<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10--Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
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 offices) (Zip Code)
Registrant's telephone number, including area code: (914) 425-7100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
18,683,998
Number of shares of Common Stock outstanding as of August 6, 1997.
This is page 1 of 28 pages. The exhibit index is on page 15.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
JUNE 28, SEPTEMBER 30,
ASSETS 1997 1996
------ --------- --------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents - $ 299
Temporary investments $ 15 158
Accounts receivable, net of allowances of
$4,320 and $2,643 7,325 7,645
Inventories 16,110 19,352
Prepaid expenses and other current assets 1,811 3,894
-------- -------
Total current assets 25,261 31,348
Property, plant and equipment, at cost less
accumulated depreciation and amortization 24,371 26,068
Deferred charges and other assets 1,591 1,222
Investments 4,871 8,672
Investment in joint venture 2,418 3,028
Non-current deferred tax benefit 14,608 14,608
-------- -------
Total assets $ 73,120 $84,946
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 220 $ 2,142
Short term debt 9,415 -
Accounts payable 3,315 4,163
Accrued salaries and employee benefits 2,253 3,299
Accrued expenses and other current liabilities 1,400 1,028
-------- -------
Total current liabilities 16,603 10,632
Long-term debt, less current portion 1,185 2,971
Accrued pension liability 719 719
Shareholders' equity:
Common Stock, par value $.01 per share; authorized 60,000,000 shares;
issued and outstanding 18,682,135 and 18,661,869 shares 187 187
Additional paid in capital 67,138 67,081
Accumulated (deficit) (15,088) (1,509)
Additional minimum liability related to defined benefit pension plan (117) (117)
Unrealized gain on investment 2,493 4,982
-------- -------
Total shareholders' equity 54,613 70,624
-------- -------
Total liabilities and shareholders' equity $ 73,120 $84,946
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 36,001 $45,008 $ 11,749 $14,788
Cost of goods sold 34,626 34,031 11,132 12,078
-------- ------- -------- -------
Gross margin 1,375 10,977 617 2,710
Operating expenses:
Research and development 4,627 4,319 850 2,737
Selling, general and administrative 9,478 12,876 3,132 4,366
Restructuring charge - 549 - 549
-------- ------- -------- -------
Total operating expenses 14,105 17,744 3,982 7,652
Operating (loss) (12,730) (6,767) (3,365) (4,942)
Other income (expense) (28) 631 (277) 160
Interest expense (411) (310) (193) (104)
-------- ------- -------- -------
(Loss) before provision (credit) for income taxes (13,169) (6,446) (3,835) (4,886)
Provision (credit) for income taxes 410 (2,578) - (1,956)
-------- ------- -------- -------
NET (LOSS) (13,579) (3,868) (3,835) (2,930)
Retained earnings (deficit), beginning of period (1,509) 6,783 (11,253) 5,845
-------- ------- -------- -------
Retained earnings (deficit), end of period $(15,088) $ 2,915 $(15,088) $ 2,915
======== ======= ======== =======
NET (LOSS) PER SHARE OF COMMON STOCK $(.73) $(.21) $(.21) $(.16)
======== ======= ======== =======
Weighted average number of common and
common equivalent shares outstanding 18,687 18,453 18,679 18,505
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
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PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
JUNE 28, JUNE 29,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(13,579) $ (3,868)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
(Credit) for income tax expense - (2,578)
Joint venture research and development 610 324
Restructuring charge - 549
Depreciation and amortization 2,059 2,138
Allowances against accounts receivable (1,677) 274
Write-off of inventories 1,148 932
Other - (12)
Changes in assets and liabilities:
Decrease in accounts receivable 1,997 37
Decrease (increase) in inventories 2,094 (5,536)
Decrease in prepaid expenses and other assets 2,068 936
(Decrease) in accounts payable (848) (1,371)
(Decrease) increase in accrued expenses and other liabilities (674) 288
-------- --------
Net cash (used in) operating activities (6,802) (7,887)
Cash flows from investing activities:
Capital expenditures (716) (3,650)
Decrease (increase) in investments 1,312 (2,470)
Decrease in temporary investments 143 82
-------- --------
Net cash provided by (used in) investing activities 739 (6,038)
Cash flows from financing activities:
Proceeds from issuance of capital stock 57 1,797
Net proceeds from revolving credit line, proceeds from issuance
of notes payable and other debt 9,415 4,342
Principal payments under long-term debt and other borrowings (3,708) (5,032)
Payments due to stock conversion - (5)
-------- --------
Net cash provided by financing activities 5,764 1,102
Net (decrease) in cash and cash equivalents (299) (12,823)
Cash and cash equivalents at beginning of period $ 299 17,986
-------- --------
Cash and cash equivalents at end of period - $ 5,163
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 28, 1997
(UNAUDITED)
Pharmaceutical Resources, Inc. (the "Company" or "PRI") operates in
one business segment, the manufacture and distribution of generic
pharmaceuticals. Marketed products are principally in oral solid (tablet,
caplet and capsule) form, with a small number of products in the form of creams
and liquids.
