<PAGE>
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- - -------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or 240.14a-12
PHARMACEUTICAL RESOURCES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(3) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
_____________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_______________________________________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________
3) Filing Party:
_______________________________________________
4) Date Filed:
_______________________________________________
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<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 23, 1996
To the Shareholders:
The 1996 Annual Meeting of Shareholders of Pharmaceutical Resources, Inc.
(the "Company") will be held on October 23, 1996, at 10:00 a.m., local time,
at Holiday Inn--Suffern, 3 Executive Boulevard, Suffern, New York at 10 a.m.
local time for the following purposes:
I. To elect two members of the Company's Board of Directors, which
consists of seven members, to serve for a three-year term and until their
successors have been duly elected and qualified;
II. To approve an amendment to the Company's 1990 Stock Incentive Plan to
increase the number of shares of the Company's Common Stock for which
options may be granted thereunder; and
III. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.
The Board of Directors has fixed the close of business on August 26, 1996 as
the record date for the determination of shareholders entitled to notice of,
and to vote at, the Annual Meeting of Shareholders (the "Meeting"). Only
shareholders of record at the close of business on such date will be entitled
to notice of, and to vote at, the Meeting and any adjournment(s) thereof.
By Order of the Board of Directors
Robert I. Edinger
Secretary
September 20, 1996
YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE POSTAGE PREPAID ENVELOPE WHICH HAS BEEN PROVIDED, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. THE PROXY MAY BE REVOKED BY YOU
AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT THE MEETING YOU MAY,
IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE YOUR RIGHT TO VOTE
YOUR SHARES PERSONALLY.
<PAGE>
PROXY STATEMENT
PHARMACEUTICAL RESOURCES, INC.
ONE RAM RIDGE ROAD
SPRING VALLEY, NEW YORK 10977
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 23, 1996
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of Pharmaceutical
Resources, Inc. (the "Company"), a New Jersey corporation, in connection with
the solicitation by the Company's Board of Directors (the "Board") of proxies
to be voted at the 1996 Annual Meeting of Shareholders (the "Meeting"), and at
any adjournment(s) thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. The Meeting is to be held on October
23, 1996, at Holiday Inn--Suffern, 3 Executive Boulevard, Suffern, New York at
10 a.m. local time.
The principal executive offices of the Company are located at One Ram Ridge
Road, Spring Valley, New York 10977, and its telephone number is (914) 425-
7100. The enclosed proxy and this proxy statement are being transmitted to
shareholders of the Company on or about September 20, 1996.
SOLICITATION AND REVOCATION
The accompanying proxy in the form enclosed is being solicited by and on
behalf of the Board. The solicitation of proxies will be made principally by
mail and, in addition, may be made by directors, officers and employees of the
Company personally, or by telephone or telegraph, without extra compensation.
The Company has also retained Georgeson & Company Inc. to assist it in the
solicitation of proxies. Brokers, nominees and fiduciaries will be reimbursed
for their out-of-pocket and clerical expenses in transmitting proxies and
related material to beneficial owners. The costs of soliciting proxies will be
borne by the Company. It is estimated that such costs will be approximately
$8,000.
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of common stock, $.01 par value, of the
Company (the "Common Stock") entitled to vote shall constitute a quorum. The
accompanying proxy card is intended to permit a shareholder of record on
August 26, 1996 to vote at the Meeting on the proposals described in this
Proxy Statement, whether or not the shareholder attends the Meeting. Persons
who acquire shares of record after the close of business on August 26, 1996
will not be entitled to vote such shares at the Meeting by proxy or by voting
at the Meeting in person. The persons named in the proxy have been designated
as proxies by the Board. Shares represented by properly executed proxies
received by the Company will be voted at the Meeting in the manner specified
therein or, if no specification is made, will be voted (i) "FOR" the election
of the two nominees for director named herein, (ii) "FOR" an amendment to the
1990 Stock Incentive Plan, and (iii) at the discretion of the proxy holders in
respect of such other business, if any, as may properly be brought before the
Meeting and which the Board did not know would be presented at the Meeting.
Abstentions and shares of record held by a broker or nominee ("Broker
Shares") that are voted on any matter will be included in determining the
existence of a quorum. Broker Shares that are not voted on any matter will not
be included in determining the existence of a quorum. Abstentions and Broker
Shares that are not voted will not be counted in tabulations of the votes cast
on proposals. Thus, neither abstentions nor non-voted Broker Shares will have
an effect on the outcome of the election of the two nominees for directors,
which requires only that a plurality of the votes cast be in favor of each
nominee, or of the amendment to the 1990 Stock Incentive Plan, which requires
a majority of the votes cast in favor of such amendment. Non-voted Broker
Shares will also
1
<PAGE>
have no effect on the outcome of any other proposals to the Company's
shareholders. Any proxy given to the Company by a shareholder pursuant to this
solicitation may be revoked by the shareholder at any time before it is
exercised by written notification delivered to the Secretary of the Company,
by voting in person at the Meeting, or by executing and delivering another
proxy bearing a later date. Attendance by a shareholder at the Meeting does
not alone serve to revoke the proxy.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
OUTSTANDING SHARES
The Board has fixed the close of business on August 26, 1996 as the record
date (the "Record Date") for the determination of shareholders of the Company
who are entitled to receive notice of, and to vote at, the Meeting. An
aggregate of 18,657,028 shares of Common Stock were outstanding at the close
of business on August 19, 1996. Each share of Common Stock outstanding on the
Record Date is entitled to one vote on each matter to be voted upon at the
Meeting, and the Company's shareholders do not have cumulative voting rights.
The Company has no other class of voting securities entitled to vote at the
Meeting.
OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of the close of business on August 19,
1996, the beneficial ownership of the Common Stock by (i) each person known
(based solely on a review of Schedules 13D) 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,
as defined in the "Executive Compensation" section of this Proxy Statement,
and (iv) all directors and current executive officers of the Company and Par
Pharmaceutical, Inc., the Company's principal operating subsidiary ("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.
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
COMMON COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK STOCK
------------------------------------ --------- -------------
<S> <C> <C>
Clal Pharmaceutical Industries Ltd.(1)(2)........... 4,032,379 19.6
Kenneth I. Sawyer(3)(4)............................. 801,900 4.2
Melvin H. Van Woert, M.D.(3)(4)..................... 70,050 *
Andrew Maguire, Ph.D.(3)(4)......................... 36,300 *
H. Spencer Matthews(3)(4)........................... 36,300 *
Mark Auerbach(3)(4)................................. 47,000 *
Mony Ben Dor(1)(2)(4)............................... 0 *
Robin O. Motz, M.D., Ph.D.(3)(4).................... 42,000 *
Robert I. Edinger(3)................................ 80,200 *
Robert M. Fisher, Jr.(3)............................ 30,850 *
Stuart A. Rose(5)................................... 79,000 *
All directors and current executive officers (as of
8/19/96) as a group (9 persons) (3)................ 1,144,600 6.0
</TABLE>
- - --------
* Less than 1%.
