sections 331 and 1001(a) of the Code, each
shareholder's gain or loss resulting from the liquidation of Hallmark will equal
the difference between the adjusted basis the shareholder has in his stock in
Hallmark and the fair market value of the liquidating distribution received by
the shareholder. Because Hallmark was at one time an S corporation, the basis
that a shareholder holds in his stock in Hallmark may be lower than the fair
market value of the property that the shareholder contributed to Hallmark in
exchange for his stock. While Hallmark was an S corporation, the basis that a
shareholder had in his stock in Hallmark was reduced in accordance with section
1367(a)(2) of the Code under certain circumstances including distributions by
the corporation to the shareholder and as a result of corporate losses and
deductions.
Any gain or loss recognized by a shareholder as the result of the
shareholder's receipt of assets in the liquidation of Hallmark will be
characterized as a capital gain or loss if the shareholder held his stock in
Hallmark as a capital asset. This gain or loss will be short-term if the
shareholder held his shares in Hallmark for not more than one year, and
long-term if the shareholder held the shares for more than one year.
Under section 334(a) of the Code, the shareholders will receive a basis
in the assets distributed to them in liquidation of Hallmark equal to the fair
market value of the assets at the time they are distributed.
EXERCISE OR LAPSE OF WARRANTS. The shareholders of Hallmark will not
recognize any income on the receipt of Duramed Common
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<PAGE> 39
Stock pursuant to the exercise of the Warrants. Upon a shareholder's exercise of
the Warrants, the shareholder's basis in the Warrants will be added to the
exercise price to determine the shareholder's basis in the stock received
pursuant to the exercise of the Warrants. Rev. Rul. 78-182, 1978-1 C.B. 265. If
a shareholder chooses not to exercise his Warrants and they lapse, in accordance
with section 1234 of the Code, the shareholder will recognize a loss in an
amount equal to his basis in the Warrants.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE PLAN AND THE TRANSACTION AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION
WHETHER TO VOTE IN FAVOR OF APPROVAL OF THE PLAN AND THE TRANSACTION. THE
DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A
PARTICULAR SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME
TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, NON-UNITED STATES PERSONS AND SHAREHOLDERS WHO ACQUIRED THEIR
SHARES OF HALLMARK COMMON STOCK PURSUANT TO THE EXERCISE OF HALLMARK OPTIONS OR
OTHERWISE AS COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR FOREIGN JURISDICTION. MOREOVER, THE TAX CONSEQUENCES TO
HOLDERS OF HALLMARK OPTIONS ARE NOT DISCUSSED. THE DISCUSSION IS BASED UPON THE
PROVISIONS OF THE INTERNAL REVENUE CODE, TREASURY REGULATIONS THEREUNDER AND
ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE HEREOF, ALL OF WHICH
ARE SUBJECT TO CHANGE. HALLMARK SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PLAN AND THE TRANSACTION TO THEM.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of Hallmark who do not vote in favor of the Transaction
and who perfect their rights as described below will have dissenters' rights
under applicable New Jersey law. Section 14A:11-1 of the New Jersey Business
Corporation Act (the "NJBCA") provides that shareholders may generally dissent
from a sale of substantially all of the assets of the corporation not in the
ordinary course of business, except if (i) the shares held by such shareholder
are listed on a national exchange or held of record by not less than 1,000
shareholders, (ii) the transaction is entered into pursuant to a plan of
dissolution of the corporation which provides for distribution of the net assets
of the corporation to its shareholders in accordance with their interests within
one year after the date of such transaction and the transaction is wholly for
cash, securities so listed or held or cash and such securities; or (iii) the
sale is pursuant to an order of a court of competent jurisdiction.
A shareholder of Hallmark who wishes to assert his right to dissent
from the adoption of the Plan and approval of the Asset
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<PAGE> 40
Purchase Agreement and receive the fair value of his shares must file with
Hallmark a written notice stating that he intends to demand payment for his
shares if the Plan is adopted. Such notice must be filed with Hallmark prior to
the vote of the shareholders on the Plan. If one or more shareholders file
notices of dissent, and the Plan is nonetheless adopted, Hallmark must, within
ten days of the effective date of such action, send written notice of the
effective date of such action to the shareholders filing such notices. Such
shareholders must then provide to Hallmark, within 20 days of the mailing of
such notice, a written demand for payment of the fair value of the shares held
by them and, within twenty days of the date of such demand, submit the share
certificates held by them for notation thereon of such demand.
Within ten days after expiration of the period within which a
shareholder may demand payment for his shares, Hallmark must mail to all
shareholders making such a demand the balance sheet and surplus statement of
Hallmark as of the latest available date, and a profit and loss statement for
not less than a 12- month period ended on the date of such balance sheet.
Hallmark may accompany such mailing with a written offer to pay each dissenting
shareholder for his shares at a specified price deemed by Hallmark to be the
fair value thereof. Such offer must be made at the same price to each dissenting
shareholder. If, not later than 30 days after the end of the ten-day period
referred to in this paragraph, Hallmark and any dissenting shareholders agree
upon the fair value of the shares, Hallmark must deliver payment therefor to
such shareholders upon surrender of the certificate or certificates representing
such shares.
If Hallmark and any dissenting shareholder fail to agree upon a fair
value for the shares within the 30-day period described in the previous
paragraph, any remaining dissenting shareholder may serve upon Hallmark, no
later than 30 days after the expiration of such period, a written demand that it
commence an action in the Superior Court of the State of New Jersey for the
determination of the fair value of the shares. Hallmark must commence such
action no later than 30 days after receipt of such demand, or at any earlier
time that it determines. If Hallmark fails to commence such an action within
such time period, any remaining dissenting shareholder may commence such an
action in the name of Hallmark within sixty days of the expiration of such time
period. All remaining dissenting shareholders must be named as parties to such
an action against their shares quasi in rem. The court must render judgment
against Hallmark and in favor of each shareholder who is a party to the action
for the amount of the fair value of his shares, as determined by the court. In
making such determination, the court may appoint an appraiser to receive
evidence and report to the court on the question of fair value. The court must
also award to each shareholder who is a party to the action interest at an
equitable rate from the date of such shareholder's demand for payment, unless
the court finds
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<PAGE> 41
that the refusal of any dissenting shareholder of an offer by Hallmark pursuant
to the preceding paragraph was arbitrary, vexatious or otherwise not in good
faith, in which case no interest shall be awarded. A judgment for the payment of
the fair value of shares must be payable upon surrender to Hallmark of the
certificates representing such shares. The costs and expenses of such an action
must be determined and apportioned by the court. Each party must pay its own
attorney's fees and expert's fees, unless the court finds that the offer made by
Hallmark pursuant to the preceding paragraph was not made in good faith, in
which case the court may in its discretion award to any dissenting shareholder
who is a party to such action his attorney's and expert's fees.
INFORMATION CONCERNING DURAMED
Duramed currently manufactures and sells a limited line of prescription
generic drug products in tablet, capsule and liquid forms to customers
throughout the United States. Products sold by Duramed include those of its own
manufacture and those which it markets under certain arrangements with other
drug manufacturers. Duramed sells its products to drug wholesalers, private
label distributors, drug store chains, health maintenance organizations,
hospitals, nursing homes, retiree organizations, mail order distributors, other
drug manufacturers, mass merchandisers and governmental agencies. Generic drugs
are the chemical and therapeutic equivalents of brand name drugs which have
gained market acceptance while under patent protection. In general, prescription
generic drug products are required to meet the same governmental standards as
brand name pharmaceutical products and must receive FDA approval prior to
manufacture and sale. Generic drug products are marketed after expiration of
patents held by the innovator company, generally on the basis of FDA approved
Abbreviated New Drug Applications submitted by the generic manufacturers.
Generic drug products typically sell at prices substantially below those of the
equivalent brand name products. The increasing emphasis on controlling health
care costs, the growth of managed care organizations and the significant number
of drugs for which patents will expire in the next few years are expected to
create an opportunity for continued growth in the generic drug market.
Other information concerning Duramed is incorporated herein
by reference. See "AVAILABLE INFORMATION" and "DOCUMENTS
INCORPORATED BY REFERENCE."
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<PAGE> 42
INFORMATION CONCERNING HALLMARK
BUSINESS
Hallmark is a development stage company engaged in the research,
development and manufacturing of generic or "off-patent" prescription drugs.
Hallmark also is engaged in the business of developing a proprietary drug
delivery system designed to enable alternate formulation of pharmaceutical
compounds. Hallmark is a New Jersey corporation organized in February, 1992.
Hallmark commenced operations on March 1, 1992.
Hallmark's primary objective has been to enter the generic drug
industry through the establishment of a research and development facility and
the acquisition of equipment and personnel in order to identify and formulate
generic versions of brand name drugs with expired and expiring patents.
In June, 1992, Hallmark leased its present 22,751 square feet facility
in Somerset, New Jersey. Modification of part of the building at a cost of
approximately $128,000 for use as a research and development laboratory was
completed in September, 1992. Support staff, consisting of laboratory personnel
and clerical support personnel, were also added in September, 1992.
The FDA's promulgation of a series of regulatory requirements in the
early 1990's had a material effect on the time and money needed for Hallmark to
achieve its business objective. Chief among these regulatory changes were the
requirements for pre-approval inspections and for submission batch manufacture
in a facility meeting Good Manufacturing Practice ("GMP") regulations. Plans to
modify part of the building as a pilot facility in compliance with GMP
regulations of the FDA were developed and implemented during the latter part of
1992 and early 1993. Implementation costs were approximately $191,000. This GMP
pilot facility was operational in April, 1993.
Between that latter part of 1993 and early 1994, Hallmark utilized the
GMP facility to complete three bio-studies to support applications by Hallmark
to the FDA for approval of two generic drug products: Captopril (application
filed in March, 1993) and Glipizide (application filed in October, 1994).
Also beginning in late 1993 and continuing throughout 1994, plans to
modify the rest of the building as an additional GMP facility were developed and
implemented in two phases at a cost of approximately $1,500,000. This facility,
which was completed in the first quarter of 1995, will enable Hallmark to
produce selected drugs in commercial quantities.
Hallmark is dependent on debt and equity financing to fund its
activities. Hallmark has financed its activities through
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<PAGE> 43
sales of common stock, loans from shareholders and bank loans guaranteed by
shareholders. The aggregate of these financing activities has produced
approximately $14,877,000 through March 31, 1996, all of which has been
dedicated to research and development ("R&D"), acquisition of equipment and
personnel, and operation of Hallmark's facilities.
TIME RELEASE FORMS
During the process of completing the GMP facility, Hallmark had
concentrated its efforts on immediate release solid oral dosage forms as the
scope of the project. However, based on the earlier success of Hallmark's R&D
program, changes in market conditions, and the desirability of enhancing
Hallmark's product potential, the Board of Directors of Hallmark decided in
October of 1993 to expand the R&D program to include time release solid oral
dosage forms. Dr. Guohua Zhang, Ph.D., a specialist in the development of time
release solid oral dosage drugs, became, on April 18, 1994, the Director of
Special Projects to direct the activities of this expanded R&D program.
The decision to enter the time release field while continuing with the
immediate solid dosage form products contributed to the need for substantially
more funding. Further, compliance with FDA requirements for pre-approval
inspection and entry into the time release field caused Hallmark to seek and
obtain additional funding in 1994. The total amounts raised through stock sales,
stockholder loans and bank loans guaranteed by stockholders in 1994 was
approximately $5,446,950.
HALLMARK PHARMACEUTICALS, INC.
SELECTED FINANCIAL DATA
The selected financial data of Hallmark set forth below as of and for the years
ended December 31, 1995, 1994 and 1993 has been derived from, and should be read
in conjunction with, Hallmark's audited financial statements and notes thereto
included elsewhere herein. The selected financial data of Hallmark as of March
31, 1996 and for the three month periods ended March 31, 1996 and 1995 is
unaudited and should be read in conjunction with Hallmark's interim financial
statements also included elsewhere herein. The unaudited balance sheet data as
of March 31, 1995 has been derived from Hallmark's interim balance sheet not
included herein.
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<PAGE> 44
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Years ended December 31,
------------------------------- ------------------------
MARCH 31, 1996 MARCH 31, 1995 1995 1994 1993
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales $837 - - - -
Operating (loss) ($1,388) ($945) ($4,068) ($3,572) ($2,281)
Net (loss) ($1,585) ($1,071) ($4,815) ($3,981) ($2,607)
Net loss per common share ($.26) ($.18) ($0.79) ($0.71) ($0.75)
BALANCE SHEET DATA:
Current assets $989 $227 $837 $501 $142
Total assets $4,332 $3,913 $4,402 $3,508 $1,774
Current liabilities $6,299 $825 $3,972 $705 $352
Long-term liabilities $4,645 $4,709 $5,506 $3,675 $2,204
Accumulated deficit ($13,984) ($8,654) ($12,398) ($7,583) ($3,602)
Stockholders' deficiency ($6,611) ($1,622) ($5,076) ($872) ($782)
</TABLE>
- 33 -
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION OF HALLMARK
RESULTS OF OPERATIONS
Comparison of Three Month Periods Ended March 31, 1996 and 1995.
NET SALES AND COST OF GOODS SOLD
Net sales for the three month period ended March 31, 1996 of $836,819
consisted of sales of Hallmark's Captopril product to Duramed in accordance with
the terms of a distribution agreement between the parties. As a result of
intense competition in the market for the Captopril product, Hallmark incurred a
gross loss of $314,140 and its cost of goods sold was $1,150,959. There were no
sales or cost of goods sold in the comparable prior quarter as Hallmark was in
the development stage at that time.
OPERATING EXPENSES
Research and development
Research and development expense increased by $114,795, or 27.7%, in
the first quarter of 1996 to $529,484 from $414,689 in the first quarter of
1995. The increase in research and development expense was primarily a result of
increased bio-studies.
General and administrative
General and administrative expense increased by $10,320, or 3.9%, in
the first quarter of 1996 to $275,564 from $265,244 in the first quarter of
1995. The moderate increase in General and Administrative expense is a result of
first quarter increases in salaries and product liability insurance, offset by a
decrease in legal and professional fees.
Interest Expense
Interest expense increased by $70,391, or 55.6%, in the first quarter
of 1996 to $197,042 from $126,651 in the first quarter of 1995. The increased
interest expense is principally a result of increased stockholder debt.
Comparison of Years Ended December 31, 1995 and 1994
NET SALES
There were no sales in 1995 and 1994 as Hallmark was in the development
stage.
- 34 -
<PAGE> 46
OPERATING EXPENSES
Research and development
Research and development expense increased by $137,675, or 6.9%, in
1995 to $2,120,982 from $1,983,307 in 1994. The increase in research and
development expense was principally a result of increased salaries as well as
increased outside lab fees for bioequivalency studies.
General and administrative
General and administrative expense decreased by $25,177, or 2.9%, in
1995 to $856,028 from $881,205 in 1994. The decrease in general and
administrative expense was principally a result of a non-recurring charge of
$250,000 recorded in 1994 in connection with the issuance of stock options (see
Note 8 to Hallmark's financial statements) offset by 1995 increases in legal and
professional fees of approximately $103,400, salaries of approximately $18,200,
insurance and workmen's compensation of approximately $17,300, travel expenses
of approximately $22,000, and net increases in other expenses aggregating
approximately $64,000.
Interest Expense
Total interest expense increased by $338,718, or 82.8%, in 1995 to
$747,803 from $409,085 in 1994. This increase results primarily from increased
borrowing from stockholders during 1995 of approximately $4,315,500.
Depreciation and Amortization
Depreciation and amortization expense increased by $382,880, or 54.1%,
to $1,090,594 in 1995 from $707,714 in 1994. The increase in depreciation and
amortization expense is principally a result of Hallmark's additions to property
and equipment which aggregated approximately $1,549,000 in 1995 (including
additions to equipment classified as held under capital leases).
Income Taxes
Since Hallmark's adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" as of January 1, 1994 (such
standard was adopted concurrent with the Company's effective date of revocation
of its S Corporation status), a valuation allowance was provided for the total
amount of deferred tax assets.
Inflation
Inflation has not had and is not expected to have a material impact on
Hallmark's business.
- 35 -
<PAGE> 47
LIQUIDITY AND CAPITAL RESOURCES
Hallmark is engaged in the research and late-stage development of
generic drugs and drug delivery technologies the funding for which, since
Hallmark's inception, has been obtained from sales of common stock to
shareholders in a series of private placements, loans from shareholders and bank
debt guaranteed by Hallmark's shareholders. During 1995 Hallmark received its
first approval to market Captopril but intense competition in the market for
this product has severely impacted expected profit margins. Accordingly,
Hallmark will continue to require equity and/or debt financing to carry out its
business plan. Currently, Hallmark is being funded substantially by advances
from Duramed as well as occasional shareholder loans. Absent such funding, there
is substantial doubt about whether Hallmark could continue as a going concern.
At March 31, 1996 and December 31, 1995, shareholder loans aggregated
approximately $6,051,000 and $5,946,000, respectively, and obligations under
capital leases aggregated approximately $734,000 and $800,000, respectively.
Bank debt at March 31, 1996 and December 31, 1995 aggregated approximately
$1,256,000 and $1,279,000, respectively. Hallmark was indebted to Duramed at
March 31, 1996 and December 31, 1995 in connection with short term advances of
$2,010,000 and $900,000, respectively.
Also, at March 31, 1996 and December 31, 1995, Hallmark had a working
capital deficiency of approximately $5,309,000 and $3,135,000, respectively.
See "SUMMARY-MARKET INFORMATION" and "INDEX TO FINANCIAL STATEMENTS"
for additional information with respect to Hallmark.
SECURITY OWNERSHIP OF HALLMARK
Hallmark common stock is owned beneficially by 53 stockholders. As of
July 15, 1996, the record date for the Special Meeting, there were 6,156,240
shares of common stock outstanding. Officers and directors of Hallmark own
beneficially approximately 63% of the outstanding shares of common stock. Each
share of common stock is entitled to one vote. Under New Jersey law and
Hallmark's governing instruments, approval by a majority of the outstanding
shares of common stock is necessary in order to effect the sale of assets.
However, the board of directors of each of Hallmark and Duramed voted has
determined, and the Asset Purchase Agreement provides, that the Transaction will
not proceed unless a majority of the shares voted by persons unaffiliated with
Duramed approve the Transaction.
- 36 -
<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 15, 1996, of each person
known by Hallmark to be beneficial owners of more than 5% of the outstanding
Common Stock, each of the directors of the Company, and all Directors and
executive officers of the Company as a group. Under the rules of the Securities
and Exchange Commission (the "Commission"), a person is deemed a "beneficial
owner" of a security if such person has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
securities of which that person has the right to acquire beneficial ownership
within 60 days. More than one person may be deemed to be a beneficial owner of
the same securities.
<TABLE>
<CAPTION>
NAMES AND ADDRESSES OF BENEFICIAL OWNERS SHARES PERCENTAGE
BENEFICIALLY OWNED
OWNED
<S> <C> <C>
Mr. V. G. Budharaju.............................................. 900,000 14.6%
c/o Hallmark Pharmaceuticals, Inc.
400 Campus Drive
Somerset, New Jersey
Dr. Marvin H. Meisner(2)......................................... 486,841 7.9%
c/o Hallmark Pharmaceuticals, Inc.
400 Campus Drive
Somerset, New Jersey
Dr. John H. Meloy (3)............................................ 414,598 6.7%
c/o Hallmark Pharmaceuticals, Inc.
400 Campus Drive
Somerset, New Jersey
Dr. Carroll P. Osgood (4)........................................ 517,339 8.4%
c/o Hallmark Pharmaceuticals, Inc.
400 Campus Drive
Somerset, New Jersey
Dr. Rudraraju P. Raju (5)........................................ 725,667 11.8%
c/o Hallmark Pharmaceuticals, Inc.
400 Campus Drive
Somerset, New Jersey
Dr. Robert E. Wertz (6).......................................... 826,048 13.4%
c/o Hallmark Pharmaceuticals, Inc.
400 Campus Drive
Somerset, New Jersey
All directors and executive officers
as a group...................................................... 3,870,493 62.8%
</TABLE>
- 37 -
<PAGE> 49
(1) Represents shares held of record by various individual investors for
which Mr. Budharaju exercises voting power.
(2) Represents shares held of record by Dr. Meisner and Judith Sue Meisner
jointly.
(3) Represents shares held of record by Dr. Meloy and Eujeania Meloy
jointly.
(4) Represents shares held of record by Dr. Osgood and Altru Company for
which Dr. Osgood exercises voting power.
(5) Represents shares held of record by various individual investors for
which Dr. Raju exercises voting power.
(6) Represents shares held of record by Dr. Wertz individually and with
Patricia Wertz jointly for which Dr. Wertz exercises voting power.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to
the proposed Transaction based on the assumptions described in the accompanying
notes. These pro forma financial statements have been prepared from the
historical consolidated financial statements of Duramed and Hallmark and should
be read in conjunction therewith. The historical financial statements of Duramed
and Hallmark are incorporated by reference or appear elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"INDEX TO HALLMARK FINANCIAL STATEMENTS."
In exchange for substantially all the assets of Hallmark, Duramed has
agreed to issue 640,000 shares of common stock and warrants to purchase 400,000
shares of common stock at $25 per share ("securities"), and agreed to assume
certain liabilities valued at $2.8 million as of March 31, 1996. In anticipation
of completing the acquisition and in exchange for the exclusive North American
marketing rights to Hallmark's Captopril product, Duramed advanced Hallmark $2.0
million through March 31, 1996, and has agreed to continue funding the operating
expenses of Hallmark commencing April 1, 1996 until the close of the
Transaction. These expenses are forecasted to approximate $314,000 per month
plus certain bio-study costs. If the Transaction is consummated, Duramed will
release Hallmark from the obligation to repay these advances.
The excess of the value of Duramed's consideration ($16.3 million) over
the fair value of Hallmark's tangible assets acquired ($5.8 million) of $10.5
million represents a non-recurring charge for purchased research and
development. Given that this charge is non-recurring, pursuant to the
presentation requirements for pro forma financial information it has not been
included in the pro forma condensed consolidated financial statements.
The pro forma condensed consolidated balance sheet at March 31, 1996
reflects the acquisition of Hallmark as if it had been completed on March 31,
1996. The pro forma condensed consolidated statement of operations for the three
months ended
- 38 -
<PAGE> 50
March 31, 1996 and the year ended December 31, 1995 reflects the acquisition as
if it had been completed as of January 1, 1995.
The pro forma financial information does not purport to be indicative
of the results that would actually have been reported if the Transaction had
occurred on such dates or which may be reported in the future. The pro forma
financial information should be read in conjunction with the historical
financial statements of Duramed and Hallmark and the related notes to such
financial statements.
- 39 -
<PAGE> 51
DURAMED PHARMACEUTICALS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
Purchase
Accounting Pro Forma
Duramed Hallmark Adjustments Consolidated
------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash $2,600 $2,825 $ - $5,425
Accounts receivable 8,944,945 836,819 (1,387,831)a 8,393,933
Inventories 13,300,678 131,977 - 13,432,655
Other Assets 3,469,950 17,623 - 3,487,573
--------- ------ ---------- -----------
Total current assets 25,718,173 989,244 (1,387,831) 25,319,586
---------- ------- ----------- -----------
Property, plant & equipment 20,200,099 2,893,964 2,659,350 b 25,753,413
---------- --------- ----------- -----------
Other Assets 3,796,537 449,157 (375,635)c 3,870,059
--------- ------- ----------- -----------
Total Assets $49,714,809 $4,332,365 $895,884 $54,943,058
========== ========= =========== ===========
Liabilities and Stockholder's Equity
Current Liabilities:
Accounts payable $4,513,344 $ 394,243 $ (194,966)d $4,712,621
Accrued liabilities 4,465,623 282,473 333,808 d 5,081,904
Note Payable to Duramed - 2,010,012 (2,010,012)e -
Current portion of long-term
debt and other liabilities 6,997,995 3,611,933 (1,621,168)d 8,988,760
--------- --------- ----------- -----------
Total current liabilities 15,976,962 6,298,661 (3,492,338) 18,783,285
---------- --------- ----------- -----------
Other Long-term debt and 16,193,916 4,645,168 (4,645,168)d 16,193,916
liabilities ---------- --------- ----------- -----------
Total Liabilities 32,170,878 10,943,829 (8,137,506) 34,977,201
---------- ---------- ----------- -----------
Stockholders' Equity:
Convertible Preferred Stock 6,500,033 - - 6,500,033
Common Stock 97,888 7,122,100 (7,115,700)f 104,288
Additional paid-in-capital 40,976,473 250,000 12,683,600 f 53,910,073
Accumulated deficit (30,030,463) (13,983,564) 3,465,490 f (40,548,537)
---------- ---------- ----------- -----------
Total stockholders' equity 17,543,931 (6,611,464) 9,033,390 19,965,857
---------- ---------- ----------- -----------
Total liabilities and stockholders' equity $49,714,809 $4,332,365 $895,884 $54,943,058
<FN> =========== ========== =========== ===========
PRO FORMA BALANCE SHEET ADJUSTMENTS:
- ------------------------------------
The following adjustments were made to arrive at the pro forma consolidated
balance sheet:
a - Reflects the elimination of receivables related to Hallmark's Captopril
sales to Duramed, as well as the release of Hallmark's obligation to repay
Duramed for advances.
b - Adjustment to fair value property, plant and equipment.
c - Reflects Hallmark's reclassification of deferred financing costs and adjusts
to fair value other assets of Hallmark.
d - Reflects the addition of liabilities that are created as a result of the
transaction, as well as the elimination of certain liabilities not assumed
by Duramed.
e - Reflects the release of Hallmark's obligation to repay Duramed for advances
through March 31, 1996.
f - Reflects the elimination of common stock, additional paid-in-capital, and
accumulated deficit of Hallmark and the issuance of Duramed securities. In
addition, the accumulated deficit reflects the non-recurring charge for
purchased research and development of $10.5 million valued at March 31,
1996.
</TABLE>
- 40 -
<PAGE> 52
DURAMED PHARMACEUTICALS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Duramed Hallmark Adjustments Consolidated
------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $10,700,198 $836,819 ($836,819)a $10,700,198
Cost of Goods Sold 7,825,200 1,150,959 (1,150,959)a 7,825,200
----------- ---------- ---------- -----------
Gross Profit (Loss) 2,874,998 (314,140) 314,140 2,874,998
Selling, General & Administrative Expenses 3,385,545 289,078 (8,424)b 3,666,199
Product Development Expenses 1,099,316 784,827 62,044 b 1,946,187
----------- ---------- --------- -----------
Operating (Loss) Profit (1,609,863) (1,388,045) 260,520 (2,737,388)
Interest Expense 551,232 197,042 (166,231)c 582,043
----------- ---------- --------- -----------
(Loss) Income before Income Taxes (2,161,095) (1,585,087) 426,751 (3,319,431)
Income Taxes - - - -
----------- ---------- --------- -----------
Net (Loss) Income (2,161,095) (1,585,087) 426,751 (3,319,431)
Preferred Dividends 274,918 - - 274,918
----------- ---------- --------- -----------
Net (Loss) Income available to
Common Shareholders ($2,436,013) ($1,585,087) $426,751 ($3,594,349)
=========== ========== ======= ===========
Loss per Share ($0.28) ($0.26) ($0.39)
====== ===== =====
Weighted Average Shares Outstanding 8,565,621 6,122,907 9,205,621
=========== ========== ===========
<FN>
ADJUSTMENTS TO PRO FORMA STATEMENT OF OPERATIONS:
- -------------------------------------------------
The following adjustments were made to arrive at the pro forma consolidated
statement of operations:
a - Reflects the elimination of sales and cost of sales of Captopril to Duramed.
b - Represents change in depreciation resulting from differences in the values
and depreciable lives of equipment, furniture, fixtures and leasehold
improvements.
c - Reflects the elimination of interest expense related to liabilities not
assumed by Duramed.
</TABLE>
ADJUSTMENT TO WEIGHTED AVERAGE SHARES OUTSTANDING:
- --------------------------------------------------
Weighted shares outstanding used to compute pro forma loss per share at March
31, 1996 include the issuance of 640,000 shares of Duramed common stock pursuant
to the terms of the transaction.
- 41 -
<PAGE> 53
DURAMED PHARMACEUTICALS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Adjusted Pro Forma Pro Forma
Duramed Hallmark Adjustments Consolidated
------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $49,623,526 $ - $ - $49,623,526
Cost of Goods Sold 29,705,677 - - 29,705,677
----------- ------------ ---------- ------------
Gross Profit 19,917,849 - - 19,917,849
Selling, General & Administrative Expenses 12,231,510 908,949 (32,565)a 13,107,894
Product Development Expenses 5,952,694 3,158,655 (187,267)a 8,924,082
----------- ------------ ---------- ------------
Operating Profit (Loss) 1,733,645 (4,067,604) 219,832 (2,114,127)
Interest Expense 2,724,593 747,803 (623,122)b 2,849,274
----------- ------------ ---------- ------------
(Loss) Income before Income Taxes (990,948) (4,815,407) 842,954 (4,963,401)
Income Taxes - - - -
----------- ------------ ---------- ------------
Net (Loss) Income (990,948) (4,815,407) 842,954 (4,963,401)
Preferred Dividends 122,739 - - 122,739
----------- ------------ ---------- ------------
Net (Loss) Income available to
Common Shareholders ($1,113,687) ($4,815,407) $842,954 ($5,086,140)
========== ============ ========== ============
Loss per Share ($0.14) ($0.79) ($0.59)
===== ===== =====
Weighted Average Shares Outstanding 8,026,359 6,060,873 8,666,359
=========== ============ ============
<FN>
ADJUSTMENTS TO PRO FORMA STATEMENT OF OPERATIONS:
- -------------------------------------------------
The following adjustments were made to arrive at the pro forma consolidated
statement of operations:
a - Represents change in depreciation resulting from differences in the values
and depreciable lives of equipment, furniture, fixtures and leasehold
improvements.
b - Reflects the elimination of interest expense related to liabilities not
assumed by Duramed.
</TABLE>
ADJUSTMENT TO WEIGHTED AVERAGE SHARES OUTSTANDING:
- --------------------------------------------------
Weighted shares outstanding used to compute pro forma loss per share at December
31, 1995 include the issuance of 640,000 shares of Duramed common stock pursuant
to the terms of the transaction.
- 42 -
<PAGE> 54
DESCRIPTION OF DURAMED STOCK AND WARRANTS
The terms and conditions of Duramed's capital stock are governed by the laws
of the State of Delaware as well as by Duramed's Restated Certificate of
Incorporation, as amended ("Duramed's Articles") and By-Laws, as amended
("Duramed's By-Laws").
COMMON STOCK
Duramed has 50,000,000 authorized shares of Common Stock, par value $.01 per
share, of which 10,687,821 shares were issued and outstanding as of July 15,
1996. An additional 7,062,878 shares have been reserved for future issuance.
Holders of Duramed Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Shareholders do not
have cumulative voting rights.
Subject to preferences which may be granted to holders of Preferred Stock,
holders of Duramed Common Stock are entitled to share in such dividends as the
Board of Directors, in its discretion, may validly declare from funds legally
available. In the event of liquidation, each outstanding share of Duramed Common
Stock entitles its holder to participate ratably in the assets remaining after
payment of liabilities and liquidation preferences of any Preferred Stock which
may be outstanding.
Except as described below, shareholders have no preemptive or other rights
to subscribe for or purchase additional shares of any class of stock or of any
other securities of Duramed, and there are no redemption or sinking fund
provisions with regard to the Duramed Common Stock. All outstanding shares of
Duramed Common Stock are fully paid and validly issued and non-assessable.
The consent of the holders of 66 2/3% of all outstanding shares of Duramed
Common Stock is required to amend the Certificate of Incorporation. A vote of
50% of all outstanding shares is required to approve mergers, sales of assets
and similar transactions, except that this percentage increases to 66 2/3% if
the acquiring party has purchased a 15% or greater ownership of Duramed prior to
approval of the transaction by the Board of Directors.
Each share of Duramed Common Stock outstanding (and each share issued prior
to the occurrence of certain events) carries with it one Preferred Stock
Purchase Right to purchase, at a price of $80.00, one one-hundredth of a share
of Series A Preferred Stock. The Preferred Stock Purchase Rights are exercisable
only if a person or group acquires or obtains the right to acquire ownership of
20% or more of the Duramed Common Stock, commences a tender or exchange offer
for 30% or more of the Duramed Common Stock, or is declared an "Adverse Person"
by Duramed's Board of
- 43 -
<PAGE> 55
Directors. Duramed is entitled to redeem the Preferred Stock Purchase Rights at
a price of one-tenth of one cent per Preferred Stock Purchase Right at any time
before the twentieth day following the date a 20% position has been acquired.
If Duramed is acquired in a merger or other business combination
transaction, each Preferred Stock Purchase Right entitles its holder to
purchase, at the Preferred Stock Purchase Right's then-current exercise price, a
number of the acquiring company's common shares having a market value at that
time of twice the Preferred Stock Purchase Rights' exercise price. The Preferred
Stock Purchase Rights also provide a similar right for holders (other than an
Acquiring Person or Adverse Person as defined in the Preferred Stock Purchase
Rights Agreement) to purchase Duramed Common Stock having a market value at that
time of twice the Preferred Stock Purchase Right's exercise price under certain
circumstances where a person or group has acquired a 30% block of the Duramed
Common Stock or been declared an "Adverse Person" by a majority of Duramed's
outside directors.