BASIS OF PREPARATION:
The accompanying financial statements at June 28, 1997 and for the
nine-month and three-month periods ended June 28, 1997 and June 29, 1996 are
unaudited; however, in the opinion of management of PRI, such statements include
all adjustments (consisting of normal recurring accruals) necessary to a fair
statement of the information presented therein. The balance sheet at September
30, 1996 was derived from the audited financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
financial statements and these notes do not include all disclosures required by
generally accepted accounting principles for audited financial statements.
Accordingly, these statements should be read in conjunction with PRI's most
recent annual financial statements.
Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.
SHORT TERM DEBT:
In December 1996, Par Pharmaceutical, Inc., the Company's operating
subsidiary ("Par"), entered into a Loan and Security Agreement (the "Loan
Agreement") with General Electric Capital Corporation ("GECC") which provides
Par with a three-year revolving line of credit. The Loan Agreement was amended
in May 1997. Pursuant to the Loan Agreement, as amended, Par is permitted to
borrow up to the lesser of (i) the borrowing base established under the Loan
Agreement or (ii) $20,000,000. The borrowing base is limited to 85% of eligible
accounts receivable plus 50% of eligible inventory of Par as determined from
time to time by GECC. The interest rate charge on the line of credit is based
upon a per annum rate of 3.50% above the 30-day commercial paper rate for high-
grade unsecured notes adjusted monthly. The line of credit with GECC is secured
by the assets of Par and PRI other than real property and is guaranteed by PRI.
In connection with such facility, Par, PRI, and their affiliates have
established a cash management system pursuant to which all cash and cash
equivalents received by any of such entities are deposited into a lockbox
account over which GECC has sole operating control and which are applied on a
daily basis to reduce amounts outstanding under the line of credit. The
revolving credit facility is subject to covenants based on various financial
benchmarks. Under the May 1997 amendment, GECC waived events of default related
to financial covenants and amended the financial covenants of Par. As of June
28, 1997, the borrowing base was approximately $12,300,000 and $9,415,000 was
outstanding under such line of credit. Any significant reduction in the
borrowing base from current levels will adversely affect the Company's
liquidity.
INCOME TAXES:
Based on the Company's recent performance and the uncertainty of the
generic business in which it operates, management believes that future operating
income might not be sufficient to recognize fully the net operating loss
carryforwards of the Company. Therefore, the Company is not recognizing a
benefit for its operating loss in the nine-month period ended June 28, 1997. If
the Company is unable to generate sufficient taxable income in the future,
increases in the valuation allowance will be required through a charge to
expense. The Company incurred income tax expense of $410,000 in the first
quarter of fiscal 1997 due to interest relating to a settlement with the
Internal Revenue Service in fiscal 1995 for the disallowance of the Company's
tax credit in prior periods with respect to certain research and development
credits.
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PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 28, 1997
(UNAUDITED)
EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
128"), which is effective for financial statements for periods ending after
December 15, 1997, and requires retroactive restatement of all earnings per
share data. SFAS 128 requires replacement of primary and fully diluted earnings
per share with basic and diluted earnings per share. For the current nine and
three-month periods and the comparative periods of the prior year, SFAS 128
would not have had an impact on earnings per share.
