•

the audited consolidated financial statements of Impax as of and for the year ended December 31, 2014 and the related notes, included in Impax’s Annual Report on Form 10-K for the year ended December 31, 2014;

•

the unaudited consolidated financial statements of Impax as of and for the three months ended March 31, 2015 and the related notes, included in Impax’s Quarterly Report on Form 10-Q for the three months ended March 31, 2015; and

•

the audited combined financial statements of Tower and Lineage as of and for the year ended December 31, 2014 and the related notes, incorporated herein by reference to Impax’s Current Report on Form 8-K/A, filed on May 15, 2015.

Impax

Laboratories, Inc. Historical

Tower Holdings, Inc. and Subsidiaries and Lineage Therapeutics, Inc. Historical

January 1, 2015 - March 9, 2015

(Footnote 4)

Pro Forma Adjustments (Footnote 7)

Pro Forma

Combined

Revenues:

Impax Generics revenues, net

Impax Specialty Pharma revenues, net

Total revenues

Cost of revenues

(a), (b), (h)

Gross profit

Operating expenses:

Research and development

(b)

Patent litigation expense

Selling, general and administrative

(b), (c), (d)

Total operating expenses

Loss from operations

Other loss, net

Interest income

(e)

Interest expense

(f), (i)

Loss before income taxes

Provision (benefit) for income taxes

(g)

Net loss

Net loss per share:

Basic

Diluted

Weighted average common shares outstanding:

Basic

Diluted

Impax

Laboratories, Inc. Historical

Tower Holdings, Inc. and Subsidiaries and Lineage Therapeutics, Inc. Historical

(Footnote 4)

Pro Forma Adjustments (Footnote 7)

Pro Forma

Combined

Revenues:

Impax Generics revenues, net

Impax Specialty Pharma revenues, net

Total revenues

Cost of revenues

(a), (b)

Gross profit

Operating expenses:

Research and development

(b)

Patent litigation expense

Selling, general and administrative

(b), (c)

Total operating expenses

Income from operations

Other income (loss), net

(j)

Interest income

(e)

Interest expense

(f)

Income before income taxes

Provision for income taxes

(g)

Net income

Net income per share:

Basic

Diluted

Weighted average common shares outstanding:

Basic

Diluted

1.

Description of Transaction

2.

Basis of Presentation

3.

Accounting Policies

4.

Historical Tower and Lineage

($ in thousands)

Before
Reclassification

Reclassification

After

Reclassification

Net sales

(a)

Impax Generics revenues, net

(a)

Impax Specialty Pharma revenues, net

(a)

Cost of sales

(b)

Cost of revenues

(b), (d), (e)

Intangible amortization expense

(e)

Research and development

(c)

Selling, general and administrative

(c), (d)

(a)

Represents the reclassification of “Net sales” of $32,437 thousand to “Impax Generics revenues, net” of $21,070 thousand for generic pharmaceutical products and “Impax Specialty Pharma revenues, net” of $11,367 thousand for branded pharmaceutical products.

(b)

Represents the reclassification of “Cost of sales” of $17,855 thousand to “Cost of revenues.”

(c)

Represents the reclassification of various expenses of $1,199 thousand of “Selling, general and administrative” to “Research and development.”

(d)

Represents the reclassification of various expenses of $700 thousand of “Selling, general and administrative” to “Cost of revenues.”

(e)

Represents the reclassification of “Intangible amortization expense” of $2,595 thousand to “Cost of revenues.”

($ in thousands)

Before

Reclassification

Reclassification

After

Reclassification

Net sales

(f)

Impax Generics revenues, net

(f)

Impax Specialty Pharma revenues, net

(f)

Cost of sales

(g)

Cost of revenues

(g), (i), (j)

Intangible amortization expense

(j)

Research and development

(h)

Selling, general and administrative

(h), (i)

(f)

Represents the reclassification of “Net sales” of $223,789 thousand to “Impax Generics revenues, net” of $156,728 thousand for generic pharmaceutical products and “Impax Specialty Pharma revenues, net” of $67,061 thousand for branded pharmaceutical products.

(g)

Represents the reclassification of “Cost of sales” of $125,569 thousand to “Cost of revenues.”

(h)

Represents the reclassification of various expenses of $6,161 thousand from “Selling, general and administrative” to “Research and development.”

(i)

Represents the reclassification of various expenses of $2,422 thousand from “Selling, general and administrative” to “Cost of revenues.”

(j)

Represents the reclassification of “Intangible amortization expense” of $14,162 thousand to “Cost of revenues.”

5.

Fair Value of Consideration Transferred in Connection with the Transaction

($ in thousands)

Estimated

Fair Value

Purchase price per the Stock Purchase Agreement

Working capital adjustment (a)

Total consideration

(a)

Pursuant to the Stock Purchase Agreement, this is an adjustment to reduce the consideration by the difference between the target working capital and the estimated closing date working capital.

6.

