<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K/A2
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Fiscal Year Ended October 1, 1994
Commission File Number 1-10827
PHARMACEUTICAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3122182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK 10977
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (914) 425-7100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
The New York Stock Exchange, Inc.
Common Stock $.01 par value The Pacific Stock Exchange, Inc.
--------------------------------
The New York Stock Exchange, Inc.
Common Stock Purchase Rights The Pacific Stock Exchange, Inc.
--------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Series A Convertible Preferred Stock, $.0001 par value
------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days: Yes [x] No
-------- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in Part III of this Form 10-K/A or any amendment
to this Form 10-K/A. [x]
---------
$130,772,610
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF DECEMBER 19, 1994 (ASSUMING SOLELY FOR PURPOSES OF THIS
CALCULATION THAT ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ARE
"AFFILIATES").
14,593,395
Number of shares of common stock outstanding as of December 19, 1994
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
------- --------------------------------------------------
DIRECTORS
The Company's Certificate of Incorporation provides that the Board shall be
divided into three classes, with the term of office of one class expiring each
year. The Class I and Class III directors of the Company have terms which
expire in 1997 and 1996, respectively. The terms of office of the Class II
directors expire in 1995. The following table sets forth certain information
with respect to each of the Class I, II and III directors and the year each was
first elected as a director:
<TABLE>
<CAPTION>
AGE YEAR
(AS OF OF FIRST
NAME 1/18/95) ELECTION
---- -------- --------
<S> <C> <C>
CLASS II
Andrew Maguire, Ph.D. (1)(2)(3)..................... 55 1990
Since January 1990, President and Chief
Executive Officer of Appropriate Technology
International, a not-for-profit development
assistance corporation and, since January 1989,
a Senior Vice President of Washington Financial
Group, an investment banking firm. From June
1987 to January 1989, Executive Vice President
of the North American Securities
Administrators Association.
Melvin H. Van Woert, M.D. (1)(2)(3)(4).............. 65 1990
Since 1974, Physician and Professor of Neurology
and Pharmacology and Doctoral Faculty, Mount
Sinai Medical Center, New York.
CLASS I
Mark Auerbach (1)(3)(5)............................. 56 1990
Since June 1993, the Senior Vice President and
Chief Financial Officer of Central Lewmar L.P.,
a distributor of fine papers. From August 1992
to June 1993, a partner of Marron Capital L.P.,
an investment banking firm. From July 1990 to
August 1992, President, Chief Executive Officer
and Director of Implant Technology Inc., a
manufacturer of artificial hips and knees. From
February 1989 to August 1990, Managing Director-
Corporate Finance of F.N. Wolf & Co., Inc., an
investment banking firm. From 1978 to February
1989, President and Chief Executive Officer of
Keystone Camera Products Corp., a manufacturer
of camera products. Director of Oakhurst
Capital, a distributor of automotive parts and
accessories.
H. Spencer Matthews (5)............................. 73 1990
Since 1986, President and Chief Executive
Officer of Dispense-All South Coast, Inc.,
Dispense-All Capital Area, Inc., Dispense-All
Central Florida, Inc. and Dispense-All of
Louisiana, Inc., four companies which are
wholesalers of juice concentrates. Rear Admiral,
United States Navy (Retired).
</TABLE>
1
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<TABLE>
<CAPTION>
Diana L. Sloane (4)................................. 34 1990
<S> <C> <C>
Since March 1993, Vice President-Regulatory and
Scientific Affairs of the Company and of
Pharmaceutical, Inc. From February 1992 to March
1993, Vice President-Regulatory Affairs and
Quality of the Company and of Pharmaceutical,
Inc. From March 1990 to February 1992, Group
Vice President-Regulatory Affairs of
Pharmaceutical, Inc. From March 1988 to March
1990, Associate Director-Regulatory Affairs of
Superpharm Corporation, a subsidiary of Orlove
Enterprises, Inc., a company engaged in the
manufacture and distribution of pharmaceutical
and other products ("Superpharm"). From May 1987
to March 1988, Manager-Compliance of Superpharm.
CLASS III
Kenneth I. Sawyer (2)(3)(4)......................... 49 1989
Since October 1990, Chairman of the Board of the
Company. Since October 1989, President and Chief
Executive Officer of the Company. From September
1989 to October 1989, Interim President and
Chief Executive Officer of the Company. From
August 1989 to September 1989, counsel to the
Company. From May 1989 to August 1989, an
attorney in private practice. From prior to 1987
to May 1989, Vice President and General Counsel
of Orlove Enterprises, Inc., a company engaged
in the manufacture and distribution of
pharmaceutical and other products. Director of
Acorn Venture Capital Corporation, a closed-end
investment company.
Robin O. Motz, M.D., Ph.D.(2)(5).................... 55 1992
Since July 1978, Assistant Professor of Clinical
Medicine, Columbia University College of
Physicians and Surgeons. Physician engaged in a
private practice of internal medicine.