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
Retirement Plans:
The Company has a defined contribution, social security integrated
Retirement Plan providing retirement benefits to eligible employees as defined
in the Retirement Plan. The Board of Directors of Par authorized the cessation
of employer contributions effective December 30, 1996. Consequently,
participants in the Retirement Plan will no longer be entitled to any employer
contributions under such plan for 1996 or subsequent years. The Company also
maintains a Retirement Savings Plan whereby eligible employees are permitted to
contribute from 1% to 12% of pay to this Plan. The Company contributes an amount
equal to 50% of the first 6% of the pay contributed by the employee. In
calendar 1997, the Company intends to merge the Retirement Plan into the
Retirement Savings Plan.
Legal Proceedings:
The Company is involved in certain litigation matters, including
certain product liability actions and actions by two former officers for, among
other things, breach of contract. Such actions seek damages from the Company,
including compensatory and punitive damages. The Company intends to defend
these actions vigorously. The Company believes that these actions are
incidental to the conduct of its business and that the ultimate resolution
thereof will not have a material adverse effect on its financial condition or
results of operations.
Manufacturing Agreement:
On April 30, 1997, Par entered into a Manufacturing and Supply
Agreement (the "Supply Agreement") with BASF Corporation ("BASF"), a
manufacturer of pharmaceutical products. Under the Supply Agreement, Par agreed
to purchase certain minimum quantities of certain products manufactured by BASF
at one of its facilities, and Par will phase out its manufacturing of those
products. BASF will discontinue its direct sale of those products at the
particular facility. The agreement has an initial term of three years (subject
to earlier termination upon the occurrence of certain events as provided
therein) and thereafter renews automatically for successive two-year periods to
December 31, 2005, if Par has met certain purchase thresholds. In the event
that Par's purchases do not equal or exceed the thresholds, BASF may elect to
terminate the Supply Agreement effective one year later. The Company began
selling drugs manufactured by BASF and BASF has transferred to Par the marketing
and sales of certain products covered by the Supply Agreement in June 1997,
however the agreement will not be fully implemented until August 1997.
Restructuring and Cost Reductions:
Primarily as a result of the Supply Agreement, the Company has further
reduced the work force during the third fiscal quarter by approximately forty
five employees, primarily in manufacturing functions and a smaller number in
administrative and product development positions. The work force reduction
included a layoff of employees at the end of June 1997 and the elimination of
positions currently open. The Company established a liability for the work
force reduction of $280,000 and subsequent charges are included in the current
quarter's operating results. The charge includes $231,000 for severance pay,
employee benefits and out placement services and $49,000 in legal fees. The
Company began implementing measures during the fourth quarter of fiscal 1996,
which have continued in fiscal 1997, in an effort to reduce costs and increase
operating efficiencies. Such measures have provided for a reduction in the work
force, changes in senior management, a reorganization of certain existing
personnel and reductions in certain expenses.
