UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K/A1
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Fiscal Year Ended September 30, 1995
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 _____ 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 definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ______
$134,009,385
------------
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 20, 1995 (assuming solely for purposes of this
calculation that all directors and executive officers of the Registrant are
"affiliates").
18,176,279
----------
Number of shares of common stock outstanding as of December 20, 1995
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference
into this Annual Report on Form 10-K:
IDENTITY OF DOCUMENTS PARTS OF FORM 10-K INTO WHICH
DOCUMENT IS INCORPORATED
Form 8-K of Registrant Filed
September 8, 1995 and as amended on
October 4, 1995 and October 12, 1995 Part II
<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, Class II and Class III directors of the
Company have terms which expire in 1997, 1998 and 1996, respectively. The
following table sets forth certain information with respect to each of
Class I, II and III directors and the year each was first elected as a
director:
<TABLE>
<CAPTION>
Year
Age (as of of First
Name 12/95) Election
- -------------------------------------------------------------------------
CLASS I
<S> <C> <C>
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.
From February 1989 to August 1990,
Managing Director-Corporate Finance of
F.N. Wolf & Co., Inc., an investment
banking firm.
H. Spencer Matthews (5)....................... 74 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)(2)(3)(5)................. 49 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
since December 1995, 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)(4)....... 56 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 North American Securities
Administrators Association.
Melvin H. Van Woert, M.D.(1)(2)(3)(4)... 66 1990
Since 1974, Physician and Professor of
Neurology and Pharmacology and Doctoral
Faculty, Mount Sinai Medical Center, New
York.
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).... 56 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.
- ---------------------
(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.
</TABLE>
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 between the Company and Clal. 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 and all
committees thereof. Clal Industries Ltd. owns all of Clal's stock.
Executive Officers
- ------------------
The executive officers of the Company consist of Mr. Sawyer as
President, Chief Executive Officer and Chairman of the Board, Robert I.
Edinger as Executive Vice President, Chief Financial Officer and Secretary
and Stuart A. Rose, Ph.D., Executive Vice President- Operations. The
executive officers of Par consist of Mr. Sawyer, Mr. Edinger, and Dr. Rose,
as well as Robert M. Fisher, Jr., Executive Vice President, Corporate
Development, Sales and Marketing of Par. Dr. Rose resigned as an officer
of both the Company and Par 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 director:
Name Age
- ------------------------------------------------------
Robert I. Edinger........................ 55
Since January 1995, Executive Vice President, Chief Financial
Officer and Secretary of the Company and Par. Since June 1993,
Vice President, Chief Financial Officer and Secretary of the
Company and Par. In January 1995, Mr. Edinger was also appointed
Executive Vice President, Finance of Par. From 1990 to June
1993, Mr. Edinger served as Executive Vice President of Bonjour
Group, Ltd., a licensing company, where he was responsible for
negotiating licensing agreements. From 1986 to 1990, President
and Chief Financial Officer of OCP America, a wholesale
distribution company.
Robert M. Fisher, Jr.................... 47
Since June 1995, Executive Vice President, Corporate
Development, Sales and Marketing of Par, and since October of
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.
As a public company, the Company's directors, executive officers and
10% beneficial owners are subject to the reporting requirements under
Section 16(a) of the Securities Exchange Act of 1934, as amended.
Under such Act, Statements of Changes in Beneficial Ownership of
Securities on Form 4 were required to be filed by Messrs. Sawyer and
Matthews, directors and/or officers of the Company, in January 1993 and
August 1995, and December 1994, respectively. Transactions by such
directors and officers were instead reported delinquently on Form 4 in
August and September 1995, and January 1995, respectively. In addition,
Mr. Ben-Dor filed Form 3 delinquently in July 1995.
ITEM 11. Executive Compensation.
The following table sets forth compensation earned by or paid to during
fiscal years 1993 through 1995, the Chief Executive Officer of the Company
and the four additional most highly compensated executive officers (over
$100,000) serving as executive officers of the Company and/or Par during
fiscal 1995 (the "Named Executives"). The Company awarded or paid such
compensation to all such persons for services rendered in all capacities
during the applicable fiscal years.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------- -------------------------
Restricted Securities
Name and Stock Underlying All Other
Principal Position Year Salary($) 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 408,238 100,000 - - 59,752
Executive Officer 1993 413,215 200,000 - 500,000 70,851
and Chairman
Diana L. Sloane(3) 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
Robert I. Edinger 1995 190,538 - - 40,000 19,628
Executive Vice 1994 180,000 50,000 - - 11,072
President, Chief 1993 58,846 25,000 - 40,000 76
Financial Officer
and Secretary
Robert M. Fisher Jr. 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 1995 128,077 - - 75,000 566
Executive Vice
President, Operations
(1) The Company believes that at the end of fiscal 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-$37,816; Ms. Sloane-$612; Mr. Edinger-$775; Mr.