The Provident Bank, Cincinnati, Ohio acts as Registrar and Transfer Agent of
Duramed's Common Stock.
PREFERRED STOCK
Duramed has 500,000 authorized shares of Preferred Stock, $.001 par value
per share. In connection with the Preferred Stock Purchase Rights described
above, the Board of Directors of Duramed has provided for the issuance of
100,000 shares of a series of Preferred Stock designated as Series A Preferred
Stock
On July 8, 1993, as part of an agreement with its bank, Duramed issued
74,659 shares of Series B Convertible Preferred Stock. The Series B Convertible
Preferred Stock is non-voting and is convertible at any time into 746,590 shares
of Duramed Common Stock. As of July 15, 1996, the bank had converted 68,600
shares of Series B Convertible Preferred Stock into 686,000 shares of Duramed
Common Stock.
On November 6, 1995, Duramed's Board of Directors authorized the issuance of
up to 250,000 shares of 8% Cumulative Convertible Preferred Stock, Series C (the
"Series C Preferred Stock"), having a stated value of $100 per share. In
November 1995, Duramed issued $12.0 million (120,000 shares) of Series C
Preferred Stock. An additional $12.0 million (120,000 shares) of Series C
Preferred Stock was issued in February 1996. Each share of Series C Preferred
Stock is convertible at the option of the holder, with respect to its stated
value of $100, into shares of Duramed Common Stock at a price which is 15% below
the average closing price of the Duramed Common Stock over the 10-day trading
period ending two days prior to the date of conversion (the "conversion price").
The conversion price may not be less than $7.50 or more than $20.00. Any shares
of Series C Preferred
- 44-
<PAGE> 56
Stock remaining outstanding on November 14, 1997 will automatically be converted
into shares of Duramed Common Stock on such date. The Series C Preferred Stock
pays a dividend of 8% annually, payable quarterly in arrears, on all unconverted
shares. Through July 15, 1996, 232,500 shares of the Series C Preferred Stock
had been converted into 1,609,732 shares of the Duramed Common Stock at an
average conversion price of $14.44 per share of Duramed Common Stock.
On August 7, 1996, Duramed completed the issuance of 200,000 shares of
Series D Convertible Preferred Stock. See "RECENT EVENTS."
The remaining shares of authorized preferred stock may be issued in one or
more series having such designated preferences, rights, qualifications and
limitations as the Board of Directors may from time to time determine without
requiring any vote of Duramed shareholders. A series of preferred stock could be
given voting, conversion, redemption, liquidation and dividend rights which, if
issued, could adversely affect the voting power and dilute the equity of the
holders of Duramed Common Stock and could have preference to Duramed Common
Stock with respect to dividend and liquidation rights. In addition, the issuance
of preferred stock by the Board of Directors could be utilized, under certain
circumstances, as a method of preventing a takeover of Duramed.
WARRANTS
The Warrants will be issued in registered form to or at the direction of
Hallmark as provided in the Asset Purchase Agreement. The following general
summary is qualified in its entirety by reference to the form of Warrant.
Each Warrant will entitle the registered holder to purchase one share of
Duramed Common Stock, subject to adjustment as described below. The Warrants
will be exercisable from the first anniversary of the Closing until the fifth
anniversary of the Closing (the "Termination Date") at an exercise price of
$25.00 per share. The Warrants may not be exercised for more than one-third of
the Duramed Common Stock subject thereto prior to the second anniversary of the
Closing or more than two-thirds of the Duramed Common Stock subject thereto
prior to the third anniversary of the Closing.
Warrant certificates may be exchanged for new certificates of different
denominations, and may be exercised, by presenting them at the offices of
Duramed, 7155 East Kemper Road, Cincinnati, Ohio 45249. The purchase price for
shares of Duramed Common Stock purchased pursuant to the Warrants will be
payable in full by check to Duramed or the holder may direct that a portion of
such Common Stock to be issued upon exercise of the Warrant be withheld by
Duramed as payment, to the extent permitted by law.
- 45 -
<PAGE> 57
The exercise price of the Warrants and the number of shares issuable upon
exercise are subject to adjustments in certain events.
No fractional shares will be issued upon the exercise of the Warrants, but
Duramed will pay the cash value of any fractional shares otherwise issuable. No
adjustments for cash dividends will be made upon any exercise of Warrants.
Holders of Warrants, as such, do not have any voting or pre-emptive rights or
any other rights as shareholders of Duramed.
COMPARATIVE RIGHTS OF DURAMED STOCKHOLDERS
AND HALLMARK SHAREHOLDERS
If the Transaction is consummated, holders of Hallmark Common Stock will
become holders of Duramed Common Stock, which will result in their rights as
shareholders being governed by the laws of the State of Delaware, Duramed's
Articles and Duramed's By-Laws. The rights of holders of Hallmark Common Stock
currently are governed by the laws of the State of New Jersey and the
Certificate of Incorporation, as amended, of Hallmark ("Hallmark's Articles")
and the By-Laws, as amended, of Hallmark ("Hallmark's By-Laws").
It is not practical to describe all of the differences between the laws of
the State of Delaware and the laws of the State of New Jersey, between Duramed's
Articles and Hallmark's Articles and between Duramed's By-Laws and Hallmark's
By-Laws. The following is a summary of certain differences between the rights of
a holder of Duramed Common Stock and the rights of a holder of Hallmark Common
Stock. The summary is qualified in its entirety by reference to Duramed's
Articles and Duramed's By-Laws, copies of which are filed as exhibits to the
Registration Statement of which this Proxy Statement/Prospectus is a part,
Hallmark's Articles and Hallmark's By-Laws, attached as Appendix D hereto, and
the laws of the State of Delaware and the State of New Jersey.
APPRAISAL RIGHTS
Delaware law provides appraisal rights in the case of a stockholder
objecting to certain mergers or consolidations, but such appraisal rights do not
apply (i) to stockholders of the surviving corporation in a merger if
stockholder approval of the merger is not required or (ii) to any class of stock
which is either listed on a national securities exchange or held of record by
more than 2,000 holders unless stockholders are required to accept for their
shares in the merger or consolidation anything other than common stock of the
surviving or resulting corporation or common stock of another corporation that
is so listed or held (and cash in lieu of fractional shares).
- 46 -
<PAGE> 58
New Jersey law provides appraisal rights in the case of a shareholder
objecting to certain mergers or consolidations, but such appraisal rights do not
apply (i) to shareholders of a surviving corporation in a merger if shareholder
approval of the merger is not required; (ii) to any class of stock which is
listed on a national securities exchange or held of record by not less than
1,000 holders unless shareholders are required to accept for their shares
anything other than cash, securities which will be so listed or traded, or such
securities and cash.
New Jersey law further provides appraisal rights in the case of a
shareholder objecting to certain sales or other dispositions of all or
substantially all of the assets of a corporation not in the ordinary course of
business, other than transfers of assets by a corporate parent to a corporate
subsidiary, but such appraisal rights do not apply (i) to a series of stock
listed on a national securities exchange or held of record by no less than 1,000
holders; (ii) a transaction pursuant to a plan of dissolution of the corporation
which provides for distribution of substantially all of its net assets to
shareholders within one year of the transaction, and such transaction is wholly
for cash, securities which will be so listed or traded, or cash and such
securities; or (iii) a sale pursuant to an order of a court having jurisdiction.
TRANSACTIONS WITH AFFILIATES
The Delaware Business Combinations Statute mandates a delay in certain
fundamental corporate transactions with a person owning more than 15% of the
outstanding voting shares of a corporation (an "interested stockholder") for
three years after the date such person became an interested stockholder unless:
(i) prior to such date, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock; (iii) the
business combination is approved by the Board of Directors and by the
stockholders by a vote of two-thirds of the outstanding voting stock (excluding
shares held or controlled by the interested stockholder); or (iv) the
corporation's original certificate of incorporation provided that this Statute
would not be applicable to the corporation.
The New Jersey Shareholders Protection Act mandates a delay in certain
fundamental corporate transactions with a person owning, directly or indirectly,
more than 10% of the voting power of the outstanding voting stock of a
corporation (an "interested shareholder") for five years after the date such
person became an interested shareholder (the "stock acquisition date"), unless
(i) the Board of Directors approved the transaction prior to the stock
acquisition date; (ii) the transaction is approved by the
- 47 -
<PAGE> 59
vote of the holders of two-thirds of the voting stock not beneficially owned by
the interested shareholder; (iii) the transaction meets certain conditions
specified by the Act; (iv) the corporation did not have a class of voting stock
registered or traded on a national securities exchange or registered with the
Commission pursuant to Section 12(g) of the Securities Act of 1934 on the stock
acquisition date; (v) the interested shareholder was an interested shareholder
prior to August 5, 1986 and has not since such date increased his proportion of
the voting power of the corporation; (vi) the interested shareholder became an
interested shareholder inadvertently, as soon as practicable divests himself of
a sufficient amount of stock so that he is no longer an interested shareholder,
and would not, during the five-year period preceding the transaction, have been
an interested shareholder but for such inadvertent acquisition; (vii) the
interested shareholder became the beneficial owner of more than 50% of the
voting power of the outstanding voting stock of the corporation prior to August
5, 1986 through a purchase of stock directly from the corporation in a
transaction approved by the directors of the corporation, none of whom were then
affiliated with the interested shareholder; or (viii) the interested shareholder
became an interested shareholder on or after August 5, 1986 and before January
1, 1987.
DIVIDENDS
Under Delaware law, a corporation may generally pay dividends out of
surplus. In addition, a corporation, under certain circumstances, may pay
dividends, if there is no surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
Under New Jersey law, a corporation may not make a distribution, including
the payment of dividends, if, after such distribution, the corporation would be
unable to pay its debts as they become due in the ordinary course of business,
or the corporation's total assets would be less than its total liabilities.
LIABILITY OF DIRECTORS
Under Delaware law and Duramed's Articles, no director may be personally
liable to the corporation or its stockholders for monetary damages for any
breach of fiduciary duty by a director, except that a director may be liable to
the extent provided by applicable law (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for unlawful dividends or other distributions or (iv) for any
transaction from which such director derived an improper personal benefit.
- 48 -
<PAGE> 60
New Jersey law provides that a corporation may, in its certificate of
incorporation, limit the directors' liability to the corporation or its
shareholders, but Hallmark has no such limitation in its certificate of
incorporation. Under New Jersey law, a corporation may not relieve its directors
from liability for any breach of duty based upon an act or omission (a) in
breach of such person's duty of loyalty to the corporation or its shareholders,
(b) not in good faith or involving a knowing violation of law or (c) resulting
in receipt by such person of an improper personal benefit. Further, directors
who vote for or concur in any of the following corporate actions are jointly and
severally liable to the corporation for damages: (i) declaration of any dividend
or distribution contrary to law; (ii) purchase of shares of the corporation
contrary to law; (iii) distribution of assets of the corporation during or after
dissolution without adequately providing for all known debts of the corporation;
(iv) liquidation of the corporation without providing for the dissolution of the
corporation and payment of all expenses incident thereto; or (v) the making of
any loan to an officer, director or employee of the corporation contrary to law.
New Jersey law specifically provides that, in discharging their duties,
directors may rely on opinions of counsel to the corporation and upon written
reports of accountants, representations of officers of the corporation or
written reports of committees of the board.
INDEMNIFICATION
Under both New Jersey and Delaware law, a corporation's directors and
officers as well as other employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than a derivative
action), if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard of care is applicable in the case of
derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such an action and approval of a court must be obtained before
there can be any indemnification of expenses where the person seeking
indemnification has been found liable to the corporation.
- 49 -
<PAGE> 61
RESALES - SELLING SHAREHOLDERS
The securities offered for resale hereby consist of an aggregate of (i) up
to 390,242 shares of Common Stock that may be offered for resale by the Selling
Shareholders named below, (ii) up to 251,482 Warrants to purchase shares of
Common Stock that may be offered for resale by the Selling Shareholders named
herein, and (iii) up to 251,482 Warrant Shares issuable by the Company upon
exercise of the Warrants. The number of shares to be sold by Hallmark reflected
below are based on certain assumptions regarding the allocation of Duramed
shares pursuant to the Transaction.
The following sets forth certain information regarding the Selling
Shareholders:
<TABLE>
<CAPTION>
Name of Selling Shareholder Number of Shares of Number of
- --------------------------- Common Stock Offered Warrants
Hereby (1) Offered Hereby
-------------------- --------------
<S> <C> <C>
Hallmark 40,734(2) -
Dr. Marvin H. Meisner 66,030 31,632
Mr. V. G. Budharaju 16,643 58,477
Dr. John H. Meloy 42,241 26,938
Dr. Carroll P. Osgood 53,624 33,614
Dr. Rudraraju P. Raju 84,608 47,150
Dr. Robert E. Wertz 86,362 53,671
<FN>
(1) Consists of shares of Common Stock being offered and sold to the Selling
Shareholders hereby as well as the resale of shares of Common stock issuable to
such Selling Shareholders upon exercise of Warrants being offered and sold
hereby. Following completion of the resale offering, the Selling Shareholders
will not beneficially own any shares of Common Stock or Warrants.
(2) Consists of shares of Common Stock which may be sold by Hallmark to
satisfy certain liabilities of Hallmark not assumed by Duramed.
</TABLE>
Except as set forth in this Prospectus/Proxy Statement, none of the
Selling Shareholders has, or in the past has had, any position, office or
relationship with Duramed (other than as a security holder) or any of its
affiliates.
RESALES - PLAN OF DISTRIBUTION
The Duramed Securities acquired in the Transaction or upon exercise of the
Warrants may be sold from time to time by the
- 50 -
<PAGE> 62
Selling Shareholders or their pledgees or donees. Such sales may be made in the
over-the-counter market or in negotiated transactions, at prices and on terms
then prevailing or at prices related to the then current market price or at
negotiated prices. The Duramed Securities may be sold by means of (a) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus/Proxy Statement and/or (b) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
In effecting sales, brokers or dealers engaged by Selling Shareholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from Selling Shareholders in amounts to be
negotiated immediately prior to the sale which amounts will not be greater than
that normally paid in connection with ordinary trading transactions.
LEGAL OPINION
The legality of the Duramed Common Stock and the Warrants to be issued in
connection with the Transaction is being passed upon for Duramed by Taft,
Stettinius & Hollister, Cincinnati, Ohio. Timothy E. Hoberg, a partner of that
firm, is Assistant Secretary of Duramed. Partners and associates of Taft,
Stettinius & Hollister beneficially own approximately 50,000 shares of Duramed
Common Stock.
EXPERTS
The consolidated financial statements and schedule of Duramed
Pharmaceuticals, Inc. appearing in Duramed's Annual Report, as amended (Form
10-K/A), for the year ended December 31, 1995 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. The financial statements of Hallmark
Pharmaceuticals, Inc., at December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995 appearing in this Proxy
Statement/Prospectus have been audited by Eichen & DiMeglio, independent
auditors, as set forth in their reports thereon appearing elsewhere herein. Such
financial statements and schedule, which have been incorporated herein by
reference or appear elsewhere herein, are included in reliance upon such reports
given upon the authority of such firms as experts in accounting and auditing.
- 51 -
<PAGE> 63
INDEX TO HALLMARK FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements of Hallmark Pharmaceuticals, Inc.
for the Years ended December 31, 1995 and 1994
<S> <C>
Independent Auditors Report F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Deficiency F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
Financial Statements of Hallmark Pharmaceuticals, Inc.
for the Years ended December 31, 1994 and 1993
Independent Auditors Report F-17
Balance Sheets F-18
Statements of Operations F-19
Statements of Stockholders' Deficiency F-20
Statements of Cash Flows F-21
Notes to Financial Statements F-22
Financial Statements of Hallmark Pharmaceuticals, Inc.
for the Three-Month Periods ended March 31, 1996
and March 31, 1995
Balance Sheets as of March 31, 1996 and December 31,
1995 F-29
Statements of Operations for the three months ended
March 31, 1996 and 1995 F-30
Statement of Stockholder's Deficiency for the three
months ended March 31, 1996 F-31
Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 F-32
Notes to Unaudited Interim Financial Statements F-33
</TABLE>
- 52 -
<PAGE> 64
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
--------------------------------
Financial Statements for the Years Ended
December 31, 1995 and 1994 and
Independent Auditors' Report
F-1
<PAGE> 65
EICHEN & DIMEGLIO 1 Dupont Street
CERTIFIED PUBLIC ACCOUNTANTS Plainview, New York 11803
Tel. (516) 576-3333
Fax. (516) 576-3342
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors of Hallmark Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Hallmark Pharmaceuticals,
Inc. (the "Company"), a development stage enterprise, as of December 31, 1995
and 1994 and the related statements of operations, stockholders' deficiency and
of cash flows for the years then ended and for the cumulative period from
inception (February 5, 1992) to December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1995 and 1994
and the results of its operations and its cash flows for the years then ended
and for the cumulative period from inception (February 5, 1992 ) through
December 31, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, under existing circumstances, there is substantial doubt
as to the Company's ability to continue as a going concern at December 31, 1995.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty. The Company is in the development stage and,
accordingly, the ability to continue its research and development activities and
to potentially achieve profitable operations is dependent upon obtaining
adequate financing. Management's plans in regard to these matters are also
described in Note 2.
EICHEN & DIMEGLIO
February 19, 1996, except for the last paragraph of Note 11, as to which the
date is April 11, 1996.
F-2
<PAGE> 66
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- -------------------------------
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- ---------------------------
<TABLE>
<CAPTION>
ASSETS NOTES 1995 1994
- ------ ----- ---- ----
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 18,503 $ 444,946
Inventories 2,3 769,412
Prepaid expenses 49,232 55,680
------------ -----------
Total current assets 837,147 500,626
PROPERTY AND EQUIPMENT - NET 2,4,7 3,118,927 2,647,239
DEPOSITS ON EQUIPMENT 32,676 308,631
DEFERRED FINANCING COSTS 2 347,000
OTHER ASSETS - NET 2 66,225 51,342
------------ -----------
TOTAL $ 4,401,975 $ 3,507,838
============ ==========
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 290,121 $ 126,427
Due to Duramed Pharmaceuticals, Inc. 2 900,000
Due to affiliate 7 100,000
Interest payable to related parties 6,7 163,340 106,148
Note payable to bank 5 171,727
Current portion of long-term debt 5 289,631 264,037
Current portion of capital lease obligations 7 303,472 208,194
Current portion of due to stockholders 6 1,754,124
------------ -----------
Total current liabilities 3,972,415 704,806
------------ -----------
LONG-TERM DEBT 5 817,859 1,101,326
------------ -----------
CAPITAL LEASE OBLIGATIONS 7 496,371 617,829
------------ -----------
DUE TO STOCKHOLDERS 6 4,191,707 1,956,247
------------ -----------
COMMITMENTS AND CONTINGENCIES 10
STOCKHOLDERS' DEFICIENCY: 8,9
Common stock - no par value;
authorized 10,000,000 shares;
issued and outstanding 6,106,240 shares at
December 31, 1995 and 5,970,640 shares at
December 31, 1994 7,322,100 6,710,700
Deficit accumulated during the development
stage (12,398,477) (7,583,070)
------------ ------------
Stockholders' deficiency (5,076,377) (872,370)
------------- ------------
TOTAL $ 4,401,975 $ 3,507,838
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE> 67
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- -------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994 AND CUMULATIVE SINCE INCEPTION
- -----------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
SINCE
NOTES 1995 1994 INCEPTION
----- ---- ---- ----------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development 2 $ 2,120,982 $1,983,307 $ 5,899,662
Depreciation and amortization 2 1,090,594 707,714 2,327,050
General and administrative 8 856,028 881,205 2,601,775
Interest to related parties 6,7 609,105 351,078 1,373,285
Interest on long-term debt and other 5 138,698 58,007 196,705
----------- ---------- -----------
NET LOSS 4,815,407 3,981,311 $12,398,477
===========
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE,
BEGINNING OF PERIOD 7,583,070 3,601,759
----------- ----------
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE,
END OF PERIOD $12,398,477 $7,583,070 $12,398,477
=========== ========== ===========
NET LOSS PER SHARE 2 $ 0.79 $0.71
----------- ----------
WEIGHTED AVERAGE SHARES
OUTSTANDING 2 6,060,873 5,608,409
=========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE> 68
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- -------------------------------
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994 (SEE NOTE 8)
- -----------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
COMMON STOCK DEVELOPMENT
SHARES AMOUNT STAGE
--------- --------- ------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1993 5,000,000 $2,820,000 ($3,601,759)
Sale of common stock at $1.00 per share 50,000 50,000
Sale of common stock at $3.00 per share 456,250 1,368,750
Sale of common stock at $5.00 per share 414,390 2,071,950
Issuance of common stock for
services rendered 50,000 150,000
Loan guarantee fee in connection with
issuance of stock options 250,000
Net loss for the year (3,981,311)
--------- ---------- ------------
BALANCES, DECEMBER 31, 1994 5,970,640 6,710,700 (7,583,070)
Sale of common stock at $5.00 per share 105,600 528,000
Issuance of common stock for
services rendered 30,000 83,400
Net loss for the year (4,815,407)
--------- ---------- ------------
BALANCES, DECEMBER 31, 1995 6,106,240 $7,322,100 ($12,398,477)
========= ========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE> 69
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- -------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994 AND CUMULATIVE SINCE INCEPTION
- -----------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
SINCE
1995 1994 INCEPTION
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING
ACTIVITIES:
Net loss ($4,815,407) ($3,981,311) ($12,398,477)
----------- ----------- ------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,090,594 707,714 2,327,050
Non-cash compensation 83,400 150,000 553,400
Non-cash loan guarantee fee 250,000 250,000
Changes in operating assets and liabilities:
Inventories (769,412) (769,412)
Prepaid expenses 6,448 (31,489) (49,232)
Other assets (27,857) (22,434) (118,615)
Accounts payable and accrued expenses 163,694 1,407 290,121
Interest payable to related parties 57,192 25,628 163,340
----------- ----------- ------------
Net adjustments 604,059 1,080,826 2,646,652
----------- ----------- ------------
Net cash used in operating activities (4,211,348) (2,900,485) (9,751,825)
----------- ----------- ------------
CASH FLOWS USED IN INVESTING
ACTIVITY - PURCHASE OF (AND DEPOSITS
ON) PROPERTY AND EQUIPMENT (1,065,325) (1,927,893) (4,083,513)
----------- ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Deferred financing costs (347,000) (347,000)
Due to Duramed Pharmaceuticals, Inc. 900,000 900,000
Due to affiliate 100,000 100,000
Note payable to bank 171,727 171,727
Long-term debt:
Proceeds 1,500,000 1,500,000
Payments (257,873) (134,637) (392,510)
Reduction of capital lease obligations (234,208) (157,127) (542,907)
Due to stockholders:
Proceeds 4,315,500 456,250 6,271,747
Payments (325,916) (325,916)
Issuance of common stock 528,000 3,490,700 6,518,700
----------- ----------- ------------
Net cash provided by financing activities 4,850,230 5,155,186 13,853,841
----------- ----------- ------------
INCREASE (DECREASE) IN CASH (426,443) 326,808 18,503
CASH, BEGINNING OF PERIOD 444,946 118,138 0
----------- ----------- ------------
CASH, END OF PERIOD $ 18,503 $ 444,946 $ 18,503
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 690,611 $ 383,457 $1,406,650
=========== =========== ============
NON-CASH FINANCING AND
INVESTING ACTIVITY:
Acquisition of assets held under capital
leases $ 208,028 $ 133,130 $1,342,750
=========== =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE> 70
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- --------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Hallmark Pharmaceuticals, Inc. ("Hallmark" or the "Company") was incorporated in
New Jersey on February 5, 1992. Presently, the Company is in the process of
research and late-stage development of certain generic drugs and drug delivery
technologies.
During 1995, the Company received its first approval to market Captopril, the
generic equivalent of the brand name product Capoten, for which the brand
company's patent exclusivity expires during February 1996 (see Note 2).
The accompanying financial statements are those of a development stage
enterprise. As a development stage enterprise, the Company is currently
dependent upon debt and equity financing to continue its operations (see Note
2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN- The accompanying financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As of December 31,
1995, the Company has a working capital deficit of approximately $3,135,000 and
an accumulated deficit since organization of approximately $12,398,000. The
Company's ability to continue its research and development activities and to
potentially achieve profitable operations is dependent upon obtaining adequate
financing. These factors, among others, raise substantial doubt as to the
Company's ability to continue as a going concern at December 31, 1995. These
financial statements do not include any adjustments which might result from the
outcome of this uncertainty.
Management of the Company has been actively seeking a strategic corporate
partner and is currently engaged in negotiations with Duramed Pharmaceuticals,
Inc. ("Duramed") to acquire the Company (see Note 11); however, there can be no
assurance that such transaction will be consummated. During 1995, Duramed
advanced the Company an aggregate of $900,000 for working capital purposes
(see Note 11). Such advances bear interest at one percent above the prime rate
per annum and are due on demand. In connection with such advances, the Company
entered into an agreement in October 1995 with Duramed granting them exclusive
marketing and distribution rights in North America to Captopril for a period of
ten years. Under such agreement, the Company will supply Captopril to Duramed at
a price equal to 110 percent of cost, as defined in the agreement. Duramed will
have sole discretion over establishing the price at which it sells the product
to customers
F-7
<PAGE> 71
and shall receive a marketing and distribution allowance equal to 8.5 percent of
net sales. Net profits, as defined, shall first be paid to Duramed for repayment
of outstanding advances. Thereafter, net profits shall be divided equally
between the Company and Duramed.
RECLASSIFICATIONS - Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation. Such reclassification
consisted primarily of $308,631 reclassified from "Other assets - net" to
"Deposits on equipment".
RESEARCH AND DEVELOPMENT - Research and development costs, including related raw
materials and supplies, are expensed as incurred.
DEPRECIATION AND AMORTIZATION - Depreciation of property and equipment and
amortization of assets held under capital leases is computed on the
straight-line method over an estimated useful life of the related assets of 5
years.
INVENTORIES - Inventories are stated at the lower of cost, determined on the
first-in, first-out basis, or market.
DEFERRED FINANCING COSTS - Deferred financing costs at December 31, 1995 consist
of professional fees incurred in connection with the Company's efforts to raise
additional funds.
ORGANIZATION COSTS - Organization costs are being amortized over a period of 5
years. The net book value of such costs was approximately $6,200 and $12,300 at
December 31, 1995 and 1994, respectively, and is included in the balance sheet
caption "Other assets -net".
DEFERRED LOAN COSTS - Deferred loan costs are being amortized over a period of 5
years. The net book value of such costs was approximately $25,700 and $13,500 at
December 31, 1995 and 1994, respectively, and is included in the balance sheet
caption "Other assets - net".
INCOME TAXES - As of January 1, 1994, the Company elected to be taxed as a C
Corporation for Federal income tax purposes and computes its tax provisions
under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". Under SFAS No. 109, income taxes are recognized using a
liability approach and deferred tax assets and liabilities are computed for
temporary differences using current income tax rates. The adoption of SFAS No.
109 had no effect on the accompanying financial statements.
Prior to January 1, 1994 the Company had elected to be treated as an S
Corporation for Federal income tax purposes and accordingly, income or loss
passed through to the stockholders' individual
F-8
<PAGE> 72
income tax return and no Federal income tax was imposed on the Company. For New
Jersey income tax purposes, the Company was taxed as a regular C Corporation
since inception since New Jersey did not recognize S Corporation status prior to
1994.
STOCK OPTIONS - Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", requires the Company either to adopt the fair
value method of accounting for stock options in its financial statements or to
retain its existing method and disclose the pro forma effects of using the fair
value method beginning in 1996. The Company intends to retain its existing
method of accounting for stock options and to include pro forma disclosures in
the notes to the financial statements. Accordingly, the standard will have no
effect on the Company's financial condition or results of operations.
USE OF ESTIMATES - The preparation of the financial statements in conformity
with generally accepted accounting principles require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NET LOSS PER SHARE - Net loss per share was computed based on the weighted
average number of common shares outstanding during the respective periods and
does not include the assumed exercise of stock options, since such effect would
be anti-dilutive.
3. INVENTORIES
Inventories consist of the following as of December 31, 1995:
<TABLE>
<S> <C>
Finished goods $ 701,949
Raw materials 34,514
Packaging materials 32,949
---------
Total $ 769,412
=========
</TABLE>
Inventories are pledged as collateral to demand loans from Duramed (see Note 2).
4. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following at
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Office furniture and equipment $ 106,226 $ 92,673
Research and development equipment 1,762,322 931,105
Machinery & equipment 93,087 47,927
Equipment held under capital leases 1,354,359 1,134,722
Leasehold improvements 2,096,993 1,657,252
----------- ---------
Total 5,412,987 3,863,679
</TABLE>
F-9
<PAGE> 73
<TABLE>
<S> <C> <C>
Less accumulated depreciation and
amortization (2,294,060) (1,216,440)
----------- ----------
Property and equipment - net $ 3,118,927 $2,647,239
=========== =========
</TABLE>
5. BANK INDEBTEDNESS
Bank indebtedness consists of the following:
Demand note payable to bank of $ 171,727 at December 31, 1995 with interest at 2
percent above the bank's prime rate per annum (the prime rate being 8.5 percent
at December 31, 1995) Such note is also personally guaranteed by the Company's
Board of Directors.
Long-term note payable to bank with interest at 1 percent above the bank's prime
rate per annum, due in monthly installments of $31,871 (including interest)
through June 1999. Substantially all of the Company's assets not otherwise
pledged are pledged as collateral to this note payable. Also, such note is
personally guaranteed by certain of the Company's stockholders. Long-term debt
maturing in each of the years subsequent to December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
- ------------------------
<S> <C>
1996 $ 289,631
1997 318,375
1998 349,974
1999 149,510
----------
Total 1,107,490
Less current portion (289,631)
----------
Long-term debt $ 817,859
==========
</TABLE>
In connection with the personal guarantee of bank indebtedness, as described
above, the guaranteeing stockholders were issued stock options (see Note 8).
6. DUE TO STOCKHOLDERS
Due to stockholders at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Notes payable to stockholders with interest
at 6.35 percent per annum, maturing during
1997 through 1999.
$1,956,247 $1,956,247
Notes payable to stockholders with interest
at 10 percent per annum, maturing during
1996.
1,215,000
</TABLE>
F-10
<PAGE> 74
<TABLE>
<S> <C> <C>
Notes payable to stockholders (original
principal amount of $3,100,500) bearing
interest at 1 percent above the prime rate,
due in monthly installments aggregating
$67,400 (including interest), maturing
during 2000
2,774,584
---------- ----------
Total $5,945,831 $1,956,247
========== ==========
</TABLE>
Due to stockholders maturing in each of the years subsequent to December 31,
1995 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31.
- ------------------------
<S> <C>
1996 $ 1,754,124
1997 1,424,124
1998 1,154,121
1999 995,374
2000 618,088
----------
Total 5,945,831
Less current portion (1,754,124)
----------
Due to stockholders - long-term $ 4,191,707
==========
</TABLE>
Accrued interest related to such notes aggregated $144,608 and $85,974 at
December 31, 1995 and 1994, respectively, and is included in the balance sheet
caption "Interest payable to related parties."
7. CAPITAL LEASE OBLIGATIONS AND DUE TO AFFILIATE
The Company leases equipment from Hallmark Leasing Associates ("Hallmark
Leasing"), a partnership in which the partners are also stockholders of the
Company. These leases, which represent the majority of Hallmark's capital lease
obligations, expire during 1997, 1998 and 1999 and are accounted for as capital
leases as a result of certain provisions in the lease agreements. In addition,
the Company borrowed $100,000 in October 1995 from Hallmark Leasing. Such amount
bears interest at 10 percent per annum, is due in 1996, and is classified as
"Due to affiliate" on the balance sheet.
The Company also leases computer equipment under a capital lease agreement with
an unrelated entity.
Future minimum lease payments, by year and in the aggregate, and the present
value of the future minimum lease payments at December 31, 1995 are as follows:
F-11
<PAGE> 75
<TABLE>
<CAPTION>
Year Ending December 31.
- ------------------------
<S> <C>
1996 $ 474,790
1997 400,274
1998 123,985
1999 86,260
2000 8,428
---------
Total future minimum lease payments 1,093,737
Less amount representing interest (293,894)
---------
Present value of future minimum lease
payments (including $303,472 classified
as current) $ 799,843
=========
</TABLE>
At December 31, 1995 and 1994, the net book value of equipment held under
capital leases aggregated $566,920 and $618,154, respectively. Also, accrued
interest related to such capital lease obligations at December 31, 1995 and 1994
aggregated $17,054 and $18,753, respectively, and is included in the balance
sheet caption "Interest payable to related parties".
8. COMMON STOCK
During 1995, the Company sold an aggregate of 105,600 shares of its common stock
to new and existing stockholders for $528,000.