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PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 28, 1997
(UNAUDITED)
SUBSEQUENT EVENTS:
Distribution Agreement:
On July 28, 1997, PRI announced that it had amended a 1994
distribution agreement with Sano Corporation ("Sano"), a developer and
manufacturer of transdermal drug delivery products. Pursuant to the amendment,
the Company ceded its distribution rights to three products of which submissions
have not yet been filed with the Food and Drug Administration ("FDA"), while
retaining exclusive United States distribution rights to three products, a
nicotine and two nitroglycerin transdermal patches, currently filed with the FDA
and awaiting approval. In addition, PRI has released distribution rights
outside the United States for the retained products. In return for
relinquishing the rights described above, PRI received in July 1997 $1,950,000
in cash and an interest bearing promissory note for $1,950,000 which will be due
in September 1998. PRI has also retained the rights to recover certain of its
prior payments to Sano, including $1,500,000 from the gross profits earned on
sales of two of the retained products.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS IN THIS FORM 10-Q CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, INCLUDING THOSE CONCERNING MANAGEMENT'S EXPECTATIONS WITH RESPECT TO
FUTURE FINANCIAL PERFORMANCE AND FUTURE EVENTS, PARTICULARLY RELATING TO SALES
OF CURRENT PRODUCTS AS WELL AS THE INTRODUCTION OF NEW MANUFACTURED AND
DISTRIBUTED PRODUCTS. SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE
COMPANY, WHICH COULD CAUSE ACTUAL RESULTS AND OUTCOMES TO DIFFER MATERIALLY FROM
THOSE EXPRESSED HEREIN. FACTORS THAT MIGHT AFFECT SUCH FORWARD-LOOKING
STATEMENTS SET FORTH IN THIS FORM 10-Q INCLUDE, AMONG OTHERS, (I) INCREASED
COMPETITION FROM NEW AND EXISTING COMPETITORS AND PRICING PRACTICES FROM SUCH
COMPETITORS, (II) THE AMOUNT OF FUNDS CONTINUING TO BE AVAILABLE FOR INTERNAL
RESEARCH AND DEVELOPMENT AND RESEARCH AND DEVELOPMENT JOINT VENTURES, (III)
RESEARCH AND DEVELOPMENT PROJECT DELAYS OR DELAYS IN OBTAINING REGULATORY
APPROVALS, (IV) THE ABILITY OF THE COMPANY TO RETAIN AND ATTRACT MANAGEMENT
PERSONNEL IN KEY OPERATIONAL AREAS AND (V) CONTINUED AVAILABILITY OF BORROWINGS
UNDER THE COMPANY'S CREDIT LINE WITHOUT SIGNIFICANT REDUCTION.
RESULTS OF OPERATIONS
GENERAL
The Company incurred operating losses of $12,730,000 and $3,365,000,
respectively, for the nine-month and three-month periods ended June 28, 1997
compared to losses of $6,767,000 and $4,942,000 in the corresponding periods of
the prior fiscal year. The losses are principally due to sales and gross margin
declines, as described below, partially offset by decreases in operating
expenses. The Company's gross margins for the nine-month and three-month
periods ended June 28, 1997 were $1,375,000 and $617,000, respectively, compared
to $10,977,000 and $2,710,000 for the same periods in fiscal year 1996. The
decreased gross margins experienced in the current periods reflect the
continuing trend of lower pricing on certain manufactured products. If sales
declines are not offset by increased sales of new distributed or manufactured
products, net sales and gross margin declines will continue and, accordingly,
result in continuing losses. As a result of the recent losses, the Company is
continuing to search for strategic alternatives to improve its financial
condition and product line while working on process improvements to reduce its
current manufacturing costs.
The continued price and profit margin erosion on certain of the
Company's products reflects a continuing trend in the generic drug industry in
the United States. The factors contributing to the intense competition and
affecting both the introduction of new products and the pricing and profit
margins of the Company, include, among other things, (i) introduction of other
generic drug manufacturer's products in direct competition with the Company's
significant products, (ii) competition from brand name drug manufacturers
selling generic versions of their drugs, (iii) increased ability of generic
competitors to enter the market after patent expiration, diminishing the amount
and duration of significant profits, and (iv) willingness of generic drug
customers, including wholesale and retail customers, to switch among
pharmaceutical manufacturers.
During the current fiscal quarter, the Company has implemented
additional work force reductions primarily as a result of the manufacturing and
supply agreement described below. The Company began implementing cost reduction
measures in the fourth quarter of fiscal 1996, which have continued in fiscal
1997, in response to recent results and industry trends (see "Notes to Financial
Statements-Commitments, Contingencies and Other Matters-Restructuring and Cost
Reductions"). These measures have reduced certain operating costs in fiscal
1997. No assurances can be given that reduced costs will return the Company to
profitability.