(1) The address of Clal Pharmaceutical Industries Ltd. ("Clal") and Mr. Ben
Dor is Clal House, 5 Druyanov Street, Tel Aviv 63143, Israel. Of the
4,032,379 shares of Common Stock shown as beneficially owned by Clal,
2,127,272 shares are issued and outstanding, and 1,905,107 shares are
issuable upon exercise of issued and outstanding warrants owned by Clal.
2
<PAGE>
(2) Mr. Ben Dor disclaims beneficial ownership of shares owned by Clal of
which he is a director. See "--Voting Arrangements" and "Election of
Directors--Directors."
(3) 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. Includes shares of Common Stock which may
be acquired upon the exercise of options which are exercisable on or prior
to October 18, 1996, under the Company's stock option plans as follows:
Mr. Sawyer, 645,000 shares; Dr. Van Woert, 69,000 shares; Mr. Maguire,
36,000 shares; Mr. Matthews, 36,000 shares; Mr. Auerbach, 47,000 shares;
Dr. Motz, 42,000 shares; Mr. Edinger, 80,000 shares; Mr. Fisher, 30,000
shares; and Mr. Rose, 75,000 shares.
(4) A director of the Company.
(5) Dr. Rose resigned as an officer of both the Company and Par effective
December 5, 1995. Dr. Rose's address is: 378 Gravel Hill Road, Kinnelon,
New Jersey 07405.
VOTING ARRANGEMENTS
The Company and Clal entered into a Stock Purchase Agreement, dated March
25, 1995, as amended on May 1, 1995 (the "Stock Purchase Agreement"), pursuant
to which Clal, on May 1, 1995, purchased 2,027,272 shares of Common Stock and
the Company issued to Clal two warrants to purchase an aggregate of 2,005,107
shares of Common Stock (the "Warrants"). Under the Stock Purchase Agreement,
Clal agreed to vote all of the shares of Common Stock held by it in favor of
certain business combination transactions of the Company and certain sales of
assets or securities of the Company. See "Certain Relationships and Related
Transactions." In addition, Clal has certain rights under the Stock Purchase
Agreement to nominate directors to the Company's Board and committees thereof.
See "Election of Directors--Directors."
3
<PAGE>
ELECTION OF DIRECTORS
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 II directors of the Company have terms which
expire in 1997 and 1998, respectively. The terms of office of Class III
directors expire this year. Kenneth I. Sawyer and Robin O. Motz, M.D., Ph.D.
are each nominated to be elected at the Meeting as Class III directors to hold
office for a three-year term until the 1999 Annual Meeting of Shareholders and
until their successors have been duly elected and qualified. The maximum
number of directors is set by the By-laws at fifteen, and the number of
directors is presently set, by resolution, at seven.
Proxies in the accompanying form will be voted at the Meeting in favor of
the election of each of the nominees listed on the accompanying form of proxy,
unless authority to do so is withheld as to an individual nominee or both
nominees as a group. Proxies cannot be voted for a greater number of persons
than the number of nominees named. It is expected that each of the nominees
will be able to serve, but if before the election it develops that any one or
more of the nominees will be unable to serve or for good cause will not serve,
the proxies reserve discretion to vote or refrain from voting for a substitute
nominee or nominees. Each of the nominees has consented to serve as a director
of the Company and to be named herein. Mr. Sawyer and Dr. Motz are currently
members of the Board. Directors will be elected by a plurality of the votes
cast by the holders of shares entitled to vote thereon who are present at the
Meeting in person or by proxy.
In June 1995, Mony Ben Dor was elected by the Board to fill a vacancy on the
Board as a Class I director in accordance with the terms of the Stock Purchase
Agreement. Under such Agreement, Clal has the right to designate one-seventh
of the members of the Board as long as Clal owns 8% of the issued and
outstanding Common Stock, and a total of two-sevenths of the members of the
Board if Clal owns at least 16% of the issued and outstanding Common Stock.
The Company has the right to reject a designee of Clal if such person is not
reasonably acceptable to the Company. The Company also agreed to elect Clal's
designee to the Audit Committee, Compensation and Stock Option Committee and
Strategic Planning Committee of the Board. In the event that Clal does not
nominate directors to the Board or its committees or if Clal's designees are
not elected to the Board or its committees, Clal is permitted, under the Stock
Purchase Agreement, to designate representatives who may attend meetings of
the Board and its committees. Additionally, if Clal's appointment of a
director to the Audit Committee is prohibited by the rules and regulations of
the New York Stock Exchange, Inc., the Company will provide Clal materials
which are provided to committee members, the appointment of the Company's
auditors will be approved by the entire Board, the Company will consult with
directors nominated by Clal with respect to Audit Committee actions and the
directors nominated by Clal will have the right to consent to certain changes
in the Company's accounting principles.
Clal designated Mr. Ben Dor, a director of Clal and a vice president of Clal
Industries Ltd., as its representative to serve on the Board. Clal Industries
Ltd. owns all of Clal's stock. Mr. Ben Dor serves on the Audit, Strategic
Planning, and Compensation and Stock Option Committees of the Board of
Directors.
4
<PAGE>
The following table sets forth certain information with respect to each
nominee for election as a Class III director of the Company at the Meeting and
the year each was first elected as a director:
<TABLE>
<CAPTION>
YEAR
OF FIRST
NAME AGE ELECTION
---- --- --------
<S> <C> <C>
CLASS III
Kenneth I. Sawyer (2)(3)(4)....................................... 50 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)(4)(5).............................. 57 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>
The following table sets forth certain information with respect to each of
the Class I directors (terms expire in 1997) and Class II directors (terms
expire in 1998) and the year each was first elected as a director:
<TABLE>
<CAPTION>
YEAR
OF FIRST
NAME AGE ELECTION
---- --- --------
<S> <C> <C>
CLASS I
Mark Auerbach (1)(5).............................................. 57 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.
H. Spencer Matthews (5)........................................... 75 1990
Since 1986, President and Chief Executive Officer of Dispense-
All South Coast, Inc., and Dispense-All of Central Florida,
Inc., two companies which are wholesalers of juice concentrates.
Rear Admiral, United States Navy (Retired).
Mony Ben Dor (1)(3)(5)............................................ 50 1995
Since August 1993, Vice President, New Business Development of
Clal Industries Ltd., a holding company based in Israel which
owns all of the stock of Clal, and a director of Clal. From 1988
to August 1993, Mr. Ben Dor was an executive with Eisenberg
Group of Companies, a holding company based in Israel.
