Filed by CIMA LABS INC.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: aaiPharma Inc.
Commission File No. 0-21185
This filing relates to the merger transaction between CIMA LABS INC., a Delaware
corporation ("Cima"), aaiPharma Inc., a Delaware corporation ("aaiPharma"),
Scarlet Holding Corporation, a Delaware corporation ("Holding Company"), Scarlet
MergerCo, Inc., a Delaware corporation and a direct, wholly owned subsidiary of
Holding Company ("S MergerCo"), and Crimson MergerCo, Inc., a Delaware
corporation and a direct, wholly owned subsidiary of Holding Company ("C
MergerCo"), pursuant to an Agreement and Plan of Merger, dated as of August 5,
2003 (the "Merger Agreement"). The Merger Agreement is on file with the
Securities and Exchange Commission as an exhibit to the Current Report on Form
8-K, as amended, filed by Cima on August 6, 2003.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with a proposed business combination transaction, Scarlet
Holding Corporation, the holding company in the proposed transaction, intends to
file with the Securities and Exchange Commission (the "SEC") a registration
statement on Form S-4 that will include a joint proxy statement/prospectus and
other relevant documents in connection with the proposed transaction. Investors
of aaiPharma and Cima are urged to read the joint proxy statement/prospectus and
other relevant materials when they become available because they will contain
important information about Cima, aaiPharma and the proposed transaction.
Investors may obtain a free copy of these materials (when they are available)
and other documents filed with the Securities and Exchange Commission at the
SEC's website at www.sec.gov. A free copy of the joint proxy
statement/prospectus when it becomes available may also be obtained from
aaiPharma Inc., 2320 Scientific Park Drive, Wilmington, North Carolina 28405 or
CIMA LABS INC., 10000 Valley View Road, Eden Prairie, Minnesota 55344. In
addition, investors may access copies of the documents filed with the SEC by
aaiPharma on aaiPharma's website at www.aaiPharma.com and may access copies of
the documents filed with the SEC by Cima on Cima's website at www.cimalabs.com.
aaiPharma, Cima and their respective directors, executive officers and
certain other members of management and employees may be soliciting proxies from
their respective stockholders in favor of the proposed merger. Information
regarding the persons who may, under the rules of the SEC, be considered to be
participants in the solicitation of aaiPharma's stockholders in connection with
the proposed merger is set forth in aaiPharma's proxy statement for its 2003
annual meeting, dated April 8, 2003 and filed with the SEC on April 11, 2003,
and
information regarding the persons who may, under the rules of the SEC, be
considered to be participants in the solicitation of Cima's stockholders in
connection with the proposed transaction is set forth in Cima's proxy statement
for its 2003 annual meeting, dated April 14, 2003 and filed with the SEC on
April 11, 2003.
Additional information regarding these individuals and any interest they
have in the proposed transaction will be set forth in the joint proxy
statement/prospectus when it is filed with the SEC.
FORWARD-LOOKING STATEMENTS
The materials attached below may contain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. These statements are based on the current expectations and
beliefs of the management of aaiPharma and Cima and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. Such forward-looking
statements may include statements about future financial and operating results
and the proposed merger of aaiPharma and Cima. These statements are not
guarantees of future performance, involve certain risks, uncertainties and
assumptions that are difficult to predict, and are based upon assumptions as to
future events that may not prove accurate. Therefore, actual outcomes and
results may differ materially from what is expressed herein.
Risks and uncertainties pertaining to the following factors, among others,
could cause actual results to differ materially from those described in the
forward-looking statements: the ability of aaiPharma and Cima to obtain the
stockholder and regulatory approvals required for the merger; the new company's
ability to successfully integrate the businesses of the two companies;
unexpected costs involved in the merger or to the new company's ability to
achieve cost-cutting synergies; the impact of uncertainty surrounding the merger
on the businesses of the two companies; the impact of competition, new data,
supply issues or marketplace trends on the market for the companies' products;
deterioration in the business of aaiPharma or Cima prior to closing; technical,
regulatory or manufacturing issues; new data or intellectual property disputes
that may affect the companies' programs; the ability of the new company to
develop and market products in a timely manner; and difficulties in gaining
approval of new products. Additional economic, business, competitive and/or
regulatory factors affecting aaiPharma's and Cima's businesses generally that
may cause actual results to differ materially are discussed in their respective
filings with the SEC, including their Annual Reports on Form 10-K for the fiscal
year ended December 31, 2002, especially in the Management's Discussion and
Analysis section, their most recent Quarterly Reports on Form 10-Q and their
Current Reports on Form 8-K. aaiPharma and Cima do not undertake any obligation
to (and expressly disclaim any such obligation to) update or alter their
forward-looking statements, whether as a result of new information, future
events or otherwise.