On July 28, 1997, PRI announced that it had amended a distribution
agreement with Sano Corporation ("Sano"), a developer and manufacturer of
transdermal drug delivery products, ceding its distribution rights, created
under a 1994 agreement, to three products of which submissions have not yet been
filed with the Food and Drug Administration ("FDA"), while retaining exclusive
United States distribution rights to three products, a nicotine and two
nitroglycerin transdermal patches, currently filed with the FDA and awaiting
approval (see "Notes to Financial Statements-Subsequent Events-Distribution
Agreement"). In addition, PRI has released distribution rights outside the
United States for the retained products. In return for relinquishing the rights
described above, PRI received in July 1997 $1,950,000 in cash and an interest
bearing promissory note for $1,950,000 which will be due in September 1998.
PRI has also retained the rights to recover certain of its prior payments to
Sano, including $1,500,000 from the gross profits earned on sales of two of the
retained products.
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<PAGE>
On April 30, 1997, Par Pharmaceutical, Inc., the Company's operating
subsidiary ("Par"), entered into a Manufacturing and Supply Agreement (the
"Supply Agreement") with BASF Corporation ("BASF"), a manufacturer of
pharmaceutical products (see "Notes to Financial Statements-Commitments,
Contingencies and Other Matters-Manufacturing Agreement"). Under the Supply
Agreement, Par agreed to purchase certain minimum quantities of certain products
manufactured by BASF at one of its facilities, and Par will phase out its
manufacturing of those products. BASF will discontinue its direct sale of those
products manufactured at the particular facility. The Company commenced selling
certain products manufactured by BASF and BASF transferred the marketing and
sales of certain products covered by the Supply Agreement in June 1997, however
the agreement will not be fully implemented until August 1997.
In April 1997, the Company entered into an agreement with Lek
Pharmaceutical and Chemical Company d.d. ("Lek"), a European manufacturer of
pharmaceutical products located in Slovenia, in which it had obtained rights to
distribute Acyclovir, the generic equivalent of Zovirax(R). The non-exclusive
distribution agreement covers three dosage forms manufactured by Lek. The
product, introduced in the current quarter of fiscal 1997, has experienced
intense pricing pressure from competitors and has not significantly added to
sales or gross margins.
The Company plans to continue to invest in research and development
efforts in addition to pursuing additional products for sale through new and
existing distribution agreements. There have been no significant sales of any
new manufactured or distributed products introduced in the first nine months of
the current fiscal year. The Company is engaged in efforts, subject to FDA
approval and other factors, to introduce new products as a result of its
research and development efforts and distribution agreements. Sano has advised
the Company that the FDA has not yet approved its previously submitted
Abbreviated New Drug Applications ("ANDAs") for the nicotine and nitroglycerine
patches and, accordingly, such patches may not be available for marketing in
fiscal 1997. As the submission is at the FDA, Sano cannot determine when or if
approvals will be granted. No assurance can be given that any additional
products for sale by the Company will happen or that sales of additional
products will reduce losses or return the Company to profitability. Continuing
losses will adversely affect the Company's liquidity and, accordingly, its
ability to fund research and development or ventures relating to the sale of new
products (see "-Financial Condition-Liquidity and Capital Resources").
NET SALES
Net sales for the nine-month period ended June 28, 1997 of $36,001,000
decreased $9,007,000, or 20%, from $45,008,000 for the nine-month period ended
June 29, 1996. The decline is primarily due to decreased sales of manufactured
products which resulted, in large part, from lower pricing and decreases in
volume of one of the Company's significant products, and to a lesser extent, two
other significant products, partially offset by higher volumes of a lower margin
product. The reduction in pricing and volume results from increased competition
from other drug manufacturers. Sales of distributed product decreased slightly
compared to the levels achieved in the corresponding period of the prior fiscal
year.
Net sales were $11,749,000 for the current three-month period compared
to $14,788,000 in the corresponding quarter of last year. The decline of
$3,039,000, or 21% is principally attributable to the continuing lower sales of
certain significant products, partially offset by higher volumes of a lower
margin product.
Levels of sales are principally dependent upon, among other things,
(i) pricing levels and competition, (ii) market penetration for the existing
product line, (iii) approval of ANDAs and introduction of new manufactured
products, (iv) introduction of new distributed products and (v) the level of
customer service.