CLASS II
Andrew Maguire, Ph.D. (1)(2)(3)................................... 57 1990
Since January 1990, President and Chief Executive Officer of
Appropriate Technology International, a not-for-profit
corporation providing business development services in Asia,
Africa and Latin America. From January 1989 to December 1994, 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.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
YEAR
OF FIRST
NAME AGE ELECTION
---- --- --------
<S> <C> <C>
Melvin H. Van Woert, M.D. (2)(3)(4).............................. 66 1990
Since 1974, Physician and Professor of Neurology and Pharmacol-
ogy and Doctoral Faculty, Mount Sinai Medical Center, New York.
</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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE TWO
NOMINEES NAMED ABOVE AS DIRECTORS OF THE COMPANY.
BOARD AND COMMITTEE MEETINGS
The Board met eleven times during fiscal year 1995 which ended September 30,
1995. During fiscal year 1995, Mr. Ben Dor attended fewer than 75% of the
total number of meetings of the Board and of the committees of the Board on
which he served during the time he served on the Board and on such committees.
The Audit Committee met three times during fiscal year 1995. The primary
function of the Audit Committee is to review the Company's financial
statements with its auditors. See "--Directors." The Compensation and Stock
Option Committee held ten meetings during fiscal year 1995. The functions of
the Compensation and Stock Option Committee are to set and approve salary and
bonus levels of corporate officers and to administer the Company's 1986 Stock
Option Plan and 1990 Stock Incentive Plan, including primary responsibility
for the granting of options and other awards thereunder. The Nominating
Committee did not meet during fiscal year 1995. The primary function of the
Nominating Committee is to make recommendations to the Board concerning the
selection of nominees for election as directors. The Nominating Committee will
consider candidates suggested by directors or shareholders. Nominations for
shareholders, properly submitted in writing to the Secretary of the Company,
will be referred to the Nominating Committee for consideration. The Executive
Committee did not have any official meetings during fiscal year 1995. The
function of the Executive Committee is to exercise the powers of the Board in
the management of the business and affairs of the Company, subject to limits
imposed by applicable law. The Strategic Planning Committee did not have any
official meetings during fiscal year 1995. The function of the Strategic
Planning Committee is to review potential material transactions involving the
Company and to communicate with and make recommendations to the Board in
respect of such transactions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As a public company, the Company's directors, executive officers and 10%
beneficial owners are subject to reporting requirements under Section 16(a) of
the Securities Exchange Act of 1934, as amended. Under such Act, Messrs. Ben
Dor and Matthews each delinquently filed one Statement of Beneficial Ownership
of Securities, and Mr. Sawyer delinquently filed two such Statements during
fiscal year 1995.
COMPENSATION OF DIRECTORS
For service on the Board in fiscal year 1995, directors received an annual
retainer of $12,000. Directors also received a fee of $1,000 for each meeting
of the Board attended, and a fee of $750 for each committee meeting attended
in person or by telephone conference, subject to a maximum of $1,750 per day.
Chairmen of committees receive an additional annual retainer of $5,000 per
committee. At the 1995 Annual Meeting of Shareholders, the shareholders
approved the 1995 Directors' Stock Option Plan (the "1995 Directors' Plan").
6
<PAGE>
The 1995 Directors' Plan will award options to non-employees who may be
elected in the future. Current directors will obtain no future awards under
the 1995 Directors' Plan.
Directors who are employees of the Company or any of its subsidiaries or who
are designated by Clal receive no additional remuneration for serving as
directors or as members of committees of the Board. All directors are entitled
to reimbursement for out-of-pocket expenses incurred in connection with their
attendance at Board and committee meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 1, 1995, the Company consummated a strategic alliance with Clal
consisting primarily of (i) the sale by the Company of 2,027,272 shares of the
Company's Common Stock for $20,000,000, or $9.87 per share, (ii) the issuance
by the Company of the Warrants and (iii) the formation of a joint venture,
named Clal Pharmaceutical Resources Limited Partnership, to research and
develop generic pharmaceutical products (the "Joint Venture"). Mony Ben Dor, a
director of the Company, is also a director of Clal. See "--Directors." Prior
to the closing of the Stock Purchase Agreement, Clal owned no shares of the
Common Stock.
The Stock Purchase Agreement included terms of the Company's and Clal's
business relationship including issuance to Clal of 2,027,272 shares of Common
Stock, rights to nominate Board members, rights of first refusal, voting
agreements, rights to invest in others, standstill agreements and agreements
with respect to the issuance of the Warrants.
Subject to the satisfaction of certain conditions, Clal obtained the right
to designate one or more of the members of the Company's Board of Directors
and committees thereof and the right to designate a member of the Company's
management.
Clal has a right of first refusal with respect to certain business
combination transactions of the Company and certain sales of the assets or
securities of the Company. Such right extends until May 1, 2000, provided that
Clal, when exercising such right (i) has not sold or disposed of shares of
Common Stock representing more than 337,045 shares of Common Stock and (ii)
owns or has the right to acquire under the Warrants 16% of the Common Stock
(the "Restricted Period"). If Clal does not exercise its first refusal rights
with respect to any of the above-mentioned transactions, Clal will, subject to
certain exceptions, be required to vote its shares of Common Stock in favor of
such transactions. Such obligation will terminate upon the expiration of the
Restricted Period. Clal has no obligation to vote its shares of Common Stock
in favor of such a transaction if (i) Clal exercises its right of first
refusal with respect to such transaction, (ii) fewer than 75% of the members
of the Board (excluding member(s) of the Board nominated by Clal) vote in
favor of the transaction or (iii) any member of the Board (excluding member(s)
of the Board nominated by Clal) votes against the transaction. In the event
that Clal has an obligation to vote its shares in favor of such a transaction,
Clal also has agreed to take such other actions reasonably required or
appropriate to facilitate the consummation of the transaction. Clal has no
obligation to vote its shares in favor of, or take other actions to
facilitate, any such transaction if Clal notifies the Company that, in Clal's
opinion, the consummation of such a transaction would be detrimental to the
Company and/or its shareholders, except if the Company, in response to such a
notice, delivers to Clal a fairness opinion from a nationally recognized
investment banking firm.