</TABLE>
---------------------------------
(1) A member of the Audit Committee of the Board of the Company.
(2) A member of the Nominating Committee of the Board of the Company.
(3) A member of the Strategic Planning Committee of the Board of the Company.
(4) A member of the Executive Committee of the Board of the Company.
(5) A member of the Compensation and Stock Option Committee of the Board of the
Company.
EXECUTIVE OFFICERS
The executive officers of the Company consist of Mr. Sawyer as President,
Chief Executive Officer and Chairman of the Board, Ms. Sloane as Vice President,
Regulatory and Scientific Affairs, Robert I. Edinger as Vice President, Finance,
Chief Financial Officer and Secretary. The executive officers of Par
Pharmaceutical, Inc., the Company's principal operating subsidiary ("Par"),
consist of Mr. Sawyer, Ms. Sloane and Mr. Edinger, as well as Stuart A. Rose,
Ph.D., Executive Vice President, Operations of Par, and Robert M. Fisher, Jr.,
Vice President, Corporate Development, Sales and Marketing of Par.
The following table sets forth certain information with respect to the
executive officers of the Company and Par who are not directors or nominees for
election as a director:
<TABLE>
<CAPTION>
AGE
(AS OF
NAME 1/18/95)
---- --------
<S> <C>
Robert I. Edinger................................... 54
Since January 1995, Executive Vice President,
Finance, Chief Financing Officer and Secretary
of the Company and since June
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
1993, Vice President, Chief Financial Officer
and Secretary of the Company. From 1990 to June
1993, Executive Vice President of Bonjour Group,
Ltd., a licensing company. From 1986 to 1990,
President and Chief Financial Officer of OCP
America, a wholesale drug distribution company.
Stuart A. Rose, Ph.D. .............................. 52
Since January 1995, Executive Vice President,
Operations of Par. From 1990 to 1994, Vice
President, Manufacturing and Materials Supply,
Lederle International Division of American
Cyanamid Company, a company engaged in the
manufacture of generic pharmaceuticals. From
1984 to 1990, President and General Manager,
Lederle Parenterals, Inc., a company engaged in
the manufacture of generic pharmaceuticals.
Robert M. Fisher, Jr. .............................. 47
Since October 1993, Vice President, Corporate
Development, Sales and Marketing of Par. From
March 1993 to October 1993, Vice President,
Corporate Development of F.H. Faulding USA, a
company engaged in the manufacture of
pharmaceuticals. From 1992 to 1993, Vice
President, Business Development, PUREPAC
Pharmaceutical Company, a company engaged in the
manufacture of generic pharmaceuticals, and from
1989 to 1992, Vice President and General Manager
of Rondex Laboratories at PUREPAC.
</TABLE>
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
------- ----------------------
The following table sets forth compensation earned by or paid, during fiscal
years 1992 through 1994, to the Chief Executive Officer of the Company and the
three additional most highly compensated executive officers (over $100,000)
serving as executive officers of the Company and/or Par during fiscal 1994 (the
"Named Executives"). The Company awarded or paid such compensation to all such
persons for services rendered in all capacities during the applicable fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------------------------
Restricted Securities
Name and Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Awards($)(1) Options(#) Compensation ($)(2)
------------------ ---- --------- -------- ------------ ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer 1994 408,238 100,000 - -- 59,752
President, Chief 1993 413,215 200,000 - 500,000 70,852
Executive Officer 1992 331,170 250,000 - 120,000 32,152
and Chairman
Diana L. Sloane 1994 208,097 22,500 - -- 26,086
Vice President- 1993 179,423 40,000 - 130,000 22,953
Regulatory and 1992 140,496 115,000 - 45,000 22,372
Scientific Affairs
Robert I. Edinger 1994 180,000 50,000 - -- 795
Executive 1993 58,846 25,000 - 40,000 76
Vice President,
Chief Financial
Officer & Secretary
Robert M. Fisher, Jr. 1994 122,359 23,500 - 10,000 474
Vice President,
Corporate Development,
Sales & Marketing,
Par
</TABLE>
-------------------------
(1) The Company believes that at the end of fiscal 1994, the Named Executives
did not hold any shares of restricted stock.
(2) For fiscal year 1994, includes insurance premiums paid by the Company for
term life insurance for the benefit of the Named Executives as follows:
Mr. Sawyer-$2,438; Ms. Sloane-$528; Mr. Edinger-$795; and Mr. Fisher-$474.
Also includes $20,704 contributed by the Company for the benefit of each of
Mr. Sawyer and Ms. Sloane under the Par Pharmaceutical Retirement Plan, and
$4,854 contributed by the Company on behalf of Ms. Sloane to the Company
401(k) Plan. The amount for Mr. Sawyer also includes $36,610, representing
the maximum potential estimated dollar value of the Company's portion of
insurance premium payments from a split-dollar life insurance policy as if
1994 premiums were advanced to the executive without interest until the
earliest time the premium may be refunded by Mr. Sawyer to the Company.