During 1994, the Company sold an aggregate of 50,000, 456,250 and 414,390 shares
of its common stock to new and existing stockholders for $50,000, $1,368,750 and
$2,071,950, respectively.
The shareholders' agreement contains provisions which limit the transfer of the
Company's common stock and grant the stockholders certain "first refusal",
"piggyback" and "demand" registration rights.
In connection with the above transactions, the Company issued an additional
30,000 and 50,000 shares during 1995 and 1994, respectively, to certain
management members in consideration for services rendered. Accordingly, the
Company recorded a charge to operations and a credit to common stock for the
fair market value of the shares at the time of issuance. Such amounts aggregated
$83,400 and $150,000 during 1995 and 1994, respectively.
During 1995, the Company issued options to certain of its stockholders to
purchase a total of 620,100 shares of the Company's common stock in connection
with their loans aggregating $3,100,500 (see Note 6). The options entitle the
holder to purchase shares at $5 per share and are exercisable for a two year
period from the date of grant.
In June 1994, the Company issued options to all stockholders of record as of May
6, 1994 to purchase a total of 1,500,000 shares of the Company's common stock in
connection with their personal guarantee of bank indebtedness as described in
Note 4. The
F-12
<PAGE> 76
options entitle the holder to purchase shares at $1 per share and are
exercisable for a two year period commencing 18 months from the date of grant.
Each optionee received options to purchase shares of the Company's common stock
in proportion to their ownership interest immediately prior to the grant of such
options. Accordingly, upon exercise of all of the options, each stockholders'
ownership interest would remain unchanged relative to each other. In connection
with this transaction, the Company has recorded a charge to operations for
$250,000, which, in management's opinion, represents the estimated value of the
consideration received in exchange for their personal guarantees. Such amount is
included in the expense caption "General and administrative" in the statement of
operations.
During January 1994, the Company increased the number of shares authorized for
issuance from 5,000,000 to 10,000,000.
9. INCOME TAXES
At December 31,1995, the Company has a Federal tax loss carryforward of
approximately $8,000,000 expiring during 2009 and 2010. Also, at such date, the
Company has a New Jersey tax loss carryforward of approximately $11,100,000,
expiring between 1999 and 2002. The difference between the accumulated deficit
of $12,398,477 and the state tax loss carryforward of $11,100,000 at December
31,1995 relates principally to the capitalization of start-up expenses for
income tax purposes, the loan guarantee fee described in Note 8, premiums on
officers' life insurance, employee benefits, and depreciation and amortization.
The New Jersey and Federal income tax loss carryforwards differ since the
Company was taxed as an S Corporation for Federal income tax purposes prior to
January 1, 1994.
In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes at December 31, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
Deferred tax benefits: 1995 1994
---- ----
<S> <C> <C>
Federal $ 2,991,000 $ 1,081,000
New Jersey 738,000 619,000
---------- ----------
Total 3,729,000 1,700,000
Less valuation allowance (3,729,000) (1,700,000)
---------- ----------
Net effect $ 0 $ 0
========== ==========
</TABLE>
At December 31, 1995 and 1994 a valuation allowance of $3,729,000 and
$1,700,000, respectively, has been provided since the realization of the
deferred tax benefits are not more likely than not. The Company's deferred tax
benefits were generated principally as a result of such losses.
F-13
<PAGE> 77
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company is obligated under a non-cancelable operating
lease agreement for the rental of its facility which expires in May 2000. The
lease agreement provides that the Company pay its proportionate share of
building maintenance, real estate taxes and similar items. At December 31, 1995
minimum annual rentals are as follows:
<TABLE>
<CAPTION>
Year Ending December 31.
- ------------------------
<S> <C>
1996 $ 197,786
1997 197,786
1998 197,786
1999 197,786
2000 82,411
---------
Total $ 873,555
=========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1994 aggregated
approximately $124,200 and $102,600, respectively.
During 1995, the Company was granted an option, exercisable on June 1, 1998, to
purchase its facility for a minimum of $2,088,955, subject to increases for the
percentage change in the Consumer Price Index ("CPI") from June 1, 1995 (the
"Base CPI") through the month of closing, up to a maximum of $2,340,000. Also,
the Company was granted a second option (the "Second Option"), exercisable on
June 1, 2000 to purchase such facility for $2,088,955 subject to increases for
the percentage change in the Base CPI through the month of closing. The Second
Option contains no maximum purchase price.
EMPLOYMENT AGREEMENTS - The Company is obligated under several employment
agreements, expiring in March 1997 through November 1999. Minimum annual
compensation under such agreements at December 31,1995 is approximately as
follows:
<TABLE>
<CAPTION>
Year Ending December 31.
- ------------------------
<S> <C>
1996 $ 486,500
1997 316,200
1998 306,300
1999 173,400
-----------
Total $ 1,282,400
===========
</TABLE>
In addition, certain of such employment agreements provided that the individuals
receive shares of the Company's common stock as consideration for services
rendered (see Note 8).
CONTINGENT FINANCING FEES - In February 1995, the Company entered into an
agreement with an entity to assist the Company in raising additional expansion
capital for professional fees ranging from a minimum of $75,000 (increased to
$350,000 under certain circumstances), to a maximum of $1,000,000, depending
upon the
F-14
<PAGE> 78
amount of the financing. Such agreement was terminated by the Company during
August 1995 and all invoiced professional fees from this entity (aggregating
approximately $112,000) were paid by the Company. Subsequent to the termination
of this agreement, the Company received notice from this entity claiming
additional professional fees would be due if a transaction with Duramed were
consummated. Legal counsel is currently investigating the nature of this
potential claim and at present, cannot assess the likelihood of the Company's
liability should a claim be filed. The financial statements do not include any
liability relating to this matter.
In October 1995, the Company entered into an agreement with an entity to assist
the Company in evaluating and negotiating potential financing offers. A final
fee of $50,000 would be due to this entity upon the closing of such a
transaction. No provision has been made for such fee as of December 31, 1995.
11. SUBSEQUENT EVENTS
From January 1, 1996 through February 19, 1996, Duramed loaned the Company an
additional $800,000 on the same terms as the earlier demand loans (see Note 2).
Also, during January 1996, the Company entered into a marketing and distribution
agreement with Duramed on substantially the same terms as the Captopril
agreement (see Note 2) for an additional drug product currently under
development by the Company.
During January and February 1996, the Company adopted certain measures to
conserve cash flow, including the suspension of interest and principal payments
on certain amounts due to stockholders and on capital lease obligations to
Hallmark Leasing.
On April 11, 1996, the Company entered into a definitive agreement with Duramed
providing for the acquisition of assets and assumption of certain liabilities of
the Company. Under the terms of such agreement, the Company would receive
640,000 shares of Duramed common stock and warrants to purchase 400,000 shares
of Duramed common stock at a purchase price of $25 per share. Consummation of
the transaction is subject to certain customary conditions, including approval
of the Company's shareholders and certain regulatory agencies and other third
parties.
- --------------------------------------------------------------------------------
F-15
<PAGE> 79
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
----------------------------------------
Financial Statements for the Years Ended
December 31, 1994 and 1993 and
Independent Auditors' Report
F-16
<PAGE> 80
EICHEN & DIMEGLIO 1 Dupont Street
CERTIFIED PUBLIC ACCOUNTANTS Plainview, New York 11803
Tel. (516) 576-3333
Fax. (516) 576-3342
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors of Hallmark Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Hallmark Pharmaceuticals,
Inc. (the "Company"), a development stage enterprise, as of December 31, 1994
and 1993 and the related statements of operations, stockholders' deficiency and
of cash flows for the years then ended and for the cumulative period from
inception (February 5, 1992) to December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994 and 1993
and the results of its operations and its cash flows for the years then ended
and for the cumulative period from inception (February 5, 1992 ) through
December 31, 1994 in conformity with generally accepted accounting principles.
Eichen & DiMeglio
April 3, 1995
F-17
<PAGE> 81
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- --------------------------------
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
- ---------------------------
<TABLE>
<CAPTION>
ASSETS NOTES 1994 1993
- ------ ----- ---- ----
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 444,946 $ 118,138
Prepaid expenses 55,680 24,191
---------- ----------
Total current assets 500,626 142,329
PROPERTY AND EQUIPMENT - NET 2,3,6 2,647,239 1,575,489
OTHER ASSETS - NET 2,3 359,973 55,980
---------- ----------
TOTAL $3,507,838 $1,773,798
========== ==========
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
- -----------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 126,427 $ 125,020
Interest payable to stockholders 5,6 106,148 80,520
Current portion of long-term debt 4 264,037
Current portion of capital lease obligations 6 208,194 146,388
---------- ----------
Total current liabilities 704,806 351,928
---------- ----------
LONG-TERM DEBT 4 1,101,326
----------
CAPITAL LEASE OBLIGATIONS 6 617,829 703,632
---------- ----------
DUE TO STOCKHOLDERS 5 1,956,247 1,499,997
---------- ----------
COMMITMENTS 9
STOCKHOLDERS' DEFICIENCY: 7,8,10
Common stock - no par value;
authorized 10,000,000 shares;
issued and outstanding 5,970,640 shares at
December 31, 1994 and 5,000,000 shares at
December 31, 1993 6,710,700 2,820,000
Deficit accumulated during the development
stage (7,583,070) (3,601,759)
---------- ----------
Stockholders' deficiency (872,370) (781,759)
---------- ----------
TOTAL $3,507,838 $1,773,798
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. F-18
<PAGE> 82
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1993 AND CUMULATIVE SINCE INCEPTION
- -----------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
SINCE
NOTES 1994 1993 INCEPTION
----- ---- ---- ---------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development 2 $1,983,307 $1,336,301 $3,778,680
Depreciation and amortization 2 707,714 394,807 1,236,456
General and administrative 7 881,205 549,710 1,745,747
Interest to stockholders 5,6 351,078 326,040 764,180
Interest on long-term debt 4 58,007 58,007
---------- ---------- ----------
NET LOSS 3,981,311 2,606,858 $7,583,070
==========
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE,
BEGINNING OF PERIOD 3,601,759 994,901
---------- ----------
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE,
END OF PERIOD $7,583,070 $3,601,759 $7,583,070
========== ========== ==========
NET LOSS PER SHARE 2 $ 0.71 $ 0.75
========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 2 5,608,409 3,476,924
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. F-19
<PAGE> 83
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- --------------------------------
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1993 (SEE NOTE 7)
- ------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
COMMON STOCK DEVELOPMENT
SHARES AMOUNT STAGE
------ ------ -----
<S> <C> <C> <C>
Balances, December 31, 1992 1,843,750 $ 708,000 ($994,901)
Sale of common stock at $.40 per share 1,025,000 410,000
Sale of common stock at $1.00 per share 1,500,000 1,500,000
Issuance of common stock for
services rendered 631,250 202,000
Net loss for the year (2,606,858)
----------- ----------- ----------
Balances, December 31, 1993 5,000,000 2,820,000 (3,601,759)
Sale of common stock at $1.00 per share 50,000 50,000
Sale of common stock at $3.00 per share 456,250 1,368,750
Sale of common stock at $5.00 per share 414,390 2,071,950
Issuance of common stock for
services rendered 50,000 150,000
Loan guarantee fee in connection with
issuance of stock options 250,000
Net loss for the year (3,981,311)
----------- ----------- -----------
Ending balances, December 31, 1994 5,970,640 $ 6,710,700 ($7,583,070)
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. F-20
<PAGE> 84
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- --------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1993 AND CUMULATIVE SINCE INCEPTION
- -----------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
SINCE
1994 1993 INCEPTION
---- ---- ---------
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING
ACTIVITIES:
Net loss ($3,981,311) ($2,606,858) ($7,583,070)
Adjustments to reconcile net loss to ----------- ----------- -----------
net cash used in operating activities:
Depreciation and amortization 707,714 394,807 1,236,456
Non-cash compensation 150,000 202,000 470,000
Non-cash loan guarantee fee 250,000 250,000
Changes in operating assets and liabilities:
Prepaid expenses (31,489) (11,027) (55,680)
Other assets (311,665) (15,900) (379,989)
Accounts payable and accrued expenses 1,407 60,359 126,427
Interest payable to stockholders 25,628 28,374 106,148
----------- ----------- -----------
Net adjustments 791,595 658,613 1,753,362
----------- ----------- -----------
Net cash used in operating activities (3,189,716) (1,948,245) (5,829,708)
----------- ----------- -----------
CASH FLOWS USED IN INVESTING
ACTIVITY - PURCHASE OF
PROPERTY AND EQUIPMENT (1,638,662) (734,975) (2,728,957)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Reduction of capital lease obligations (157,127) (111,798) (308,699)
Due to stockholders 456,250 614,997 1,956,247
Long-term debt
Proceeds 1,500,000 1,500,000
Payments (134,637) (134,637)
Issuance of common stock 3,490,700 1,910,000 5,990,700
------------ ----------- -----------
Net cash provided by financing activities 5,155,186 2,413,199 9,003,611
------------ ----------- -----------
INCREASE (DECREASE) IN CASH 326,808 (270,021) 444,946
CASH, BEGINNING OF PERIOD 118,138 388,159 0
----------- ----------- -----------
CASH, END OF PERIOD $ 444,946 $ 118,138 $ 444,946
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 383,457 $ 297,666 $ 716,039
=========== =========== ===========
NON-CASH FINANCING AND
INVESTING ACTIVITY:
Acquisition of assets held under capital
leases $ 133,130 $ 108,530 $ 1,134,722
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. F-21
<PAGE> 85
HALLMARK PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
- --------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Hallmark Pharmaceuticals, Inc. ("Hallmark" or the "Company") was incorporated in
New Jersey on February 5, 1992. Presently, the Company is in the process of
research and late-stage development of generic drugs.
The accompanying financial statements are those of a development stage
enterprise. As a development stage enterprise, the Company is currently
dependent upon debt and equity financing to continue its operations. It is the
intention of the Company's stockholders to continue to provide this financial
support.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESEARCH AND DEVELOPMENT - Research and development costs, including related raw
materials and supplies, are expensed as incurred.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization is computed on the
straight-line method over an estimated useful life of the related assets of 5
years.
ORGANIZATION COSTS - Organization costs are being amortized over a period of 5
years. The net book value of such costs was approximately $12,300 and $18,500 at
December 31, 1994 and 1993, respectively, and is included in the balance sheet
caption "Other assets - net".
DEFERRED LOAN COSTS - Deferred loan costs are being amortized over a period of 5
years. The net book value of such costs was approximately $13,500 at December
31, 1994 and is included in the balance sheet caption "Other assets - net".
INCOME TAXES - As of January 1, 1994, the Company has elected to be taxed as a C
Corporation for Federal income tax purposes and computes its tax provisions
under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". Under SFAS No. 109, income taxes are recognized using a
liability approach and deferred tax assets and liabilities are computed for
temporary differences using current income tax rates. The adoption of SFAS No.
109 had no effect on the accompanying financial statements.
Prior to January 1, 1994 the Company had elected to be treated as an S
Corporation for Federal income tax purposes and accordingly, income or loss
passed through to the stockholders' individual income tax return and no Federal
income tax was imposed on the
F-22
<PAGE> 86
Company. For New Jersey income tax purposes, the Company was taxed as a regular
C Corporation since inception since New Jersey did not recognize S Corporation
status prior to 1994.
NET LOSS PER SHARE - Net loss per share was computed based on the weighted
average number of common shares outstanding during the respective periods and
does not include the assumed exercise of stock options, since such effect would
be anti-dilutive.
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consisted of the following at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Office furniture and equipment $ 92,673 $ 63,873
Research and development equipment 931,105 440,101
Machinery & equipment 47,927 36,023
Equipment held under capital leases 1,134,722 1,001,592
Leasehold improvements 1,657,252 550,298
---------- ----------
Total 3,863,679 2,091,887
Less accumulated depreciation and (1,216,440) (516,398)
amortization ---------- ----------
Property and equipment - net $2,647,239 $1,575,489
========== ==========
</TABLE>
As of December 31, 1994, the Company had deposits on property and equipment
aggregating approximately $308,600. Such amount is included in the balance sheet
caption "Other assets - net".
4. LONG-TERM DEBT
Long-term debt at December 31, 1994 consisted of a note payable to a bank, with
interest at 1 percent above the bank's prime rate per annum (the prime rate
being 8.5 percent at December 31, 1994), due in monthly installments of
approximately $31,871 (including interest) through June 1999. Substantially all
of the Company's assets are pledged as collateral to the note payable. Also,
such note is personally guaranteed by certain of the Company's stockholders.
Long-term debt maturing in each of the years ended December 31, 1994 is as
follows:
F-23
<PAGE> 87
<TABLE>
<CAPTION>
Year Ending December 31,
- ------------------------
<S> <C>
1995 $ 264,037
1996 290,242
1997 319,048
1998 350,713
1999 141,323
---------
Total 1,365,363
Less current portion (264,037)
Long-term debt $1,101,326
=========
</TABLE>
In connection with the personal guarantee of bank indebtedness, as described
above, the guaranteeing stockholders were issued stock options (see Note 7).
5. DUE TO STOCKHOLDERS
Due to stockholders at December 31, 1994 and 1993 consisted of notes payable to
the stockholders of the Company. These notes mature during 1997 ($885,000), 1998
($614,997) and 1999 ($456,250) and bear interest at the rate of 6.35 percent per
annum payable annually on the anniversary date of the notes. Accrued interest
related to such notes aggregated $85,974 and $61,222 at December 31, 1994 and
1993, respectively, and is included in the balance sheet caption "Interest
payable to stockholders".
6. CAPITAL LEASE OBLIGATIONS
The Company leases equipment from a partnership in which the partners are also
stockholders of the Company. These leases expire during 1997, 1998 and 1999 and
are accounted for as capital leases as a result of certain provisions in the
lease agreements. Future minimum lease payments, by year and in the aggregate,
and the present value of the future minimum lease payments at December 31, 1994
are as follows:
F-24
<PAGE> 88
<TABLE>
<CAPTION>
Year Ending December 31,
- ------------------------
<S> <C>
1995 $ 408,500
1996 408,500
1997 333,984
1998 57,695
1999 19,970
---------
Total future minimum lease payments 1,228,649
Less amount representing interest (402,626)
---------
Present value of future minimum lease
payments (including $208,194 classified as
current) $ 826,023
=========
</TABLE>
At December 31, 1994 and 1993, the net book value of equipment held under
capital leases aggregated $618,154 and $711,968, respectively. Also, accrued
interest related to such capital lease obligations at December 31, 1994 and 1993
aggregated $18,753 and $19,298, respectively, and is included in the balance
sheet caption "Interest payable to stockholders".
7. COMMON STOCK
During January 1994, the Company increased the number of shares authorized for
issuance from 5,000,000 to 10,000,000.
During 1994, the Company sold an aggregate of 50,000, 456,250 and 414,390 shares
of its common stock to new and existing stockholders for $50,000, $1,368,750 and
$2,071,950, respectively. In connection with these private placements, the
stockholders loaned the Company a total of $486,250 (see Note 5).
During 1993, the Company sold an aggregate of 1,025,000 and 1,500,000 shares of
its common stock to existing stockholders for $410,000 and $1,500,000,
respectively. In connection with these private placements, the stockholders
loaned the Company a total of $614,997 (see Note 5).
The shareholders' agreement contains provisions which limit the transfer of the
Company's common stock and grant the stockholders certain "first refusal",
"piggyback" and "demand" registration rights.
In connection with the above transactions, the Company issued an additional
50,000 and 631,250 shares during 1994 and 1993, respectively, to certain
management members in consideration for services rendered. Accordingly, the
Company recorded a charge to operations and a credit to common stock for the
fair market value of the shares at the time of issuance. Such amounts aggregated
$150,000 and $202,000 during 1994 and 1993, respectively.
F-25
<PAGE> 89
On June 25, 1994, the Company issued options to all stockholders of record as of
May 6, 1994 to purchase a total of 1,500,000 shares of the Company's common
stock in connection with their personal guarantee of bank indebtedness as
described in Note 4. The options entitle the holder to purchase shares at $1 per
share and are exercisable for a two year period commencing 18 months from the
date of grant. Each optionee received options to purchase shares of the
Company's common stock in proportion to their ownership interest immediately
prior to the grant of such options. Accordingly, upon exercise of all of the
options, each stockholders' ownership interest would remain unchanged relative
to each other. In connection with this transaction, the Company has recorded a
charge to operations for $250,000, which, in management's opinion, represents
the estimated value of the consideration received in exchange for their personal
guarantees. Such amount is included in the expense caption "General and
administrative" in the statement of operations.
8. INCOME TAXES
At December 31, 1994, the Company has a Federal tax loss carryforward of
approximately $3,800,000 expiring during 2009. Also, at such date, the Company
has a New Jersey tax loss carryforward of approximately $6,877,000, expiring
between 1999 and 2001. The difference between the accumulated deficit of
$7,583,070 and the state tax loss carryforward of $6,877,000 at December 31,
1994 relates principally to the capitalization of start-up expenses for income
tax purposes, the loan guarantee fee described in Note 7, premiums on officers'
life insurance and depreciation and amortization. The New Jersey and Federal
income tax loss carryforwards differ since the Company was taxed as an S
Corporation for Federal income tax purposes prior to January 1, 1994.
In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as follows:
<TABLE>
<CAPTION>
Deferred tax benefits:
<S> <C>
Federal $1,081,000
New Jersey 619,000
---------
Total 1,700,000
Less valuation allowance (1,700,000)
---------
Net effect $ 0
==========
</TABLE>
At December 31, 1994, a valuation allowance of $1,700,000 has been provided
since the realization of the deferred tax benefits are not more likely than not.
The Company's deferred tax benefits were generated principally as a result of
such losses.
F-26
<PAGE> 90
9. COMMITMENTS
OPERATING LEASES - The Company is obligated under two non-cancelable operating
lease agreements for the rental of its facilities which expire in July 1999 and
May 2000. The lease agreements provide that the Company pay its proportionate
share of building maintenance, real estate taxes and similar items. At December
31, 1994 minimum annual rentals are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
- ------------------------
<C> <C>
1995 $ 199,349
1996 231,984
1997 231,984
1998 231,984
1999 216,719
Thereafter 81,395
-----------
Total $ 1,193,415
===========
</TABLE>
Rent expense for the years ended December 31, 1994 and 1993 aggregated
approximately $102,600 and $100,800, respectively.
EMPLOYMENT AGREEMENTS - The Company is obligated under several employment
agreements, expiring in March 1997 through November 1999. Minimum annual
compensation under such agreements at December 31, 1994 is approximately as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
- ------------------------
<C> <C>
1995 $ 456,927
1996 486,494
1997 316,169
1998 306,336
1999 173,440
-----------
Total $ 1,739,366
===========
</TABLE>
In addition, certain of such employment agreements provided that the individuals
receive shares of the Company's common stock as consideration for services
rendered (see Note 7).
LEASEHOLD IMPROVEMENTS - In connection with certain modifications to its
manufacturing facility, the Company is contractually obligated for approximately
$140,000 in additional leasehold improvements at December 31, 1994.
10. SUBSEQUENT EVENTS
During February and March 1995, the Company sold an additional 64,400 shares of
its common stock at $5 per share to private
F-27
<PAGE> 91
investors for an aggregate of $322,000. Also, during such period, certain
stockholders loaned the Company an additional $1,200,000. In connection with
these loans, such stockholders were granted options to purchase, within a 2 year
period from the grant date, a total of 240,000 shares of the Company's common
stock at $5 per share.
During February 1995, the Company amended its lease agreement relating to its
manufacturing facility at 400 Campus Drive to include an additional 15,230
square feet of adjoining space. In connection with such amendment, the Company
was granted an option, exercisable on June 1, 1998, to purchase this facility
for a minimum of $2,088,955, subject to increases for the percentage change in
the Consumer Price Index ("CPI") from June 1, 1995 (the "Base CPI") through the
month of closing, up to a maximum of $2,340,000. Also, the Company was granted a
second option (the "Second Option"), exercisable on June 1, 2000 to purchase
such facility for $2,088,955 subject to increases for the percentage change in
the Base CPI through the month of closing. The Second Option contains no maximum
purchase price.
During February 1995, the Company entered into an agreement with an entity to
assist the Company in raising additional expansion capital of approximately $ 15
million dollars. In connection with such agreement, the Company is obligated to
pay this entity a minimum of $75,000 (increased to $350,000 under certain
circumstances) and a maximum of approximately $1,000,000, depending upon the
amount of financing.
- --------------------------------------------------------------------------------
F-28
<PAGE> 92
HALLMARK PHARMACEUTICALS, INC.
- ------------------------------
BALANCE SHEETS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
- ------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash $ 2,825 $ 18,503
Accounts receivable 836,819
Inventories 131,977 769,412
Prepaid expenses 17,623 49,232
------------ ------------
Total current assets 989,244 837,147
PROPERTY AND EQUIPMENT - NET 2,893,964 3,118,927
DEPOSITS ON EQUIPMENT 31,676 32,676
DEFERRED FINANCING COSTS 347,000 347,000
OTHER ASSETS - NET 70,481 66,225
------------ ------------
TOTAL $ 4,332,365 $ 4,401,975
============ ============
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
----------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 420,644 $ 290,121
Due to Duramed Pharmaceuticals, Inc. 2,010,012 900,000
Due to affiliate 215,000 100,000
Interest payable 256,072 163,340
Note payable to bank 171,727 171,727
Current portion of long-term debt 343,320 289,631
Current portion of capital lease obligations 323,942 303,472
Current portion of due to stockholders 2,557,944 1,754,124
------------ ------------
Total current liabilities 6,298,661 3,972,415
------------ ------------
LONG-TERM DEBT 741,304 817,859
------------ ------------
CAPITAL LEASE OBLIGATIONS 410,473 496,371
------------ ------------
DUE TO STOCKHOLDERS 3,493,391 4,191,707
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common stock-no par value;
authorized 10,000,000 shares;
issued and outstanding 6,156,240 shares at
March 31, 1996 and 6,106,240 shares at
December 31, 1995 7,372,100 7,322,100
Accumulated deficit (13,983,564) (12,398,477)
------------ ------------
Stockholders' deficiency (6,611,464) (5,076,377)
------------ ------------
TOTAL $ 4,332,365 $ 4,401,975
============ ============
</TABLE>
SEE NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS.
F-29
<PAGE> 93
HALLMARK PHARMACEUTICALS, INC.
- ------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- --------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
NET SALES $ 836,819 $ --
COST OF GOODS SOLD 1,150,959 --
----------- -----------
GROSS LOSS (314,140) --
----------- -----------
OPERATING EXPENSES:
Research and development 529,484 414,689
Depreciation and amortization 268,857 264,730
General and administrative 275,564 265,244
Interest expense 197,042 126,651
----------- -----------
1,270,947 1,071,314
----------- -----------
NET LOSS ($1,585,087) ($1,071,314)
=========== ===========
NET LOSS PER SHARE ($ 0.26) ($ 0.18)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 6,122,907 6,021,307
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS.
F-30
<PAGE> 94
HALLMARK PHARMACEUTICALS, INC.
- ------------------------------
STATEMENT OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
- ------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
SHARES AMOUNT DEFICIT
------------ ------------ ------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1995 $ 6,106,240 $ 7,322,100 ($12,398,477)
Sale of common stock at $1.00 per share 50,000 50,000
Net loss for the period (1,585,087)
------------ ------------ ------------
BALANCES, MARCH 31, 1996 $ 6,156,240 $ 7,372,100 ($13,983,564)
============ ============ ============
</TABLE>
SEE NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS.
F-31
<PAGE> 95
HALLMARK PHARMACEUTICALS, INC.
- ------------------------------
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- --------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS USED IN OPERATING
ACTIVITIES:
Net loss $(1,585,087) $(1,071,314)
----------- -----------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 268,857 264,730
Changes in operating assets and liabilities:
Accounts receivable (836,819)
Inventories 637,435
Prepaid expenses 31,609 55,628
Other assets (7,500) (18,923)
Accounts payable and accrued expenses 130,523 (8,098)
Interest payable 92,732 (50,177)
----------- -----------
Net adjustments 316,837 243,160
----------- -----------
Net cash used in operating activities (1,268,250) (828,154)
----------- -----------
CASH FLOWS USED IN INVESTING
ACTIVITY-PURCHASE OF (AND DEPOSITS
ON) PROPERTY AND EQUIPMENT (39,650) (796,137)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Due to Duramed Pharmaceuticals, Inc. 1,110,012
Due to affiliate 115,000
Payment of long-term debt (22,866) (62,657)
Reduction of capital lease obligations (65,428) (52,818)
Due to stockholders:
Proceeds 150,000 1,200,000
Payments (44,496)
Issuance of common stock 50,000 322,000
----------- -----------
Net cash provided by financing activities 1,292,222 1,406,525
----------- -----------
INCREASE (DECREASE) IN CASH (15,678) (217,766)
CASH, BEGINNING OF PERIOD 18,503 444,946
----------- -----------
CASH, END OF PERIOD $ 2,825 $ 227,180
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 104,310 $ 176,828
=========== ===========
NON-CASH FINANCING AND
INVESTING ACTIVITY:
Acquisition of assets held under capital
leases $ 0 $ 127,955
=========== ===========
</TABLE>
SEE NOTES UNAUDITED INTERIM FINANCIAL STATEMENTS.
F-32
<PAGE> 96
HALLMARK PHARMACEUTICALS, INC.
- ------------------------------
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
- -----------------------------------------------
1 INTERIM FINANCIAL DATA
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, such financial
statements contain all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation. Operating results for the three
month period ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the financial statements for the year ended December 31,
1995 and notes thereto included herein.
During the three month period ended March 31, 1996, net sales consisted of
sales of the Company's first product, Captopril, to Duramed Pharmaceuticals,
Inc. ("Duramed") in accordance with the terms of a distribution agreement
between the parties. As the result of such sales, the Company is no longer
considered to be in the development stage.
2. GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As of March 31, 1996, the Company
has a working captial deficit of approximately $5,309,000 and an accumulated
deficit since organization of approximately $13,984,000. The Company's ability
to continue its research and development activities and to potentially achieve
profitable operations is dependent upon obtaining adequate financing. These
factors, among others, raise substantial doubt as to the Company's ability to
continue as a going concern at March 31, 1996. These financial statements do
not include any adjustments which might result from the outcome of this
uncertainty.
During the quarter ended March 31, 1996, the Company received additional loans
from Duramed of approximately $1,110,000 to continue to finance its operations,
as well as $150,000 in additional stockholder loans and $50,000 from sale of
its common stock.
On April 11, 1996, the Company entered into a definitive agreement with Duramed
providing for the acquisition of assets and assumption of certain liabilities
of the Company. Under the
F-33
<PAGE> 97
terms of such agreement, the Company would receive 640,000 shares of Duramed
common stock and warrants to purchase 400,000 shares of Duramed common stock
at a purchase price of $25 per share. Consummation of the transaction is
subject to certain customary conditions, including approval of the Company's
shareholders and certain regulatory agencies and other third parties.
3. NET LOSS PER SHARE
Net loss per share was computed based on the weighted average number of common
shares outstanding during the respective periods and does not include the
assumed exercise of stock options, since such effect would be anti-dilutive.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Finished goods $ - $ 701,949
Raw material 131,977 34,514
Packaging materials - 32,949
--------- ---------
Total $ 131,977 $ 769,412
========= =========
</TABLE>
5. CONTINGENCIES
In February 1995, the Company entered into an agreement with an entity to
assist the Company in raising additional expansion capital for professional
fees ranging from a minimum of $75,000 (increased to $350,000 under certain
circumstances), to a maximum of $1,000,000, depending upon the amount of the
financing. Such agreement was terminated by the Company during August 1995 and
all invoiced professional fees from this entity (aggregating approximately
$112,000) were paid by the Company. Subsequent to the termination of this
agreement, the Company received notice from this entity claiming additional
professional fees would be due if a transaction with Duramed were consummated.
Legal counsel is currently investigating the nature of this potential claim and
at present, cannot assess the likelihood of the Company's liability should a
claim be filed. The financial statements do not include any liability relating
to this matter.
In October 1995, the Company entered into an agreement with an entity to assist
the Company in evaluating the negotiating potential financing offers. A final
fee of $50,000 would be due to this entity upon the closing of such a
transaction. No provision has been made for such fee as of March 31, 1996.
- -------------------------------------------------------------------------------
F-34
<PAGE> 98
APPENDIX A
----------
PLAN OF LIQUIDATION AND DISSOLUTION
OF
HALLMARK PHARMACEUTICALS, INC.
This Plan of Liquidation and Dissolution (the "Plan") is
intended to carry out the complete liquidation and dissolution of Hallmark
Pharmaceuticals, Inc., a New Jersey corporation (the "Corporation"), by
providing for the distribution to its shareholders of all of its assets (after
payment of liabilities and expenses), including proceeds to be realized from the
sale of its assets, and is as follows:
1. The shareholders of the Corporation, pursuant to action
taken at a special meeting of shareholders to be held on September 11, 1996
shall approve the complete liquidation and dissolution of the Corporation in
accordance with the terms and provisions of this Plan and the sale of all of the
Corporation's assets to Duramed Pharmaceuticals, Inc. ("Duramed") pursuant to
the terms of the Asset Purchase Agreement dated as of April 9, 1996 (the
"Agreement").