Under the Stock Purchase Agreement, the Company obtained the right to
participate with Clal and certain of its affiliates in connection with
pharmaceutical acquisitions and transactions. In connection therewith, the
Company, in December 1995, consummated the purchase of 10% of the shares of
FineTech Ltd. ("FineTech"), an Israeli pharmaceutical research and development
company in which Clal has a 28% ownership interest, for $1,000,000, obtained
the right to nominate one member of the Board of Directors of FineTech and
obtained the exclusive right to purchase products not commonly sold in North
America, South America and the Caribbean (the "Americas"). FineTech has agreed
not to sell such products to others in the Americas for so long as the Company
maintains its exclusive right. Mony Ben Dor, an officer of Clal and a director
of the Company, is also a director of FineTech. Pursuant to the terms of its
agreements with FineTech, the Company began purchasing
7
<PAGE>
chemical components from FineTech in January 1996, and may in the future
continue to purchase, chemical components from FineTech. As of August 19,
1996, such purchases totalled approximately $1.4 million in the aggregate. The
Company's purchases have been and will be on terms no less favorable than
could be obtained from non-affiliated third parties.
Clal has agreed to limit acquisitions, including acquisitions under the
Warrants, of the Company's securities to 19.99% of the issued and outstanding
Common Stock prior to May 1, 1998. In addition, Clal has agreed to limit such
acquisitions to 25% of the issued and outstanding Common Stock after May 1,
1998. Clal has the right to tender for or purchase no less than 70% of the
issued and outstanding Common Stock after May 1, 2000. These limitations
expire six months following the expiration of the Restricted Period (the
"Consent Period"). Clal also has the right to acquire up to 20% of any equity
securities issued by the Company in an underwritten public offering so long as
Clal, at the time, owns 10% of the issued and outstanding Common Stock
(assuming, for this purpose, the full exercise of the Warrants). Clal has also
agreed to not sell or otherwise dispose of Common Stock or other securities
convertible into Common Stock during the Consent Period unless such securities
are registered or may be sold without registration under Rule 144 promulgated
under the Securities Act of 1933, as amended, or are sold in certain business
combination transactions, unless the sale is approved by the Board (excluding
member(s) of the Board nominated by Clal). Clal will limit, during the Consent
Period, sales of Common Stock to any one person, entity or group to no more
than 3% of the issued and outstanding Common Stock, except as otherwise
permitted under the Stock Purchase Agreement.
In consideration of the rights and benefits obtained by the Company under
the Stock Purchase Agreement, the Company issued to Clal the Warrants. The
Warrants currently entitle Clal to purchase up to 1,905,107 shares of Common
Stock at an exercise price of $11.00 per share for the first year and $12.00
per share for the next two years. The Warrants are exercisable at any time
until May 1, 1998, subject to earlier termination or redemption in certain
circumstances. The Warrants provide that the number of shares of Common Stock
issuable upon their exercise will be reduced by the number of shares of Common
Stock, or securities exercisable or exchangeable for or convertible into
shares of Common Stock, acquired by Clal in open market transactions.
In consideration of the rights and benefits obtained by the Company under
the Stock Purchase Agreement, the Company also granted to Clal certain
registration rights under the Registration Rights Agreement (the "Registration
Rights Agreement"). In general, Clal will not be able to sell freely the
shares of Common Stock purchased by Clal or the shares of Common Stock
issuable upon exercise of the Warrants without registration under applicable
securities laws or unless an exemption from registration is available. Clal is
entitled to two demand registrations. In addition, if the Warrants are
exercised Clal is entitled to an additional demand registration. In addition,
the Company granted to Clal the right to register shares of Common Stock owned
by Clal on each occasion that the Company registers shares of Common Stock,
subject to certain limitations and exceptions.
Clal currently owns 2,127,272 shares of Common Stock. Of such shares,
100,000 were purchased from Mr. Sawyer at a price of $7.125 per share on June
3, 1996.
As part of the alliance formed by the Company and Clal on May 1, 1995, the
Company and Clal formed the Joint Venture to research and develop generic
pharmaceutical products. In connection with the Joint Venture, the Company and
Clal have granted each other certain manufacturing and distribution rights for
products developed by the other and for products developed by the Joint
Venture.
The foregoing descriptions of certain terms of the Stock Purchase Agreement,
the Warrants, the Registration Rights Agreement and the Joint Venture do not
purport to be complete and are qualified in their entirety by reference to
such documents, copies of which were filed as exhibits to the Form 8-K filed
by the Company with the Securities and Exchange Commission on May 12, 1995.
In February 1995, the Company purchased a condominium for $192,500. The
Company leased the condominium to Mr. Sawyer for a period equal to the term of
his employment agreement at $1,800 per month, which represented the fair
market value as determined by a disinterested third party. The Company sold
the
8
<PAGE>
condominium on July 31, 1996 for $225,000. The Company has no further
obligations regarding a residence for Mr. Sawyer. See "Executive
Compensation--Employment Agreements and Termination Arrangements."
On May 15, 1996, the Company made an unsecured loan to Mr. Sawyer in the
principal amount of $95,000 at a rate of interest of 8 1/4% per annum. The
principal and interest on such loan are scheduled to be repaid on April 13,
1997.
The Company believes that all of the above transactions were on terms that
were fair and reasonable to the Company.
EXECUTIVE OFFICERS
The executive officers of the Company consist of Mr. Sawyer as President,
Chief Executive Officer and Chairman of the Board, and Robert I. Edinger as
Executive Vice President, Chief Financial Officer and Secretary. The executive
officers of Par consist of Mr. Sawyer and Mr. Edinger, and Robert M. Fisher,
Jr., Executive Vice President, Corporate Development, Sales and Marketing of
Par. Stuart A. Rose, Ph.D. served as Executive Vice President-Operations of
the Company and as an executive officer of Par until his resignation from such
positions, effective December 5, 1995.
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>
NAME AGE
- - ---- ---
<S> <C>
Robert I. Edinger.......................................................... 55
Since January 1995, Executive Vice President, Chief Financial Officer and
Secretary of the Company and Par. From June 1993 to January 1995, Vice
President, Chief Financial Officer and Secretary of the Company and Par.
From 1990 to June 1993, Mr. Edinger served as 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.