Stuart A. Rose, Ph.D., was hired as Executive Vice President, Operations of
Par beginning January 1995. As a result, Dr. Rose received no compensation from
the Company or Par during fiscal year 1994.
4
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Option Term
-------------------------------
% of Total
Shares Options
Underlying Granted to
Options Employees Exercise Expiration
Name Granted (#) in Fiscal Year Price ($) Date 0% ($) 5% ($) 10% ($)
----- ----------- -------------- -------- --------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Fisher, Jr.(1) 10,000 13.5% 13.875 10/21/98 0 177,084 223,458
</TABLE>
-------------------------
(1) Represents options granted pursuant to the Company's 1990 Stock Incentive
Plan on October 22, 1993, of which 5,000 became exercisable on October 22, 1994
and 5,000 will become exercisable on October 22, 1995.
The following table sets forth the stock options exercised by the Named
Executives during fiscal 1994 and the value, as of October 1, 1994, of
unexercised stock options held by the Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
---------------------- --------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ------------ ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer 0 0 1,000,000 0 2,445,000 0
Diana L. Sloane 20,000 309,875 162,480 27,520 191,250 0
Robert I. Edinger 0 0 26,660 13,340 0 0
Robert M. Fisher, Jr. 0 0 0 10,000 0 0
</TABLE>
COMPENSATION OF DIRECTORS
For service on the Board, directors who are not employees of the Company or
any of its subsidiaries receive an annual retainer of $10,000, a fee of $1,000
for each meeting of the Board attended, and a fee of $1,000 for each committee
meeting attended. Directors who are not eligible to receive options under any
other plan of the Company also are granted options to purchase 6,000 shares of
Common Stock per year, or 18,000 shares of Common Stock per year if the director
waives the annual retainer, pursuant to the 1989 Directors' Stock Option Plan.
Directors who are employees of the Company or any of its subsidiaries receive no
additional remuneration for serving as directors or as members of committees of
the Board. Directors are entitled to reimbursement for out-of-pocket expenses
incurred in connection with their attendance at Board and committee meetings.
In fiscal 1994, H. Spencer Matthews received an additional $5,497 in
compensation from the Company for providing his expertise in connection with
ongoing potential sales of pharmaceutical products to the Russian Republic. Dr.
Melvin H. Van Woert received an additional $13,550 in compensation from the
Company for providing his expertise in connection with a drug to be developed by
the Company.
5
<PAGE>
EMPLOYMENT AGREEMENTS AND TERMINATION ARRANGEMENTS
The Company has entered into employment agreements with Mr. Sawyer, Ms.
Sloane, Mr. Edinger, Mr. Fisher and Dr. Rose. Each of the employment agreements
with Mr. Sawyer, Ms. Sloane and Mr. Edinger provides for the officer's
employment in his or her current position through the dates set forth below,
subject to earlier termination by the Company for Cause (as such term is defined
in the respective agreements). Mr. Sawyer's term of employment expires on
October 4, 1995, but will be automatically extended each year for an additional
one-year period unless either party provides written notice by July 4 of such
year that he or it desires to terminate the agreement. Ms. Sloane's term of
employment expires on March 31, 1995. Mr. Edinger's and Mr. Fisher's terms of
employment expire on October 13, 1995. Dr. Rose's term of employment expires on
January 16, 1996. Each such employment agreement provides that the officer
will receive specified salary, bonuses, stock options, stock awards and other
employee benefits, as the case may be. Under the agreement with Mr. Sawyer, the
Company is required to use its best efforts to cause him to be elected and re-
elected to the Board during his term of employment. Mr. Sawyer, pursuant to the
terms of his employment agreement, is and will be required to serve, if so
elected, on the Board of Directors of the Company and any subsidiary, as well as
any committees thereof.
Each of the foregoing employment agreements provides for certain payments upon
termination of the officer's employment as a result of a material breach by the
Company of his or her employment agreement following a Change of Control of the
Company. A material breach by the Company of the employment agreements includes,
but is not limited to, termination without Cause and a change of the officer's
responsibilities. In the case of Mr. Sawyer, he is entitled to receive, if such
a termination occurs within two years following a Change of Control of the
Company, a lump sum payment equal to the lesser of three times the sum of his
annual base salary and most recent bonus or the maximum amount permitted without
the imposition of an excise tax on Mr. Sawyer or the loss of a deduction to the
Company under the Internal Revenue Code of 1986, as amended (the "Code"), plus
reimbursement of certain legal and relocation expenses incurred by Mr. Sawyer as
a result of the termination of his employment and maintenance of insurance,
medical and other benefits for 24 months or until Mr. Sawyer is covered by
another employer for such benefits. In the case of Ms. Sloane, she is entitled
to receive a lump sum payment equal to twice her prior year's aggregate annual
compensation and the cost of continuing certain benefits for up to 24 months if
such a termination occurs following a Change of Control. In the case of Messrs.