GROSS MARGIN
The Company's gross margin of $1,375,000 (4% of net sales) for the
nine-month period ended June 28, 1997 decreased by $9,602,000 from $10,977,000
(24% of net sales) in the corresponding period of the prior fiscal year. The
gross margin decline is primarily due to lower selling prices and decreased
volumes of certain significant manufactured products resulting from the
introduction of other generic drug manufacturers' products in direct competition
with the Company's significant products. The gross margin contribution from
distributed products was negligible in both periods.
-9-
<PAGE>
The gross margin in the current quarter of $617,000 (5% of net sales)
is $2,093,000 lower than the margin of $2,710,000 (18% of net sales) in the
corresponding quarter of the prior year. The decline is primarily attributable
to the lower sales and pricing of certain manufactured products which continued
the trend of lower margins in the current period.
Inventory write-offs, taken in the normal course of business, amounted
to $1,148,000 and $514,000, respectively, for the nine-month and three-month
periods ended June 28, 1997, compared to $932,000 and $303,000 in the
corresponding periods of the prior year. The increase in inventory write-offs
are related principally to the disposal of finished products due to short shelf
life.
OPERATING EXPENSES
Research and Development
Research and development expenses for the nine-month period ended June
28, 1997 were $4,627,000 versus $4,319,000 for the nine-month period ended June
29, 1996. In the current period, advances to Sano amounted to $1,957,000, while
in the prior year payments of $2,942,000 were partially offset by a
reimbursement from Sano of $1,500,000. The Company recorded its share of
research and development expenses from the joint venture with Clal
Pharmaceutical Industries, Ltd. ("Clal") for the current nine-month and three-
month periods of $610,000 and $231,000, respectively, compared to expense of
$324,000 and income of $29,000 for the corresponding periods of the prior year.
Research and development expenses of $850,000 in the current three-
month period were lower than costs of $2,737,000 in the corresponding period in
the prior year primarily as a result of advances to Sano of $1,867,000 in the
prior quarter not incurred in the current quarter.
Selling, General and Administrative
Selling, general and administrative costs are $9,478,000 (26% of net
sales) for the nine-month period ended June 28, 1997 compared to $12,876,000
(29% of net sales) for the corresponding period in the prior fiscal year. The
decrease in the period is primarily attributable to a decline in personnel costs
resulting from recent headcount reductions and the amendment of a retirement
plan (see "Notes to Financial Statements-Commitments, Contingencies and Other
Matters-Retirement Plans" and "-Restructuring and Cost Reductions"). In
addition, fees for consulting and professional services, costs for advertising
and developmental marketing, and bad debt expense have been reduced in the
current fiscal year.
In the current quarter, selling, general and administrative costs of
$3,132,000 (27% of net sales) decreased $1,234,000 from $4,366,000 (30% of net
sales) in the corresponding quarter of last year. The decrease is primarily the
result of decreased personnel costs, professional fees and advertising and
marketing costs, as discussed above.
In June 1997, the Company announced the appointment of a Chief
Operating Officer of Par. As part of the management team of Par, the Chief
Operating Officer will assist in establishing corporate strategies, objectives
and goals while overseeing the Company's operations in an effort to achieve
those goals.
Restructuring Charges
The Company recorded a restructuring charge of $549,000 in the prior
period to provide for costs associated with the reduction and reorganization of
personnel. The implementation of the restructuring plan also included
reductions in spending on advertising, marketing, professional services and, to
a lesser extent, certain internal and external research and development
expenses.
OTHER INCOME (EXPENSE)
Other expense of $28,000 and $277,000 for the nine and three-month
periods ended June 28, 1997, respectively, included gains on the sale of Sano
stock offset by a loss on the sale of Fine-Tech Ltd. stock (see "--Liquidity and
Capital Resources") compared to other income in the corresponding periods of the
prior year of $631,000 and $160,000, respectively, which consisted primarily of
interest on short term treasury obligations.