2. Following the adoption of the Plan, the Corporation shall
transfer all of its rights in the assets of the Corporation to Duramed, in
exchange for the assumption by Duramed of certain liabilities of the Corporation
and for 640,000 shares of Duramed Common Stock and warrants to Purchase an
additional 400,000 shares of Duramed Common Stock, in accordance with and
subject to the terms and conditions of the Agreement. Pursuant to the Agreement,
64,000 of the shares and 40,000 of the warrants will be held in escrow (the
"Escrow") for a period of one year following the closing.
3. After the Closing, the Corporation shall pay, or shall make
adequate provision for the payment of, all known liabilities of the Corporation
not assumed by Duramed, including the payment of principal and interest due on
any loans made to the Corporation by shareholders and the payment of amounts due
to employees and creditors. To the extent practicable, the Corporation shall pay
its liabilities in Duramed shares at their fair market value as of a date
determined by agreement between the Company and its creditors. If necessary, the
Corporation may sell Duramed shares to provide funds to pay liabilities to
creditors or employees who do not agree to payment in Duramed shares. The
Corporation may also set aside such additional Duramed shares (if any) as the
directors deem necessary for payment of unascertained or contingent liabilities
of the Corporation. Thereafter, the Corporation shall distribute to its
shareholders as a liquidating distribution in complete
A-1
<PAGE> 99
cancellation of the Corporation's shares the following: (i) any remaining
Duramed shares, (ii) any remaining Duramed warrants, (iii) the right to receive
any distributions from the Escrow, (iv) the right to receive any distributions
of Duramed shares set aside for the payment of unascertained or contingent
liabilities, and (v) any other remaining assets of the Corporation, or the
proceeds from the disposition thereof. The distribution shall be made to the
Corporation's shareholders pro rata in accordance with the number of shares held
by each.
4. The Corporation shall send notice to all persons holding
options to purchase common stock of the Corporation advising the option holders
of the Plan and giving them a period of not less than 30 days from the date of
the notice in which to exercise their options and participate in the Plan as
shareholders. Options that are not exercised within 30 days of the notice will
be canceled.
5. Promptly after the Closing, Corporation shall cause a
Certificate of Dissolution to be prepared, executed, and filed in the Office of
the Secretary of State of New Jersey.
6. The officers and directors of the Corporation shall do and
perform all acts, execute all documents, file all reports, statements,
certificates and returns, take all action and enter into all transactions in the
name of and on behalf of the Corporation which they shall deem necessary or
desirable to complete the distribution of the assets and properties of the
Corporation to the shareholders in complete liquidation of the Corporation,
subject, however to the provisions of the Plan.
7. The Plan shall become effective on the date of its
adoption and approval by the shareholders as provided for in
Paragraph 1 hereof.
8. It is intended that the Plan shall be a Plan of
Complete Liquidation.
A-2
<PAGE> 100
APPENDIX B
ASSET PURCHASE AGREEMENT
by and between
DURAMED PHARMACEUTICALS, INC.
and
HALLMARK PHARMACEUTICALS, INC.
Dated as of April 9, 1996
<PAGE> 101
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
DEFINITIONS............................................................ 1
ARTICLE 1
ASSET PURCHASE AND SALE....................... 5
Section 1.1 DESCRIPTION OF ASSETS........................... 5
Section 1.2 PURCHASE PRICE.................................. 6
Section 1.3 ASSUMPTION OF CERTAIN OBLIGATIONS............... 7
Section 1.4 HOLDBACK; ESCROW................................ 8
Section 1.5 PAYMENT OF CLAIMS AGAINST ESCROW FUND........... 9
Section 1.6 TERMINATION OF ESCROW........................... 10
ARTICLE 2
RELATED MATTERS........................... 11
Section 2.1 SHAREHOLDER APPROVAL............................ 11
Section 2.2 PROXY STATEMENT/PROSPECTUS...................... 11
Section 2.3 REGISTRATION ISSUES............................. 12
Section 2.4 EQUIPMENT LEASES................................ 13
Section 2.5 INTERIM FINANCING............................... 13
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............ 13
Section 3.1 ORGANIZATION AND QUALIFICATION.................. 14
Section 3.2 CAPITALIZATION.................................. 14
Section 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT............ 14
Section 3.4 [INTENTIONALLY OMITTED]. ....................... 15
Section 3.5 NO VIOLATION.................................... 15
Section 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS............ 16
Section 3.7 FINANCIAL STATEMENTS............................ 16
Section 3.8 NO UNDISCLOSED LIABILITIES...................... 16
Section 3.9 CLAIMS.......................................... 16
Section 3.10 ASSETS.......................................... 17
Section 3.11 NO CONDEMNATION OR EXPROPRIATION................ 17
Section 3.12 [INTENTIONALLY OMITTED.......................... 17
Section 3.13 OPERATIONS SINCE DECEMBER 31, 1995.............. 17
Section 3.14 ABSENCE OF CERTAIN COMMERCIAL
PRACTICES....................................... 20
Section 3.15 RELATED PARTIES................................. 20
Section 3.16 INSURANCE....................................... 20
Section 3.17 CONTRACTS....................................... 21
Section 3.18 NO DEFAULT...................................... 21
Section 3.19 PROXY STATEMENT/PROSPECTUS...................... 21
Section 3.20 TAXES AND TAX RETURNS........................... 21
Section 3.21 LITIGATION...................................... 22
Section 3.22 COMPLIANCE WITH LAWS............................ 22
Section 3.23 ENVIRONMENTAL PROTECTION........................ 23
Section 3.24 LABOR RELATIONS................................. 24
</TABLE>
B-i
<PAGE> 102
<TABLE>
<S> <C> <C> <C>
Section 3.25 EMPLOYEE BENEFIT PLANS, EMPLOYMENT AND
RELATED AGREEMENTS.......................... 24
Section 3.26 FDA MATTERS................................. 26
Section 3.27 INTELLECTUAL PROPERTY....................... 28
Section 3.28 DISCLOSURE.................................. 29
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF DURAMED .......... 29
Section 4.1 ORGANIZATION AND QUALIFICATION.............. 29
Section 4.2 CAPITALIZATION.............................. 29
Section 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT........ 30
Section 4.4 NO VIOLATION................................ 31
Section 4.5 COMMISSION REPORTS AND FINANCIAL
STATEMENTS.................................. 32
Section 4.6 PROXY STATEMENT/PROSPECTUS.................. 32
Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS........ 32
Section 4.8 NO UNDISCLOSED LIABILITIES.................. 32
Section 4.9 TAXES AND TAX RETURNS....................... 32
Section 4.10 LITIGATION.................................. 34
Section 4.11 COMPLIANCE WITH LAWS........................ 34
Section 4.12 EMPLOYEE BENEFIT PLANS, EMPLOYMENT AND
RELATED AGREEMENTS.......................... 35
Section 4.13 NO WARRANTY OF FDA APPROVAL................. 36
Section 4.14 DISCLOSURE.................................. 36
ARTICLE 5
CERTAIN COVENANTS...................... 37
Section 5.1 CONDUCT OF BUSINESS PENDING THE CLOSING..... 37
Section 5.2 REASONABLE EFFORTS.......................... 38
Section 5.3 ACCESS AND INFORMATION...................... 38
Section 5.4 NOTICE OF ACTIONS AND PROCEEDINGS........... 39
Section 5.5 NOTIFICATION OF CERTAIN OTHER MATTERS....... 39
Section 5.6 SUPPLEMENTAL DISCLOSURE..................... 40
Section 5.7 CONFIDENTIALITY............................. 40
Section 5.8 OTHER POTENTIAL BIDDERS..................... 40
Section 5.9 REQUIRED CONSENTS........................... 41
Section 5.10 INSURANCE................................... 41
Section 5.11 GUARANTEES.................................. 41
ARTICLE 6
CONDITIONS.......................... 41
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION....... 41
Section 6.2 CONDITIONS TO OBLIGATIONS OF THE
COMPANY..................................... 42
Section 6.3 CONDITIONS TO OBLIGATIONS OF DURAMED. ..... 44
ARTICLE 7
TERMINATION......................... 48
Section 7.1 TERMINATION................................. 48
Section 7.2 EFFECT OF TERMINATION....................... 50
Section 7.3 REPURCHASE OF CAPTOPRIL AND OTHER DRUGS
RIGHTS...................................... 50
</TABLE>
B-ii
<PAGE> 103
<TABLE>
<S> <C> <C> <C>
ARTICLE 8
MISCELLANEOUS.......................... 50
Section 8.1 INDEMNIFICATION............................... 50
Section 8.2 SURVIVAL OF REPRESENTATIONS AND
WARRANTIES.................................... 51
Section 8.3 CLOSING....................................... 51
Section 8.4 EXCLUSIVITY; CONFIDENTIALITY.................. 52
Section 8.5 FEES AND EXPENSES............................. 52
Section 8.6 NOTICES....................................... 53
Section 8.7 AMENDMENTS.................................... 54
Section 8.8 WAIVER........................................ 54
Section 8.9 BROKERS....................................... 54
Section 8.10 REMEDIES FOR BREACH; SPECIFIC
PERFORMANCE................................... 54
Section 8.11 HEADINGS...................................... 55
Section 8.12 NONASSIGNABILITY.............................. 55
Section 8.13 PARTIES IN INTEREST........................... 55
Section 8.14 COUNTERPARTS.................................. 55
Section 8.15 GOVERNING LAW................................. 55
Section 8.16 ENTIRE AGREEMENT.............................. 55
Section 8.17 FURTHER ASSURANCES............................ 55
</TABLE>
B-iii
<PAGE> 104
EXHIBITS & SCHEDULES
Exhibits
1.1(d) Contracts Transferred to Duramed
1.2 Form of Warrant
1.3 Assumed Obligations
1.4(a) Form of Escrow Agreement
2.1 Form of Directors' Undertaking
2.4 Hallmark Leasing Asset Purchase Agreement
2.5A Form of Promissory Note
2.5B Captopril Agreement
2.5C Other Drugs Agreement
6.2(c) List of Key Employees
Schedules
COMPANY DISCLOSURE SCHEDULE
2.4 HLA Equipment
3.2 Securities Matters; Voting Agreements
3.5 Violations of Laws; Required Consents
3.6 Material Adverse Changes
3.8 Liabilities
3.9 Claims
3.10 Assets
3.13 Operations
3.15 Related Party Transactions
3.16 Insurance
3.17 Contracts
3.21 Litigation
3.22 Compliance with Laws
3.23 Environmental
3.24 Labor
3.25 ERISA Matters
3.26 FDA Matters
3.27 Intellectual Property
8.9 Broker Fees
DURAMED DISCLOSURE SCHEDULE
4.2 Securities Matters
4.4 Violations; Consents
4.9 Tax Matters
4.12 ERISA Matters
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT ("Agreement") dated as of April 9, 1996 by and
among Duramed Pharmaceuticals, Inc., a Delaware corporation ("Duramed"), and
Hallmark Pharmaceuticals, Inc., a New Jersey corporation (the "Company").
WHEREAS, the Board of Directors of the Company and the Board of
Directors of Duramed deem it advisable and in the best interests of their
respective stockholders that the Company sell, transfer and convey to Duramed
and that Duramed purchase substantially all of the assets of the Company and
assume certain liabilities of the Company, all upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, Duramed and the Company hereby agree
as follows:
DEFINITIONS
Terms used herein and not otherwise defined shall have the following
definitions, unless the context clearly requires otherwise:
(a) "Agreement" shall mean this Asset Purchase
Agreement.
(b) "Business" shall mean the development, manufacture
and distribution of generic pharmaceutical products by the Company.
(c) "Closing" shall have the meaning set forth in
Section 8.3 hereof.
(d) "Closing Date" shall have the meaning set forth in
Section 8.3 hereof.
(e) "Code" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
(f) "Commission" shall mean the Securities and
Exchange Commission.
(g) "Company Benefit Plan" shall have the meaning
assigned to it in Section 3.25 hereof.
(h) "Company Common Stock" shall mean the Common
Stock, no par value, of the Company.
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(i) "Company Debt" shall have the meaning assigned to
it in Section 3.8 hereof.
(j) "Company Disclosure Schedule" shall mean the
Disclosure Schedule of even date herewith delivered by the
Company to Duramed in connection herewith.
(k) "Company Pension Plan" shall have the meaning
assigned to it in Section 3.25 hereof.
(l) "Company Representative" shall mean Vish Raju or
such other person as may be designated by the Company.
(m) "Company Returns" shall have the meaning assigned
to it by Section 3.20 hereof.
(n) "Company Stock Options" shall mean any outstanding
options to purchase any shares of the capital stock or any securities
convertible into, exchangeable for or evidencing the right to subscribe for any
shares of the capital stock of the Company.
(o) "Company Stockholder Debt" shall have the meaning
assigned to it in Section 3.8 hereof.
(p) "Company Taxes" shall have the meaning assigned to
it in Section 3.20 hereof.
(q) "Condition" shall mean the financial condition,
business, results of operations, properties or assets of any
particular person, entity or group.
(r) "DGCL" shall mean the General Corporation Law of
the State of Delaware.
(s) "Duramed Benefit Plan" shall have the meaning
assigned to it in Section 4.12 hereof.
(t) "Duramed Common Stock" shall mean the Common Stock,
par value $.01 per share, of Duramed.
(u) "Duramed Disclosure Schedule" shall mean the
Disclosure Schedule of even date herewith delivered by Duramed to the Company
in connection herewith.
(v) "Duramed Pension Plan" shall have the meaning
assigned to it in Section 4.12 hereof.
(w) "Duramed Preferred Stock" shall have the meaning
assigned to it in Section 4.2 hereof.
(x) "Duramed Returns" shall have the meaning assigned
to it in Section 4.9 hereof.
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(y) "Duramed SEC Filings" shall have the meaning
assigned to it in Section 4.5 hereof.
(z) "Duramed Subsidiaries" shall mean Duramed Research
and Development Corporation and Market Masters, Inc.
(aa) "Duramed Taxes" shall have the meaning assigned to
it in Section 4.9 hereof.
(bb) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder.
(cc) "Escrow Agent" shall mean The Provident Bank,
Cincinnati, Ohio.
(dd) "Escrow Fund" shall have the meaning assigned to
it in Section 1.4 hereof.
(ee) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(ff) "Exchange Agent" shall mean The Provident Bank,
Cincinnati, Ohio or any other exchange agent selected by Duramed.
(gg) "Excluded Liabilities" shall have the meaning
assigned to it in Section 1.3 hereof.
(hh) "FDA" shall mean the United States Food and Drug
Administration.
(ii) "Financial Statements" shall have the meaning
assigned to it in Section 3.7 hereof.
(jj) "GAAP" shall mean generally accepted accounting
principles, consistently applied.
(kk) "Intellectual Property" shall have the meaning
assigned to it in Section 3.27 hereof.
(ll) "Latest Financial Statement" shall have the meaning
assigned to it in Section 3.10 hereof.
(mm) "License" shall have the meaning assigned to it
in Section 3.26 hereof.
(nn) "Market Price" shall mean the closing price for
Duramed Common Stock quoted on The Nasdaq Stock Market, or if there is no
closing price for a particular date, the average of the bid and asked prices
for such date, or if such prices are not reported, such amount as may be
determined by an independent third party to be selected jointly by Duramed and
the Company.
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(oo) "material adverse effect" shall mean any adverse
change in the Condition of the Company or of Duramed and the Duramed
Subsidiaries, as the case may be, that is material to the Company or to Duramed
and the Duramed Subsidiaries, taken as a whole, as the case may be.
(pp) "Product" shall have the meaning assigned to it
in Section 3.26 hereof.
(qq) "Proxy Statement/Prospectus" shall have the meaning
assigned to it in Section 2.2 hereof.
(rr) "Related Party" shall mean (a) Duramed; (b) any
individual who is a director or officer of Duramed or the Company or who is an
employee of Duramed or the Company with aggregate compensation at an annual rate
in excess of Fifty Thousand Dollars ($50,000); (c) any entity or individual that
owns five percent (5%) or more of any class of the outstanding equity securities
of Duramed or the Company; (d) any member of the family (as defined in Section
267(e)(4) of the Code) of, or any individual who has the same home as, any
individual (or the spouse of any individual) described in clauses (b) or (c) of
this section; (e) any trust, estate or partnership of which an individual
described in clauses (b),(c) or (d) of this section is a grantor, fiduciary,
beneficiary or partner or (f) any entity (and any subsidiary of such entity) of
which one of more persons described in clauses (a),(b),(c),(d) or (e) of this
section have either (i) aggregate record or beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of at least five percent (5%) of the
outstanding equity securities or at least five percent (5%) of the outstanding
voting securities or (ii) the power to direct or to cause the direction of the
management and policies of such entity, whether through the ownership of voting
securities, by contract or otherwise.
(ss) "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
(tt) "Subsidiary" shall mean any corporation more than
50% of the outstanding voting securities of which are directly or indirectly
owned by Duramed or the Company, as the case may be.
(uu) "Warrants" shall mean warrants to purchase shares of
Duramed Common Stock in the form set forth as Exhibit 1.2 attached hereto.
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ARTICLE 1
ASSET PURCHASE AND SALE
Section 1.1 DESCRIPTION OF ASSETS. Upon the terms, and subject to the
satisfaction or, if permissible, waiver of the conditions of this Agreement, at
the Closing, the Company shall sell, transfer, convey and assign to Duramed, and
Duramed shall purchase and accept assignment of, all of the Company's right,
title and interest in and to all those assets used or held for use in the
operations of the Business, including, without limitation, the following assets:
(a) all real property (owned and leased) and all leasehold and other
improvements thereto, including without limitation those described in Section
3.10 of the Company Disclosure Schedule;
(b) all equipment, personal property, current inventory, office
furniture, fixed assets and fixtures, office material, inventory, raw materials,
supplies and other tangible property of every kind and description owned and
used or owned and held for future use exclusively in connection with the
operation of the Business or located at the facilities of the Company, including
but not limited to those assets (other than real property) described in Section
3.10 of the Company Disclosure Schedule;
(c) all licenses, permits and authorizations and applications therefor
issued by the FDA, the EPA and other governmental agencies (to the extent such
assignment is permitted by law) relating to the operation of the Business,
including but not limited to those described in Sections 3.23 and 3.26 of the
Company Disclosure Schedule, but specifically excluding the EPA Hazardous Waste
Activity permit identified on Schedule 3.23 of the Company Disclosure Schedule;
(d) all contracts, agreements, leases (whether the Company is lessor
or lessee), purchase orders and commitments of the Company pertaining to the
Business and described in Exhibit 1.1(d);
(e) all Intellectual Property (as defined in Section 3.27 hereof)
including without limitation that described in Section 3.27 of the Company
Disclosure Schedule;
(f) all cash, cash equivalents, security deposits, bank accounts and
deposits, accounts receivable, notes receivable and prepaid expenses;
(g) all insurance policies and contracts and claims thereunder
described in Section 3.16 of the Company Disclosure Schedule, but specifically
excluding the existing Directors' and
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Officers' Liability insurance policy maintained by the Company
and claims thereunder);
(h) all rights of the Company in and to the name "Hallmark
Pharmaceuticals;" and
(i) all goodwill associated with the Business.
The purchase price provided for in Section 1.2 hereof shall be
allocated among the assets described in this Section 1.1 as set forth in a
schedule to be executed by the parties prior to the Closing.
The transfer, conveyance and assignment provided for herein shall occur
at the Closing of this Agreement as provided in Section 8.3 hereof.
Section 1.2 PURCHASE PRICE.
(a) At the Closing, Duramed shall issue and deliver to the Company or
its designees certificates representing Six Hundred Forty Thousand (640,000)
shares of Duramed Common Stock (the "Duramed Shares"), together with Warrants in
the form attached hereto as Exhibit 1.2 to acquire Four Hundred Thousand
(400,000) shares of Duramed Common Stock (the "Warrants" and, together with the
Duramed Shares, the "Purchase Consideration"), less the Escrow Shares and Escrow
Warrants described in Section 1.6 hereof, which shall be delivered to the Escrow
Agent. At the Closing, and, with respect to the Escrow Shares and Escrow
Warrants, upon the termination of the Escrow Agreement, the Company may
distribute the Purchase Consideration to its shareholders, optionholders,
noteholders and remaining creditors in such manner as the Company and such
parties may agree upon. Prior to the Closing, the Company shall provide to
Duramed a certificate of an officer of the Company instructing Duramed to
distribute the Purchase Consideration in accordance with such agreement. In the
absence of such certificate, Duramed shall deliver the Purchase Consideration to
the Company as described herein.
(b) If the Closing occurs subsequent to any stock dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of shares,
separation, reorganization or liquidation of Duramed occurring after the date on
which this Agreement is executed, as a result of which securities of any type or
class shall be issued in respect of outstanding shares of Duramed Common Stock
(or shall be issuable in respect of securities convertible into shares of
Duramed Common Stock) or shares of such Common Stock shall be changed into the
same or a different number of shares of the same or another class or classes,
the recipients of the Duramed Shares and holders of the Warrants shall receive,
upon issuance of the Duramed Shares or exercise of the Warrants, the aggregate
number and class of shares which such
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recipients or holders would have received if such Duramed Shares had been issued
or Warrants had been exercised immediately prior to such dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of shares,
separation, reorganization, liquidation or other such transaction. Any
adjustment pursuant to this Section 1.2(b) shall be cumulative and not
exclusive.
Section 1.3 ASSUMPTION OF CERTAIN OBLIGATIONS. At the
Closing, Duramed shall assume the following obligations of the
Company:
(a) those obligations of the Company arising under those
contracts, agreements and leases listed on Exhibit 1.1(d);
(b) those obligations of the Company arising under those
real property leases described in Section 1.1(a) hereof;
(c) those obligations of the Company listed on Exhibit 1.3
attached hereto; and
(d) those obligations of the Company arising out of bank debt of the
Company outstanding as of the Closing incurred in connection with the Business
and not exceeding $1,671,727 in aggregate principal amount, plus interest
accrued to the Closing Date thereon.
In addition, at the Closing, Duramed shall release the Company's
obligation to Duramed evidenced by those certain Promissory Notes issued by the
Company to Duramed in the aggregate principal amount of Two Million Eighty-Five
Thousand Twelve Dollars ($2,085,012) dated November 15, 1995, January 26, 1996
and January 26, 1996, and any indebtedness of the Company to Duramed incurred
after the date hereof but prior to the Closing pursuant to the terms of this
Agreement.
Notwithstanding the foregoing, Duramed shall not assume, and shall have
no liability in connection with, any other liabilities or obligations of the
Company (the "Excluded Liabilities"), including without limitation the following
obligations of the Company, which shall remain the sole responsibility of the
Company:
(a) Any obligation of the Company to pay a "finders fee" or
other compensation to Deloitte & Touche, LLP, in connection with
the consummation of the transaction contemplated hereby;
(b) Any Company Stockholder Debt;
(c) Any obligation of the Company to any holder of Company
Stock Options;
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(d) Any obligation of the Company arising under any Company
Benefit Plan;
(e) Any obligation of the Company arising under any contract,
agreement, lease or other commitment not disclosed in Section 3.17 of the
Company Disclosure Schedule;
(f) Any obligation of the Company to any taxing authority
for Company Taxes;
(g) Any liability to any shareholder of the Company exercising its
rights as a dissenting shareholder under Section 14A:11-1 et. seq. of the New
Jersey Business Corporation Act;
(h) any liability to current or former officers and directors of
the Company under any contractual, statutory or other provision providing for
indemnification thereof by the Company, provided that Duramed shall reimburse
the Company for premiums paid by it to maintain its Directors and Officers
Insurance Policy for a period of two years after the Closing, to the extent such
premiums do not exceed 125% of the current cost thereof; or
(i) any liability to Armata Partners arising under the Amendment
dated March 6, 1996 to the Investment Advice and Services Engagement.
Section 1.4 HOLDBACK; ESCROW.
(a) At the Closing, Duramed shall deliver to the Escrow Agent
certificates representing that number of shares of Duramed Common Stock equal to
Ten Percent (10%) of the Duramed Shares to be issued pursuant to Section 1.2
hereof (the "Escrow Shares"), and warrants representing Ten Percent (10%) of the
Warrants to be issued pursuant to Section 1.2 hereof (the "Escrow Warrants").
The Escrow Shares, Escrow Warrants, any dividends or distributions with respect
to the Escrow Shares and any proceeds of the sale thereof (the "Escrow Fund")
shall be held by the Escrow Agent pursuant to an Escrow Agreement dated as of
the Closing Date between Duramed, the Company and the Escrow Agent substantially
in the form of Exhibit 1.4(a) hereto (the "Escrow Agreement"). During the term
of the Escrow Agreement, as provided in Section 1.5 hereof, the Escrow Agent
shall pay part or all of the Escrow Fund to Duramed as indemnification for
costs, expenses (including reasonable attorneys' fees), or damages suffered by
Duramed as a result of the breach by the Company of any representation or
warranty of the Company contained herein or made as of the Closing, as more
particularly provided in Section 8.1 hereof. Any portion of the Escrow Fund
returned to Duramed in the form of Escrow Shares pursuant to a claim for
indemnification shall be determined based on the average Market Price of Duramed
Common Stock during the ninety (90) day period immediately preceding the day on
which such
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payment to Duramed is made. The value of any portion of the Escrow Fund returned
to Duramed in the form of Warrants pursuant to a claim for indemnification shall
be equal to the fair market value of such Warrants on the day on which such
payment to Duramed is made, as reasonably determined by a third party
experienced in valuing such securities, to be selected jointly by the Company
and Duramed.
(b) Unless and until all or any portion of the Escrow Fund is returned
to Duramed, the Company shall be the owner for tax purposes of the Escrow Fund.
During the term of the Escrow Agreement, the Company shall have the right to
direct the Escrow Agent in writing to sell all or any portion of the Escrow
Shares or Escrow Warrants. Upon receipt of such direction, the Escrow Agent
shall promptly effect such sale by offering such shares or warrants for sale
through a duly licensed broker at the then-prevailing market price on the NASDAQ
system, and shall thereafter hold the proceeds of such sale in the Escrow Fund
until directed to pay such proceeds pursuant to Section 1.5 hereof or until the
termination of the Escrow Agreement.
(c) The parties acknowledge that the Company may choose to liquidate
its remaining assets and terminate its corporate existence at or shortly after
the Closing and during the term of the Escrow Agreement. In such event, the
Company Representative shall represent the interests of the Company and persons
whose interests arise through or from the Company in all matters related to this
Agreement or the Escrow Agreement. Upon termination of the Company's corporate
existence, all references to the Company in Sections 1.3(h), 1.4, 1.5 and 1.6
hereof shall be deemed to refer to the Company Representative, unless another
interpretation is clearly required.
Section 1.5 PAYMENT OF CLAIMS AGAINST ESCROW FUND.
(a) From and after the Closing, if Duramed desires to assert a claim
for indemnification pursuant to Section 8.1 hereof, it shall deliver to the
Company a notice signed by an officer of Duramed (a "Claim Notice") (i) to the
effect that Duramed has a claim for indemnifiable damages pursuant to Section
8.1 hereof (a "Claim"), (ii) specifying the estimated amount of such Claim and
the calculation of such amount, and (iii) setting forth in reasonable detail the
grounds for such Claim. Duramed shall be entitled to indemnification hereunder
from the Escrow Fund only if and to the extent that its valid Claims exceed an
aggregate of $100,000.
(b) Before the twentieth business day after receipt of any Claim Notice
from Duramed, the Company shall notify Duramed that it either agrees with the
Claim and directs the Escrow Agent to pay it or that it disputes the existence
of such Claim or objects to Duramed's calculation of the amount of such Claim (a
"Notice of Dispute"). Any Notice of Dispute shall set forth in
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reasonable detail the Company's grounds for disputing the relevant Claim, as
well as the Company's calculation of the amount, if any, due Duramed with
respect to such Claim. If the Company fails to respond within such 20-day period
it shall be deemed to have given a Notice of Dispute as to the entire Claim.
(c) If Duramed receives, or is deemed to have received, a Notice of
Dispute before the close of the twentieth business day referred to in Section
1.5(b) above, Duramed and the Company shall negotiate in good faith and use all
reasonable efforts to agree, within twenty (20) business days after Duramed's
receipt of the Notice of Dispute, upon the rights of the respective parties with
respect to such Claim. If Duramed and the Company shall so agree, a certificate
setting forth such agreement (including the amount, if any, due Duramed with
respect to any Claim referred to therein) shall be furnished to the Escrow
Agent. The Escrow Agent shall be entitled to rely on any such certificate and
shall promptly make payment to Duramed from the Escrow Fund in accordance with
the terms thereof.
(d) If after the expiration of the twenty (20) business day negotiation
period, no final agreement has been reached between Duramed and the Company, the
parties shall appoint an arbitrator to hear the claim under the rules of the
American Arbitration Association. The decision of the arbitrator so appointed as
to the validity of any Claim shall be conclusive and binding upon the parties to
the dispute, and the Escrow Agent shall be entitled to rely on such decision and
shall act in accordance with such decision and make payment out of the Escrow
Fund in accordance therewith. The fees and expenses of the Company and Fifty
Percent (50%) of the fees and expenses of the arbitrator shall be paid by the
Escrow Agent from the Escrow Fund. The fees and expenses of Duramed and Fifty
Percent (50%) of the fees and expenses of the arbitrator shall be paid by
Duramed.
Section 1.6 TERMINATION OF ESCROW.
(a) On the date twelve (12) months after the Closing Date, the Company
and Duramed shall instruct the Escrow Agent to deliver the Escrow Fund (less an
amount equal to the amount claimed pursuant to claims of Duramed then determined
to be payable, or which are still pending final determination, pursuant to the
Escrow Agreement) to the Company or its designees.
(b) In making the distributions described in Section 1.6(a) hereof,
neither the Escrow Agent nor Duramed shall be obligated to deliver any
fractional share to which the Company or its designees may be entitled, but
shall pay to the Company or its designees in lieu of such fractional share the
cash equivalent of the Market Price of such fractional share on the date of
distribution.
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(c) Notwithstanding the foregoing, neither the Escrow Agent nor any
party hereto shall be liable to the Company or any shareholder, optionholder,
noteholder or remaining creditor of the Company for any shares of Duramed Common
Stock, Warrants or dividends on such Duramed Common Stock delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
ARTICLE 2
RELATED MATTERS
Section 2.1 SHAREHOLDER APPROVAL. The Company shall take all action
necessary in accordance with applicable law, and its Certificate of
Incorporation and By-laws, to convene a meeting of its shareholders as promptly
as practicable to consider and vote upon a proposal to approve and adopt this
Agreement (the "Proposal"). Provided that this Agreement shall not have been
terminated in accordance with Article 7 hereof, at the meeting of the Company's
shareholders all shares of Company Common Stock then owned by Duramed or any
Duramed Subsidiary shall be voted in favor of the Proposal. Subject to its
fiduciary duties under applicable law, the Board of Directors of the Company
shall recommend that its shareholders vote in favor of the Proposal and shall
use all reasonable efforts to solicit proxies and to take all other actions
reasonably necessary or advisable to secure the vote or consent of shareholders
required to effect the transactions contemplated hereby. Simultaneously with the
execution hereof, each director of the Company who is a shareholder of the
Company has executed and delivered to Duramed, in his capacity as a shareholder
of the Company, an undertaking in the form attached hereto as Exhibit 2.1 to
vote the shares of Company Common Stock held by such director in favor of the
Proposal.
Section 2.2 PROXY STATEMENT/PROSPECTUS. In connection with the
preparation of the Registration Statement (as defined in Section 2.3) and the
proxy statement/prospectus (such proxy statement/prospectus, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to the Company's shareholders, is herein called the "Proxy
Statement/Prospectus") forming a part of the Registration Statement to be mailed
to the shareholders of the Company in connection with the meeting of
shareholders of the Company referred to in Section 2.1, the Company and Duramed
will cooperate with each other and will furnish the information relating to the
Company and Duramed, as the case may be, required by the Securities Act and the
Exchange Act, and the rules and regulations of the Commission promulgated
thereunder, to be set forth in the Registration Statement (including the Proxy
Statement/Prospectus). The form of the Proxy
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Statement/Prospectus shall be subject to the joint approval of Duramed and the
Company. The Company agrees to distribute the Proxy Statement/Prospectus to the
shareholders of the Company at the earliest possible date after the Registration
Statement containing the Proxy Statement/Prospectus has been declared effective,
but in any event not less than twenty (20) business days prior to the date on
which this Agreement and the transactions contemplated hereby are submitted to
the shareholders of the Company for approval and adoption. The Company agrees to
postpone the meeting of its shareholders in the event the twenty (20) business
day requirement would not otherwise be fulfilled. Except to the extent permitted
by Rule 145(b) promulgated by the Commission under the Securities Act, Duramed
and the Company agree not to publish any communication other than the
Registration Statement or notices and proxy material accompanied by the Proxy
Statement/Prospectus with respect to this Agreement or the transactions
contemplated hereby. The Company agrees to submit to Duramed and its counsel all
proxy soliciting material for approval prior to the use thereof.