Edinger and Fisher and Dr. Rose, each is entitled to receive severance
compensation amounting to 12 months continuation of his base salary payable in
12 monthly installments plus maintenance of medical and other benefits for 12
months or until such employee is covered by another employer for such benefits
if earlier.
In addition, Mr. Sawyer's employment agreement provides for the Company to
purchase a residence within the vicinity of the Company's principal offices for
Mr. Sawyer to occupy for the duration of his term of employment. In this
connection, the Company purchased a condominium for the price of $415,000, which
Mr. Sawyer leased from the Company from September 15, 1994, until April 22,
1994, when the Company sold the residence for $415,000 with the express approval
of Mr. Sawyer. (See "Certain Relationships and Related Transactions.")
PENSION PLAN
The Company maintains a defined benefit plan (the "Pension Plan") intended to
qualify under Section 401(a) of the Code. Effective October 1, 1989, the Company
ceased benefit accruals under the Pension Plan with respect to service after
such date. The Company intends that distributions will be made, in accordance
with the terms of the Plan, to participants as of such date and/or their
beneficiaries. The Company will continue to make contributions to the Pension
Plan to fund its past service obligations. Generally, all employees of the
Company or a participating subsidiary who completed at least one year of
continuous service and attained 21 years of age were eligible to participate in
the Pension Plan. For benefit and vesting purposes, the Pension Plan's "Normal
Retirement Date" is the date on which a participant attains age 65 or, if later,
the date of completion of 10 years of service. Service is measured from date of
employment. The retirement income formula is 45% of the highest consecutive
five-year average basic earnings during the last 10 years of employment, less
83/1//3% of the participant's Social Security benefit, reduced proportionately
for years of service less than 10 at retirement. The normal form of
6
<PAGE>
benefit is a life annuity, or for married persons, a joint and survivor annuity.
None of the Named Executives had any years of credited service under the Pension
Plan.
COMPENSATION AND STOCK OPTION COMMITTEE REPORT
The Compensation and Stock Option Committee of the Board of Directors (the
"Compensation Committee"), consisting entirely of non-employee directors,
approves all of the policies and programs pursuant to which compensation is paid
or awarded to the Company's executive officers and key employees. The
Compensation Committee held eight meetings in fiscal 1994. In reviewing overall
compensation for fiscal 1994, the Compensation Committee focused on the
Company's objectives to attract executives of the highest caliber from larger,
well-established pharmaceutical manufacturers, to retain the Company's
executives, to encourage the highest level of performance from such executives
and to align the financial interests of the Company's management with that of
its shareholders by offering awards that can result in the ownership of Common
Stock. The Company did not utilize specific formulae or guidelines in reviewing
and approving executive compensation.
ELEMENTS OF EXECUTIVE COMPENSATION PROGRAM. The key elements of the
Company's executive compensation program consist of base salary, annual bonus,
stock options through participation in the Company's 1986 Stock Option Plan and
stock options and other incentive awards through participation in the Company's
1990 Stock Incentive Plan. In awarding or approving compensation to executives
in fiscal 1994, the Compensation Committee considered the performance and
profitability of the Company, the present and potential contribution of the
executive to the Company and the ability of the Company to attract and retain
qualified executives in light of the regulatory reviews of the Company's
operations, lawsuits asserted against it and its financial condition.
BASE SALARY AND ANNUAL BONUS. Base salary and annual bonus for executive
officers are determined by reference to Company-wide and individual performances
for the previous fiscal year based upon financial and non-financial criteria.
The financial measures for 1994 were operating income (before adjustments for
legal settlements and other non-operational items), sales and research and
development expenditures. Non-financial measures included both strategic and
operational factors, such as successful removal of the Company from the U.S.
Food and Drug Administration's ("FDA") Application Integrity Assessment Program,
efforts in responding to other regulatory matters, efforts in exploration of
strategic alternatives for the Company, research and development expenditures,
review and implementation of updated systems and operational procedures as a
foundation for future growth and realignment of the Company's internal sales and
marketing organization. The Compensation Committee placed the greatest weight on
financial factors. In addition to Company-wide measures of performance, the
Compensation Committee considers those performance factors particular to each
executive officer, including the performance of the area for which such officer
had management responsibility and individual accomplishments.