Robert M. Fisher, Jr....................................................... 48
Since June 1995, Executive Vice President, Corporate Development, Sales
and Marketing of Par, and 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
("PUREPAC"), 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>
9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation earned by or paid, during fiscal
years 1993 through 1995, to the Chief Executive Officer of the Company and the
three additional most highly compensated executive officers (over $100,000)
serving as executive officers of the Company and/or Par at the end of fiscal
year 1995 (the "Named Executives"). The Company awarded or paid such
compensation to all such persons for services rendered in all capacities
during the applicable fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- -----------------------
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($)(1) OPTIONS(#) COMPENSATION ($)(2)
- - ------------------ ---- --------- -------- ------------ ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer 1995 427,153 200,000 -- -- 49,806
President, Chief 1994 407,253 100,000 -- -- 59,018
Executive Officer 1993 413,215 200,000 -- 500,000 71,444
and Chairman
Robert I. Edinger 1995 189,038 -- -- 40,000 19,628
Executive Vice 1994 180,000 50,000 -- -- 11,072
President, 1993 58,846 25,000 -- 40,000 76
Chief Financial
Officer and Secretary
Robert M. Fisher, Jr.(3) 1995 188,691 -- -- 20,000 15,898
Executive Vice 1994 122,359 23,500 -- 10,000 3,504
President, Corporate
Development, Sales &
Marketing, Par
Stuart A. Rose(4) 1995 128,077 -- -- 75,000 566
Executive Vice
President, Operations
Diana N. Sloane(5) 1995 141,146 -- -- -- 2,343
Vice President, 1994 208,097 22,500 -- -- 19,628
Regulatory and 1993 179,423 40,000 -- 130,000 22,906
Scientific Affairs
</TABLE>
- - --------
(1) The Company believes that at the end of fiscal year 1995, the Named
Executives did not hold any shares of restricted stock.
(2) For fiscal year 1995, includes insurance premiums paid by the Company for
term life insurance for the benefit of the Named Executives as follows:
Mr. Sawyer--$37,866; Mr. Edinger--$775; Mr. Fisher--$694; Dr. Rose--$566;
and Ms. Sloane--$612. The amount for Mr. Sawyer also includes $37,050,
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 1995 premiums were advanced to the executive without interest
until the earliest time the premiums may be refunded by Mr. Sawyer to the
Company. Also includes the following amount contributed by the Company to
the Company's 401(k) Plan: Mr. Edinger--$5,971; Mr. Fisher--$3,106; and
Ms. Sloane--$1,731. The Company also contributed $11,940, $12,882 and
$12,099 for the benefit of Mr. Sawyer's, Mr. Edinger's and Mr. Fisher's
Par Pharmaceutical Retirement Plan.
(3) The salary paid to Mr. Fisher in fiscal year 1995 included a retroactive
adjustment to reflect a pay increase that had been granted effective in
May 1994.
(4) Effective on December 5, 1995, Dr. Rose was no longer an Executive Officer
of the Company.
(5) Effective on April 1, 1995, Ms. Sloane was no longer an Executive Officer
of the Company.
10
<PAGE>
The following table sets forth stock options granted to the Named Executives
during fiscal year 1995.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
SHARES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE EXPIRATION ------------------------------
NAME GRANTED IN FISCAL YEAR PRICE DATE 0% ($) 5% ($) 10% ($)
- - ----- ---------- -------------- -------- ---------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert I. Edinger(1) 40,000 13.82% $8.625 10/13/99 $ 0 $ 440,317$ 555,626
Robert M. Fisher, Jr.(2) 20,000 6.91% $8.625 10/13/99 $ 0 $ 220,159$ 277,813
Stuart A. Rose(3) 75,000 25.91% $9.000 01/16/00 $ 0 $ 861,490 $1,087,094
</TABLE>
- - --------
(1) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on October 13, 1994, of which 20,000 became exercisable on October
13, 1995 and 20,000 will become exercisable on October 13, 1996.
(2) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on October 13, 1994 of which 10,000 became exercisable on October 13,
1995 and 10,000 will become exercisable on October 13, 1996.
(3) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan, all of which became exercisable on December 5, 1995.
The following table sets forth the stock options exercised by the Named
Executives during fiscal year 1995 and the value, as of September 30, 1995, of
unexercised stock options held by the Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
SHARES OPTIONS AT FY-END (#) FY-END ($)
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 2,970,000 0
Robert I. Edinger 0 0 60,000 20,000 17,500 17,500
Robert M. Fisher, Jr. 0 0 20,000 10,000 8,750 8,750
Stuart A. Rose 0 0 25,000 50,000 12,500 25,000
Diana L. Sloane 60,000 371,874 130,000 0 0 0
</TABLE>
EMPLOYMENT AGREEMENTS AND TERMINATION ARRANGEMENTS
The Company has entered into an employment agreement with Mr. Sawyer, which
provides for his employment in his current position through October 4, 1999,
subject to earlier termination by the Company for Cause (as such term as
defined in the agreement). Mr. Sawyer's term of employment will be
automatically extended on October 4 of each year for an additional one-year
period at the end of the four-year employment term unless either party
provides written notice by July 4th of such year that he or it does not desire
to extend the employment term. 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 of Directors 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.
Mr. Sawyer's agreement provides for certain payments upon termination of his
employment as a result of a material breach by the Company of his employment
agreement following a Change of Control (as such term is defined in the
agreement) of the Company. A material breach by the Company of the employment
agreement includes, but is not limited to, termination without Cause and a
change of his responsibilities. Mr. Sawyer is entitled to receive, if such
termination occurs within two years following the Change of Control of the
Company,
11
<PAGE>
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 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 a price of $192,500, which
Mr. Sawyer leased from the Company from February 1995 until July 1996. The
Company sold the condominium on July 31, 1996. The Company has no further
obligation to provide a residence for Mr. Sawyer. See "Election of Directors--
Certain Relationships and Related Transactions."
Mr. Edinger and Mr. Fisher have employment agreements with the Company which
provide for certain payments in the event of termination of the employment for
"good reason" (as such term is defined in the agreement) or a voluntary
termination by the Company, except for cause. Mr. Edinger currently is
entitled to receive severance compensation amounting to 12 months continuation
of his prevailing base salary payable in 12 equal monthly installments from
the date of termination in the event of termination for good reason or
voluntary termination by the Company; however, the Board has authorized an
extension of such payment to 24 months. Mr. Fisher is entitled to severance
compensation amounting to 12 months continuation of his prevailing base salary
payable in 12 equal monthly installments from the date of termination for good
reason or voluntary termination by the Company. Mr. Edinger is also entitled
to medical and other benefits maintained until the expiration of his severance
compensation or until he is covered by another employer under a reasonably
comparable program, if earlier.
In October 1995, Messrs. Sawyer, Edinger and Fisher waived their salary
increases, and Mr. Sawyer voluntarily agreed to reduce his salary, effective
July 1, 1996, to $350,000 per year. As part of the reduction in compensation
for senior management personnel in the Company, Messrs. Sawyer, Edinger and
Fisher have also agreed to waive the Company's 1996 plan year contribution of
$11,885 to each of their defined contribution pension plan accounts. These
measures are in line with the Company's current policy of reducing costs to
enable the Company to return to profitability.
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 Pension 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 benefit is a life annuity, or for married persons, a joint and
survivor annuity. None of the Named Executives have 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
12
<PAGE>
to which compensation is paid or awarded to the Company's executive officers
and key employees. The Compensation Committee held ten meetings in fiscal year
1995. In reviewing overall compensation for fiscal year 1995, 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 year 1995, the Compensation Committee considered 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 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. The factors considered by the
Compensation Committee included both strategic and operational factors, such
as efforts in responding to regulatory matters, efforts in exploration of
strategic alternatives for the Company, such as the strategic alliance with
Clal, 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, as
well as the Company's financial performance. 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.