Section 2.3 REGISTRATION ISSUES.
(a) As soon as practicable after the date of execution of this
Agreement, but in any event no later than May 31, 1996, Duramed shall prepare
and file with the Commission a Registration Statement on Form S-4 (the
"Registration Statement") containing the Proxy Statement/Prospectus to register
the offering of shares of Duramed Common Stock and the Warrants to be issued at
the Closing (including the Escrow Shares and Warrants) and the shares of Duramed
Common Stock to be issued upon exercise of the Warrants, and shall use its best
efforts to cause the Registration Statement to become effective as soon as
practicable and to maintain the effectiveness of the Registration Statement by
the preparation and filing of amendments thereto from the original effective
date through the Closing Date. Duramed shall not be required to maintain the
effectiveness of the Registration Statement or the Proxy Statement/Prospectus
for the purpose of resales by shareholders, optionholders, noteholders or
remaining creditors of the Company.
(b) Duramed shall, to the extent permitted by law, bear the entire cost
and expense of the registration made pursuant to Section 2.3 of this Agreement,
including, without limitation, all registration and filing fees, printing
expenses, the fees and expenses of Duramed's counsel and accountants and all
other out-of-pocket expenses incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and all amendments and
supplements thereto, the cost of furnishing copies of each final prospectus and
each amendment or supplement thereto to stockholders, optionholders, noteholders
and remaining creditors of the Company to whom the Duramed Shares and Warrants
so registered are distributed, and the costs and expenses
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incurred in connection with the qualification of the Duramed Shares and Warrants
so registered under "blue sky" or other state securities laws.
(c) The Company and Duramed agree to cooperate in order to comply with
any applicable prospectus delivery requirements or other requirements of federal
or applicable state securities laws in connection with the issuance of the
Duramed Common Shares and Warrants to the Company or its designees.
Section 2.4 EQUIPMENT LEASES. At and as of the Closing, Hallmark
Leasing Associates ("HLA") shall sell to Duramed the equipment listed in Section
2.4 of the Company Disclosure Schedule, free and clear of any lien or
encumbrance, for a price equal to the net book value of such equipment; and the
lease agreements dated September 1, 1992, November 16, 1992, March 20, 1993, May
17, 1994 and December 28, 1994 between HLA and the Company shall be terminated,
all as more particularly set forth in the form of Asset Purchase Agreement
between Duramed and HLA attached hereto as Exhibit 2.4.
Section 2.5 INTERIM FINANCING.
(a) Prior to the execution hereof, Duramed has advanced to the Company
Two Million Eighty-Five Thousand Twelve Dollars ($2,085,012). Since April 1,
1996, and from time to time thereafter until the Closing or the termination of
this Agreement, Duramed has advanced and shall continue to advance to the
Company amounts necessary to meet the Company's operating expenses and interest
payments to its bank lender, which amounts the Company shall pay as incurred, at
a rate not exceeding Three Hundred Fourteen Thousand Dollars ($314,000) per
month, all such advances (including the initial advance) to be represented by
Secured Promissory Notes and Security Agreements in the form attached hereto as
Exhibit 2.5A on the terms and subject to the conditions of a distribution
agreement between Duramed and the Company dated as of October 4, 1995 in the
form attached hereto as Exhibit 2.5B.
(b) From the earlier of (i) the date Duramed's conjugated estrogens
product is approved by FDA and (ii) July 1, 1996 to the Closing Date, Duramed
shall advance to the Company all reasonable costs of the biostudy to be
conducted by the Company with respect to the drug(s) listed on Exhibit 10
attached hereto, all such advances to be represented by Secured Promissory Notes
and Security Agreements in the form attached hereto as Exhibit 2.5A on the terms
and subject to the conditions of a letter agreement between Duramed and the
Company dated as of January 26, 1996 in the form attached hereto as Exhibit
2.5C.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Duramed as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly incorporated and organized, validly existing and in good standing under the
laws of the State of New Jersey. The Company has no subsidiary. The Company has
the requisite corporate power to conduct its businesses as they are currently
being conducted and is duly qualified and in good standing (or has active status
if such state does not recognize the concept of good standing) as a foreign
corporation to do business in the respective jurisdictions where the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except to the extent that lack of such qualification
would not in the aggregate have a material adverse effect on the Condition of
the Company.
Section 3.2 CAPITALIZATION. The authorized capital stock of the Company
consists of Ten Million shares of Company Common Stock. As of March 31, 1996,
Six Million, One Hundred Fifty-Six Thousand, Two Hundred Forty (6,156,240)
shares of Company Common Stock were issued and outstanding, and no shares of
Company Common Stock were held in the Company's treasury. In addition, as of
such date, Two Million, One Hundred Twenty Thousand, One Hundred (2,120,100)
shares of Company Common Stock were reserved for issuance upon the exercise of
outstanding Company Stock Options. All of the issued and outstanding shares of
Company Common Stock are validly issued, fully paid and nonassessable and are
not subject to, nor were they issued in violation of, any preemptive rights or
federal or, except as set forth in Section 3.2 of the Company Disclosure
Schedule, state securities law entitling the holder thereof to rescission. Since
March 31, 1996, the Company has not issued any shares of Company Common Stock or
options to purchase shares of Company Common Stock except for the issuance of
shares of Company Common Stock upon exercise of Company Stock Options granted
prior to March 31, 1996. Except as set forth above, as of the date hereof, (i)
there are no shares of capital stock of the Company authorized, issued or
outstanding and (ii) there are no outstanding subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character obligating the Company to issue, transfer or sell, presently or in the
future, any shares of capital stock or any securities convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock of the Company. Except as set forth in Section 3.2 of the Company
Disclosure Schedule, there are no voting trusts or other agreements or
understandings to which the Company is a party with respect to its voting of the
capital stock of the Company.
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Section 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and, following approval and adoption of this Agreement by the requisite vote of
the shareholders of the Company as provided in Section 2.1 hereof, to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved and authorized by the Board of Directors of the Company. Except
for the approval of this Agreement by the shareholders of the Company (the
"Required Company Vote"), no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and (assuming this Agreement is a valid and binding
obligation of the other parties hereto) constitutes a valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Section 3.4 [Intentionally Omitted].
Section 3.5 NO VIOLATION. Except as set forth in Section 3.5 of the Company
Disclosure Schedule, the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i)
constitute a breach or violation of or default under the Certificate of
Incorporation or By-laws of the Company or (ii) violate, conflict with, or
result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company under, any of the terms, conditions or
provisions of any credit agreement, note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which the
Company is a party or to which it or any of its properties or assets may be
subject, other than, in the case of clause (ii), breaches, conflicts or
violations that would not have a material adverse effect on the Condition of the
Company. Except as set forth in Section 3.5 of the Company Disclosure Schedule,
(i) other than the approval of the Company's shareholders described in Section
2.1 hereof, and other than in connection with, or in compliance with, the
provisions of the New Jersey Business Corporation Act, the Securities Act, the
Exchange Act and any applicable state securities law, the consummation by the
Company of the transac-
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tions contemplated hereby will not require the consent or approval of any other
party to any of the above or affect the validity or effectiveness of any of the
above except for consents or approvals, the failure to obtain which would not,
in the aggregate, have a material adverse effect on the Condition of the Company
and (ii) the execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby will not constitute a breach or violation of or default under any law,
rule or regulation or any judgment, decree, order, governmental permit or
license (including but not limited to Licenses as defined in Section 3.26
hereof) to which the Company is subject. The Company is not subject to, or a
party to, any charter, bylaw, mortgage, lien, lease, license, permit, agreement,
contract, instrument, law, rule, ordinance, regulation, order, judgment or
decree, or other restriction of any kind or character, that would prevent the
continued operation of the Company's business after the date hereof on
substantially the same basis as heretofore operated.
Section 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in Section 3.6 of the Company Disclosure Schedule, since December 31, 1995 the
Company has conducted its business only in the ordinary and usual course and
there has not occurred any material adverse change in the Condition of the
Company.
Section 3.7 FINANCIAL STATEMENTS. The audited financial statements of
the Company for the fiscal years ended December 31, 1992, 1993, 1994 and 1995
and the unaudited financial statements of the Company for the three months ended
March 31, 1996 (collectively, the "Financial Statements") delivered to Duramed,
are complete and correct in all material respects, have been prepared from the
books and records of the Company in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered and with prior periods (except as indicated in the notes thereto), and
fairly present the financial condition of the Company as of the dates thereof
and the results of its operations for the years and periods ended on such dates.
Section 3.8 NO UNDISCLOSED LIABILITIES. Except to the extent reflected
and reserved against in the Financial Statements or Section 3.8 of the Company
Disclosure Schedule, the Company does not, as of the date of this Agreement,
have any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) that in the aggregate have or may reasonably be expected to have a
material adverse effect on the Condition of the Company. Section 3.8 of the
Company Disclosure Schedule sets forth (i) all outstanding indebtedness of the
Company to a stockholder of the Company or to HLA (the "Company Stockholder
Debt"); and (ii) all outstanding long-term indebtedness of the Company,
excluding the Company Stockholder Debt and any obligation to Duramed
contemplated by Section 2.5 hereof (the "Company Debt")
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Section 3.9 CLAIMS. Except as disclosed in Section 3.9 of the Company
Disclosure Schedule, there are no governmental proceedings or investigations or
any claims, suits or proceedings pending, asserted or to the Company's knowledge
threatened against the Company or its property which, if adversely determined,
could have a material adverse effect upon the Condition of the Company.
Section 3.10 ASSETS.
(a) The Company has furnished Duramed with a list setting forth a brief
description of all real property, disclosed in Section 3.10 of the Company
Disclosure Schedule, now owned or leased by the Company. The Company also owns
all of the personal property assets reflected on the unaudited financial
statements of the Company for the three months ended March 31, 1996 (the "Latest
Financial Statement") or acquired after the date thereof, free and clear of all
liens (other than liens for current taxes not yet payable), mortgages, pledges,
encumbrances, and charges of every kind, except such as do not materially affect
the use or value of such assets in the ordinary course of business or as noted
in the said Latest Financial Statement or as disclosed in Section 3.10 of the
Company Disclosure Schedule.
(b) All of the real and personal property owned by the Company is,
subject to immaterial exceptions, structurally sound with no known defects and
is in good operating condition and repair and adequate for the uses to which it
is being put. The properties and assets of the Company to be transferred to
Duramed pursuant to this Agreement include all rights, properties and other
assets used by the Company to conduct its business since January 1, 1996, except
as disposed of or consumed in the ordinary course of business.
Section 3.11 NO CONDEMNATION OR EXPROPRIATION. Neither the whole nor
any portion of the property or leaseholds owned or held by the Company is
subject to any governmental decree or order to be sold or is being condemned,
expropriated, or otherwise taken, by any governmental body or other person with
or without payment of compensation therefor nor, to the best knowledge of the
Company, has any such condemnation, expropriation or taking been proposed.
Section 3.12 [Intentionally Omitted]
Section 3.13 OPERATIONS SINCE DECEMBER 31, 1995. Since December 31,
1995, the Company has not, except as disclosed in Section 3.13 of the Company
Disclosure Schedule, without having obtained the prior written consent of
Duramed:
(a) suffered damage to or the destruction of any of its material
properties or assets (whether or not covered by insurance) or made any
disposition of any of its properties or
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assets other than the sale of finished goods in the ordinary
course of business;
(b) disposed of any records related to its assets or business;
(c) made any change or amendment in its Certificate of Incorporation
or By-laws;
(d) issued or sold any Company Common Stock or other securities;
acquired, directly or indirectly, by redemption or otherwise, any such
securities (or offered to do so); reclassified, split-up or otherwise changed
any such security; declared or paid any dividends thereon in cash, securities or
other property or made any other distribution with respect thereto; or granted
or entered into any options, warrants, calls or commitments of any kind with
respect thereto;
(e) organized any subsidiary or acquired any equity securities of any
entity or any equity or ownership interest in any business;
(f) borrowed any funds or incurred, or assumed or become subject to,
whether directly or by way of guarantee or otherwise, any obligation or
liability (absolute or contingent) in excess of One Hundred Thousand Dollars
($100,000), except obligations and liabilities incurred in the ordinary course
of business and consistent with past practice;
(g) paid, discharged or satisfied any claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities or obligations reflected or reserved against in the
Latest Financial Statement or incurred in the ordinary course of business and
consistent with past practice since the date of the Latest Financial Statement;
(h) prepaid any obligation having a maturity of more than ninety (90)
days from the date such obligation was issued or incurred;
(i) permitted or allowed any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any lien, mortgage, pledge
or other encumbrance, except in the ordinary course of business consistent with
past practice;
(j) canceled any debts or waived any claims or rights of substantial
value, except in the ordinary course of business and consistent with past
practices;
(k) disposed of or permitted to lapse any rights to the use of any
patent, trademark, trade name or copyright owned or used
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by it or applicable to its business, or disposed of or disclosed to any person
any trade secret, formula, process or know-how owned or used by it or applicable
to its business and not theretofore a matter of public knowledge;
(l) granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any employee benefit plan)
other than in the ordinary course of business and consistent with past practice,
or increased the salary or other compensation of any officers;
(m) paid, loaned or advanced any amount to, or sold, transferred,
leased, assigned or conveyed any properties or assets to or from, or entered
into any agreement or arrangement with, any Related Party, except for directors'
fees and compensation to officers not exceeding the compensation paid during the
fiscal year ended December 31, 1995;
(n) granted or extended any power of attorney or acted as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of
the obligation of any person or entity;
(o) purchased or entered into any contract or commitment to purchase
any raw material or supplies, or sold or entered into any contract or commitment
to sell any property or assets, except (i) normal contracts or commitments for
the purchase of, and normal purchases of, raw materials or supplies, made in the
ordinary course of business and consistent with past practice, (ii) normal
contracts or commitments for the sale of, and normal sales of, inventory in the
ordinary course of business and consistent with past practice; and (iii) other
contracts, commitments, purchases or sales in the ordinary course of business
and consistent with past practice;
(p) done any act or omitted to do any act, or permitted any act or
omission to act, which has caused or will cause a breach of any material
contract or commitment or which would reasonably be expected to cause the breach
of any representation or warranty contained in this Agreement;
(q) made any capital expenditures or additions to property, plant or
equipment or acquired any other property or assets (other than raw materials or
supplies) at a cost in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate;
(r) sold, transferred, leased, assigned or conveyed any property or
asset to, or purchased, leased or acquired any property or assets from, any
party not in the ordinary course of business and consistent with past practice;
(s) written off or been required to write off any notes or accounts
receivable;
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(t) written down or been required to write down any inventory;
(u) entered into any collective bargaining or union contracts or
agreements; or
(v) agreed or otherwise committed, whether in writing or otherwise,
to do any of the foregoing.
Section 3.14 ABSENCE OF CERTAIN COMMERCIAL PRACTICES. The Company
has not, and no director, officer, agent, employee or other person acting on
behalf of the Company has, (a) given or agreed to give any gift or similar
benefit of more than nominal value to any customer, supplier or governmental
employee or official or any other person who is or may be in a position to help
or hinder the Company or assist the Company in connection with any proposed
transaction, which gift or similar benefit, if not given in the past, would
reasonably be expected to have a material adverse effect on the Condition of the
Company, or which, if not continued in the future, would reasonably be expected
to have a material adverse effect on the Condition of the Company, or (b) used
any corporate or other funds for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to political activity
to government officials or others or established or maintained any unlawful or
unrecorded funds in violation of Section 30A of the Exchange Act. The Company
has not, and no director, officer, agent, employee or other person acting on
behalf of them has, accepted or received any unlawful contributions, payments,
gifts or expenditures.
Section 3.15 RELATED PARTIES. Except as set forth in Section 3.15 of
the Company Disclosure Schedule, (a) since the beginning of the third full
fiscal year of the Company preceding the date of this Agreement, there have been
no transactions between the Company and any Related Party or any payment
(however characterized) by the Company to any Related Party or by and Related
Party to the Company and (b) there is no lease, agreement or commitment between
the Company and any Related Party. As used in the preceding sentence, the term
"transaction" includes, but is not limited to, any sale or other transfer of
property or assets, the lease or other use of property or assets, the provision
of services and the furnishing of personnel, whether or not for consideration.
Except as set forth in Section 3.15 of the Company Disclosure Schedule, (a) no
Related Party has any material interest in any property, real or personal,
tangible or intangible, including without limitation, any Intellectual Property,
used in or pertaining to the business of the Company, (b) no Related Party is
indebted to the Company and (c) the Company is not indebted to any Related
Party.
Section 3.16 INSURANCE. The Company has furnished Duramed with a
accurate and complete list and description, as disclosed
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in Section 3.16 of the Company Disclosure Schedule, of all property, liability,
life and other insurance policies of the Company and all such insurance has been
fully paid up and is in full force and effect for all periods up to and
including the Closing Date. No insurance company has ever canceled or refused to
provide at a commercially reasonable price any coverage requested by the
Company.
Section 3.17 CONTRACTS. The Company has furnished Duramed with a
correct and complete list, as disclosed in Section 3.17 of the Company
Disclosure Schedule, of all continuing contracts, agreements, commitments and
engagements of the Company, including, without limitation, all supply and
service contracts to which the Company is a party as vendor or vendee, of a
value of One Hundred Thousand Dollars ($100,000) or more, contracts for the
purchase of capital equipment or improvements of a value of One Hundred Thousand
Dollars ($100,000) or more, leases of real or personal property, marketing and
distribution agreements, contracts or agreements for clinical or nonclinical
studies or trials related to any product manufactured or sold by the Company,
employment contracts, union contracts, health and welfare plans, life or
hospitalization insurance plans, pension, profit sharing or other similar
benefit plans and deferred incentive-compensation agreements or plans.
Section 3.18 NO DEFAULT. The Company is not in default under any
contract, agreement or commitment to which it is a party, and no third party has
asserted that such a default exists, if such default in either case is
reasonably likely to have a material adverse effect on the Condition of the
Company.
Section 3.19 PROXY STATEMENT/PROSPECTUS. When the Proxy
Statement/Prospectus shall first be mailed to the holders of Company Common
Stock, and at all times subsequent thereto up to and including the Closing, the
information with respect to the Company set forth in the Proxy
Statement/Prospectus will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements contained therein not misleading. If, at any time prior to
the Closing, any event relating to the Company shall occur which should be
disclosed in the Proxy Statement/Prospectus and which is not so disclosed, the
Company shall promptly so inform Duramed.
Section 3.20 TAXES AND TAX RETURNS. The Company has timely filed all
tax returns, declarations, reports, estimates, information returns, statements
and other returns the non-filing of which would have a material adverse effect
on the Condition of the Company (collectively, the "Company Returns") relating
to Company Taxes (as defined below) required to be filed under U.S. federal,
state, local or any foreign laws (without regard to any extensions of time for
filing such Company Returns) with respect to all Company Taxes for all years and
periods (or portions
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thereof) for which any such Company Returns are due. All such Company Returns
were in all material respects true, complete and correct with respect to all
Company Taxes. The Company is not currently the beneficiary of any extensions of
time within which to file any Company Return. The Company has paid or made
provision for (by a tax accrual or tax reserve on the most recent balance sheets
of the Company, which accruals or reserves have been recorded in accordance with
GAAP), all Company Taxes (except for such Company Taxes which if not so paid or
provided for would not, in the aggregate, have a material adverse effect on the
Condition of the Company) in respect of all taxable periods or portions thereof
ending on or before the date of such balance sheets. Any Company Taxes incurred
or accrued since such date have arisen in the ordinary course of business. There
are no material liens for Company Taxes upon the assets of the Company except
liens for Company Taxes not yet due. The Company is not delinquent in the
payment of any federal income or other Company Taxes and there are no
outstanding deficiencies, assessments or written proposals for assessment of
federal income or other Company Taxes proposed, asserted or assessed against the
Company or any agreement extending the period of assessment or collection of any
Company Taxes. The Company has withheld and paid all Company Taxes required to
be withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party. The statute
of limitations for the assessment of federal income taxes has expired for all
federal income tax returns of the Company, and no federal income tax return of
the Company has been examined by the Internal Revenue Service. No federal,
state, local or foreign audits or other administrative proceedings or court
proceedings which are material to the Condition of the Company are presently
pending with regard to any Company Taxes or Company Returns. As used herein,
"Company Taxes" mean all net income, gross income, gross receipts, sales, use,
transfer, franchise, profits, withholding, payroll, employment, excise,
severance, property or windfall profits taxes, or other taxes of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts whether disputed or not imposed by any taxing authority
(domestic or foreign) upon the Company or its properties with respect to all
periods or portions thereof ending on or before the Closing Date.
Section 3.21 LITIGATION. Except as set forth in Section 3.21 of the
Company Disclosure Schedule, there are no actions, suits, claims, investigations
or proceedings pending or, to the knowledge of the Company, threatened against
the Company or any of its property before any court, governmental agency,
commission, or administrative or regulatory authority which, in the aggregate,
would reasonably be expected to have a material adverse effect on the Condition
of the Company, nor, to the Company's knowledge, is any such action, suit,
claim, investigation or proceeding reasonably foreseeable. The Company is not
subject to any order, judgment, injunction or decree that
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has or will have a material adverse effect on the Condition of the Company.
Section 3.22 COMPLIANCE WITH LAWS. Except as set forth in Section 3.22
of the Company Disclosure Schedule, the Company is not in violation (or with or
without notice or lapse of time or both, would be in violation) of any term or
provision of any law or regulation (including zoning and environmental laws,
regulations and ordinances) or any writ, judgment, decree, injunction or similar
order applicable to the Company or any of its assets or properties, the result
of which violations in the aggregate has or may reasonably be expected to have a
material adverse effect on the Condition of the Company. Except as set forth in
Section 3.22 of the Company Disclosure Schedule, the Company has and is in
substantial compliance with all material permits, licenses, orders and approvals
of all federal, state, local or foreign governmental or regulatory bodies
required for it to carry out its business as presently conducted except as would
not have a material adverse effect on the Company. All such permits, licenses,
orders and approvals are in full force and effect, and no suspension or
cancellation, nor any proposed adverse modification of any of them is pending
or, to the knowledge of the Company, threatened except as would not have a
material adverse effect on the Company.
Section 3.23 ENVIRONMENTAL PROTECTION.
(a) The Company has obtained, and Section 3.23 of the Company
Disclosure Schedule sets forth, all permits, licenses and other authorizations
which are required under all applicable laws and regulations relating to health
and safety, pollution or protection of the environment, including emissions,
discharges or releases of contaminants, or hazardous or toxic materials or
wastes into air, water or land, or otherwise relating to the distribution, use,
storage, disposal, transport or handling of pollutants, contaminants or
hazardous or toxic material or wastes ("Environmental Law"). The Company is in
compliance in all material respects with all terms and conditions of such
required permits. The Company is not aware of, nor has it received notice of,
events, activities or incidents which could reasonably be expected to give rise
to any legal liability in connection with any Environmental Law.
(b) There has not been any spill, release or unauthorized discharge of
(i) any gasoline, petroleum products or polychlorinated biphenyls ("PCBs"), (ii)
any substance, waste or material defined as hazardous, radioactive, extremely
hazardous, toxic or dangerous under any Environmental Law or (iii) any asbestos,
asbestos-containing substances or urea formaldehyde insulation, at any property
or facility owned or operated by the Company, where such spill, release or
discharge was required to be reported by the Company under any Environmental Law
as in effect at the time of such release or currently requires
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abatement or correction by the Company under any Environmental Law as in effect
on the date hereof. The Company has not permitted any substance listed in
(i)-(iii) above (hereinafter "Hazardous Materials") to be disposed of, treated
or stored on any property owned or operated by the Company except in accordance
with applicable Environmental Law.
(c) There has not been and is not any Environmental Condition (as
hereinafter defined) at or relating to any property at which Hazardous Materials
have been deposited or disposed by or at the behest of the Company or any
predecessor in interest, nor has the Company received notice of any such
Environmental Condition. For purposes of this Agreement, "Environmental
Condition" means any condition or circumstance that (i) requires abatement or
remediation by the Company under any Environmental Law currently in effect, (ii)
gives rise to any civil or criminal liability of the Company under any
Environmental Law currently in effect, or (iii) constitutes a public or private
nuisance created by the Company, in whole or in part, based on the presence of
any Hazardous Materials, under laws applicable at the Closing Date.
Section 3.24 LABOR RELATIONS. The Company has paid in full to its
employees all wages, salaries, commissions, bonuses and other direct
compensation for services performed, other than amounts that have not yet become
payable in accordance with the Company's customary practices. The Company is not
liable for any severance pay or other payments on account of termination of any
former employee. The Company is not a party to or bound by any collective
bargaining agreement. Except as set forth in Section 3.24 of the Company
Disclosure Schedule, (a) the Company is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and the Company is not and has not engaged in
any unfair labor practices, (b) there is no unfair labor practice complaint
against the Company before the National Labor Relations Board, (c) there is no
labor strike, dispute, slowdown or stoppage actually pending or threatened
against or affecting the Company; (d) no representation question exists
respecting the employees of the Company; (e) the Company has never experienced
any strike, work stoppage or other labor difficulty and (f) no collective
bargaining agreement relating to employees of the Company is currently being
negotiated.
Section 3.25 EMPLOYEE BENEFIT PLANS, EMPLOYMENT AND RELATED AGREEMENTS.
(a) Each employee benefit plan, as defined in Section 3(3) of ERISA, maintained
currently or in the past by the Company ("Company Benefit Plans") has been
operated and administered in all material respects in accordance with all
applicable requirements of ERISA and the Code. The terms and conditions of each
Company Benefit Plan conform in all material respects with all applicable
provisions of ERISA and the Code. Each Company Benefit Plan which is an employee
pension benefit plan, as defined in Section 3(2) of ERISA, and which is intended
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to be "qualified" within the meaning of Section 401(a) of the Code ("Company
Pension Plan"), has been determined by the Internal Revenue Service to be so
qualified. The Company has no knowledge of any action or claim of any kind
(other than routine claims for benefits) that has been asserted or threatened
against any Company Pension Plan, or the assets thereof, or against any
fiduciary of such a Plan; and the Company has no knowledge of any investigation
or administrative review of a Company Pension Plan which could result in the
imposition of any penalty or assessment.
(b) None of the Company Pension Plans whichis subject to
Title IV of ERISA has completely or partially terminated, or been the subject of
a reportable event as defined in Section 4043 of ERISA. No liability under
Subtitle D of Title IV of ERISA has been incurred by the Company with respect to
a Company Pension Plan.
(c) The actuarial present value of the total accrued benefits
under each Company Pension Plan which is a defined benefit pension plan did not,
as of its latest valuation date, exceed the fair market value of the total
assets of the Plan, based upon the actuarial assumptions and methods used to
fund the Plan and determined on an ongoing basis. No Company Pension Plan has
incurred any accumulated funding deficiency (whether or not waived) as defined
in Section 412 of the Code.
(d) Except as set forth in Section 3.25 of the Company
Disclosure Schedule, there are no multi-employer plans, as defined in Section
4001(a)(3) of ERISA, to which the Company contributes, or under which the
Company has any present or future obligation or liability.
(e) No Company Benefit Plan provides health, life or other
similar coverage to employees beyond the termination of their employment with
the Company, other than coverage that is required under Section 4980B of the
Code, or under the continuation of coverage provisions of the laws of any state.
(f) No Company Benefit Plan is funded by, or associated with,
a "voluntary employees' beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(g) The Company has filed or caused to be filed on a timely
basis all returns, reports (including Form 5500), statements, notices,
declarations and other documents required by any federal, state, local or
foreign governmental agency (including without limitation the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation and
the Commission) with respect to each Company Benefit Plan. The Company has
delivered or caused to be delivered to every participant, beneficiary and every
other party
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entitled to such material all plan descriptions, returns, reports, notices,
statements and similar materials including, without limitation, summary plan
descriptions and reports as are required under Title I of ERISA and the Code.
(h) The consummation of the transactions
contemplated by this Agreement will not increase nor accelerate the time of
payment or vesting of any compensation due to any current or former employee of
the Company, or result in the payment or series of payments by the Company to
any person of an "excess parachute payment" within the meaning of Section 280G
of the Code.
Section 3.26 FDA MATTERS.
(a) Section 3.26 of the Company Disclosure Schedule sets forth a
complete and correct list of all products that are, directly or indirectly,
being developed, researched in human subjects or distributed for commercial sale
by the Company (the "Products"), and the current developmental status of each
Product. Section 3.26 also sets forth a list of all material Licenses,
specifically including without limitation each abbreviated new drug application
("ANDA") filed by the Company, for each Product that has been applied for or
obtained by the Company and the status of each ANDA filed by the Company, except
that such Section 3.26 does not purport to summarize all relevant matters that
may impact approval of each Product.
(b) Except as set forth in Section 3.26 of the Company
Disclosure Schedule,
(i) with respect to each Product:
(A) the Company has obtained (or is in the process of
obtaining) all applicable approvals, clearances,
authorizations, licenses and registrations required by United
States or foreign governments or government agencies, to
permit the manufacture, distribution, sale, marketing or human
research of such Product (collectively, "Licenses");
(B) the Company is in full compliance with all terms and
conditions of each License in each country in which such
Product is marketed, and with all requirements pertaining to
the manufacture, distribution, sale or human research of such
Product which are not required to be the subject of a License;
(C) the Company is in full compliance with all applicable
requirements (as set forth in relevant statutes and
regulations) regarding registration, licensure or notification
for each site in any country at which such Product is
manufactured, processed,
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packed, held for distribution or from which it is
distributed; and
(D) to the extent such Product is intended for export from the
United States, the Company is in full compliance with either
all United States Food and Drug Administration ("FDA")
requirements for marketing or 21 U.S.C. 381(e) or 382;
(ii) all manufacturing operations performed by the Company have been
and are being conducted in full compliance with the current good manufacturing
practice, including but not limited to, the good manufacturing practice
regulations issued by FDA and counterpart requirements in the European Union and
other countries;
(iii) all nonclinical laboratory studies, as described in 21 C.F.R.
58.3(d), sponsored by the Company have been and are being conducted in full
compliance with the good laboratory practice regulations set forth in 21 C.F.R.
Part 58 and counterpart requirements in the European Union and other countries;
and
(iv) the Company is in full compliance with all reporting requirements
for all Licenses or plant registrations described in the preceding clauses
(b)(i)(A) and (b)(i)(C), including but not limited to the adverse event
reporting requirements for drugs in 21 C.F.R. Parts 312 and 314 and, for devices
in 21 C.F.R. Parts 812 and 803;
except, in the case of the preceding clauses (a), (b)(i)(A) through (b)(i)(D),
inclusive, (b)(ii), (b)(iii) and (b)(iv), for any such failures to obtain or
noncompliances which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Condition of the Company.
Without limiting the generality of the foregoing definition of "Licenses," such
definition shall specifically include, with respect to the United States, new
drug applications, product license applications, investigational new drug
applications, abbreviated new drug applications, premarket approval
applications, premarket notifications under Section 510(k) of the Federal Food,
Drug and Cosmetic Act, investigational device exemptions, and product export
applications issued by FDA, as well as registrations issued by the Drug
Enforcement Administration of the Department of Justice.
(c) Neither the Company nor any of its officers, employees or agents
has made any untrue statement of a material fact or fraudulent statement to FDA,
failed to disclose a fact required to be disclosed to FDA, made any statement,
or failed to make any statement, that would reasonably be expected to provide a
basis for FDA to invoke its policy respecting "Fraud, Untrue Statements of
Material Facts, Bribery and Illegal Gratuities" set forth in
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56 Fed. Reg. 46191 (September 10, 1991), and the execution and
delivery of this Agreement and the transfer of assets and
assumption of obligations contemplated hereby shall not cause any
previously made statement or disclosure to be untrue or
fraudulent, subject to required disclosure, or a basis for
invocation of such policy.
(d) The Company has provided or made available to Duramed all documents
in its possession concerning communications to or from FDA, or prepared by FDA,
which bear in any material respect on compliance by the Company with FDA
regulatory requirements.
Section 3.27 INTELLECTUAL PROPERTY. Section 3.27 of the Company
Disclosure Schedule sets forth a complete list of all Intellectual Property
rights owned by the Company which are material to the Condition of the Company.
Except to the extent that the inaccuracy of any of the following (or the
circumstances giving rise to such inaccuracy), individually or in the aggregate,
would not reasonably be expected to have a material adverse effect on the
Condition of the Company, and except as disclosed in Section 3.27 to the Company
Disclosure Statement:
(a) the Company owns, or is licensed or has the right to use (in each
case, free and clear of all liens, restrictions, or encumbrances), all
Intellectual Property used in or necessary for the conduct of its business as
currently conducted;
(b) to the knowledge of the Company, the use of any Intellectual
Property by the Company does not infringe on or otherwise violate the rights
of any person;
(c) to the knowledge of the Company, no product (or component thereof)
or process used, sold, manufactured or under development by and/or for, or
supplied to, the Company infringes or otherwise violates the Intellectual
Property of any other person or entity; and
(d) to the knowledge of the Company, no person or other entity is
challenging, infringing on or otherwise violating any right of the Company with
respect to any Intellectual Property owned by and/or licensed to the Company.