Base salaries for executives were determined primarily by reference to
industry norms, the principal job duties and responsibilities undertaken by such
persons, individual performance and other relevant criteria. Base salary
comparisons for most executives are made to a group of pharmaceutical
manufacturers in the United States. Such group is selected by the Company based
upon several factors including, but not limited to, the duties and
responsibilities of the executive used in the comparison, size and complexity of
operations, reputation and number of employees of other companies. With respect
to Mr. Sawyer, Chief Executive Officer, a comparison was made by an independent
consulting firm, prior to the signing of his employment agreement in 1992, to
generic pharmaceutical companies and turnaround situations selected by the
consulting firm. In keeping with its goal of recruiting executives from larger,
well-established pharmaceutical manufacturers, the Compensation Committee
considers the performance of the companies used in the comparisons, as measured
by their quality and regulatory profile, as well as competitive necessity in
determining base salaries. The Compensation Committee considered it appropriate
and in the best interest of the Company and its shareholders to set the levels
of base salary for the Company's Chief Executive Officer and other executives at
the median of comparable companies in order to attract and retain the highest
caliber of managers for the Company so as to position the Company for future
growth and improved performance. In order to attract and retain certain key
executives, the Company offers its executives long-term employment contracts
which provide for specified base salaries.
7
<PAGE>
The Compensation Committee, in determining the annual bonuses to be paid to
its executives for fiscal 1994, considered the financial performance of the
Company during the fiscal year and the individual's contribution to such
performance, as opposed to determination by reference to a formal, goal-based
plan. The financial performance measures used by the Compensation Committee in
determining annual bonuses were operating income (before adjustments for legal
settlements on other non-operational items) and sales. Bonuses were also based
upon assessments of each executive's participation and contribution to the non-
financial measures described above. The non-financial measures varied among
executives depending upon the operations under their management and direction.
Based upon the Company's regulatory and other concerns arising out of the acts
of its prior management, the Compensation Committee utilized the award of
bonuses, without necessarily referring to specific benchmarks, to attract and
retain high quality executives for the Company.
STOCK OPTIONS AND OTHER AWARDS. The Company's 1986 Stock Option Plan
provides for stock option awards and the Company's 1990 Stock Incentive Plan
provides for stock option and other equity-based awards. Under all such Plans,
the size of each award and the persons to whom such awards are granted is
determined by the Compensation Committee based upon the nature of services
rendered by the executive, the present and potential contribution of the grantee
to the Company and the overall performance of the Company. The Compensation
Committee believes that grants of stock options will enable the Company to
attract and retain the best available talent and encourage the highest level of
performance in order to continue to serve the best interests of the Company and
its shareholders. Stock options and other equity-based awards provide executives
with the opportunity to acquire equity interests in the Company and to
participate in the creation of shareholder value and to benefit correspondingly
with increases in the price of the Company's Common Stock.
COMPENSATION COMMITTEE'S ACTIONS FOR 1994. In determining the amount and
form of executive compensation to be paid or awarded for fiscal 1994, the
Compensation Committee considered both the Company's overall financial
performance during the fiscal year and other criteria discussed above in this
report. In light of the reductions in operating income and sales in fiscal 1994
from fiscal 1993, the Compensation Committee significantly reduced the annual
bonuses of the Named Executives, including the Chief Executive Officer, from the
prior fiscal year. However, the Compensation Committee also took into account
the following strategic and operational factors, among others described above,
in awarding bonuses:
(i) the removal of the Company from the FDA's Application Integrity
Assessment Program and efforts in responding to a warning letter from the FDA;
(ii) the settlement of several significant litigations against the Company;
(iii) positioning of the Company to explore strategic alternatives; and
(iv) the negotiation and implementation of the distribution agreements with
Genpharm, Inc. and The Generics Group B.V.
In fiscal 1994, the Compensation Committee also awarded stock options to
executives (including options to one Named Executive), extended the period in
which such options are exercisable for certain former key employees and
accelerated the vesting dates of previously awarded options for certain key
employees. The Compensation Committee granted stock options to Mr. Fisher, a
Named Executive, as part of the compensation package offered to attract him to
accept a position and remain with the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION. The Compensation Committee approved an
employment agreement in October 1992 for Mr. Sawyer with the Company. In
approving such employment agreement, the Compensation Committee authorized a
base salary of $358,238 for Mr. Sawyer in fiscal year 1994. In addition to his
base salary, Mr. Sawyer was awarded by the Compensation Committee a bonus of
$100,000 for fiscal year 1994 performance and a cost of living allowance of
$50,000.
In reviewing and setting Mr. Sawyer's compensation, the Compensation Committee
recognized his substantial role in (i) settling three significant lawsuits
against the Company, (ii) negotiating and implementing several joint venture
8
<PAGE>
agreements for the Company, (iii) improving the manufacturing capacities of the
Company, (iv) working to explore strategic alternatives for the Company, (v)
diversifying the Company's customer base and (vi) successfully recruiting a new
and expanded management team.
Recently enacted Internal Revenue Code Section 162(m) limits deductions for
federal income tax purposes for certain executive compensation in excess of $1
million. Certain types of compensation are deductible only if performance
criteria are specified in detail and payments are contingent upon shareholder
approval of the compensation arrangement. The level of salaries and bonus to the
Named Executives paid by the Company do not exceed this limit at this time.