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<PAGE>
INCOME TAXES
Management has determined, based on the Company's recent performance
and the uncertainty of the generic business in which it operates, that future
operating income might not be sufficient to recognize fully the net operating
loss carryforwards of the Company. Therefore, the Company is not recognizing a
benefit for its operating loss for the nine-month period ended June 28, 1997.
The Company incurred income tax expense of $410,000 in the first quarter of
fiscal 1997 due to interest relating to a settlement with the Internal Revenue
Service in fiscal 1995 for the disallowance of the Company's tax credit for
prior periods with respect to certain research and development credits. The
Company recorded income tax benefits of $2,578,000 and $1,956,000 for the nine-
month and three-month periods of fiscal 1996, respectively, which were reversed
during the fourth quarter of the same year.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital of $8,658,000 at June 28, 1997 decreased $12,058,000
from $20,716,000 at September 30, 1996. The decrease is principally due to the
use of funds to fund operating losses. As a result of a cash management system
pursuant to the financing agreement that the Company entered into with General
Electric Capital Corporation ("GECC"), there is no cash balance at June 28, 1997
(see "-Financing"). The working capital ratio of 1.5x declined from 2.9x at
fiscal year end.
During the nine months ended June 28, 1997, the Company sold 48,666
shares of Sano stock yielding net proceeds of approximately $668,000. In July
and August of 1997 the Company sold an additional 235,000 shares of Sano stock
yielding net proceeds of approximately $3,725,000 which was used to reduce the
revolving credit balance.
In return for relinquishing certain rights pursuant to the amendment
to the Company's distribution agreement with Sano (see "Notes to Financial
Statements-Subsequent Events-Distribution Agreement"), PRI has received
$1,950,000 in cash in the fourth quarter of 1997, which was used to reduce the
revolving credit line balance, and an interest bearing promissory note for
$1,950,000 which will be due in September 1998.
The Company is committed to invest $3,920,000 (which includes the
balance of the commitment from fiscal year 1996) in the Clal joint venture
through fiscal 1997. The Company and Clal were negotiating the terms of their
respective funding obligations, however a written agreement has not been
reached.
In June 1997, the Company sold all of its stock in Fine-Tech Ltd., an
Israeli chemical manufacturer, for $447,000.
The Company expects to fund its research and development activities,
including its obligations under the existing distribution and development
arrangements discussed above, out of its working capital, and if necessary with
borrowings against its line of credit, to the extent then available (see "--
Financing"). If, however, the Company continues to experience significant
losses, its liquidity and, accordingly, its ability to fund research and
development or ventures relating to the distribution of new products will be
materially and adversely affected.
The borrowing base related to the Company's credit line was
approximately $11,000,000 as of July 31, 1997. As of such date, approximately
$5,300,000 was outstanding under the line of credit (see "---Financing").
FINANCING
As of June 28, 1997, the Company's total outstanding short-term and
long-term debt amounted to $9,415,000 and $1,405,000, respectively. The short-
term debt consists of the outstanding amount under the Company's line of credit
with GECC and the long-term debt consists primarily of an outstanding mortgage
loan with another bank.
-11-
<PAGE>
In December 1996, Par entered into a Loan and Security Agreement (the
"Loan Agreement") with GECC which provides Par with a three-year revolving line
of credit. The Loan Agreement was amended in May 1997. Pursuant to the Loan
Agreement, as amended, Par is permitted to borrow up to the lesser of (i) the
borrowing base established under the Loan Agreement or (ii) $20,000,000. The
borrowing base is limited to 85% of eligible accounts receivable plus 50% of
eligible inventory of Par, each as determined from time to time by GECC. The
interest rate on the line of credit is based upon a per annum rate of 3.50%
above the 30-day commercial paper rate for high-grade unsecured notes adjusted
monthly. The line of credit with GECC is secured by the assets of Par and PRI
other than real property and is guaranteed by PRI. In connection with such
facility, Par, PRI and their affiliates have established a cash management
system pursuant to which all cash and cash equivalents received by any of such
entities are deposited into a lockbox account over which GECC has sole operating
control and which are applied on a daily basis to reduce amounts outstanding
under the line of credit. The revolving credit facility is subject to covenants
based on various financial benchmarks. Under the May 1997 amendment, GECC
waived events of default related to the financial covenants and amended the
financial covenants of Par. As of June 28, 1997, the borrowing base was
approximately $12,300,000. Any significant reduction in the borrowing base from
its current levels will adversely affect the Company's liquidity.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits:
10.41 - First Amendment and Waiver to Loan and Security
Agreement, dated May 22, 1997, between Par
Pharmaceutical, Inc. and General Electric Capital
Corporation.