The Compensation Committee, in determining the annual bonuses to be paid to
its executives for fiscal year 1995, considered the individual's contribution
to the Company's performance as well as the Company's financial performance
and assessments of each executive's participation and contribution to the
other factors described above, as opposed to determination by reference to a
formal, goal-based plan. The non-financial measures varied among executives
depending upon the operations under their management and direction. The
Compensation Committee utilized the award of bonuses, without necessarily
referring to specific benchmarks, to attract and retain high quality
executives for the Company.
13
<PAGE>
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 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 to 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 FISCAL YEAR 1995. In determining the
amount and form of executive compensation to be paid or awarded for fiscal
year 1995, the Compensation Committee considered the criteria discussed above.
In light of the reductions in operating income and sales in fiscal year 1995
from fiscal year 1994, the Compensation Committee did not award cash bonuses
to the Named Executives, with the exception of the Chief Executive Officer,
who was awarded a bonus in connection with his efforts to consummate the
transactions with Clal.
In fiscal year 1995, the Compensation Committee awarded stock options to
certain Named Executives (with the exception of the Chief Executive Officer).
CHIEF EXECUTIVE OFFICER COMPENSATION. The Compensation Committee approved an
employment agreement in October 1992 for Mr. Sawyer. In approving such
employment agreement, the Compensation Committee authorized a base salary of
$366,993 for Mr. Sawyer in fiscal year 1995. In addition to his base salary,
Mr. Sawyer was awarded by the Compensation Committee a performance bonus of
$200,000 for fiscal year 1995, plus 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) consummating the strategic
alliance and joint venture with Clal, which resulted in a cash investment of
$20 million by Clal in the Company; (ii) revamping the marketing and sales
efforts of the Company and replacing all of its outside sales representatives
with an internal sales force; (iii) collecting approximately $2,000,000 in
settlement of claims against former management members for recovery of, among
other things, salary and money paid for indemnification; (iv) negotiating and
implementing several joint venture agreements for the Company; (v) working to
explore numerous strategic alternatives for the Company and (vi) diversifying
the Company's customer base.
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
Mony Ben Dor
H. Spencer Matthews
Robin O. Motz
14
<PAGE>
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.
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, 1990 to September 30, 1995. The graph assumes $100 was
invested on September 30, 1990 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.
CUMULATIVE TOTAL RETURN
BASED ON REINVESTMENT OF $100 BEGINNING SEPTEMBER 30, 1990
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Sep-90 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical Resources $100 $85 $136 $259 $179 $195
NYSE Composite $100 $132 $146 $168 $174 $213
S&P(R) Health Care Drugs Index $100 $154 $149 $120 $145 $228
</TABLE>
15
<PAGE>
PROPOSAL II:
APPROVAL AND ADOPTION OF AN AMENDMENT TO THE
1990 STOCK INCENTIVE PLAN
GENERAL
At the Meeting, the holders of Common Stock will be asked to vote upon a
proposal to approve an amendment to the Company's 1990 Stock Incentive Plan
(the "1990 Plan") to increase by 750,000 the number of shares of Common Stock
for which incentive awards may be granted thereunder. Under the 1990 Plan as
currently in effect, incentive awards for 2,050,000 shares of Common Stock may
be granted, of which, prior to June 29, 1996, 213,000 shares remained
available for grant. On July 23, 1996, the Board approved the amendment and
authorized the granting of incentive awards for an additional 750,000 shares,
subject to approval of the amendment by the shareholders. The Board has
determined that it is advisable to continue to provide stock-based incentive
compensation to the Company's officers and key employees, thereby continuing
to align the interests of such employees with those of shareholders, and that
awards under the 1990 Plan are an effective means of providing such
compensation. In order to continue to grant stock-based incentive compensation
in the future, it is necessary to increase the number of shares available for
grant under the 1990 Plan. The Board recommends approval of thereof by the
holders of Common Stock.
SUMMARY OF 1990 PLAN AND AMENDMENT
The following is a summary of the 1990 Plan and the proposed amendment to
it. This summary does not purport to be complete, and is qualified in its
entirety by reference to the text of the 1990 Plan. A copy of the 1990 Plan is
available upon written request from the Company's Secretary.
The purpose of the 1990 Plan is to attract and retain personnel of the
highest caliber, provide increased incentive for officers and key employees
and continue to promote the well-being of the Company. The 1990 Plan
authorizes the granting of incentive awards for up to 2,050,000 shares of
Common Stock, and if the amendment is approved, up to an additional 750,000
shares of Common Stock, subject to adjustment in the event of stock splits,
stock dividends, recapitalizations, mergers, reorganizations, exchanges of
shares and other similar changes affecting the Company's issued Common Stock.
Incentive awards may be in the form of stock options, restricted stock awards,
deferred stock awards, stock appreciation rights and other stock-based awards
as described below. Unless sooner terminated, the 1990 Plan expires on March
22, 2000. Officers, key employees and other independent contractors who
perform services for the Company or any of its subsidiaries are eligible to
receive incentive awards. The 1990 Plan is administered by the Compensation
Committee, which determines the persons to whom awards will be granted, the
number of awards to be granted and the specific terms of each grant, subject
to the provisions of the 1990 Plan. Members of the Compensation Committee and
directors of the Company who are not also employees of the Company or any of
its subsidiaries are not eligible to receive incentive awards under the 1990
Plan. There are approximately 450 persons eligible to receive incentive awards
under the 1990 Plan (excluding consultants and advisors).
INCENTIVE AND NONQUALIFIED OPTIONS. The 1990 Plan currently provides both
for "incentive stock options" as defined in Section 422 of the Code and for
options not qualifying as incentive options (collectively, "Options"), both of
which may be granted with other stock-based awards available under the 1990
Plan. The Compensation Committee determines the persons to whom Options may be
granted and the exercise price for each share issued in connection with an
Option, but the exercise price of an incentive Option may not be less than
100% of the fair market value of Common Stock on the date of grant (in the
case of an optionee owning more than 10% of the outstanding Common Stock, not
less than 110% of such fair market value). The Compensation Committee also
determines when Options may be exercised, which in no event may be more than
ten years from the date of grant (in the case of an incentive Option granted
to an optionee owning more than 10% of the outstanding Common Stock, not more
than five years from the date of grant), and the manner in which each Option
will become exercisable. The aggregate fair market value of the Common Stock
with respect to which incentive Options are exercisable for the first time by
any employee during any calendar year (under all incentive stock option plans
of the Company and its subsidiaries) may not exceed $100,000.