COMPENSATION AND STOCK OPTION COMMITTEE
Mark Auerbach
H. Spencer Matthews
Robin O. Motz
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee conducted deliberations concerning executive
compensation during the last completed fiscal year. None of the Compensation
Committee members are executive officers of the Company. None of the executive
officers of the Company has served on the board of directors or on the
compensation committee of any other entity, any of whose officers served on the
Board of the Company.
9
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total return of the Company's Common
Stock with the cumulative total return of the New York Stock Exchange Composite
Index and the S&P/ (R)/ Health Care Drugs Index for the annual periods from
September 30, 1989 to September 30, 1994. The graph assumes $100 was invested on
September 30, 1989 in the Company's Common Stock and $100 was invested at that
time in each of the Indexes. The comparison assumes that all dividends are
reinvested.
[Performance Graph]
<TABLE>
<CAPTION>
==========================================================================
SEPT. SEPT. SEPT. SEPT. SEPT. SEPT.
1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
PHARMACEUTICAL RESOURCES $ 100 $ 83 $ 70 $ 113 $ 215 $ 149
NYSE COMPOSITE INDEX $ 100 $ 90 $ 119 $ 132 $ 151 $ 157
S&P(R) HEALTH CARE DRUGS INDEX $ 100 $ 108 $ 166 $ 161 $ 130 $ 157
==========================================================================
</TABLE>
10
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
------- --------------------------------------------------------------
OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of the close of business on January 18,
1995, the beneficial ownership of the Common Stock by (i) each person known
(based solely on a review of Schedules 13D or 13G filed) to the Company to be
the beneficial owner of more than 5% of the Common Stock, (ii) each director and
nominee for election as a director of the Company, (iii) the Named Executives,
and (iv) all directors and current executive officers of the Company and Par, as
a group (based upon information furnished by such persons). Under the rules of
the Securities and Exchange Commission, a person is deemed to be 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 of or to direct the disposition
of such security. In general, 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. Accordingly, more than one person may be deemed to be
a beneficial owner of the same securities. As of January 18, 1995, an aggregate
of 14,633,773 shares of Common Stock were outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF PERCENTAGE OF
---------------- --------- -------------
OF COMMON COMMON
-- --------- -------------
BENEFICIAL OWNER STOCK STOCK
---------------- --------- -------------
<S> <C> <C>
Kenneth I. Sawyer(1)(2)(3)................................. 1,005,505 6.4
Diana L. Sloane(1)(2)...................................... 191,710 *
Robert I. Edinger(1)....................................... 40,000 *
Mark Auerbach(1)(2)........................................ 29,000 *
Andrew Maguire(1)(2)....................................... 51,000 *
H. Spencer Matthews(1)(2).................................. 36,000 *
Melvin H. Van Woert, M.D.(1)(2)............................ 66,990 *
Robin O. Motz, M.D., Ph.D.(1)(2)........................... 24,000 *
Robert M. Fisher, Jr.(1)................................... 5,870 *
Stuart A. Rose(1).......................................... 2,000 *
All directors and executive officers (as of 1/18/95) as a 1,452,075 9.0
group (ten persons)....................................
----------
</TABLE>
* Less than 1%.
(1) The business address of each of these individuals, for the purposes hereof,
is in care of Pharmaceutical Resources, Inc., One Ram Ridge Road, Spring
Valley, New York 10977.
(2) A director of the Company.
(3) Includes 355 shares of Common Stock as to which Mr. Sawyer shares
beneficial ownership with one former shareholder of Quad Pharmaceuticals,
Inc. ("Quad"), a subsidiary of the Company, pursuant to an agreement dated
May 29, 1990. (See "Voting Arrangements.")
VOTING ARRANGEMENTS
On May 29, 1990, Mr. Sawyer was granted proxies by three former shareholders
of Quad (the "Additional Proxies") to vote any shares of Common Stock owned by
him (which amounted to 355 shares at January 30, 1995) on all matters that might
come before a meeting of the Company's shareholders, including the election of
directors. The Additional Proxies terminate upon the earlier of May 29, 2000, or
the date on which the shareholder granting the proxy no longer owns any shares
of voting stock of the Company. The foregoing proxies were granted to help
assure certain governmental agencies that were involved in the investigation and
review of the generic drug industry that the Company's shareholders are
supportive of the new management established by the Company since September
1989.
11
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
------- ----------------------------------------------
In July 1993, the Company purchased a condominium for $415,000 (subject to
certain closing adjustments). Beginning on September 15, 1993, the Company
leased the condominium to Kenneth I. Sawyer, the President, Chief Executive
Officer and Chairman of the Board of the Company, for a period equal to the term
of his employment agreement at $2,600 per month, which represented the fair
market value as determined by a disinterested third party. The Company sold the
condominium on April 22, 1994, for $415,000 with the express consent of Mr.
Sawyer and, as a result, the lease terminated. (See "Employment Agreements and
Termination Arrangements.")
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
------- ---------------------------------------------------------------
(a)(1)&(2) Financial Statements.