For purposes of this Agreement, "Intellectual Property" shall mean
trademarks, service marks, brand names, certification marks, trade dress,
assumed names, trade names and other indications of origin, the goodwill
associated with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not in any
jurisdiction; patents, applications for patents (including without limitation
divisions, continuations, continuations in part and renewal applications), and
any renewals, extensions or
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reissues thereof, in any jurisdiction; nonpublic information, trade secrets and
confidential information and rights in any jurisdiction to limit the use or
disclosure thereof by any person; writings and other works, whether
copyrightable or not in any jurisdiction; registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or extensions
thereof; and any similar intellectual property or proprietary rights.
Section 3.28 DISCLOSURE. No representation or warranty contained in
this Agreement or the Company Disclosure Schedule, and no statement,
certificate, schedule, list or other information, furnished to or to be
furnished by or on behalf of the Company to Duramed in connection with this
Agreement, contains or will contain any untrue statement of a material fact, or
omits to state or will omit to state a material fact necessary in order to make
the statements herein or therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF DURAMED
Duramed represents and warrants to the Company as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Duramed is a corporation
duly incorporated and organized, validly existing and in good standing under the
laws of the State of Delaware. All of the Duramed Subsidiaries are corporations
duly incorporated and organized, validly existing and in good standing (or their
status is active) under the laws of their jurisdictions of incorporation.
Duramed and the Duramed Subsidiaries have the requisite corporate power to
conduct their businesses as they are currently being conducted and are duly
qualified as foreign corporations to do business in the respective jurisdictions
where the character of their properties owned or leased or the nature of their
activities makes such qualification necessary, except to the extent that lack of
such qualification would not have a material adverse effect on the Condition of
Duramed and the Duramed Subsidiaries taken as a whole.
Section 4.2 CAPITALIZATION. The authorized capital stock of Duramed
consists of Fifty Million shares of Duramed Common Stock, par value $.01 per
share, and Five Hundred Thousand shares of Preferred Stock, par value $.001 per
share ("Duramed Preferred Stock"), of which One Hundred Thousand (100,000)
shares have been designated as Series A Preferred Stock, Seventy-Four Thousand
Six Hundred Fifty-Nine (74,659) shares have been designated as Series B
Non-Voting Convertible Preferred Stock and Two Hundred Fifty Thousand (250,000)
shares have been designated as 8% Cumulative Convertible Preferred Stock, Series
C ("Series C Preferred
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Stock"). As of April 3, 1996, Nine Million, Nine Hundred Twenty-Nine Thousand,
Four Hundred Seventy-Four (9,929,474) shares of Duramed Common Stock, Thirty-Two
Thousand, Five Hundred Twenty-nine (32,529) shares of Series B Non-Voting
Convertible Preferred Stock and Sixty-Five Thousand (65,000) shares of Series C
Preferred Stock were issued and outstanding. No shares of Series A Preferred
Stock were issued and outstanding. No shares of Duramed Common Stock were held
in treasury. All of the issued and outstanding shares of capital stock of
Duramed are validly issued, fully paid and nonassessable and are not subject to,
nor were they issued in violation of, any preemptive rights. The parties
acknowledge that Duramed may from time to time from the date of execution hereof
until the Closing Date issue shares of one or more classes of its capital stock,
and that nothing in this Agreement shall restrict Duramed's rights to so issue
stock. All of the outstanding shares of capital stock of each of the Duramed
Subsidiaries have been validly issued and are fully paid and nonassessable and
are beneficially owned by either Duramed or one of the Duramed Subsidiaries free
and clear of all liens, charges, claims or encumbrances. Except as set forth
herein or in Section 4.2 of the Duramed Disclosure Schedule, there are no
outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock of any of the Duramed Subsidiaries or
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock, or otherwise obligating any such
subsidiary to issue, transfer or sell any such capital stock or other
securities. Except as set forth in Section 4.2 of the Duramed Disclosure
Schedule, there are no voting trusts or other agreements or understandings to
which Duramed is a party with respect to the voting of the capital stock of
Duramed. All shares of Duramed Common Stock issued pursuant to the terms of this
Agreement will be duly authorized, fully paid and nonassessable and not subject
to or issued in violation of any preemptive rights.
Section 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Duramed has the
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of Duramed and no
other corporate proceedings on the part of Duramed are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Duramed and (assuming this Agreement
is a valid and binding obligation of the other parties hereto) constitutes a
valid and binding agreement of Duramed enforceable against Duramed in accordance
with its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other similar
laws now or hereafter in effect relating to
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creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
Section 4.4 NO VIOLATION. Except as set forth in Section 4.4 of the
Duramed Disclosure Schedule, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Certificate of
Incorporation or the By-laws of Duramed or any of the Duramed Subsidiaries or
(ii) violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Duramed or any of
the Duramed Subsidiaries under any of the terms, conditions or provisions of any
credit agreement, note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Duramed or any of
the Duramed Subsidiaries is a party or to which they or any of their respective
properties or assets may be subject, other than, in the case of clause (ii),
breaches, conflicts or violations that would not have a material adverse effect
on the Condition of Duramed and the Duramed Subsidiaries taken as a whole.
Except as set forth in Section 4.4 of the Duramed Disclosure Schedule, (i) other
than in connection with, or in compliance with, the provisions of the DGCL, the
New Jersey Business Corporation Act, the Securities Act (as applicable to the
registration of Duramed Common Stock and Warrants pursuant to Section 2.3
hereof), the Exchange Act and any applicable state securities laws, the
consummation by Duramed of the transactions contemplated hereby will not require
the consent or approval of any other party to any of the above or affect the
validity or effectiveness of any of the above except for consents or approvals,
the failure to obtain which would not, in the aggregate, have a material adverse
effect on the Condition of Duramed and the Duramed Subsidiaries taken as a whole
and (ii) the execution, delivery and performance by Duramed of this Agreement
and the consummation by Duramed of the transactions contemplated hereby will not
constitute a breach or violation of or default under any law, rule or regulation
or any judgment, decree, order, governmental permit or license to which Duramed
or any of the Duramed Subsidiaries is subject. Neither Duramed nor any of the
Duramed Subsidiaries is subject to, or a party to, any charter, bylaw, mortgage,
lien, lease, license, permit, agreement, contract, instrument, law, rule,
ordinance, regulation, order, judgment or decree, or other restriction of any
kind or character, that materially adversely affects the business practices,
operations or Condition of Duramed or any of its assets or property (other than
such items generally affecting
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the industry in which Duramed or any of the Duramed Subsidiaries operate) or
that would prevent the continued operation of Duramed's or any of the Duramed
Subsidiaries' business after the date hereof on substantially the same basis as
heretofore operated.
Section 4.5 COMMISSION REPORTS AND FINANCIAL STATEMENTS. Duramed has
previously delivered to the Company true and complete copies of Duramed's (i)
Annual Report on Form 10-K for the year ended December 31, 1995, as filed with
the Commission on April 1, 1996; and (ii) all other reports, proxy statements
and registration statements (including Current Reports on Form 8-K) filed by it
with the Commission since January 1, 1996 (collectively, the "Duramed SEC
Filings"). As of their respective dates, the Duramed SEC Filings did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of Duramed and the Duramed Subsidiaries included in the
Duramed SEC Filings present fairly the financial position, results of operations
and cash flows of Duramed and the Duramed Subsidiaries as at the dates or for
the periods indicated therein in conformity with GAAP.
Section 4.6 PROXY STATEMENT/PROSPECTUS. When the Proxy
Statement/Prospectus shall first be mailed to the stockholders of the Company,
and at all times subsequent thereto up to and including the Closing, the
information with respect to Duramed and the Duramed Subsidiaries set forth in
the Proxy Statement/Prospectus will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements contained therein not misleading. If, at any
time prior to the Closing, any event relating to Duramed or the Duramed
Subsidiaries shall occur which should be disclosed in the Proxy
Statement/Prospectus and which is not so disclosed, Duramed shall promptly so
inform the Company.
Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
or referred to in the Duramed SEC Filings (including the financial statements
and footnotes thereto), since December 31, 1995, each of Duramed and the Duramed
Subsidiaries has conducted its business only in the ordinary and usual course
and there has not occurred any material adverse change in the Condition of
Duramed and the Duramed Subsidiaries taken as a whole.
Section 4.8 NO UNDISCLOSED LIABILITIES. Except as set forth or referred
to in the Duramed SEC Filings (including the financial statements and footnotes
thereto), neither Duramed nor the Duramed Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) that in the
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aggregate have or may reasonably be expected to have a material adverse effect
on the Condition of Duramed and the Duramed Subsidiaries taken as a whole.
Section 4.9 TAXES AND TAX RETURNS. Duramed and each of the Duramed
Subsidiaries (collectively, the "Duramed Group") has timely filed or been
included in all tax returns, declarations, reports, estimates, information
returns, statements and other returns, the non-filing of which would have a
material adverse effect on the Condition of Duramed (collectively, the "Duramed
Returns") relating to Duramed Taxes (as defined below) required to be filed
under U.S. federal, state, local or any foreign laws (taking into account any
extensions of time for filing such Duramed Returns) with respect to all Duramed
Taxes for all years and periods (or portions thereof) for which any such Duramed
Returns were due. All such Duramed Returns were in all material respects true,
complete and correct with respect to all Duramed Taxes. Except as set forth in
Section 4.9 of the Duramed Disclosure Schedule, neither Duramed or any of the
Duramed Subsidiaries is currently the beneficiary of any extension of time
within which to file any Duramed Return. Except as set forth in Section 4.9 of
the Duramed Disclosure Schedule, the Duramed Group has paid or made provision
for (by a tax accrual or tax reserve on the most recent balance sheets of the
Duramed Group contained in the Duramed SEC Filings, which accruals or reserves
have been recorded in accordance with GAAP), all Duramed Taxes (except for such
Duramed Taxes which if not so paid or provided for would not, in the aggregate,
have a Material Adverse Effect on the Condition of Duramed and the Duramed
Subsidiaries taken as a whole) in respect of all taxable periods or portions
thereof ending on or before the date of such balance sheets. Except as set forth
in Section 4.9 of the Duramed Disclosure Schedule, (a) any Duramed Taxes
incurred or accrued since such date have arisen in the ordinary course of
business, (b) there are no material liens for Duramed Taxes upon the assets of
Duramed or any of the Duramed Subsidiaries except liens for Duramed Taxes not
yet due, (b) the Duramed Group is not delinquent in the payment of any federal
income or other Duramed Taxes and (c) there are no outstanding deficiencies,
assessments, or written proposals for assessment of federal income or other
Duramed Taxes proposed, asserted or assessed against the Duramed Group, or
agreements extending the period of assessment or collection of any Duramed
Taxes. Each of Duramed and the Duramed Subsidiaries has withheld and paid all
Duramed Taxes required to be withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor, stockholder or other
third party. Duramed has filed a return for federal income tax purposes on
behalf of itself and the Duramed Subsidiaries for periods up to and including
December 31, 1994 as a common parent corporation of an "affiliated group"
(within the meaning of Section 1504(a) of the Code), of which such subsidiaries
are "includable corporations" (within the meaning of Section 1504(b) of the
Code). Except as set forth in Section 4.9
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of the Duramed Disclosure Schedule, the statute of limitations for the
assessment of federal income taxes has expired for all federal income tax
returns of Duramed and the Duramed Subsidiaries, and no federal income tax
return of Duramed and the Duramed Subsidiaries has been examined by the Internal
Revenue Service. Except as set forth in Section 4.9 of the Duramed Disclosure
Schedule, no federal, state, local or foreign audits or other administrative
proceedings or court proceedings which are material to the Condition of the
Duramed Group are presently pending with regard to any Duramed Taxes or Duramed
Returns. As used herein, "Duramed Taxes" mean (A) all net income, gross income,
gross receipts, sales, use, transfer, franchise, profits, withholding, payroll,
employment, excise, severance, property or windfall profits taxes, or other
taxes of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign) upon Duramed or any of the Duramed Subsidiaries or their properties
with respect to all periods or portions thereof ending on or before the Closing
Date and/or (B) any liability of Duramed or any of the Duramed Subsidiaries for
the payment of any amounts of the type described in the immediately preceding
clause (A) as a result of being a member of an affiliated or combined group
other than the Duramed Group.
Section 4.10 LITIGATION. Except as set forth or referred to in the
Duramed SEC Filings (including the financial statements and footnotes thereto),
there are no actions, suits, claims, investigations or proceedings pending or,
to the knowledge of Duramed, threatened against, relating to, involving or
otherwise affecting Duramed or any of the Duramed Subsidiaries before any court,
governmental agency, commission, or administrative or regulatory authority
which, in the aggregate, may reasonably be expected to have a material adverse
effect on the Condition of Duramed and the Duramed Subsidiaries taken as a
whole. Neither Duramed nor any Duramed Subsidiary is subject to any order,
judgment, injunction or decree that has or will have a material adverse effect
on the Condition of Duramed and the Duramed Subsidiaries taken as a whole nor,
to the Duramed's knowledge, is any such action, suit, claim, investigation or
proceeding reasonably foreseeable.
Section 4.11 COMPLIANCE WITH LAWS. Except as set forth or referred to
in the Duramed SEC Filings (including the financial statements and footnotes
thereto), neither Duramed nor any Duramed Subsidiary is in violation (or with or
without notice or lapse of time or both, would be in violation) of any term or
provision of any law or any writ, judgment, decree, injunction or similar order
applicable to Duramed or any Duramed Subsidiary or any of its respective assets
or properties, the result of which violations in the aggregate has or may
reasonably be expected to have a material adverse effect on the Condition of
Duramed and the Duramed Subsidiaries taken as a whole. Except as set forth or
referred to in the Duramed SEC Filings (including the
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financial statements and footnotes thereto), Duramed and each of the Duramed
Subsidiaries have and are in substantial compliance with all material permits,
licenses, orders and approvals of all federal, state, local or foreign
governmental or regulatory bodies required for them to carry out their
businesses as presently conducted except as would not have a materially adverse
effect on Duramed and the Duramed Subsidiaries taken as a whole. All such
permits, licenses, orders and approvals are in full force and effect, and no
suspension or cancellation, nor any proposed adverse modification of any of them
is pending or, to the knowledge of Duramed, threatened except as would not have
a material adverse effect on Duramed and the Duramed Subsidiaries taken as a
whole.
Section 4.12 EMPLOYEE BENEFIT PLANS, EMPLOYMENT AND RELATED AGREEMENTS.
(a) Each employee benefit plan, as defined in Section 3(3) of ERISA, maintained
currently or in the past by Duramed or any of the Duramed Subsidiaries ("Duramed
Benefit Plans") has been operated and administered in all material respects in
accordance with all applicable requirements of ERISA and the Code. The terms and
conditions of each Duramed Benefit Plan conform in all material respects with
all applicable provisions of ERISA and the Code. Each Duramed Benefit Plan which
is an employee pension benefit plan, as defined in Section 3(2) of ERISA, and
which is intended to be "qualified" within the meaning of Section 401(a) of the
Code ("Duramed Pension Plan"), has been determined by the Internal Revenue
Service to be so qualified. Duramed has no knowledge of any action or claim of
any kind (other than routine claims for benefits) that has been asserted or
threatened against any Duramed Pension Plan, or the assets thereof, or against
any fiduciary of such a Plan; and the Duramed has no knowledge of any
investigation or administrative review of a Duramed Pension Plan which could
result in the imposition of any penalty or assessment.
(b) None of the Duramed Pension Plans which is subject to
Title IV of ERISA has completely or partially terminated, or been the subject of
a reportable event as defined in Section 4043 of ERISA. No liability under
Subtitle D of Title IV of ERISA has been incurred by Duramed or any of the
Duramed Subsidiaries with respect to a Duramed Pension Plan.
(c) The actuarial present value of the total accrued benefits
under each Duramed Pension Plan which is a defined benefit pension plan did not,
as of its latest valuation date, exceed the fair market value of the total
assets of the Plan, based upon the actuarial assumptions and methods used to
fund the Plan and determined on an ongoing basis. No Duramed Pension Plan has
incurred any accumulated funding deficiency (whether or not waived) as defined
in Section 412 of the Code.
(d) Except as set forth in Section 4.12 of the Duramed
Disclosure Schedule, there are no multi-employer plans, as
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defined in Section 4001(a)(3) of ERISA, to which Duramed or any of the Duramed
Subsidiaries contributes, or under which Duramed or any of the Duramed
Subsidiaries has any present or future obligation or liability.
(e) No Duramed Benefit Plan provides health, life or other
similar coverage to employees beyond the termination of their employment with
the Duramed, other than coverage that is required under Section 4980B of the
Code, or under the continuation of coverage provisions of the laws of any state.
(f) No Duramed Benefit Plan is funded by, or associated with,
a "voluntary employees' beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(g) Duramed has filed or caused to be filed on a timely basis
all returns, reports (including Form 5500), statements, notices, declarations
and other documents required by any federal, state, local or foreign
governmental agency (including without limitation the Internal Revenue Service,
the Department of Labor, the Pension Benefit Guaranty Corporation and the
Commission) with respect to each Duramed Benefit Plan. Duramed has delivered or
caused to be delivered to every participant, beneficiary and every other party
entitled to such material all plan descriptions, returns, reports, notices,
statements and similar materials including, without limitation, summary plan
descriptions and reports as are required under Title I of ERISA and the Code.
(h) The consummation of the transactions contemplated by this
Agreement will not increase nor accelerate the time of payment or vesting of any
compensation due to any current or former employee of the Duramed, or result in
the payment or series of payments by the Duramed to any person of an "excess
parachute payment" within the meaning of Section 280G of the Code.
Section 4.13 NO WARRANTY OF FDA APPROVAL. The parties hereby
acknowledge that Duramed makes no representation or warranty in connection with
this Agreement to any Person with respect to the likelihood of approval by FDA
of Duramed's conjugated estrogens product.
Section 4.14 DISCLOSURE. No representation or warranty contained in
this Agreement or the Duramed Disclosure Schedule, and no statement,
certificate, schedule, list or other information furnished or to be furnished by
or on behalf of Duramed to Company in connection with this Agreement, contains
or will contain any untrue statement of a material fact, or omits to state or
will omit to state a material fact necessary in order to make the statements
herein or therein not misleading.
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ARTICLE 5
CERTAIN COVENANTS
Section 5.1 CONDUCT OF BUSINESS PENDING THE CLOSING. The Company
covenants and agrees that, prior to the Closing, unless Duramed shall otherwise
agree in writing or as otherwise expressly permitted or contemplated by this
Agreement:
(a) The Company shall not (i) intentionally make any material
change in its operations, (ii) purchase any significant property or assets other
than in the ordinary course of business, (iii) sell, transfer or otherwise
intentionally dispose of any significant properties or assets which would result
in the Company owning in the aggregate an amount of properties and assets less
than the aggregate amount of properties and assets owned by the Company on the
date hereof, except for decreases in such aggregate amount due solely to market
conditions, (iv) form any subsidiary, or (v) intentionally take any action which
would make any of its representations and warranties incorrect in any material
respect as of the Closing.
(b) The Company shall not (i) amend its Certificate of
Incorporation or By-laws, (ii) issue or sell any shares of, or rights of any
kind to acquire any shares of or to receive any payment based on the value of,
its capital stock or any securities convertible into shares of any such capital
stock (including, without limitation, any further stock options or stock
appreciation rights), except upon the exercise of presently outstanding options
or rights to acquire shares of Company Common Stock, in each case in accordance
with their present terms, (iii) increase the amount of Company Debt outstanding,
(iv) otherwise incur any material indebtedness other than in the ordinary course
of business or in furtherance of its obligations under this Agreement, (v)
acquire, directly or indirectly, by redemption or otherwise, any shares of its
capital stock or (vi) modify any existing contract, agreement, commitment or
arrangement with respect to any of the foregoing.
(c) The Company shall use all reasonable efforts to conduct
its business only in the ordinary course and consistent with past practice, to
preserve intact its business organization, to keep available the services of its
current officers and key employees, and to preserve the goodwill of those having
business relationships with it.
(d) The Company shall not (i) increase in any manner the
compensation of any of its executive officers except pursuant to binding
obligations in existence on the date hereof, (ii) increase in any manner the
compensation of any of its other officers or employees, except pursuant to
binding obligations in existence on the date hereof or except in the ordinary
course of business and, in the case of such officers and employees whose
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present annual compensation exceeds Fifty Thousand Dollars ($50,000), after
consultation with Duramed, or pursuant to the terms of agreements or plans as
currently in effect, (iii) pay or agree to pay any pension, retirement allowance
or other employee benefit not required by any existing plan, agreement or
arrangement to any director, officer or key employee, whether past or present,
(iv) except as required by the terms of any existing plan, agreement or
arrangement, adopt or commit itself to or enter into any additional pension,
profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement or
other employee benefit plan, agreement or arrangement, or to any employment or
consulting agreement with or for the benefit of any director, officer or
employee, whether past or present, (v) amend any such plan, agreement or
arrangement, (vi) enter into any collective bargaining agreement, or (vii) enter
into or modify any employment agreement or agreement with a Related Party.
(e) Other than in the ordinary course of business and
consistent with past practice the Company shall not make any capital
expenditures or commitments for capital expenditures.
(f) The Company shall not agree, in writing or otherwise, to
take any of the actions prohibited by the foregoing clauses (a) through (e).
Section 5.2 REASONABLE EFFORTS. Upon the terms and subject to the
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take or cause to be taken all actions, and to do or cause
to be done, and to assist and cooperate with the other parties hereto in doing,
all things necessary, proper or advisable under applicable laws and regulations
to satisfy the conditions set forth in Article 6 hereof and otherwise to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement, including, but not limited to, (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from all appropriate regulatory agencies or authorities and the making
of all necessary registrations and filings, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, and (iii) the defending of
any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby.
Section 5.3 ACCESS AND INFORMATION. Each of the parties hereto shall
(and shall cause each of its subsidiaries, if any, to) afford to the other
party's accountants, counsel and other representatives full access during normal
business hours through the period prior to the Closing to all of its properties,
books, contracts, commitments and records (including, but not limited to, tax
returns) and, during such period, the Company shall
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furnish promptly to Duramed, and Duramed shall furnish promptly to the Company,
(i) a copy of each report, schedule and other document filed or received by it
pursuant to the requirement of Federal or state securities laws and (ii) all
other information concerning its business, properties and personnel as Duramed
or the Company may reasonably request; provided, however, that no investigation
pursuant to this Section 5.3 shall affect any representations or warranties or
the conditions to the obligations of a party to consummate the transactions
contemplated hereby.
Section 5.4 NOTICE OF ACTIONS AND PROCEEDINGS. The
Company shall promptly notify Duramed, and Duramed shall promptly
notify the Company, of any actions, suits, claims,
investigations, or proceedings commenced or, to the best of its
knowledge, threatened against, relating to or involving or
otherwise affecting the Company or Duramed or any of the Duramed
Subsidiaries, as the case may be, which, if pending on the date
hereof, would have been required to have been disclosed in
writing pursuant to Section 3.21 or Section 4.10 hereof or which
relate to the consummation of the transactions contemplated
hereby.
Section 5.5 NOTIFICATION OF CERTAIN OTHER MATTERS.
(a) The Company shall promptly notify Duramed of:
(i) any notice or other communication received by
Company with respect to the existence of a default or an event which, with
notice or lapse of time or both, would become a default, under any material
agreement to which the Company is a party or to which the Company or any of its
properties or assets may be subject or bound;
(ii) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any
governmental or regulatory agency or authority in connection with
the transactions contemplated hereby; and
(iv) any material adverse change in the Condition
of the Company, or the occurrence of an event or development which is reasonably
likely to result in any such change.
(b) Duramed shall promptly notify the Company of:
(i) any notice of, or other communication
received by Duramed with respect to the existence of a default or an event
which, with notice or lapse of time or both, would become a default, under any
material agreement to which Duramed
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or any Duramed Subsidiary is a party or to which Duramed or any Duramed
Subsidiary or any of its respective properties or assets may be subject or
bound;
(ii) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any
governmental or regulatory agency or authority in connection with
the transactions contemplated hereby; and
(iv) any material adverse change in the Condition
of Duramed and the Duramed Subsidiaries taken as a whole, or the occurrence of
an event or development which is reasonably likely to result in any such change.
Section 5.6 SUPPLEMENTAL DISCLOSURE. Each party hereto shall have the
continuing obligation promptly to supplement or amend its Disclosure Schedule
with respect to any matter hereafter arising or discovered which, if existing or
known at the date hereof, would have been required to be set forth or described
in its Disclosure Schedule; provided, however, that for the purpose of the
rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not be deemed to have been disclosed as of the date
hereof unless so agreed to in writing by the other party.
Section 5.7 CONFIDENTIALITY. Except as may be required by law, each
party hereto (and its officers, directors, employees, agents, attorneys,
accountants and other representatives) shall maintain in strict confidence and
not disclose to any other person or entity any information, obtained pursuant to
this Agreement, with respect to another party to this Agreement, its
subsidiaries or affiliates or their officers, directors or employees. This
restriction shall not apply to (i) information contained in the public domain;
(ii) information in the possession of a party prior to the date of this
Agreement, without restriction as to use or disclosure; (iii) information
obtained from a third party who was lawfully in possession of it under no duty
of secrecy; and (iv) any disclosure compelled by any judicial or administrative
order.
Section 5.8 OTHER POTENTIAL BIDDERS. The Company may, directly or
indirectly, furnish information and access, but in each case only in response to
requests therefor which are not solicited by the Company after the date hereof
to any corporation, partnership, person or other entity or group making such a
request (a "Potential Bidder") pursuant to appropriate confidentiality
agreements therewith, and may participate in discussions and negotiate with any
such Potential Bidder concerning any merger, sale of a substantial portion of
the
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assets, purchase or sale of shares of capital stock or similar transaction
involving the Company (a "Transaction") if the Board of Directors of the Company
or a special committee thereof determines in its good faith judgment that such
action is appropriate in furtherance of the best interests of the Company's
shareholders; PROVIDED, HOWEVER, that the Company shall not enter into any
definitive agreement providing for a Transaction with a Potential Bidder prior
to the termination of this Agreement in accordance with its terms. The Company's
contacts with Potential Bidders other than Duramed and its affiliates and
associates concerning any Transaction shall be limited to those actions
permitted by this Section 5.8.
Section 5.9 REQUIRED CONSENTS. The Company and Duramed shall, prior to
or at the Closing, use all reasonable efforts to obtain all consents of third
parties, governmental entities and others necessary to effect the transfer to
Duramed at the Closing of the assets described in Section 1.1 hereof, free and
clear of all liens and encumbrances of any kind whatsoever, except liens and
encumbrances arising under obligations of the Company being assumed by Duramed
at the Closing; or to assign to Duramed or obtain for Duramed the benefit of
those contracts, leases and permits described in Section 1.1 hereof which are
non-assignable or which require consent to assignment.
Section 5.10 INSURANCE. Duramed shall use all reasonable efforts, at or
as soon as practicable after the Closing, to cause the policies of bioclinical
insurance and products liability insurance disclosed on Section 3.16 of the
Company Disclosure Schedule and transferred to Duramed pursuant to Section 1.1
hereof, or any insurance policies carried by Duramed in lieu thereof, to be
amended to name the Company as an additional insured, for a period of no less
than three (3) years following the Closing.
Section 5.11 GUARANTEES. Duramed shall use all reasonable efforts to
obtain the release of the personal guarantees executed by Vish Raju and Raju
Rudaraju in connection with the Company's lease of certain computer equipment
from ADP Leasing pursuant to Lease #21658 dated April 14, 1995, and shall
indemnify such guarantors from and against all claims made pursuant to such
guarantees in the event such releases are not obtained.
ARTICLE 6
CONDITIONS
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective
obligations of each party to conclude the transactions set forth herein shall be
subject to the fulfillment at or prior to the Closing of the following
conditions:
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(a) This Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the shareholders
of the Company in accordance with applicable law and the Certificate of
Incorporation and By-Laws of the Company and, with respect to such approval, a
majority of the votes cast by shareholders other than Duramed or any Duramed
Subsidiary who actually vote on the Agreement shall have been voted in favor of
the Agreement.
(b) No preliminary or permanent injunction or other order,
decree or ruling issued by any court of competent jurisdiction nor any statute,
rule, regulation or order entered, promulgated or enacted by any governmental,
regulatory or administrative agency or authority shall be in effect which would
prevent the consummation of the transactions contemplated hereby, and no action,
suit, claim or proceeding brought by a governmental authority before any
domestic court, governmental commission or administrative or regulatory
authority shall have been commenced and be pending which seeks to restrain,
prevent, or materially delay or restructure the transactions contemplated hereby
or which otherwise questions the validity or legality of any such transactions.
(c) All filings required to be made prior to the Closing with,
and all consents, approvals, permits and authorizations required to be obtained
prior to the Closing from, governmental and regulatory authorities and other
third parties in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by Duramed and the
Company shall have been made or obtained (as the case may be) without
restrictions.
(d) Duramed and HLA shall have entered into the Asset Purchase
Agreement contemplated by Section 2.4 hereof and consummated the transaction
contemplated thereby.
(e) Duramed, the Company and the Escrow Agent shall have
entered into the Escrow Agreement.
(f) The Registration Statement shall have been declared
effective by the Commission and there shall have been no stop order issued or
threatened by the Commission suspending the effectiveness of the Registration
Statement, and the Duramed Common Shares and Warrants to be issued hereunder
shall have been registered or exempted from registration in each state in which
such registration or exemption is required.
Section 6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to conclude the transactions described herein shall be subject to
the fulfillment at or prior to the Closing of the following additional
conditions, unless expressly waived by the Company:
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(a) Duramed shall have performed and complied in all material
respects with all obligations and agreements required to be performed and
complied with by it under this Agreement at or prior to the Closing and the
representations and warranties of Duramed contained in this Agreement shall be
true and correct in all material respects at and as of the Closing as if made at
and as of such date, except as otherwise contemplated or permitted by this
Agreement, and the Company shall have received a Certificate of the President or
a Vice President of Duramed as to the satisfaction of this condition.
(b) The Company shall have received an opinion of Taft,
Stettinius & Hollister, or other counsel to Duramed reasonably satisfactory to
the Company, dated as of the date of the Closing and in form and substance
reasonably satisfactory to the Company, substantially to the effect that:
(1) Duramed has been incorporated and is in good
standing under the laws of its state of incorporation.
(2) Duramed has the corporate power and
corporate authority to enter into this Agreement and consummate the
transactions provided for herein. The execution and delivery of this
Agreement by Duramed, and the consummation by Duramed of the transactions
provided for herein, have been duly authorized by requisite corporate action on
the part of Duramed. This Agreement has been executed and delivered by Duramed
and (assuming this Agreement is a valid and binding obligation of the Company)
is a valid and binding obligation of Duramed enforceable against Duramed in
accordance with its terms, except (A) that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (B) that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(3) The execution, delivery and performance at
the Closing Date by Duramed of this Agreement will not (A) conflict with or
result in a breach of any provision of the Certificate of Incorporation or
By-laws of Duramed (B) result in, constitute a violation of or a default under,
or cause the creation of any security interest or lien upon any of the
properties or assets of Duramed or any of the Duramed Subsidiaries pursuant to,
or cause the acceleration of the maturity of any debt or obligation of Duramed
or any of the Duramed Subsidiaries pursuant to, any agreement to which Duramed
or any of the Duramed Subsidiaries is subject and of which such counsel is
specifically aware or (C) insofar as is actually known to such counsel, violate
any law, rule or regulation or any judgment, decree, order, governmental permit
or license to which Duramed is subject.
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(4) To the best knowledge of such counsel,
neither the execution and delivery by Duramed of this Agreement nor the
consummation by Duramed of the transactions contemplated hereby, nor compliance
by Duramed with any of the provisions hereof will require, except for the
applicable requirements of the Securities Act, the Exchange Act and applicable
state securities laws, any consent, approval or authorization of, or notice to,
or declaration, filing or registration with, any governmental or regulatory
authority.
(5) No facts have come to the attention of such
counsel which have led such counsel to believe that (except for the financial
statements and other financial or statistical information contained therein or
the information concerning the Company as to which such counsel expresses no
opinion), at the respective times the Proxy Statement/Prospectus or any
amendments or supplements thereto were mailed to the shareholders of the Company
or at the time of the meeting of the Company's shareholders referred to in
Section 2.1 hereof, the Proxy Statement/Prospectus contained any untrue
statement of a material fact or omitted 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.
(6) [The opinion shall set forth the authorized
and outstanding capitalization of Duramed, including shares held in treasury and
reserved for issuance upon the exercise of options and warrants and the
conversion of notes and preferred shares.]
(7) All shares of Duramed Common Stock to be
issued pursuant to the terms of this Agreement have been duly authorized, and,
when issued, will be fully paid and nonassessable and will not be subject to,
nor will they be issued in violation of, any preemptive rights.