Attached below is a list of frequently asked questions related to the
merger.
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1. WHAT ARE THE TERMS OF THE TRANSACTION?
Under terms of this transaction, each outstanding share of aaiPharma
stock will be exchanged for 1.0 share of the new holding company; each
outstanding share of CIMA stock, will be exchanged for 1.3657 shares of
the new holding company.
2. WHAT WILL BE THE OWNERSHIP OF THE COMBINED COMPANY?
aaiPharma stockholders would own 59.4% of the stock of the combined
company, and CIMA stockholders would own 40.6% of the stock of the
combined company.
3. WHAT WILL BE THE NAME OF THE COMBINED COMPANY?
The name of the new company will be determined before closing. We are
engaging a branding firm to help determine the name of the combined
company.
4. WHEN WILL THE DEAL CLOSE?
The companies must receive both regulatory and stockholder approval
before the transaction can close. Provided there are no unforeseen
delays, we expect the transaction to close by the end of 2003.
5. ARE THERE ANY STOCKHOLDER APPROVALS REQUIRED?
Yes. Both aaiPharma and CIMA stockholder approvals are required. We
expect to submit the merger for a vote in the fourth quarter.
6. IS REGULATORY APPROVAL REQUIRED?
Hart-Scott-Rodino and other customary regulatory notifications will be
filed in the U.S., as well as in certain foreign jurisdictions. We
believe that our businesses are complementary rather than competitive,
and we will work to obtain antitrust clearance as quickly as possible.
7. ARE THERE ANY ANTITRUST CONCERNS?
There have been no antitrust concerns communicated to us. We believe
that our businesses are complementary rather than competitive and we
will work to obtain antitrust clearance as quickly as possible.
8. HAS DUE DILIGENCE BEEN COMPLETED?
Yes. Both companies and their advisors have completed extensive and
detailed due diligence over the past several months including detailed
reviews in such areas as: commercial, finance, accounting, legal,
regulatory, research and operations.
9. WHAT WAS INVOLVED IN DUE DILIGENCE BY BOTH COMPANIES? MANAGEMENT
PRESENTATIONS? REVIEW OF THE OTHER COMPANY'S PIPELINE?
Diligence was conducted over several months. In addition to diligence
in areas such as finance, accounting, legal and regulatory, senior
management teams from both companies and their advisors worked together
to fully understand the two businesses, their capabilities, their
products and their prospects.
10. WHAT IS THE EXPECTED CALENDAR OF MILESTONES LEADING TO COMPLETION OF
THE MERGER?
-- Hart-Scott-Rodino and other required competition regulatory
filings are expected to be made promptly
-- We expect the S-4 to be filed by the end of the third quarter
2003
-- Stockholder approvals and closing is expected by the end of
the fourth quarter 2003
11. IS THIS A MERGER OR AN ACQUISITION?
This is a merger in which a new holding company will be created that
includes management from both companies.
12. ARE THERE ANY CHANGE-OF-CONTROL PAYMENTS AS A RESULT OF THIS MERGER?
The merger will trigger an obligation of aaiPharma to tender for its
outstanding bonds at a price equal to 101% of principal. The bonds are
currently trading at a significantly higher price
While stock options at both companies will vest as a result of the
merger, we do not foresee any significant change-of-control payments to
executives or other employees at this time.
13. ARE THERE ANY SHOP AND BREAKUP PROVISIONS IN THE DEAL?
Yes, the merger agreement limits each company's ability to solicit a
competing transaction and provides for a $11.5 million break-up fee if
the merger agreement is terminated to allow a company to pursue a
competing transaction. A copy of the merger agreement will soon be
filed by each company on SEC Form 8-K.
14. WHO ARE THE COMPANIES' ADVISORS?
Banc of America Securities provided financial advice to AaiPharma and
Deutsche Bank served as the advisor to CIMA. Robinson, Bradshaw &
Hinson provided legal advice to aaiPharma, and Latham & Watkins and
Faegre & Benson provided legal advice to CIMA.