See Index to Financial Statements after Signature Page.
(a)(3) Exhibits.
3.1 Certificate of Incorporation of the Registrant. (4)
3.1.1 Certificate of Amendment to the Certificate of Incorporation of the
Registrant, dated August 6, 1992--incorporated by reference to the
Registrant's Registration Statement on Form 8-A (Commission File No.
0-20834), filed with the Commission November 10, 1992.
3.2 By-Laws of the Registrant, as amended and restated. (3)
4 Rights Agreement, dated August 6, 1991, between the Registrant and
Midlantic National Bank, as Rights Agent. (5)
4.1 Amendment to Rights Agreement, dated as of April 27, 1992. (3)
10.1 1983 Stock Option Plan of the Registrant, as amended. (2)
10.2 1986 Stock Option Plan of the Registrant, as amended. (2)
10.3 1989 Directors' Stock Option Plan of the Registrant, as amended.
(5)
10.4 1989 Employee Stock Purchase Program of the Registrant. (7)
10.5 1990 Stock Incentive Plan of the Registrant, as amended. (2)
10.6 Form of Retirement Plan of Par. (12)
10.6.1 First Amendment to Par's Retirement Plan, dated October 26,
1984. (6)
10.7 Form of Retirement Savings Plan of Par. (12)
10.7.1 Amendment to Par's Retirement Savings Plan, dated July 26,
1984. (13)
10.7.2 Amendment to Par's Retirement Savings Plan, dated November 1,
1984. (13)
10.7.3 Amendment to Par's Retirement Savings Plan, dated September
30, 1985. (13)
10.8 Par Pension Plan, effective October 1, 1984. (4)
10.9 Employment Agreement, dated as of October 4, 1992, among the
Registrant, Par and Kenneth I. Sawyer. (1)
13
<PAGE>
10.10 Lease Agreement between Par and the County of Rockland
Industrial Development Agency, dated as of October 1, 1984. (6)
10.10.1 Lessee Guaranty between Par and Midlantic National Bank,
dated as of October 1, 1984. (6)
10.10.2 Mortgage from County of Rockland Industrial Development Agency to
Midlantic National Bank, as Trustee, dated as of October 1, 1984.
(13)
10.10.3 Security Agreement between County of Rockland Industrial
Development Agency and Midlantic National Bank, as Trustee, dated as
of October 1, 1984. (13)
10.11 Term Loan Agreement, dated September 18, 1987, between
Midlantic National Bank/North and Par. (11)
10.11.1 Note and Indenture, dated September 18, 1987, between
Midlantic National Bank/North and Par. (11)
10.12 Revolving Credit Agreement, dated February 20, 1992, between
Par and Midlantic National Bank. (1)
10.13 Agreement Concerning Term Loans, dated February 20, 1992,
between Par and Midlantic National Bank. (1)
10.14 Amendments to Term Note, dated February 20, 1992. (1)
10.15 Lease for premises located at 12 Industrial Avenue, Upper Saddle
River, New Jersey, between Par and Charles and Dorothy Horton, dated
October 21, 1978 and extension dated September 15, 1983. (12)
10.15.1 Extension of Lease, dated November 8, 1989, between Par and Charles
and Dorothy Horton relating to premises at 12 Industrial Avenue,
Upper Saddle River, New Jersey. (9)
10.16 Lease, dated November 7, 1986, between Ramapo Corporate Park, Inc.
as landlord, and Par as tenant. (4)
10.16.1 Amendment by letter dated March 10, 1988 to the lease, dated
November 7, 1986, between Ramapo Corporate Park, Inc. as lessor and
Par as lessee. (10)
10.17 Lease, dated December 15, 1987, between Ram Ridge Estates Corp.
as lessor and Par as lessee. (10)
10.18 Standstill Agreements and Irrevocable Proxies, each dated May 29,
1990, between Par and each of Asrar Burney, Dulal Chatterji, and
Raja Feroz. (8)
10.19 Agreement of Purchase and Sale, dated June 4, 1992, among Quad,
Par, and The Liposome Company, Inc. (1)
10.19.1 Modification of Agreement of Purchase and Sale, dated July
24, 1992, among Quad, Par, and The Liposome Company, Inc. (1)
14
<PAGE>
10.20 Employment Agreement, dated as of April 1, 1993, between Par and
Diana L. Sloane. (14)
10.21 Employment Agreement, dated as of May 19, 1993, between the
Registrant and Robert I. Edinger. (14)
10.22 Distribution Agreement, dated as of October 16, 1993, between
Genpharm, Inc., the Registrant and PRX Distributors, Ltd. (14)
10.23 Agreement, dated as of September 30, 1993, between National
Union Fire Insurance Company of Pittsburgh and Par. (14)
10.24 Settlement Agreement and Release, dated as of November 29, 1993,
between Mylan Laboratories, Inc., the Registrant, Par and Quad. (14)
10.25 Settlement Agreement and Release, dated as of January 6, 1994,
between Minnesota Mining & Manufacturing Company, Riker
Laboratories, Inc., the Registrant and Par. (14)
10.26 Settlement Agreement and Release, dated as of December 22, 1993,
between United States Trading Corporation, Marvin Sugarman,
Liquipharm, Inc., the Registrant and Par. (14)
10.27 Letter Agreement, dated April 30, 1993, between The Generics
Group B.V. and Par. (16)
10.28 Distribution Agreement, dated as of February 24, 1994, between
Sano Corporation, the Registrant and Par, as amended. (16)
10.29 Mortgage and Security Agreement, dated May 4, 1994, between
Urban National Bank and Par. (15)
10.29.1 Mortgage Loan Note, dated May 4, 1994. (15)
10.29.2 Corporate Guarantee, dated May 4, 1994, by the Registrant to
Urban National Bank. (15)
10.30 Non-exclusive Distribution, Exclusive Supply Agreement, dated as of
September 13, 1994, between Mova Pharmaceutical Corporation and Par.