As to any matter contained in such opinion which involves the laws of
any jurisdiction other than the federal laws of the United States or the DGCL,
such counsel may rely upon opinions of counsel, reasonably acceptable to the
Company, admitted to practice in such other jurisdictions. Any opinions relied
upon by such counsel as aforesaid shall be delivered together with the opinion
of such counsel, which shall state that the Company's and such counsel's
reliance thereon is justified. Such opinion may expressly rely as to matters of
fact upon certificates furnished by appropriate officers and directors of
Duramed and the Duramed Subsidiaries and by public officials, and may contain
such limitations as may be reasonable and approved by the Company and its
counsel.
Section 6.3 CONDITIONS TO OBLIGATIONS OF DURAMED. The obligations of
Duramed to conclude the transactions described herein shall be subject to the
fulfillment at or prior to the
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Closing of the following additional conditions unless expressly waived in
writing by Duramed:
(a) The Company shall have performed or complied in all
material respects with all obligations and agreements required to be performed
or complied with by it under this Agreement at or prior to the Closing and the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects at and as of the Closing as if made
at and as of such date, except as otherwise contemplated or permitted by this
Agreement, and Duramed shall have received a Certificate of the Chairman of the
Board, the President or a Vice President of the Company as to the satisfaction
of this condition.
(b) All consents, approvals and waivers from third parties
required (i) to consummate the transactions contemplated hereby; (ii) to vest in
Duramed good and valid title to the assets described in Section 1.1 hereof (iii)
to assign to Duramed those contracts, leases, permits and other assets which are
non-assignable or which require consent to assignment and (iv) to assign to
Duramed any material governmental permits required to operate the Business in
substantially the same manner in which it has been operated prior to the Closing
shall have been obtained by the Company, or such contracts, leases or permits
shall have been reissued to Duramed.
(c) Duramed shall have received an opinion of Hogan & Hartson,
or other counsel to the Company reasonably satisfactory to Duramed, dated as of
the Closing Date and in form and substance reasonably satisfactory to Duramed,
substantially to the effect that:
(1) The Company has been incorporated and is in
good standing as a corporation under the laws of New Jersey.
(2) The Company has the corporate power and
corporate authority to enter into this Agreement and consummate the transactions
provided for herein. The execution and delivery of this Agreement by the
Company, and the consummation by the Company of the transactions provided for
herein, have been duly authorized by all requisite corporate action on the part
of the Company. This Agreement has been executed and delivered by the Company
and (assuming this Agreement is a valid and binding obligation of Duramed) is a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except (A) that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (B) that the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
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discretion of the court before which any proceeding therefor may
be brought.
(3) The execution, delivery and performance at
the Closing Date by the Company of this Agreement will not (A) conflict with or
result in a breach of any provision of the Certificate of Incorporation or
By-laws of the Company, (B) result in, constitute a violation of or a default
under, or cause the creation of any security interest or lien upon any of the
properties or assets of the Company pursuant to, or cause the acceleration of
the maturity of any debt or obligation of the Company pursuant to, any
agreement, instrument, order, judgment, decree, governmental permit or license
to which the Company is subject which is listed on an attached schedule, which
schedule shall be reasonably acceptable to Duramed, or (C) insofar as is
actually known to such counsel, violate any law, rule or regulation which is
listed on an attached schedule, which schedule shall be reasonably acceptable to
Duramed.
(4) To the best knowledge of such counsel,
neither the execution and delivery by the Company of this Agreement nor the
consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will require, except
for the applicable requirements of the Securities Act, the Exchange Act and
applicable state securities laws, consent, approval or authorization of, or
notice to, or declaration, filing or registration with, any governmental or
regulatory authority, listed on an attached schedule, which schedule shall be
reasonably acceptable to Duramed.
(5) No facts have come to the attention of such
counsel in the course of its representation of the Company, without any special
investigation, which have led such counsel to believe that (except for the
financial statements and other financial or statistical information contained
therein or the information concerning Duramed, or as set forth on the Company
Disclosure Schedule, as to which such counsel expresses no opinion), at the
respective times the Proxy Statement/Prospectus or any amendments or supplements
thereto were mailed to the shareholders of the Company, or at the time of the
meeting of the Company's shareholders referred to in Section 2.2 hereof, or as
of the Closing Date, the sections of the Proxy Statement/Prospectus related to
the Company and listed in an attached schedule (which schedule shall be
reasonably acceptable to Duramed) contained any untrue statement of a material
fact or omitted 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.
(6) The authorized capital stock of the Company
consists of Ten Million shares of Company Common Stock. As of
__________________, 1996, _______________ shares of Company
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Common Stock are issued and outstanding, and no shares of Company Common Stock
are held in treasury. All of the issued and outstanding shares of capital stock
of the Company are validly issued and fully paid and non-assessable and are not
subject to, nor were they issued in violation of, to such counsel's knowledge,
any preemptive rights.
As to any matter contained in such opinion which
involves the laws of any jurisdiction other than the federal laws of the United
States or the DGCL, such counsel may rely upon opinions of counsel, reasonably
acceptable to Duramed, admitted to practice in such other jurisdictions. Any
opinions relied upon by such counsel as aforesaid shall be delivered together
with the opinion of such counsel, which shall state that Duramed's and such
counsel's reliance thereon is justified. Such opinion may expressly rely as to
matters of fact upon certificates furnished by appropriate officers and
directors of the Company and by public officials, and may contain such
limitations as may be reasonable and are approved by Duramed and its counsel.
(d) If the Proxy Statement/Prospectus prepared in connection
with the transactions contemplated hereby shall contain any unaudited interim
financial statements of the Company, or any pro forma financial statements
prepared in part with data from such unaudited interim financial statements,
Duramed shall have received, if requested, "comfort" letters from the Company's
independent certified public accountants, dated (i) the effective date of the
Registration Statement and (ii) the Closing, in each case substantially to the
effect that:
(i) They are a firm of independent public
accountants with respect to the Company within the meaning of the
Exchange Act;
(ii) In their opinion the audited financial
statements of the Company examined by them and included in the Proxy
Statement/Prospectus comply as to form in all material respects with the
applicable requirements of the Exchange Act;
(iii) On the basis of specified procedures (which
do not constitute an examination in accordance with generally accepted auditing
standards), consisting of a reading of the unaudited financial statements of the
Company included in such Proxy Statement/Prospectus and of the latest available
unaudited financial statements of the Company, inquiries of officers and a
reading of the minutes of meetings of shareholders and the Board of Directors of
the Company, nothing has come to their attention which causes them to believe:
(x) that the unaudited financial statements of the Company included in the Proxy
Statement/Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Exchange Act, (y) that any such
unaudited financial statements
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are not, or any unaudited financial statements of the Company from which pro
forma financial information set forth in the Proxy Statement/Prospectus has been
derived are not, fairly presented in all material respects in conformity with
GAAP and on a basis substantially consistent with that of the audited financial
statements or (z) that during the period from December 31, 1995 to a date five
days before the Closing, there was any change in the capital stock or any
increase in long term debt of the Company as compared to the amounts shown in
the balance sheet as of December 31, 1995 included in the audited financial
statements of the Company as of such date, or that during the period from the
date of such balance sheet to the most recent month-end for which financial
statements are available there was any material decrease in net assets or any
material decrease, as compared with the corresponding period in the preceding
year, in net income of the Company, except in all instances for changes or
decreases which are set forth in such letter.
(e) The Company shall have complied with all applicable
requirements of the Industrial Site Recovery Act, N.J. Stat. Ann. ss.13:K-6 et
seq. ("ISRA"), and Duramed shall have received evidence of such compliance
reasonably satisfactory to Duramed.
(f) The existing Employment Agreements between the Company and
the employees of the Company listed on Exhibit 6.2(c) shall be in full force and
effect and assigned to and assumed by Duramed, or, at Duramed's option, new
Employment Agreements between Duramed and such employees shall have been
executed in a form to be negotiated between Duramed and such employees prior to
the mailing of the Prospectus/Proxy Statement and shall be in full force and
effect, and all other employment agreements relating to employees of the Company
whom Duramed desires to hire shall have been terminated.
(g) In order to assure compliance with Rule 145(a)(3)(C)
promulgated under the Act, the Board of Directors of the Company shall have
adopted a plan providing for (i) the pro-rata or similar distribution of the
Purchase Consideration to the shareholders, optionholders, noteholders and
remaining creditors of the Company; or (ii) the dissolution of the Company.
ARTICLE 7
TERMINATION
Section 7.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing,
whether before or after approval of the transactions contemplated hereby by the
shareholders of the Company:
(a) by mutual consent of Duramed and the Company;
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(b) by either Duramed or the Company if there has been a
material breach of any representation, warranty, covenant or agreement on the
part of the other set forth in this Agreement which breach has not been cured
within ten (10) business days following receipt by the breaching party of notice
of such breach from the nonbreaching party; PROVIDED that, in the case of any
such breach that is susceptible of cure but that cannot with diligence be cured
within such ten (10) business day period, if the party in breach shall promptly
have commenced to cure the same and shall thereafter prosecute the curing
thereof with reasonable diligence, the period within which such breach may be
cured shall be extended for such further period as shall be necessary for the
curing thereof with reasonable diligence;
(c) by either Duramed or the Company if any permanent
injunction or other order of a court or other competent authority enjoining or
otherwise preventing the consummation of the transactions contemplated hereby
shall have become final and non-appealable;
(d) by either Duramed or the Company if the transactions
contemplated hereby shall not have been consummated before September 30, 1996;
(e) by either Duramed or the Company if the Required Company
Vote shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of shareholders or at any
adjournment thereof;
(f) by Duramed if the Board of Directors of the Company shall
or shall resolve to (i) not recommend, or withdraw its approval or
recommendation of this Agreement or any of the transactions contemplated hereby,
(ii) modify such approval or recommendation in a manner adverse to Duramed or
any of its affiliates or (iii) adopt a Third Party Resolution (as defined in
Section 7.1(g)); or
(g) by the Company if a corporation, partnership, person or
other entity or group (other than Duramed or any of its affiliates) (a "Third
Party") shall have made a bona fide proposal (a "Third-Party Proposal") to
acquire (by means of a tender or exchange offer, merger, consolidation, business
combination or otherwise) all or a substantial portion of the outstanding shares
of Company Common Stock or of the assets of the Company, taken as a whole, and
the Board of Directors of the Company adopts a resolution (a "Third-Party
Resolution") that states that the Board of Directors believes in good faith that
such a proposal is more favorable, from a financial point of view, to the
holders of Company Common Stock than the transactions contemplated hereby;
PROVIDED that the Company shall, prior to such termination, provide Duramed with
notice of the terms and conditions of such Third-Party Proposal and the identity
of such Third Party.
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Section 7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Duramed or the Company as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Duramed or the Company or their respective officers
or directors, except (x) with respect to Sections 5.8 and 7.3 and Article 8 and
(y) to the extent that such termination results from the willful and material
breach by a party hereto of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
Section 7.3 REPURCHASE OF CAPTOPRIL AND OTHER DRUGS RIGHTS. If this
Agreement is terminated by either party hereto in accordance with its terms,
except in the case of termination pursuant to Section 7.1(b) hereof by Duramed
due to a material and willful breach of this Agreement by the Company, the
Company shall have the right (but not the obligation) to repurchase from Duramed
all rights in and to the Company's Captopril and the drug(s) listed on Exhibit
10 attached hereto transferred to Duramed pursuant to a Distribution Agreement
dated October 4, 1995 and a letter agreement dated January 26, 1996,
respectively. In exchange for such rights, the Company shall repay in full all
amounts advanced to the Company by Duramed pursuant to Section 2.5 of this
Agreement, together with interest accrued on such amounts to the date of such
repurchase, less any amounts then outstanding under invoices for goods shipped
by the Company to Duramed pursuant to either of such agreements, but not yet
paid by Duramed. The Company may exercise its rights under this Section 7.3 by
written notice to Duramed within thirty (30) days of the final termination of
this Agreement. The repurchase described in this Section 7.3 shall occur, if at
all, within ninety (90) days of the final termination of this Agreement.
ARTICLE 8
MISCELLANEOUS
Section 8.1 INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless Duramed and
shall reimburse Duramed for, any loss, liability, claim, damage, expense
(including but not limited to reasonable attorneys' fees) or diminution of value
(collectively "Damages") arising from or in connection with any inaccuracy in
any of the representations and warranties of the Company in this Agreement, or
in any certificate delivered by the Company pursuant to this Agreement, or any
actions, omissions or state of facts inconsistent with any such representation
or warranty of the Company, or any Excluded Liabilities. After the Closing, and
for a period of one (1) year, Duramed may assert any such Damages against the
Duramed Common Stock and Warrants held in the Escrow Fund in accordance with
Section 1.5 hereof, but shall not
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otherwise assert any such claim against the Company or its shareholders.
(b) Duramed shall indemnify and hold harmless the Company and
its shareholders, and shall reimburse them for, any Damages arising from or in
connection with any inaccuracy in any of the representations and warranties of
Duramed in this Agreement, or in any certificate delivered by Duramed pursuant
to this Agreement, or any actions, omissions or state of facts inconsistent with
any such representation or warranty of Duramed, or any liabilities expressly
assumed by Duramed pursuant to Section 1.3 hereof, or the conduct of the
Business by Duramed after the Closing.
Section 8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties
hereto agree that liability of the Company to any party, including Duramed, for
the breach or violation of any warranty or representation set forth herein shall
terminate one (1) year after the Closing, except that any claim for
indemnification by Duramed for which notice is delivered to the Escrow Agent
prior to such date shall extend the survival period until final determination of
such claim. The parties hereto agree that liability of Duramed to any party,
including the Company or its shareholders as in existence immediately prior to
the Closing (or those claiming through them), for the breach or violation of any
warranty or representation set forth herein shall terminate one (1) year after
the Closing, except that any claim for indemnification by the Company or its
shareholders for which notice is delivered to Duramed prior to such date shall
extend the final survival period until final determination of such claim.
Section 8.3 CLOSING.
(a) The closing of the transactions contemplated hereby shall take
place at the offices of Taft, Stettinius & Hollister, 425 Walnut Street, 1800
Star Bank Center, Cincinnati, OH 45202 (or at such other place as the parties
shall agree) as promptly as practicable after the later of (i) the meeting of
shareholders of the Company referred to in Section 2.2 hereof and (ii)
satisfaction or waiver of all other conditions (the "Closing Date").
(b) At the Closing, Duramed and the Company shall execute and deliver
(i) a bill of sale and other instruments of assignment, transfer and conveyance
(including UCC-1 financing statements with respect to the accounts receivable),
in form and substance reasonably satisfactory to Duramed and the Company,
transferring to Duramed the assets to be transferred hereunder and assigning to
Duramed all right, title and interest of the Company in and to those contracts,
leases, agreements and commitments to be transferred, conveyed and assigned
hereunder; (ii) instruments providing for the assumption by Duramed of those
obligations described in Section 1.3 hereof; (iii) assignments of
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the Intellectual Property to be transferred to Duramed hereunder; (iv) deeds and
other instruments of transfer conveying to Duramed the real property described
in Section 1.1(a) hereof and (v) such other Closing documents as are described
in this Agreement or as the parties hereto may reasonably request.
Section 8.4 EXCLUSIVITY; CONFIDENTIALITY. The Company hereby
represents and warrants to Duramed that it is not now engaged in negotiations or
discussions with any other party concerning a business combination, financing
effort or other material transaction involving the Company and any other third
party. Regardless of whether this Agreement is terminated, the Company shall not
disclose to any third party any information learned during the negotiation and
preparation for performance of this Agreement, except to the extent such
disclosure is required by applicable law. The preceding sentence shall survive
termination of this Agreement.
Section 8.5 FEES AND EXPENSES.
(a) Subject to paragraphs (b) and (c) of this Section 8.5,
whether or not the transactions contemplated hereby are consummated, each party
hereto shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
(b) If (i) this Agreement is terminated due to (A) failure by
the Company to obtain the approval of the shareholders of the Company required
by Section 2.1 hereof; (B) a determination by the Board of Directors of the
Company to pursue a transaction with a Potential Bidder pursuant to Section 5.9
hereof; (C) failure to obtain termination of the leases between the Company and
HLA and the sale of the equipment listed on Schedule 2.4 of the Company
Disclosure Schedule to Duramed as required by Section 2.4 hereof; or (D) breach
by the Company of any of its representations, warranties and agreements under
this Agreement, and (ii) Duramed is not in material breach of its
representations, warranties and agreements under this Agreement, then the
Company shall (notwithstanding paragraph (a) of this Section 8.5), on the date
of such termination, pay to Duramed the cash amount necessary to fully reimburse
Duramed and its affiliates for all actual out-of-pocket documented fees and
expenses incurred by any of them or on their behalf in connection with the
preparation of this Agreement and the transactions contemplated by this
Agreement, including all fees and expenses of counsel, investment banking firms,
accountants, experts and consultants to Duramed or any of its affiliates
(collectively, the "Expenses"); PROVIDED, HOWEVER, that the Company shall not be
obligated to make payments pursuant to this paragraph (b) in excess of Five
Hundred Thousand Dollars ($500,000) in the aggregate; and PROVIDED FURTHER,
HOWEVER, that the Company shall not be obligated to make any payments pursuant
to this paragraph
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(b) if the Company is entitled to reimbursement under paragraph
(c) of this Section.
(c) If (i) this Agreement is terminated by the Company
pursuant to Section 7.1(b) and (ii) the Company is not in material breach of its
representations, warranties and agreements under this Agreement, then Duramed
shall (notwithstanding paragraph (a) of this Section 8.5), on the date of such
termination, pay to the Company the cash amount necessary fully to reimburse the
Company for all actual out-of-pocket documented Expenses incurred by it after
June 29, 1995 in connection with the preparation of this Agreement and the
transactions contemplated by this Agreement up to an aggregate of Five Hundred
Thousand Dollars ($500,000).
Section 8.6 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if hand
delivered, transmitted by telegram or telecopy or mailed by registered or
certified mail, postage prepaid, return receipt requested, or sent via overnight
express delivery by Federal Express or other nationally recognized delivery
company, as follows:
(a) If to Duramed, to:
Duramed Pharmaceuticals, Inc.
7155 East Kemper Road
Cincinnati, Ohio 45249
Attn: E. Thomas Arington
with a copy to:
Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202-3957
Attn: Timothy E. Hoberg, Esq.
(b) If to the Company, to:
Hallmark Pharmaceuticals, Inc.
5 Campus Drive
Somerset, New Jersey 08873
Attn: Vish Raju
with a copy to:
Hogan & Hartson L.L.P.
111 South Calvert Street
16th Floor
Baltimore, Maryland 21201
Attn: Walter G. Lohr, Jr., Esq.
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or to such other address as the person to whom notice is given may have
previously furnished to the other parties in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
Section 8.7 AMENDMENTS. This Agreement may not be amended,
modified or supplemented except by written agreement of the parties hereto.
Section 8.8 WAIVER. At any time prior to the Closing, the parties
hereto by action taken by their respective Boards of Directors 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 contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained herein
to the extent permitted by law. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
Section 8.9 BROKERS. The Company represents and warrants that no
broker, finder or investment banker, except Armata Partners, whose fees are
described in Section 8.9 of the Company Disclosure Schedule, is entitled to any
brokerage, finder's or other fee or commission, in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company. Duramed represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Duramed.
Section 8.10 REMEDIES FOR BREACH; SPECIFIC PERFORMANCE. Each of the
parties acknowledges and agrees that the other party or parties would be
irreparably damaged in the event any covenant or agreement contained in this
Agreement is not performed in accordance with its specific terms or is otherwise
breached. Accordingly, each of the parties shall be entitled, without bond or
other security, to an injunction or injunctions to prevent breaches of the
covenants or agreements contained in this Agreement and to enforce specifically
this Agreement and the covenants and agreements contained herein in any action
instituted in any court of the United States or any state thereof having subject
matter jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take any action required herein, the other party shall not be
entitled to specific performance of such provision or part hereof or to any
other
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remedy, including money damages, for breach hereof as a result of such holding
or order.
SECTION 8.11 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 8.12 NONASSIGNABILITY. This Agreement shall not be assigned by
operation of law or otherwise, except that Duramed may assign its rights under
this Agreement to any wholly owned subsidiary of Duramed, provided that Duramed
shall remain fully responsible for its obligations incurred hereunder.
Section 8.13 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their permitted
successors and assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 8.14 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to constitute an original and
shall become effective when two or more counterparts have been signed by each of
the parties hereto and delivered to the other parties.
Section 8.15 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without regard to its conflicts of law rules.
Section 8.16 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements and
understandings, oral or written, among the parties hereto with respect to the
subject matter hereof.
Section 8.17 FURTHER ASSURANCES. Following the Closing, either party
shall, from time to time, execute and deliver such additional instruments,
documents, conveyances or assurances, and take such other action, as the other
party may reasonably request in order most effectively to consummate the
transactions contemplated by this Agreement, to carry out the intent and
purposes of this Agreement and to confirm and assure the rights of the parties
hereto.
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DURAMED PHARMACEUTICALS, INC.
By: /s/ E. Thomas Arington
-----------------------------
Name: E. Thomas Arington
Title: CEO
HALLMARK PHARMACEUTICALS, INC.
By: /s/ Vish G. Raju
-----------------------------
Name: Vish G. Raju
Title: President & CEO
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<PAGE> 161
APPENDIX C
----------
APPENDIX C
NEW JERSEY BUSINESS CORPORATION ACT
CHAPTER 11. RIGHTS OF DISSENTING SHAREHOLDERS
14A:11-1 RIGHT OF SHAREHOLDERS TO DISSENT.--(1) Any shareholder
of a domestic corporation shall have the right to dissent from any of the
following corporate actions
(a) Any plan of merger or consolidation to which the
corporation is a party, provided that, unless the certificate of incorporation
otherwise provides
(i) a shareholder shall not have the right to dissent from
any plan of merger or consolidation with respect to shares
(A) of a class or series which is listed on a national
securities exchange or is held of record by not less than 1,000 holders on the
record date fixed to determine the shareholders entitled to vote upon the plan
of merger or consolidation; or
(B) for which, pursuant to the plan of merger or
consolidation, he will receive (x) cash, (y) shares, obligations or other
securities which, upon consummation of the merger or consolidation, will either
be listed on a national securities exchange or held of record by not less than
1,000 holders, or (z) cash and such securities;
(ii) a shareholder of a surviving corporation shall not have
the right to dissent from a plan of merger, if the merger did not require for
its approval the vote of such shareholders as provided in section 14A:10-5.1 or
in subsections 14A:10-3(4), 14A:10-7(2) or 14A:10-7(4); or
(b) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation not in the usual or regular
course of business as conducted by such corporation, other than a transfer
pursuant to subsection (4) of N.J.S. 14A:10-11, provided that, unless the
certificate of incorporation otherwise provides, the shareholder shall not have
the right to dissent
(i) with respect to shares of a class or series which, at the
record date fixed to determine the shareholders entitled to vote upon such
transaction, is listed on a national securities cxchange or is held of record
by not less than 1,000 holders; or
(ii) from a transaction pursuant to a plan of dissolution of
the corporation which provides for distribution of substantially all of its net
assets to shareholders in accordance with their respective interests within one
year after the date of such transaction, where such transaction is wholly for
(A) cash; or
(B) shares, obligations or other securities which, upon
consummation of the plan of dissolution will either be listed on a national
securities exchange or held of record by not less than 1,000 holders; or
(C) cash and such securities; or
(iii) from a sale pursuant to an order of a court having
jurisdiction.
(2) Any shareholder of a domestic corporation shall have the
right to dissent with respect to any shares owned by him which are to be
acquired pursuant to section 14A:10-9.
(3) A shareholder may not dissent as to less than all of the
shares owned beneficially by him and with respect to which a right of dissent
exists. A nominee or fiduciary may not dissent on behalf of any beneficial owner
as to less than all of the shares of such owner with respect to which the right
of dissent exists.
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(4) A corporation may provide in its certificate of
incorporation that holders of all its shares, or of a particular class or
series thereof, shall have the right to dissent from specified corporate
actions in addition to those enumerated in subsection 14A:11-1(1), in which
case the exercise of such right of dissent shall be governed by the provisions
of this Chapter.
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<PAGE> 163
APPENDIX D
----------
TITLE 14A:2-7 New Jersey Business Corporation Act
CERTIFICATE OF INCORPORATION
(For Use by Domestic Profit Corporations)
THIS IS TO CERTIFY THAT, there is hereby organized a corporation under and
by virtue of the above noted Statute, of the New Jersey Statutes.
1. Name of Corporation Hallmark Pharmaceuticals, Inc.
-----------------------------------------------------
2. Registered Agent Vish G. Raju
-----------------------------------------------------
3. Registered Office 14 Highpoint Way
-----------------------------------------------------
(STREET AND POSTAL DESIGNATION IF APPLICABLE)
(CITY) Piscataway (STATE) NEW JERSEY (ZIP) 08854
-----------------------------------------------------
4. The Purpose(s) for which this corporation is organized is (are) to engage
in any activity within the purposes for which corporations may be
organized under N.J.S.A 14A:1-1 et seq.
5. The aggregate number of shares which the corporation shall have authority
to issue is: PAR NO PAR 5,000,000
----------- ---------------
6. If applicable, set forth the designation of each class and series of
shares, the number in each, and a statement of the relative rights,
preferences and limitations 5,000,000 common stock
----------------------------------------------
- -------------------------------------------------------------------------------
7. If applicable, set forth a statement of any authority vested in the board
to divide the shares into classes or series or both, and to determine or
change their designation, number, relative rights, preferences and
limitations. N/A
-------------------------------------------------------------
- -------------------------------------------------------------------------------
8. The first Board of Directors shall consist of 3 Directors.
(minimum of one) ---
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NAME STREET ADDRESS CITY STATE ZIP
----- ------------------- ---------- ----- -----
Vish G. Raju 14 Highpoint Way Piscataway NJ 08854
Rudraraju P. Raju 501 Howard Avenue Altoona PA 16601
Mark A. DeSimone 245 Fort Pitt Blvd. Pittsburgh PA 15222
</TABLE>
9. Name and address of incorporator(s)
<TABLE>
<CAPTION>
NAME STREET ADDRESS CITY STATE ZIP
----- ------------------- ---------- ----- -----
<S> <C> <C> <C> <C>
Mark A. DeSimone 245 Fort Pitt Blvd. Pittsburgh PA 15222
</TABLE>
10. The duration of the corporation is Perpetual
----------------------------------------
11. Other provisions:
---------------------------------------------------------
12. Effective date (if other than date of filing)
----------------------------
IN WITNESS WHEREOF, each individual Incorporator being over eighteen
years of age has signed this Certificate, or if the Incorporator be a
corporation has caused this Certificate to be signed by its duly authorized
officers this 3rd day of February, 1992.
--- -------- ----
Signature:
-----------------------
MARK A. DESIMONE
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<PAGE> 164
Signature:
----------------------
Signature:
----------------------
Signature:
----------------------
D-2
<PAGE> 165
CERTIFICATE OF AMENDMENT TO THE CERTIFICATION OF INCORPORATION
OF Hallmark Pharmaceuticals, Inc.
-----------------------------------------------------------------
(FOR USE BY DOMESTIC CORPORATIONS ONLY - MUST BE FILED IN DUPLICATE)
"Federal Employer Identification No." 22-3152937
Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3),
Corporations, General, of the New Jersey Statutes, the undersigned corporation
executes the following Certificate of Amendment to its Certificate of
Incorporation:
1. The name of the corporation is: Hallmark Pharmaceuticals, Inc.
---------------------------------------
2. The following amendment to the Certificate of Incorporation was approved
by the directors and thereafter duly adopted by the shareholders of the
corporation on the 12th day of November, 1993:
---- ---------------
Resolved that Article 5 & 6 of the Certificate of Incorporation be amended
to read as follows:
5. The aggregate number of shares which the Corporation shall have
authority to issue is; NO PAR 10,000,000
6. If applicable set forth the designation of each class and series of
shares, the number in each, and a statement of the relative rights,
preferences and limitations 10,000,000
3. The number of shares outstanding at the time of the adoption of the
amendment was 4,418,750. The total number of shares entitled to vote
thereon was 4,418,750.
If the shares of any class or series of shares are entitled to vote
thereon as a class, set forth below the designation and number of
outstanding shares entitled to vote thereon of each such class or series.
(Omit if not applicable).
4. The number of shares voting for and against such amendment is as follows:
(If the shares of any class or series are entitled to vote as a class,
set forth the number of shares of each class and series voting for and
against the amendment, respectively).
Number of Shares Voting for Amendment Number of Shares Voting Against Amendment
------------------------------------ -----------------------------------------
4,188,911 None
5. If the amendment provides for an exchange, reclassification or
cancellation of issued shares, set forth a statement of the manner in
which the same shall be effected. (Omit if not applicable).
(Use the following only if an effective date, not later then 90 days subsequent
to the date of filing is desired).
6. The effective date of this amendment to the Certificate of Incorporation
shall be January 03, 1994.
----------------
Dated this 20 day of December, 1993.
-- --------------
Hallmark Pharmaceuticals, Inc.
------------------------------
Coporate Name
By
----------------------------
(Signature)
------------------------------
(Type Name and Title)
May be executed by the Chairman of the Board, or the President, or a Vice
President of the Corporation.
The purpose of this form is to simplify the filing requirements of the
Secretary of State and does not replace the need for competent legal advice.
D-3
<PAGE> 166
BY-LAWS
OF
HALLMARK PHARMACEUTICALS, INC.
Adopted March 1, 1992
ARTICLE I
OFFICES
1. REGISTERED OFFICE AND AGENT. The registered office of the Corporation in
the State of New Jersey is at 14 Highpoint Way Piscataway New Jersey
08854.
The registered agent of the Corporation at such office is Mr. Vish G.
Raju.
2. PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
Corporation in 14 Highpoint Way, Piscataway, New Jersey 08854.
3. OTHER PLACES OF BUSINESS. Branch or subordinate places of business or
offices may be established at any time by the Board at any place or
places where the Corporation is qualified to do business.
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<PAGE> 167
ARTICLE 11
SHAREHOLDERS
14A:5-2 1. ANNUAL MEETING. The annual meeting of shareholders shall be
hold upon not less than ten
14A:5-4(a) nor more than sixty days written notice of the time, place,
and purposes of the meeting at
10:00 o'clock a.m. on the first Monday
of the month of May
of each year at 501 Howard Avenue, Altoona, Pennsylvania
16001.
14A:5-1 or at such other time and place as shall be specified in
the notice of meeting, in order to elect directors and
transact such other business as shall come before the
meeting. If that date is a legal holiday, the meeting shall
be held at the same hour on the next succeeding business
day.
14A:5-3 2. SPECIAL MEETINGS. A special meeting of shareholders may
be called for any purpose by the president or the Board. A
special meeting shall be held upon not less than ten nor
more than sixty days written notice of the time, place, and
purpose of the meeting.
14A:5-6(1) 3. ACTION WITHOUT MEETING. The shareholders may act without a
meeting by written consent in accordance with N.J.S.A.
14A:5-6. Such consents may be executed together, or in
counterparts, and shall be filed in the Minute Book. Special
rules apply to the annual election of directors, mergers,
consolidations, acquisitions of shares or the sales of
assets.
14A:5-9(1) 4. QUORUM. The presence at a meeting in person or by proxy of
the holders of shares entitled to cast 66.67% of the votes
shall constitute a quorum.
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<PAGE> 168
ARTICLE III
BOARD OF DIRECTORS
14A:6-2 1. NUMBER AND TERM OF OFFICE. The Board shall consist of no
more than seven and no less then three members. The precise
number shall be set by the directors or by the shareholders
14A:6-3 at each annual meeting before the election of directors.
Each director shall be elected by the shareholders at each
annual meeting and shall hold office until the next annual
meeting of shareholders and until that director's successor
shall have been elected and qualified.
14A:6-10(2) 2. REGULAR MEETING. A regular meeting of the Board shall be
held without notice immediately following and at the same
place as the annual shareholders' meeting for the purposes
of electing officers and conducting such other business as
may come before the meeting. The Board, by resolution, may
provide for additional regular meetings which may be held
without notice, except to members not present at the time of
the adoption of the resolution.
14A:6-10(2) 3. SPECIAL MEETING. A special meeting of the Board may be
called at any time by the president or by directors for any
purpose. Such meetings shall be held upon three days notice
if given orally, (either by telephone or in person,) or by
telegraph, or by ten days notice if given by depositing the
notice in the United States mails, postage prepaid. Such
notice shall specify the time and place of the meeting.
14A:6-7.1(5) 4. ACTION WITHOUT MEETING. The Board may act without a meeting
if, prior or subsequent to such action, each member of the
Board shall consent in writing to such action. Such written
consent or consents shall be filed in the minute book.
14A:6-7.1(3) 5. QUORUM. Majority of the entire Board shall constitute a
quorum for the transaction of business.
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<PAGE> 169
14A:6-5 6. VACANCIES IN BOARD OF DIRECTORS. Any vacancy in the Board
may be filled by the affimative vote of a majority of the
remaining directors, even though less than a quorum of the
Board, or by a sole remaining director.
14A:6-6 7. REMOVAL OF DIRECTORS. Any director may be removed for
cause, or without cause unless otherwise provided in the
certificate of incorporation, by a majority vote of
shareholders.