15. ARE THERE WALKAWAY PROVISIONS?
There are reciprocal termination provisions standard for transactions
of this type, and in various circumstances termination may trigger a
termination payment. A copy of the merger agreement will soon be filed
by each company on SEC Form 8-K.
16. WHAT IS THE RATIONALE FOR THE MERGER?
The merger will accelerate both companies' strategies to develop,
enhance and commercialize proprietary pharmaceutical brands. By
combining aaiPharma's strong branded product portfolio and robust
pipeline with CIMA's pipeline and established proprietary technology,
including its orally disintegrating tablet (ODT) drug delivery
portfolio, the new company will be a more powerful, science-based
specialty pharmaceutical company. With a strong balance sheet, an
estimated $30 million in R&D spending and increased state-of-the-art
manufacturing capacity, the results of this merger will significantly
advance the long-term growth potential of both entities.
17. WHAT ARE THE BENEFITS OF HAVING A HIGHER MARKET CAP?
There are several benefits to having a higher market cap such as a more
diverse portfolio, more resources to invest into R&D and better return
on investment ratio. Importantly, with a higher market cap, we believe
that the combined company will be an attractive investment to a much
broader group of both small and midcap investors.
18. WHAT IS THE FINANCIAL IMPACT (ACCRETION/DILUTION) TO CIMA'S
STOCKHOLDERS?
The merger is expected to be immediately accretive to CIMA
stockholders. Accretion per diluted share is estimated to be $0.36 and
$0.35 in 2004 and 2005, respectively.
19. WHAT IS THE FINANCIAL IMPACT (ACCRETION/DILUTION) TO AAIPHARMA
STOCKHOLDERS?
The merger is expected to be dilutive to aaiPharma stockholders in 2004
and 2005, and accretive thereafter. Dilution to aaiPharma's earnings
per diluted share is estimated to be $0.16 and $0.18 in 2004 and 2005,
respectively.
20. WHAT WILL BE THE COMBINED COMPANY'S BOARD MAKEUP?
The Board of Directors of the combined company will consist of 8
members at closing comprised of four members from each of aaiPharma's
and CIMA's current Boards.
21. WHO WILL BE RESPONSIBLE FOR RUNNING THE COMBINED COMPANY?
Fred Sancilio, Ph.D., Chairman and CSO of aaiPharma, will become
Chairman of the combined company.
Steve Ratoff, the Interim CEO of CIMA, will become Vice Chairman of the
combined company.
Phil S. Tabbiner, President and CEO of aaiPharma, will become the
President and CEO of the combined company.
22. WHAT WILL BE THE COMBINED FINANCIAL PROFILE OF THE COMBINED COMPANY?
Combined pro forma 2003 revenue of $350 to 365 million.
Combined operating income of $90 to $95 million
Strong balance sheet with more than $50 million in cash and $175
million in long term debt
23. WHAT WILL BE THE R&D BUDGET FOR THE COMBINED COMPANY IN THE FIRST FULL
YEAR OF OPERATION?
We expect that the R&D budget for the first full year will be
approximately $30 million.
24. WILL THERE BE GOODWILL? HOW WILL THE EXCESS PURCHASE PRICE BE WRITTEN
OFF?
This transaction will be accounted for under the new purchase
accounting rules adopted in 2001. Thus, goodwill will be created,
although not amortized.
25. WHERE WILL THE COMPANY'S HEADQUARTERS BE LOCATED?
The new company will be headquartered in Wilmington, NC. We will
maintain both of CIMA's laboratory and manufacturing facilities in
Minnesota.
26. WERE THE VOTES OF THE AAIPHARMA BOARD OF DIRECTORS AND CIMA BOARD OF
DIRECTORS TO APPROVE THE MERGER UNANIMOUS?
The vote of the aaiPharma board of directors to approve the merger was
unanimous. Five members of the CIMA board of directors voted to
approve the merger. One member of the CIMA board of directors,
Terrence W. Glarner, opposed the merger and on numerous occasions
expressed his reservations regarding aaiPharma and the merger. The
board approvals and recommendations of each company's board of
directors will be discussed in further detail in the joint merger
proxy that aaiPharma and CIMA will mail to their respective
stockholders later this year.