(16)
10.31 Non-exclusive Distribution, Exclusive Supply Agreement, dated as of
September 13, 1994, between Mova Pharmaceutical Corporation and
Par.(16)
10.32 Letter Agreement, dated as of October 13, 1994, between Par and
Robert I. Edinger. (16)
10.33 Term Loan Agreement, dated as of November 29, 1994, between
Midlantic Bank, NA and Par.
10.34 Amended and Restated Revolving Credit Agreement, dated as of
November 29, 1994, between Midlantic Bank, NA and Par.
10.34.1 Revolving Loan Note, dated November 29, 1994.
15
<PAGE>
10.35 Amended and Restated Agreement Concerning Term Loans, dated as
of November 29, 1994, between Midlantic Bank, NA and Par.
10.36 Letter Agreement, dated as of October 13, 1994, between Par and
Robert M. Fisher, Jr.
10.37 Letter Agreement, dated as of December 19, 1994, between Par and
Stuart A. Rose.
11 Computation of per share data. (16)
13 1994 Annual Report to Shareholders, to be filed by amendment.
22 Subsidiaries of the Registrant. (16)
24 Consent of Richard A. Eisner & Company, LLP.
27 Financial Data Schedule
----------
(1) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended October 3, 1992 and incorporated
herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Proxy Statement dated August 10, 1992 and
incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an
Exhibit to Amendment No. 1 on Form 8 to the Registrant's Registration
Statement on Form 8-B, filed May 15, 1992, and incorporated herein by
reference.
(4) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended September 28, 1991 and
incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Proxy Statement dated August 14, 1991 and
incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Annual Report on Form 10-K (Commission File No. 1-
9449) for the year ended September 29, 1990 and incorporated herein by
reference.
(7) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Proxy Statement dated August 16, 1990 and
incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Current Report on Form 8-K dated May 29, 1990 and
incorporated herein by reference.
16
<PAGE>
(9) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Annual Report on Form 10-K for 1989 and incorporated
herein by reference.
(10) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Annual Report on Form 10-K for 1988 and incorporated
herein by reference.
(11) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Annual Report on Form 10-K for 1987 and incorporated
herein by reference.
(12) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Registration Statement on Form S-1 (No. 2-86614) and
incorporated herein by reference.
(13) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Registration Statement on Form S-1 (No. 33-4533) and
incorporated herein by reference.
(14) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrants' Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended October 2, 1993 and incorporated
herein by reference.
(15) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission
File No. 1-10827) for the quarter ended April 2, 1994 and incorporated
herein by reference.
(16) Previously filed the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended October 1, 1994 and incorporated
herein by reference.
17
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: August 22, 1995 PHARMACEUTICAL RESOURCES, INC.
------------------------------
(REGISTRANT)
By: /s/ Kenneth I. Sawyer
------------------------------------
Kenneth I. Sawyer
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President, Chief Executive Officer, and Chairman of
/s/ Kenneth I. Sawyer the Board of Directors August 22, 1995
---------------------
Kenneth I. Sawyer
Executive Vice President, Chief Financial Officer and
/s/ Robert I. Edinger Secretary (Principal Accounting and Financial Officer) August 22, 1995
---------------------
Robert I. Edinger
/s/ Mark Auerbach Director August 22, 1995
-----------------
Mark Auerbach
/s/ Andrew Maguire Director August 22, 1995
------------------
Andrew Maguire
/s/ H. Spencer Matthews Director August 22, 1995
-----------------------
H. Spencer Matthews
/s/ Robin O. Motz Director August 22, 1995
-----------------
Robin O. Motz
/s/ Melvin Van Woert Director August 22, 1995
--------------------
Melvin Van Woert
/s/ Mony Ben-Dor Director August 22, 1995
----------------
Mony Ben-Dor
</TABLE>
18