16
<PAGE>
STOCK APPRECIATION RIGHTS. The Compensation Committee may grant stock
appreciation rights ("SARs") in conjunction with all or part of any Option
granted under the 1990 Plan. An SAR entitles the holder to surrender to the
Company all or a portion of an Option in exchange for an amount (payable in
cash and/or Common Stock) equal to the excess of the Fair Market Value (as
defined in that 1990 Plan) of one share of Common Stock over the exercise
price per share specified in a related Option granted to the holder multiplied
by the number of shares subject to the SAR.
RESTRICTED STOCK AWARDS. The Compensation Committee may award shares of
restricted stock ("Restricted Stock"). Shares of Restricted Stock may be
issued either alone or in addition to other awards granted under the 1990 Plan
or other plans of the Company. The Compensation Committee determines the
eligible persons to whom and the time or times at which, grants of Restricted
Stock will be made, the number of shares to be awarded, the price (if any) to
be paid by the recipient, the time or times within which such awards may be
subject to forfeiture, the vesting schedule and rights to acceleration
thereof, and all other terms and conditions of the awards.
DEFERRED STOCK AWARDS. The Compensation Committee may award shares of
deferred stock ("Deferred Stock"). Shares of Deferred Stock may be awarded
either alone or in addition to other awards granted under the 1990 Plan or
other plans of the Company. The Compensation Committee determines the eligible
persons to whom and the time or times at which Deferred Stock may be awarded,
the number of shares of Deferred Stock to be awarded to any person, the
duration of the period during which, and the conditions under which, receipt
of the stock will be deferred, and all the other terms and conditions of the
awards.
OTHER STOCK-BASED AWARDS. The Compensation Committee may grant performance
shares valued with reference to the performance of the Company or any
subsidiary, either alone or in addition to or in tandem with Options, SARs,
Restricted Stock or Deferred Stock (collectively, "Other Stock-Based Awards").
Subject to the terms of the 1990 Plan, the Compensation Committee has complete
discretion to determine the terms and conditions applicable to Other Stock-
Based Awards. Such terms and conditions may require, among other things,
continued employment and/or the attainment of specified performance
objectives.
The 1990 Plan imposes restrictions on the sale, transfer, pledge, assignment
or other encumbrance on shares of stock subject to Restricted Stock awards,
Deferred Stock awards and Other Stock-Based Awards. Upon a change in control
of the Company, all Options and SARs become exercisable in full and all
restrictions and deferrals contained in Restricted Stock awards, Deferred
Stock awards, and Other Stock-Based Awards lapse or become accelerated.
The amended 1990 Plan will not provide additional benefits to the Named
Executives as compared to the current 1990 Plan in effect. Rather, the amended
1990 Plan will provide for an increase in the number of shares of Common Stock
which may be granted thereunder.
CERTAIN FEDERAL TAX CONSEQUENCES OF THE 1990 PLAN
The following is a brief summary of certain Federal income tax aspects of
awards which may be granted under the 1990 Plan based upon the Code and other
statutes, regulations and interpretations in effect on the date of this Proxy
Statement. The summary is not intended to be exhaustive and does not describe
any state, local or foreign income or other tax consequences.
INCENTIVE OPTIONS. A participant will recognize no taxable income upon the
grant or exercise of an Option constituting an "incentive stock option" as
defined under Section 422 of the Code ("Incentive Options"). Upon a
disposition of the shares of Common Stock after the later of two years from
the date of grant and one year after the transfer of the shares to the
participant, (i) the participant will recognize the difference, if any,
between the amount realized and the exercise price as long-term capital gain
or long-term capital loss (as the case may be) if the shares are capital
assets; and (ii) the Company will not qualify for any deduction in connection
with the grant or exercise of the options.
17
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If shares of Common Stock acquired upon the exercise of an Incentive Option
are disposed of prior to the expiration of the holding periods described
above, (i) the participant will recognize ordinary compensation income in the
taxable year of disposition in an amount equal to the excess, if any, of the
lesser of the fair market value of the shares on the date of exercise or the
amount realized on the disposition of the shares, over the exercise price paid
for such shares; and (ii) the Company will qualify for a deduction equal to
any such amount recognized, subject to the limitation that the compensation be
reasonable. The participant will recognize the excess, if any, of the amount
realized over the fair market value of the shares on the date of exercise, if
the shares are capital assets, as capital gain and the Company will not
qualify for a deduction with respect to such excess.
NONQUALIFIED STOCK OPTIONS. Except as noted below, (i) upon grant of the
nonqualified Option, a plan participant will recognize no income; (ii) upon
exercise of the option (if the shares of Common Stock are not subject to a
substantial risk of forfeiture and nontransferable), the participant will
recognize ordinary compensation income in an amount equal to the excess, if
any, of the fair market value of the shares on the date of exercise over the
exercise price, and the Company will qualify for a deduction in the same
amount, subject to the requirement that the compensation be reasonable; and
(iii) on a sale of the shares, the participant will recognize gain or loss
equal to the difference, if any, between the amount realized and the sum of
the exercise price and the ordinary compensation income recognized. Such gain
or loss will be treated as capital gain or loss if the shares are capital
assets in the hands of the participant.
If the shares of Common Stock acquired upon exercise of a nonqualified
Option are subject to a substantial risk of forfeiture and are
nontransferable, the participant's and the Company's Federal income tax
consequences of the exercise and disposition of the shares will be determined
under rules similar to those set forth below under "Restricted Stock."
STOCK APPRECIATION RIGHTS. A participant who receives a SAR will recognize
no income on the grant of such SAR, but will recognize ordinary compensation
income equal to the cash received and/or the fair market value on the date of
transfer of any Common Stock received, and the Company will qualify for a
deduction of an equal amount, subject to the limitation that compensation be
reasonable.
RESTRICTED STOCK. A participant who receives Restricted Stock will recognize
ordinary compensation income in an amount equal to the excess, if any, of the
fair market value of the Restricted Stock at the time the Restricted Stock is
no longer subject to a substantial risk of forfeiture or is transferable, over
the consideration paid for the Restricted Stock. However, a participant may
elect, under Section 83(b) of the Code, within thirty days of the transfer of
the Restricted Stock, to recognize ordinary compensation income on the date of
transfer in an amount equal to the excess, if any, of the fair market value on
the date of such transfer of the shares of Restricted Stock (determined
without regard to the restrictions) over the consideration paid for the
Restricted Stock.