Fisher-$694; and Dr. Rose-$566. 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 amounts contributed by the Company to the Company 401(k)
plan: Ms. Sloane-$1,731; Mr. Edinger-$5,971; and Mr. Fisher-$3,106.
The Company also contributed $11,940, $12,882 and $12,099 for the
benefit of Mr. Sawyer's, Mr. Edinger's and Mr. Fisher's Par
Pharmaceutical Retirement Plan.
(3) Resigned effective March 31, 1995.
</TABLE>
The following table sets forth stock options granted to the Named
Executives during fiscal 1995.
Stock Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
---------------------------------------- ------------------------------
% of Total
Options
Shares Granted to
Underlying Employees Expira-
Options in Fiscal Exercise tion
Name Granted (#) Year Price($) Date 0%($) 5%($) 10%($)
- ---- ----------- ---------- -------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert I.
Edinger (1) 40,000 15.12% $8.625 10/13/99 $0 $440,317 $555,626
Robert M.
Fisher,
Jr. (2) 20,000 7.56% $8.625 10/13/99 $0 $220,159 $277,813
Stuart A.
Rose (3) 75,000 28.36% $9.000 01/16/00 $0 $861,490 $1,087,094
(1) Represents options granted pursuant to the Company's 1990 Incentive
Option Plan on October 13, 1994 of which 20,000 became exercisable
on October 13, 1995 and 20,000 will become exercisable on October
13, 1996.
(2) Represents options granted pursuant to the Company's 1990 Incentive
Option Plan on October 13, 1994 of which 10,000 became exercisable
on October 13, 1995 and 10,000 will become exercisable on October
13, 1996.
(3) Represents options granted pursuant to the Company's 1990 Incentive
Option Plan on January 16, 1995 of which 25,000 became exercisable
on July 16, 1995, 25,000 will become exercisable on January 16,
1996, and 25,000 will become exercisable on January 16, 1997.
</TABLE>
The following table sets forth the stock options exercised by the Named
Executives during fiscal 1995 and the value, as of September 30, 1995, of
unexercised stock options held by the Named Executives.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
---------------------- --------------------
Shares
Acquired on Value Exer- Unexer- Exer- Unexer-
Name Exercise (#) Realized($) cisable cisable cisable cisable
- ---- ------------ ----------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer 0 0 1,000,000 0 2,970,000 0
Diana L. Sloane 60,000 371,874 130,000 0 0 0
Robert I. Edinger 0 0 60,000 20,000 52,500 17,500
Robert M. Fisher,
Jr. 0 0 20,000 10,000 17,500 8,750
Stuart A. Rose 0 0 25,000 50,000 12,500 25,000
</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 $12,000, a fee of
$1,000 for each meeting of the Board attended, and a fee of $750 for each
committee meeting attended, subject to a maximum of $1,750 per day. Chairmen
of committees receive an additional annual retainer of $5,000 per committee.
New Directors are granted options to purchase shares on the date initially
elected to the Board. Directors who are employees of the Company or any of
its subsidiaries or 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.
In fiscal 1995, Mark Auerbach received an additional $30,000 in
compensation from the Company for providing his expertise in connection with
forming strategic alliances with other companies.
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, 1996, subject to earlier termination by the Company for Cause (as such
term is defined in the agreement). Mr. Sawyer's term of employment will be
automatically extended each year for an additional one-year period unless
either party provides written notice by July 4th of such year that he or it
desires to terminate the agreement. 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 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 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 a termination
occurs within two years following the 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 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
$192,500, which Mr. Sawyer has leased from the Company since February 1995.
Mr. Edinger and Mr. Fisher have agreements providing for certain
payments upon termination of their employment as defined in their agreements.
The officers will be entitled to twelve months continuation of the prevailing
base salary, payable in twelve equal monthly installments from the date of
termination. The officers shall also have medical and other benefits
maintained for twelve months or until such employee is covered by another
employer for such benefits, if earlier.