14A:6-10(3) 8. PRESENCE AT MEETINGS. Where appropriate communication
facilities are reasonably available, any or all directors
shall have the right to participate in all or any part of a
meeting of the board of a committee of the board by means of
conference telephone or any means of communication by which
all persons participating in the meeting are able to hear
each other.
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<PAGE> 170
ARTICLE IV
WAIVERS OF NOTICE
14A:5-5(1) Any notice required by these by-laws, by the certificate of
14A:6-10(2) incorporation, or by the New Jersey Business Corporation Act may
be waived in writing by any person entitled to notice. The
waiver or waivers may be executed either before or after the
event with respect to which notice is waived. For each director
or shareholder attending a meeting without protesting, prior to
its conclusion, the lack of proper notice shall be deemed
conclusively to have waived notice of the meeting.
D-8
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ARTICLE V
OFFICERS
14A:6-15(1) 1. ELECTION. At its regular meeting following the annual
meeting of shareholders, the Board shall elect a president,
a treasurer, a secretary, and it may elect such other
officers, including one of more vice presidents, as it shall
14A:6-15(2) deem necessary. One person may hold two or more offices.
14A:6-15(4) 2. DUTIES AND AUTHORITY OF PRESIDENT. The president shall be
chief executive officer of the Corporation. Subject only to
the authority of the Board, he shall have general charge and
supervision over, and responsibility for, the business and
affairs of the Corporation. Unless otherwise directed by the
Board, all other officers shall be subject to the authority
and supervision of the President. The president may enter
into and execute in the name of the Corporation contracts or
other instruments in the regular course of business or
contracts or other instruments not in the regular course of
business which are authorized, either generally or
specifically, by the Board. He shall have the general powers
and duties of management usually vested in the office of
president of a corporation.
14A:6-15(4) 3. DUTIES AND AUTHORITY OF VICE PRESIDENT. The vice president
shall perform such duties and have such authority as from
time to time may be delegated to him by the president or by
the Board. In the absence of the president or in the event
of his death inability, or refusal to act, the vice
president shall perfom the duties and be vested with the
authority of the president.
14A:6-15(4) 4. DUTIES AND AUTHORITY OF TREASURER. The treasurer shall have
the custody of the funds and securities of the Corporation
and shall keep or cause to be kept regular books of
account for the Corporation. The treasurer shall perform
such other duties and
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<PAGE> 172
possess such other powers as are incident to that office or
as shall be assigned by the president or the Board.
14A:6-15(4) 5. DUTIES AND AUTHORITY OF SECRETARY. The secretary shall
cause notice of all meetings to be served as prescribed in
these by-laws and shall keep or cause to be kept the
minutes of all meetings of the shareholders and the Board.
The secretary shall have charge of the seal of the
Corporation. The secretary shall perform such other duties
and possess such other powers as are incident to that
office or as are assigned by the president of the Board.
14A:6-16 6. REMOVAL AND RESIGNATION OF OFFICERS: FILLING VACANCIES.
A Any officer elected by the board may be removed by the board
with or without cause. An officer elected by the
shareholders may be removed, with or without cause, only by
vote of the shareholders but his authority to act as an
officer may be suspended by the board for cause. The removal
of an officer shall be without prejudice to his contract
rights, if any. Election of an officer shall not of itself
create rights.
B. An officer may resign by written notice to the corporation.
The resignation shall be effective upon receipt thereof by
the corporation or at such subsequent time as shall be
specified in the notice of resignation.
C. Any vacancy occurring among the officers, however caused,
shall be filled by the board.
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<PAGE> 173
ARTICLE VI
AMENDMENTS TO AND EFFECT OF BY-LAWS;
FISCAL YEAR
1. FORCE AND EFFECT OF BY-LAWS. These by-laws are subject to
the provisions of the New Jersey Business Corporation Act
and the Corporation's certificate of incorporation, as it
may be amended from time to time. If any provision in these
by-laws is inconsistent with a provision in the Act or the
certificate of incorporation, the provision of that Act or
the certificate of incorporation shall govern.
2. Wherever in these by-laws references are made to more than
one incorporator, director, or shareholder, they shall, if
this is a sole incorporator, director, shareholder
corporation, be construed to mean the solitary person; and
all provisions dealing with the quantum of majorities or
quorums shall be deemed to mean the action by the one person
constituting the corporation.
14A:2-9(1) 3. AMENDMENTS TO BY-LAWS. These by-laws may be altered,
amended, or repealed by the shareholders or the board. Any
by-law adopted, amended, or repealed by the shareholders
may be amended or repealed by the Board, unless the
resolution of the shareholders adopting such by-law
expressly reserves to the shareholders the right to amend
or repeal it.
4. FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of April of each year.
D-11
<PAGE> 174
ADDENDUM TO
BY-LAWS
OF
HALLMARK PHARMACEUTICALS, INC.
---------------------------------------
9. INDEMNIFICATION: The Corporation hereby agrees to indemnify and hold the
directors harmless from and against, and agrees to pay the full amount of,
any, loss, claim, damage, liability (including any federal, state or local
tax liability) incurred either directly or indirectly, by reason of any
action taken or the failure to take action by the directors on behalf of
Corporation other than actions constituting willful misconduct or fraud.
D-12
<PAGE> 175
ADDENDUM TO
BY-LAWS
OF
HALLMARK PHARMACEUTICALS, INC.
------------------------------
D. INDEMNIFICATION: The Corporation hereby, agrees to indemnify and hold the
officers harmless from and against, and agrees to pay the full amount of,
any loss, claim, damage, liability (including any federal, state or local
tax liability) incurred either directly or indirectly, by reason of any
action taken or the failure to take action by the officers on behalf of
Corporation other than actions constituting willful misconduct or fraud.
D-13
<PAGE> 176
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
allows indemnification by the registrant to any person made or threatened to be
made a party to any proceedings, other than a proceeding by or in the right of
the registrant, by reason of the fact that such person is or was a director,
officer, employee or agent of the registrant, or was serving at the request of
the registrant in a similar capacity with another corporation or other entity,
against expenses, including judgments and fines, if that person acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the registrant and, with respect to criminal actions, in which that
person had no reasonable cause to believe that such person's conduct was
unlawful. Similar provisions apply to actions brought by or in the right of the
registrant, except that no indemnification shall be made in such cases when the
person shall have been adjudged to be liable for negligence or misconduct to the
registrant unless deemed otherwise by the court in which the action was brought.
Indemnification is to be made by a majority vote of a quorum of disinterested
directors or other written opinion of independent counsel or by the shareholders
or by the court.
Section 145 also authorizes the registrant to purchase insurance
against such liabilities.
The registrant's Certificate of Incorporation extends similar rights
of indemnification.
Item 21. Exhibits and Financial Statement Schedules
2.1 Plan of Liquidation (set forth as Appendix A to the Proxy
Statement/Prospectus contained herein)
2.2 Asset Purchase Agreement dated as of April 9, 1996 by and among
Duramed Pharmaceuticals, Inc. and Hallmark Pharmaceuticals, Inc.
(set forth as Appendix B to the Proxy Statement/Prospectus
contained herein)
4.1 Certificate of Designation, Preferences and Rights of Series A
Preferred Stock (previously filed as Exhibit to Duramed's 1988
Annual Report on Form 10-K)
4.2 Certificate of Designation, Preferences and Rights of Series B
Preferred Stock (previously filed as Exhibit to Duramed's 1994
Annual Report on Form 10-K)
4.3 Certificate of Designation, Preferences and Rights of Series C
Preferred Stock (peviously filed as Exhibit to Duramed's
Registration Statement No. 33-64561)
4.4 Amended Certificate of Designation of the 8% Cumulative
Convertible Preferred Stock, Series D
4.5 Rights Agreement between Duramed Pharmaceuticals, Inc. and The
Provident Bank as Rights Agent dated as of August 17, 1988
(previously filed as Exhibit to Duramed's Current Report on Form
8-K, Date of Report August 28, 1988)
4.5 Form of Warrant*
5.1 Opinion of Taft, Stettinius & Hollister*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Eichen & DiMeglio
23.3 Consent of Taft, Stettinius & Hollister (contained in Exhibit
5.1)*
II-1
<PAGE> 177
24 Powers of Attorney*
99.1 Form of Escrow Agreement among Duramed Pharmaceuticals, Inc.,
Hallmark Pharmaceuticals, Inc. and The Provident Bank, as Escrow
Agent*
99.2 Asset Purchase Agreement between Hallmark Leasing Associates and
Duramed Pharmaceuticals, Inc. dated as of April 9, 1996*
*Previously filed
Item 22. Undertakings
(b) *The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(g) *(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(h) *Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the provisions of Item 20 hereof, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it becomes effective.
- --------------
*Paragraph references correspond to those of Item 512 of Regulation S-K
II-2
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Cincinnati, State of
Ohio, on this 6th day of August, 1996.
DURAMED PHARMACEUTICALS, INC.
By: /s/ E. Thomas Arington
------------------------
E. Thomas Arington, President
Pursuant to the Securities Act of 1933, this amendment to registration
statement has been signed by the following persons in the capacities indicated
as of the 6th day of August, 1996.
/s/ E. Thomas Arington President and Chief Executive Officer
- ---------------------- Chairman of the Board (Principal Executive
E. Thomas Arington Officer)
/s/ Timothy J. Holt Senior Vice President, Finance and
- --------------------- Administration, Treasurer (Principal
Timothy J. Holt Financial and Accounting Officer)
/s/ George W. Baughman* Director
- ---------------------
George W. Baughman
/s/ Doane F. Darling Director
- ---------------------
Doane F. Darling
/s/ Staley L. Morgan* Director
- ---------------------
Stanley L. Morgan
/s/ S. Sundararaman* Director
- ---------------------
S. Sundararaman
*Pursuant to Power of Attorney
/s/ Timothy J. Holt
- ---------------------
Timothy J. Holt, Attorney-in-Fact
II-3
<PAGE> 1
EXHIBIT 4.4
AMENDED
CERTIFICATE OF DESIGNATION OF THE
8% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES D, OF
DURAMED PHARMACEUTICALS, INC.
Duramed Pharmaceuticals, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Company"), does hereby certify as
follows, pursuant to Section 151 of the Delaware General Corporation Law:
FIRST: That no shares of the Company's 8% Cumulative Convertible
Preferred Stock, Series D, have been issued;
SECOND: That pursuant to authority vested in the Board of Directors of
the Company (the "Board") by Article IV of the Certificate of Incorporation of
the Company, the Board, at a meeting duly convened and held on the 11th day of
July, 1996, adopted the resolution attached hereto as Exhibit 1 amending the
terms of the Company's 8% Cumulative Convertible Preferred Stock, Series D; and
THIRD: That such resolution of the Board, and the amendment thereby of
the terms of the 8% Cumulative Convertible Preferred Stock, Series D, were duly
made by the Board pursuant to its authority as aforesaid and in accordance with
Section 151 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Company has caused this Amended Certificate of
Designation to be executed by its duly authorized agents as of this 12th day of
July, 1996.
DURAMED PHARMACEUTICALS, INC.
/s/ E/ Thomas Arington
------------------------------------
By: E. Thomas Arington
President
ATTEST:
/s/ Timothy E. Hoberg
------------------------------------
By: Timothy E. Hoberg
Assistant Secretary
<PAGE> 2
EXHIBIT 1
RESOLVED, that the Board hereby amends the terms of the 8% Cumulative
Convertible Preferred Stock, Series D of the Company (the "Series D Convertible
Preferred Stock") as set forth in the Terms attached hereto, and, pursuant
thereto, the Board hereby authorizes the adoption and filing of a Certificate of
Amendment of Series D Convertible Preferred Stock with terms as attached hereto.
<PAGE> 3
TERMS OF 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES D
DURAMED PHARMACEUTICALS, INC.(the "Corporation")
1. DESIGNATION AND AMOUNT. There is hereby established a series of
Preferred Stock to be designated as the "8% Cumulative Convertible Preferred
Stock, Series D" (the "Series D Convertible Preferred Stock") and the number of
shares which shall constitute such series shall be 200,000 shares, with a stated
value (the "Stated Value") of $100 per share.
2. DIVIDENDS.
----------
(a) GENERAL. The holders of the Series D Convertible Preferred
Stock shall be entitled to receive, when and as declared by the Board of
Directors out of funds legally available therefor, cumulative preferential cash
dividends, at the rate of 8% of the Stated Value per annum from the date of
issuance (with appropriate proration for any partial dividend period). Such
cumulative dividends shall be payable quarterly in arrears on the fifteenth day
of each January, April, July and October, commencing October 15, 1996.
(b) DIVIDENDS CUMULATIVE. Dividends on the Series D
Convertible Preferred Stock shall accrue and be cumulative from the date of
issuance, whether or not earned and whether or not in any dividend period there
shall be surplus or net profits of the Corporation legally available for the
payment of such dividends.
(c) EQUALITY OF SHARES. No dividend shall be declared or set
apart for any shares of the Series D Convertible Preferred Stock for any period
unless at the same time a like proportionate dividend for the same period shall
be declared or set apart for all shares of the Series D Convertible Preferred
Stock then outstanding and entitled to receive such dividend.
(d) RESTRICTIONS WITH RESPECT TO JUNIOR SHARES. So long as any
shares of the Series D Convertible Preferred Stock shall remain outstanding, no
dividend shall be declared or paid or set apart for payment on the Common Stock
or any other class of stock ranking junior to the Series D Convertible Preferred
Stock in either payment of dividends or liquidation (all such junior classes of
stock including, without limitation, the Common Stock, hereinafter referred to
collectively as the "Junior Stock") unless full dividends (including interest on
any accumulations of dividends) on all outstanding shares of Series D
Convertible Preferred Stock shall have been paid in full for all past dividend
periods and the dividends on all outstanding shares of Series D Convertible
Preferred Stock for the then current dividend period shall have been paid or
declared and sufficient funds set apart for payment thereof.
3. LIQUIDATION PREFERENCE.
-----------------------
(a) GENERAL. The Series D Convertible Preferred Stock shall be
preferred over the Common Stock and any other class or series of Junior Stock.
In the event of any liquidation or dissolution or winding up of the
Corporation, the
<PAGE> 4
holders of the Series D Convertible Preferred Stock shall be entitled to
receive, after payment or provision for payment of the debts and other
liabilities of the Corporation, out of the assets of the Corporation available
for distribution to its shareholders, all accumulated and unpaid dividends
before any distribution of the assets shall be made to the holders of the Common
Stock or any other class or series of Junior Stock. After payment of accumulated
dividends on the Series D Convertible Preferred Stock shall have been made in
full as provided in the preceding sentence, but not prior thereto, the Preferred
Stock, the Common Stock and any other series or class of Junior Stock shall,
subject to the respective terms and provisions, if any, applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, with
the Series D Convertible Preferred Stock sharing therein in an amount per share
of Series D Convertible Preferred Stock equal to the amount to be distributed on
each share of Common Stock multiplied by a fraction the numerator of which is
the Stated Value of such share of Series D Convertible Preferred Stock and the
denominator of which is the then Conversion Price.
(b) DISTRIBUTIONS PRO RATA. If upon any liquidation or
dissolution or winding up of the Corporation the amounts payable on or with
respect to the Series D Convertible Preferred Stock together with the amounts
payable on or with respect to all classes or series of stock ranking on a parity
with the Series D Convertible Preferred Stock as to distribution of assets are
not paid in full, the holders of shares of Series D Convertible Preferred Stock
together with all classes or series of stock ranking on a parity with the Series
D Convertible Preferred Stock as to distribution of assets shall share pro rata
in any distribution of assets in respect of the shares held by them upon such
distribution in proportion to the amounts that would have been distributable to
each such class or series if all amounts payable on or with respect to the
Series D Convertible Preferred Stock and any other class or series of stock that
so ranks on a parity with the Series D Convertible Preferred Stock had been paid
in full.
(c) MERGER OR CONSOLIDATION. Neither the merger or
consolidation of the Corporation with another corporation nor the sale or lease
of all or substantially all of the assets of the Corporation shall be deemed to
be a liquidation or dissolution or winding up of the Corporation.
(d) NOTICE REQUIRED. Written notice of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, stating the payment date and the place where the distributable
amount shall be payable and stating the anticipated amount of any such
distributable amount, shall be given by mail, postage prepaid, not less than
thirty (30) days prior to the payment date stated therein, to the holders of
record of the Series D Convertible Preferred Stock at their respective addresses
as the same shall then appear on the books of the Corporation.
4. CONVERSION.
-----------
(a) GENERAL. Shares of Series D Convertible Preferred Stock
may be converted at the option of the holder thereof, or otherwise as provided
below, into fully paid and nonassessable shares of Common Stock of the
Corporation at a price (the "Conversion Price") equal to 85% of the Market Price
(as defined below) per
- 2 -
<PAGE> 5
share of Common Stock on the date of conversion (but the Conversion Price shall
be not less than $7.00 per share (the "Minimum Price") or greater than $20.00
per share (the "Maximum Price")) with respect to the Stated Value of each share
of Series D Convertible Preferred Stock, together with all accrued but unpaid
dividends thereon. Such option may be exercised by any holder on or after
October 16, 1996. Except as provided in Section 6, any shares of Series D
Convertible Preferred Stock not converted into Common Stock prior to July 18,
1998 shall be automatically converted on such date without any action of the
holder thereof. The Market Price per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices for the 10 consecutive
trading days ending on the trading day prior to the day in question. "Closing
price" on any day when used with respect to the Common Stock means the reported
closing bid price therefor as reported by Bloomberg, L.P., or if not so reported
the closing bid price as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose. Notwithstanding the foregoing, the maximum number of shares of common
stock which may be issued upon conversion of the shares of Series D Convertible
Preferred Stock (the "Maximum Number of Shares of Common Stock") shall not
exceed 2,130,895. Shares of Series D Convertible Preferred Stock which remain
outstanding after the issuance of the Maximum Number of Shares of Common Stock
shall no longer be convertible into shares of Common Stock but shall instead be
subject to redemption as provided in Section 6 hereof. The Maximum Number of
Common Shares shall be subject to adjustment as provided in Section 4(b)(i).
(b) ADJUSTMENTS. The Minimum and Maximum Prices, the Maximum
Number of Shares of Common Stock and the kind and amounts of securities and
property for which the shares of Series D Convertible Preferred Stock may be
converted shall be subject to adjustment from time to time as follows:
(i) If, at any time after the issuance of the Series
D Convertible Preferred Stock, the Corporation shall (A) declare or pay a
dividend, or make a distribution, to all holders of its Common Stock in shares
of Common Stock, (B) subdivide its outstanding shares of Common Stock into a
greater number of shares, (C) combine its outstanding shares of Common Stock
into a smaller number of shares, or (D) issue by reclassification of its shares
of Common Stock (other than a subdivision or combination thereof or a change in
par value) any securities, the Maximum Price and the Minimum Price and the
Maximum Number of Shares of Common Stock in effect immediately prior to such
action shall be adjusted so that the holder of any share of Series D Convertible
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the kind and number of shares of Common Stock of the Corporation and/or
other securities which he would have owned or been entitled to receive
immediately following such action had such share of Series D Convertible
Preferred Stock been converted immediately prior thereto. Any adjustment made
pursuant to this Paragraph (b)(i) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
- 3 -
<PAGE> 6
(ii) If, at any time after the date of issuance of
the Series D Convertible Preferred Stock, the Corporation shall distribute to
all or substantially all holders of its Common Stock either (A) evidences of
indebtedness or assets (excluding cash dividends or distributions) or (B) any
other securities of the Corporation or any rights, warrants or options to
subscribe for, purchase or otherwise acquire securities of the Corporation in a
transaction not covered by Paragraph (b)(i) above (any of which are referred to
herein as "Other Securities"), then and in any such case the Corporation shall
either distribute such Other Securities to the holders of the Series D
Convertible Preferred Stock or reserve for the benefit of the holders of the
Series D Convertible Preferred Stock such amount of such Other Securities as the
holders of all Series D Convertible Preferred Stock then outstanding would have
owned or been entitled to receive immediately following such action had the
shares of Series D Convertible Preferred Stock been converted into shares of
Common Stock immediately prior thereto. In addition, the Corporation shall
either distribute to, or reserve for the benefit of, the holders of the Series D
Convertible Preferred Stock any principal, interest, dividends or other property
payable with respect to such Other Securities as and when such interest,
dividends or other property is distributed to the holders of Common Stock. If
such a reserve is made, as and when each such share of Series D Convertible
Preferred Stock is converted, the holder of such share shall be entitled to
receive from the Corporation his share of such Other Securities together with
the principal, interest, dividends or other property payable with respect
thereto.
(iii) All calculations under this Section 4 shall
be made to the nearest one-tenth of a cent or to the nearest one thousandth of a
share, as the case may be. No adjustment shall be required unless such
adjustment would result in an increase or decrease of at least one percent (1%)
of the Minimum Price and the Maximum Price or the Maximum Number of Shares of
Common Stock; provided, however, that any adjustments which by reason of this
subparagraph (iii) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(iv) Whenever the Minimum Price and the Maximum
Price and Maximum Number of Shares of Common Stock are adjusted or Other
Securities are reserved as herein provided, the Corporation shall mail or cause
to be mailed a copy of a statement, verified by its independent certified public
accountants, setting forth the required adjustments or the nature and amount of
Other Securities, as the case may be, to each person who is a registered holder
of Series D Convertible Preferred Stock at such person's last address as the
same appears on the books of the Corporation. Each adjustment shall remain in
effect until a subsequent adjustment is required hereunder. Failure to give or
receive such notice or any defect therein shall not affect the legality or
validity of any action taken. Following any adjustment to the Minimum Price and
the Maximum Price and the Maximum Number of Shares of Common Stock, the holders
of the Series D Convertible Preferred Stock shall be entitled, by themselves or
through attorneys or accountants retained by them, to inspect the books and
records of the Corporation in order to verify such adjustment. Such inspection
shall be at the expense of the holders of the Series D Convertible Preferred
Stock requesting such inspection unless such inspection reveals an error in the
adjustment equal to 5% or more of the Minimum Price and the Maximum Price
- 4 -
<PAGE> 7
or the Maximum Number of Shares of Common Stock, in which case the Corporation
shall promptly reimburse the holders for all expenses incurred in connection
therewith.
(v) If at any time, as a result of an adjustment
made pursuant to Paragraph (ii) above, the holders of Series D Convertible
Preferred Stock shall become entitled to receive upon conversion any Other
Securities, thereafter the number of such Other Securities receivable upon
conversion of the Series D Convertible Preferred Stock and the price of the
Other Securities shall be subject to adjustment from time to time and in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to Series D Convertible Preferred Stock contained in Paragraphs (i) and
(ii), above.
(c) MERGER OR CONSOLIDATION. In case of a merger or
consolidation of the Corporation with or into another corporation, or the sale
or transfer of all, or substantially all, of the property or assets of the
Corporation, the holders of shares of Series D Convertible Preferred Stock shall
thereafter have the right to convert each of such shares into the kind and
amount of shares of stock or other securities and property (including cash)
receivable (the "Consideration") upon such merger, consolidation or sale by a
holder of the number of shares of Common Stock (whether whole or fractional)
into which such shares of Series D Convertible Preferred Stock might have been
converted immediately prior to such merger, consolidation or sale (all of which
Consideration shall be reserved and become payable upon conversion in the same
manner as for Other Securities pursuant to Paragraph (b)(ii) above and shall be
adjusted as provided in Paragraph (b) above), and shall have no other conversion
rights under these provisions and, in addition, the Corporation shall reserve,
on a current basis as and when distributed, for payment upon conversion, in the
same manner as required for Other Securities pursuant to Paragraph (b)(ii)
above, any interest, dividends, other stock, securities or property
distributable with respect to the Consideration, the same as if such shares of
Series D Convertible Preferred Stock had been converted immediately prior to
such merger, consolidation, or sale of assets; and effective provision shall be
made in the charter of the resulting or surviving corporation or otherwise, so
that the provisions set forth herein for the adjustment of the conversion terms
of the Series D Convertible Preferred Stock shall thereafter be applicable, as
nearly as reasonably may be, to any of the Consideration deliverable upon
conversion of Series D Convertible Preferred Stock remaining outstanding or
other convertible preferred stock received in place thereof. Any such resulting
or surviving corporation shall expressly assume the obligation to deliver the
Consideration, upon the exercise of the conversion right, (and, to that end,
shall reserve sufficient Consideration to issue, distribute and/or pay the
holders of the Series D Convertible Preferred Stock as if all such stock were
converted) as holders of Series D Convertible Preferred Stock remaining
outstanding, or other convertible preferred stock received by such holders in
place thereof, shall be entitled to receive pursuant to the provisions hereof,
and to make provision for protection of conversion rights as above provided.
(d) NOTICES. If, at any time while shares of Series D
Convertible Preferred Stock are outstanding, the Corporation shall (i) declare a
dividend (or any other distribution) on its Common Stock, other than in cash, or
(ii) reclassify its Common Stock (other than through a subdivision or
combination thereof or a change
- 5 -
<PAGE> 8
in par value) or become a party to any consolidation or merger or sale or
transfer of all or substantially all of the assets of the Corporation, for which
approval of the holders of its stock is required, then the Corporation shall
cause to be mailed to registered holders of Series D Convertible Preferred
Stock, at their last addresses as they shall appear on the books of the
Corporation, at least thirty (30) days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend or distribution, or, if a record is not
to be taken, the date as of which holders of Common Stock of record to be
entitled to such dividend or distribution are to be determined, or (y) the date
on which any such reclassification, consolidation, merger, sale or transfer is
expected to become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their Common
Stock for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, sale or transfer. Failure to give or
receive the notice required by this Paragraph (d) or any defect therein shall
not affect the legality or validity of any such dividend, distribution,
reclassification, consolidation, merger, sale, transfer or other action.
(e) EXERCISE OF CONVERSION RIGHTS. The holder of any shares of
Series D Convertible Preferred Stock may exercise his option to convert such
shares into shares of Common Stock only by surrendering for such purpose to the
Corporation the certificates representing the shares to be converted,
accompanied or preceded by written notice (which may be transmitted by
telecopier) that such holder elects to convert such shares in accordance with
the provisions of this Section 4. Said notice shall also state the name or names
(with addresses) in which the certificate or certificates for shares of Common
Stock which shall be issuable on such conversion shall be issued. Each
certificate or certificates surrendered for conversion shall, unless the shares
issuable on conversion are to be issued in the same name as that in which such
certificate or certificates are registered, be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
or his duly authorized attorney. Each conversion shall be deemed to have been
effected on the date on which such notice shall have been received by the
Corporation as aforesaid, provided that the certificates to which such notice
relates are received by the Corporation no later than the third business day
following the date of receipt of such notice, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become on said date the
holder or holders of record of the shares represented thereby notwithstanding
that the transfer books of the Corporation may then be closed or that
certificates representing such shares of Common Stock shall not then be actually
delivered to such person. Within three business days after receipt of the
certificates representing the shares to be converted and the notice of
conversion, the Corporation shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates representing the
number of shares of Common Stock issuable upon such conversion and shall pay or
cause the payment of such Other Securities or Consideration or other property as
may be payable upon conversion pursuant to Paragraphs (b)(iii) or (c) of this
Section 4.
(f) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued in connection with the conversion of shares of Series D
Convertible Preferred
- 6 -
<PAGE> 9
Stock into Common Stock. Instead of any fractional share of Common Stock which
would otherwise be issuable on conversion, the Corporation shall pay a cash
adjustment with respect to such fractional share computed on the basis of the
then current fair market value of the Common Stock, as determined in good faith
by the Corporation's Board of Directors.
(g) TAX ON CONVERSION. The issuance of stock certificates on
conversions of shares of Series D Convertible Preferred Stock shall be made
without charge to converting shareholders for any tax in respect of the issuance
thereof except any tax on the income or gain derived by the converting
shareholders as a result of the issuance thereof. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
registration of transfer involved in the issue and delivery of stock in any name
other than that of the holder of the shares of Series D Convertible Preferred
Stock converted, and the Corporation shall not be required to so issue or
deliver any stock certificate unless and until the person or persons requesting
the registration of transfer shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation that
such tax has been paid.
(h) SECURITIES RESERVED. The Corporation shall at all times
reserve and keep available out of its authorized Common Stock (and any Other
Securities or Consideration or property) the full number of shares of Common
Stock (and any Other Securities or Consideration or property) deliverable upon
the conversion of all outstanding shares of Series D Convertible Preferred
Stock. The Corporation shall not enter into any agreement or take any action
which would impair or restrict its legal authority to issue such shares of
Common Stock, Other Securities or Consideration or property upon conversion or
to defeat in any way the right of the holders of the Series D Convertible
Preferred Stock to receive such consideration upon conversion. In addition,
whenever the Corporation is required to reserve any interest, dividends or other
property payable upon conversion of the Series D Convertible Preferred Stock,
the Corporation shall, as to cash, deposit such amounts in one or more separate
accounts for the sole benefit of the holders of the Series D Convertible
Preferred Stock upon conversion and, as to other property, physically segregate
or otherwise set such property aside in such a manner as to protect the rights
of the holders of the Series D Convertible Preferred Stock to the receipt of
such property upon conversion.
(i) EFFECT OF CONVERSION. All shares of Series D Convertible
Preferred Stock which shall have been converted into shares of Common Stock
shall assume the status of authorized but unissued shares of Preferred Stock
undesignated as to series.
5. Voting Rights.
--------------
No holder of Series D Convertible Preferred Stock shall be
entitled to vote on any matter submitted to the shareholders of the Corporation
for their vote, waiver, release or other action, except as may be otherwise
expressly required by law.
6. Redemption.
-----------
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<PAGE> 10
Within five days after issuance by the Corporation of the
Maximum Number of Shares of Common Stock upon conversion of shares of Series D
Convertible Preferred Stock, the Corporation shall provide notice of such event
to registered holders of Series D Convertible Preferred Stock, at their last
known addresses as they shall appear on the books of the Corporation. Effective
the date of such mailing, holders of shares of Series D Convertible Preferred
Stock which then remain outstanding may cause such shares to be redeemed by the
Corporation at an amount equal to the Redemption Value (as hereinafter defined)
of such shares. The holder of any shares of Series D Convertible Preferred Stock
may exercise his option to redeem such shares only by surrendering for such
purpose to the Corporation the certificates representing the shares to be
redeemed, accompanied or preceded by written notice (which may be transmitted by
telecopier) that such holder elects to redeem such shares in accordance with the
provisions of this Section 6. Said notice also shall state the name or names
(with addresses) in which any shares of Series D Convertible Preferred Stock
represented by the certificates surrendered which are not to be redeemed shall
be re-issued. Each redemption shall be deemed to have been effective on the date
on which such notice shall have been received by the Corporation as aforesaid,
provided that the certificates to which such notice relates are received by the
Corporation no later than the third business day following the date of receipt
of such notice. Within three business days after receipt of the certificates
representing the shares to be redeemed and the notice of redemption, the
Corporation shall issue and deliver to the person or persons entitled to receive
the same the Redemption Value of the shares to be redeemed. The Redemption Value
of the shares of Series D Convertible Preferred Stock being redeemed shall be
calculated by dividing the aggregate stated value of such shares by the
Conversion Price which would be applicable if such shares were being converted
into shares of common stock as provided in Section 4(a) on the date of
redemption and multiplying the result by the Market Price per share of common
stock on the date of redemption (provided that the Conversion Price shall not be
less than the Minimum Price or greater than the Maximum Price). Any shares of
Series D Convertible Preferred Stock which remain outstanding following the
issue of the Maximum Number of Shares of Common Stock shall be redeemed
automatically without requirement for any further action by either the holder
thereof or the Corporation on July 18, 1998 at an amount equal to the Redemption
Value on such date.
7. Amendment.
---------
Notwithstanding the provisions of Section 5 above, so long as
any share of Series D Convertible Preferred Stock is outstanding, the Articles
of Incorporation of the Corporation shall not be amended in any manner which
would materially alter or change the powers, preferences or special rights of
the Series D Convertible Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority of the outstanding shares of
Series D Convertible Preferred Stock, voting separately as a class.
- 8 -
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Proxy Statement/Prospectus of
Duramed Pharmaceuticals, Inc. for the registration of 640,000 shares of its
common stock and 400,000 common stock purchase warrants and 400,000 shares of
common stock issuable on exercise thereof and to the incorporation by reference
herein of our report dated March 27, 1996 with respect to the consolidated
financial statements and schedule of Duramed Pharmaceuticals, Inc. included in
its Annual Report, as amended (Form 10KA) for the year ended December 31, 1995
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cincinnati, Ohio
August 6, 1996
<PAGE> 1
EXHIBIT 23.2
[EICHEN & DIMEGLIO LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Amendment #1 to the Registration Statement
on Form S-4 of our reports dated February 19, 1996, except for the last
paragraph of Note 11, as to which the date is April 11, 1996 and April 3, 1995,
appearing in the Prospectus/Proxy of Hallmark Pharmaceuticals, Inc., which is
part of this Registration Statement and to the reference to us under the heading
"Experts" in such Prospectus/Proxy.
/s/ Eichen & DiMeglio
August 5, 1996