Whether or not the participant makes an election under Section 83(b), the
Company generally will qualify for a deduction (subject to the limitation that
compensation be reasonable) equal to the amount that is taxable as ordinary
income to the participant, in its taxable year in which or with which ends the
taxable year of the participant in which such income is included as gross
income. In addition, if the Restricted Stock was granted pursuant to an
agreement entered into after February 17, 1993 (or an agreement entered into
on or before February 17, 1993, which was materially modified after such
date), the Company's ability to claim a compensation deduction may be limited
by Section 162(m) of the Code which limits the amount a corporation can deduct
as compensation with respect to certain key executives to $1 million per year.
DEFERRED STOCK. A participant who receives an award of Deferred Stock will
recognize no income on the grant of such award. However, he will recognize
ordinary compensation income and the Company will be able to claim a
corresponding deduction (subject to the limitation that compensation be
reasonable and Section 162(m) described above) on the transfer of the Deferred
Stock (or the later lapse of a substantial risk of forfeiture to which the
Deferred Stock is subject, if the participant does not make a Section 83(b)
election), in accordance with the same rules as discussed above under
"Restricted Stock".
18
<PAGE>
OTHER STOCK-BASED AWARDS. The Federal income tax treatment of Other Stock-
Based Awards will depend upon the nature of any such award and the
restrictions applicable to such award. Such an award may, depending on the
nature of and conditions applicable to the award, be taxable as a stock option
or an award of Restricted Stock.
The Company believes the amendment to the 1990 Plan is in the best interests
of the Company and its shareholders. The affirmative vote of a majority of the
votes cast by the holders of shares entitled to vote thereon who are present
at the Meeting in person or by proxy is required for approval of the amendment
to the 1990 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
PROPOSAL II.
INDEPENDENT AUDITORS
The Board has selected the firm of Arthur Andersen LLP, independent
certified public accountants, to act as independent public accountants for the
Company for the 1996 fiscal year. Arthur Andersen LLP has acted in such
capacity for the Company's fiscal year from the fiscal year ended September
30, 1995. A representative of Arthur Andersen LLP is expected to be present at
the Meeting, such representative will have the opportunity to make a statement
if he or she so desires and is expected to be available to respond to
appropriate questions.
During the Company's 1993 and 1994 fiscal years, the Company engaged the
accounting firm of Richard A. Eisner & Company, LLP as the independent
accountants to audit its financial statements. The Company notified Richard A.
Eisner & Company, LLP that, effective September 5, 1995, it would no longer
utilize its services as independent accountants. On September 5, 1995, the
Company engaged the firm of Arthur Andersen LLP to act as its independent
accounts for the 1995 fiscal year. The Company's decision to change
independent accountants was recommended and approved by its Audit Committee.
Richard A. Eisner & Company, LLP's reports on the Company's financial
statements for the 1993 and 1994 fiscal years did not contain an adverse
opinion or a disclaimer of opinion nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. There has not occurred,
during the two fiscal years ended as of September 30, 1994, or any subsequent
interim period prior to September 5, 1995, any reportable events (as defined
in Item 304(a)(1)(v) of Regulation S-K of the Securities and Exchange
Commission (the "Commission")) with respect to Richard A. Eisner & Company,
LLP. In connection with the audits of the Company's financial statements for
each of the two fiscal years ended as of September 30, 1994, and in the
subsequent interim period, there were no disagreements with Richard A. Eisner
& Company, LLP on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which if not resolved to
the satisfaction of Richard A. Eisner & Company, LLP would have caused Richard
A. Eisner & Company, LLP to make reference to the matter in their report on
the Company's financial statements for such periods. Richard A. Eisner &
Company, LLP has previously stated in connection with filings with the
Commission that it agrees with the statements contained in this paragraph.
OTHER MATTERS
At the date of this proxy statement, the Board has no knowledge of any
business which will be presented for consideration at the Meeting, other than
as described above. If any other matter or matters are properly brought before
the Meeting or any adjournment(s) thereof, it is the intention of the persons
named in the accompanying form of proxy to vote proxies on such matters in
accordance with their best judgment.
19
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SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal which is intended to be presented by any shareholder for action
at the 1997 Annual Meeting of Shareholders must be received in writing by the
Secretary of the Company, at One Ram Ridge Road, Spring Valley, New York
10977, not later than December 31, 1996 in order for such proposal to be
considered for inclusion in the proxy statement and form of proxy relating to
the 1997 Annual Meeting of Shareholders.
By Order of the Board of Directors
Robert I. Edinger
Secretary
Dated: September 20, 1996
20
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P PROXY FOR ANNUAL MEETING TO BE HELD ON OCTOBER 23, 1996
R
O
X Know All Men By These Presents: That the undersigned shareholder(s) of
Y Pharmaceutical Resources, Inc., a New Jersey corporation (the "Company"),
hereby constitute(s) and appoint(s) Kenneth I. Sawyer and Robert I.
Edinger with full power of substitution in each, as the agents, attorneys
and proxies of the undersigned, for and in the name, place and stead of
the undersigned, to vote, at the Annual Meeting of Shareholders of the
Company to be held at the Holiday Inn-Suffern, Three Executive Boulevard,
Suffern, New York, on October 23, 1996, at 10:00 A.M. (local time) and at
all adjournments thereof, the shares of stock which the undersigned would
be entitled to vote if then personally present in the transaction of such
business as may properly come before the meeting. The undersigned would
direct my (our) proxies to vote for me (us) as specified by a cross (X)
in the appropriate spaces, upon the following proposals:
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN BELOW. IF
NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION OF TWO
MEMBERS OF THE BOARD OF DIRECTORS AND FOR THE APPROVAL AND ADOPTION OF AN
AMENDMENT TO THE 1990 STOCK INCENTIVE PLAN.
<PAGE>
<TABLE>
<CAPTION>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
9140
--
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF ALL LISTED NOMINEES.
- - -----------------------------------------------------------------------------------------------------------------------------------
Election of Directors. Nominees: Kenneth I. Sawyer and Robin O. Motz, M.D., Ph.D.
<S> <C> <C> <C> <C> <C> <C>
WITHHOLD AUTHORITY TO VOTE
1. Election of FOR ALL FOR ALL NOMINEES LISTED 2. Approve and adopt an FOR AGAINST ABSTAIN
Directors amendment to the 1990
[ ] [ ] Stock Incentive Plan [ ] [ ] [ ]
(INSTRUCTION: To withhold authority to vote for any individual
nominee write the nominee's name in the space below.)
_____________________________________________
- - --------------------------------------------------------
3. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting or any adjournment
thereof.
----------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY.
_____________________________________________________________, 1996
SIGNATURE DATE
_____________________________________________________________, 1996
SIGNATURE if held jointly DATE
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY THE PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME BY AN AUTHORIZED PERSON.
</TABLE>
[_] I plan on attending the Annual Meeting.