Assets Acquired and Liabilities Assumed in Connection with the Transaction

($ in thousands)

Amount

Accounts receivable (a)

Inventory

Income tax receivable and other prepaid expenses

Deferred income taxes

Property, plant and equipment (b)

Intangible assets (c)

Assets held for sale

Goodwill (d)

Other non-current assets

Total assets acquired

Current liabilities

Other non-current liabilities

Deferred tax liability

Total liabilities assumed

Cash paid, net of cash acquired

(a)

The accounts receivable acquired had a fair value of approximately $55 million, including an allowance for doubtful accounts of approximately $9 million, which is the best estimate at the acquisition date of the contractual cash flows not expected to be collected.

(b)

The fair value of the property, plant and equipment and their weighted-average useful lives are as follows:

($ in thousands)

Estimated

Fair Value

Estimated

Useful Life

Leasehold improvements

8 years

Furniture, office, & computer equipment

5 years

Software

3 years

General machinery & equipment

5 years

Laboratory equipment

4 years

Production equipment

7 years

Construction in progress

N/A

Total property, plant and equipment

($ in thousands)

Estimated

Fair Value

Weighted Average

Estimated Useful Life

Currently marketed products

13 years

Royalties and contract manufacturing relationships

12 years

In-process research and development

N/A

Total intangible assets

12 years

(d)

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized and is not deductible for tax purposes.

7.

Pro Forma Adjustments in Connection with the Transaction

(a)

Represents the increased amortization of the fair value of identified intangible assets with definite lives for the three months ended March 31, 2015 and the year ended December 31, 2014. The increase in amortization expense for intangible assets is calculated using the straight line method over the estimated remaining useful lives of the assets (see “Note 6 – Assets Acquired and Liabilities Assumed in Connection with the Transaction”), less the historical Tower and Lineage amortization expense.

($ in thousands)

Three Months Ended

March 31, 2015

Year Ended

December 31, 2014

Eliminate Tower’s and Lineage’s historical intangible amortization expense

Estimated amortization expense of acquired finite-lived intangibles

Total (a)

(b)

Represents the increased depreciation of the fair value of property, plant and equipment for the three months ended March 31, 2015 and the year ended December 31, 2014. The increase in depreciation expense for property, plant and equipment is calculated using the straight line method over the estimated remaining useful lives of the assets, less the historical Tower and Lineage depreciation expense.

($ in thousands)

Three Months Ended

March 31, 2015

Year Ended

December 31, 2014

Eliminate Tower’s and Lineage’s historical depreciation expense:

Cost of revenues

Research and development

Selling, general and administrative

Estimated depreciation expense of acquired property, plant and equipment:

Cost of revenues

Research and development

Selling, general and administrative

Net adjustment for pro forma depreciation expense:

Cost of revenues (b)

Research and development (b)

Selling, general and administrative (b)

(c)

Represents the reversal of non-recurring transaction costs which are directly attributable to the Transaction incurred by Impax, Tower and Lineage and included in the historical statements of operations for the three months ended March 31, 2015 and the year ended December 31, 2014 of $12,203 thousand and $4,138 thousand, respectively.

(d)

Represents the reversal of non-recurring severance and retention costs from “Selling, general and administrative” for the three months ended March 31, 2015 of $3,387 thousand. The retention costs were due upon the change in control. The severance costs were a result of certain restructuring actions taken by the Company upon closing.

(e)

Represents the reversal of interest income earned on short-term investments for the three months ended March 31, 2015 and the year ended December 31, 2014 that were liquidated at the time of the Transaction in order to finance the agreed upon cash consideration.

(f)

Represents the increased interest expense for the three months ended March 31, 2015 and the year ended December 31, 2014 and shows the reflection of pro forma (i) elimination of interest expense on the long-term debt held by Tower and Lineage that was extinguished as part of the Transaction and (ii) interest expense associated with the Senior Secured Credit Facilities, including interest expense based on the current, committed rate of 5.5%, commitment fees and amortization of deferred financing fees over the lives of the Senior Secured Credit Facilities using the effective interest method. Interest on the Term Loan is calculated using a variable rate. A 1/8% increase (decrease) in the annual interest rate would cause the net income (loss) to increase (decrease) for the three months ending March 31, 2015 and the year ending December 31, 2014 by $128 thousand and $527 thousand, respectively.

($ in thousands)

Three Months Ended

March 31, 2015

Year Ended

December 31, 2014

Eliminate Tower’s and Lineage’s historical interest expense on long-term debt

Estimated interest expense on the Senior Secured Credit Facilities (incremental from January 1, 2015 through March 9, 2015 (the acquisition date) and full year ended December 31,2014, respectively)

Total (f)

(g)

Represents the income tax effect for unaudited pro forma combined financial statement of operations adjustments related to the Transaction using a 36.3% statutory tax rate (federal and state, net of federal benefit).

(h)

Represents the reversal of a non-recurring charge of $1,124 thousand from cost of revenues related to fair value adjustments to inventory sold that was incurred during the three months ended March 31, 2015.

(i)

Represents the reversal of a non-recurring charge of $2,317 thousand from interest expense related to commitment fees on the $435 million term loan that was incurred during the three months ended March 31, 2015.

(j)

Represents the reversal of a non-recurring charge of $7,725 thousand from other loss relating to the change in fair value of warrants that were required to be settled prior to the acquisition as a part of the Stock Purchase Agreement for the year ended December 31, 2014.

8.

Earnings per Share