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IPPI FILES FOR CHAPTER 11 TO COUNTER LITIGATION

Executive Summary

IPPI FILES FOR CHAPTER 11 TO COUNTER LITIGATION by investor group IMPA, which seeks to block a recent financing arrangement by the Walnut, Calif.-based generic injectables manufacturer. "The company feels it has no other course open to it and has filed a petition for protection under provisions of Chapter 11 of the Federal Bankruptcy Code," IPPI declared in a Jan. 28 press release. On Jan. 14, International Pharmaceutical Products Inc. (IPPI) executed the sale of a 36% equity position, or 2.7 mil. shares, to two California investors, Grant Bettingen and James Congleton (BetCon), for $ 50,000 cash and a $ 1.3 mil. promissory note. As part of the transaction, BetCon was granted warrants to purchase up to 3.3 mil. additional shares, or about 80% of IPPI, at 10 cents per share contingent on collateral guarantees for additional credit of $ 2 mil. in 1988. However, after learning of the BetCon arrangement, IMPA, a Minnesota-based corporation established in 1983 as an IPPI investment vehicle, filed suit in Minnesota state court, seeking a temporary restraining order (TRO) that would prohibit IPPI from selling any stock or assets. While granting a TRO, the judge decided not to grant immediate summary judgment. BetCon has decided to defer payments on the promissory note in response to the temporary restraining order issues in Minnesota. "IMPA also renewed its request that the court grant a summary judgment ordering the company to issue a number of shares of common stock to the shareholders of IMPA, which would result in the IMPA shareholders owning in excess of 44% of the company's common stock," the release states, noting that IPPI was required to issue the shares to be held by the court pending final ruling. "However, the next day the court verbally advised counsel that he might grant the summary judgment immediately." According to IPPI, the original 1983 agreement gave IMPA the rights to acquire up to 17% of IPPI. IPPI said that its current problem with IMPA can be traced to earlier difficulties related to foreign patent filings for a naturally occurring anti-ulcer drug. While IPPI reported revenues of about $ 1.5 mil. for the most recent quarter ended Oct. 31, the company has yet to operate in the black. "The cash flow from this transaction, in the view of management, was crucial, to stabilize the liquidity position of the company, which had been adversely affected in recent periods by the cost of extraordinary litigation, product development expenses, and plant renovation and expansion," the company said. In July 1987, IPPI announced the settlement of a patent infringement suit filed by Lilly on the anticancer product vincristine.
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