Pension Plan
- ------------
The Company maintains a defined benefit plan (the "Pension Plan")
intended to qualify under Section 410(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 the 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 life
annuity, or for married persons, a joint survivor annuity. None of the Named
Executives had any years of credited service under the pension plan.
Compensation and Stock Option Committee
- ---------------------------------------
The compensation stock option committee consists of: Mark Auerbach, Mony
Ben-Dor, H. Spencer Matthews, and Robin O. Motz.
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 December
20, 1995, 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 Annual
Report on Form 10-K, 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. An aggregate of 18,176,279 shares of Common Stock were
outstanding at the close of business on December 20, 1995.
<TABLE>
<CAPTION>
Amount Percentage
Name and Address of of
of Common Common
Beneficial Owner Stock Stock
- --------------------------------------------- --------- ---------
<S> <C> <C>
Clal Pharmaceutical Industries Ltd.(1)(2)...... 4,032,379 19.98
Kenneth I. Sawyer(3)(4)........................ 1,007,150 5.25
Diana L. Sloane(3)(5).......................... 136,355 *
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)............................. 0 *
Robin O. Motz, M.D., Ph.D.(3)(4)............... 42,000 *
Robert I. Edinger(3)........................... 60,200 *
Robert M. Fisher, Jr.(3)....................... 20,850 *
Stuart A. Rose, Ph.D.(3)(6).................... 29,000 *
All directors and executive officers
(as of 12/20/95) as a group
(10 persons)(3)(5)............................. 1,348,850 6.9
_______
* Less than 1%.
(1) The address of Clal and Mr. Ben-Dor is Clal House, 5 Dryuanov Street,
Tel Aviv 63143, Israel. Of the 4,032,379 shares of Common Stock shown
as beneficially owned by Clal, 2,027,272 shares are issued and
outstanding and 2,005,107 shares are issuable upon exercise of issued
and outstanding warrant(s) owned by Clal.
(2) Mr. Ben-Dor disclaims beneficial ownership of shares owned by Clal of
which he is an officer.
(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 February 18, 1996 under the Company's stock
option plans as follows: Mr. Sawyer, 1,000,000 shares; Ms. Sloane,
130,000; 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, 60,000 shares; Mr. Fisher, 20,000 shares; and Mr.
Rose, 25,000 shares.
(4) A director of the Company.
(5) Ms. Sloane was an executive officer and director of the Company until
April 1, 1995.
(6) Includes 2,000 shares of Common Stock beneficially owned by Dr. Rose's
spouse.
</TABLE>
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 "Directors and Executive
Officers of the Registrant--Directors").
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1995, the Company purchased a condominium for $192,500.
The Company leases the condominium to Mr. Sawyer for a period equal to the
term of his employment agreement at $1,800 per month, which represents the
fair market value as determined by a disinterested third party (see
"Executive Compensation Employment Agreements and Termination
Arrangements").
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 the
Joint Venture to research and develop generic pharmaceutical products.
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 relating 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 (see "Directors and Executive Officers of the
Registrant--Directors").
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) less than 75% of the members of the Board
(excluding member(s) of the Board nominated by Clal) votes against 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 Fine-Tech Ltd., an Israeli pharmaceutical research and development
company in which Clal has a significant ownership interest, for $1,000,000,
obtained the right to nominate one member to the board of directors of
Fine-Tech Ltd. and obtained the exclusive right to purchase products from
Fine-Tech Ltd. not commonly sold in North America, South America and the
Caribbean (the "Americas"). Fine-Tech Ltd. 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 Fine-Tech Ltd.
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 or are sold in certain business combination transactions, or
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 two
warrants. The Warrants entitle Clal to purchase up to 2,005,107 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 its 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
freely sell 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 of shares of
Common Stock owned by Clal and one additional demand registration if the
Warrants are exercised. 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.
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 (see "Business--General--Recent
Developments"). In connection with the Joint Venture, the Company and Clal
have granted the other certain manufacturing and distribution rights for
products developed by each 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.
From time to time, the Company has purchased, and may in the future
continue to purchase, chemical components from Fine-Tech Ltd. The
Company's purchases have been and will be on terms no less favorable than
could be obtained from non-affiliated third parties.
The Company believes that all of the above transactions were on terms
that were fair and reasonable to the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements 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: January 26, 1996 PHARMACEUTICAL RESOURCES, INC.
(Registrant)
By: /s/ Kenneth I. Sawyer
------------------------------
Kenneth I. Sawyer, President
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert J. Edinger
------------------------------
Robert J. Edinger
Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Accounting and
Financial Officer)