10.42 - Employment Agreement, dated as of May 30, 1997,
between Par Pharmaceutical, Inc. and Joseph Gokkes.
11 - Computation of per share data.
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
None.
-13-
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
PHARMACEUTICAL RESOURCES, INC.
------------------------------
(Registrant)
August 12, 1997 /s/ Kenneth I. Sawyer
------------------------------------------------------
Kenneth I. Sawyer
President and Chief Executive Officer
(Principal Executive Officer)
August 12, 1997 /s/ Dennis J. O'Connor
------------------------------------------------------
Dennis J. O'Connor
Vice President - Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
-14-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Description Page Number
- -------------- ----------- -----------
<S> <C> <C>
10.41 First Amendment and Waiver to Loan and
Security Agreement, dated May 22, 1997, between
Par Pharmaceutical, Inc. and General Electric
Capital Corporation. 16
10.42 Employment Agreement, dated as of May 30, 1997,
between Par Pharmaceutical, Inc. and Joseph Gokkes. 23
11 Computation of per share data. 27
27 Financial Data Schedule. 28
</TABLE>
-15-
<PAGE>
EXHIBIT 10.41
FIRST AMENDMENT AND WAIVER
TO LOAN AND SECURITY AGREEMENT
------------------------------
FIRST AMENDMENT AND WAIVER, dated as of May 22, 1997 (this
"Amendment"), to the Loan and Security Agreement referred to below by and among
---------
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender"), PAR
------
PHARMACEUTICAL, INC., a New Jersey corporation ("Borrower"), PHARMACEUTICAL
--------
RESOURCES, INC., a New Jersey corporation ("Parent"), NUTRICEUTICAL RESOURCES,
------
INC., a New York Corporation ("NRI"), and PARCARE, LTD., a New York corporation
---
("ParCare"). Parent, NRI and ParCare are hereinafter referred to as
-------
"Guarantors".
----------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Lender, Borrower and Guarantors are parties to that certain
Loan and Security Agreement, dated as of December 15, 1996 (as amended,
supplemented or otherwise modified, the "Loan Agreement");
--------------
WHEREAS, Lender, Borrower and Guarantors have agreed to amend the Loan
Agreement in the manner, and on the terms and conditions, provided for herein;
and
WHEREAS, Lender has agreed to waive certain violations of the Loan
Agreement in the manner, and on the terms and conditions, provided for herein.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties to this Amendment hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
-----------
have the meanings ascribed to them in the Loan Agreement.
2. Recital A of the Loan Agreement is hereby amended to change the
reference to "2.50%" under the caption "Revolving Credit Rate" to read "3.50%."
3. Section 1.5(a) of the Loan Agreement is hereby amended to change the
reference to "two and one-half percent (2.50%)" to read "three and one-half
percent (3.50%)."
4. Section 1.15 of the Loan Agreement is hereby amended to add a new
sentence at the end thereof to read as follows: "Upon any prepayment of
Revolving Credit Advances from the net proceeds of the Sano Stock Collateral
pursuant to Section 1.2(c), Lender shall have the right to establish a reserve
--------------
against Borrowing Availability in an amount equal to fifty percent (50%) of such
net proceeds."
5. Amendment to Schedule F of the Loan Agreement. Schedule F of the Loan
---------------------------------------------
Agreement is hereby amended as of the Amendment Effective Date by deleting
Sections 1 and 2 in their entirety and inserting in lieu thereof the following
new sections:
-16-
<PAGE>
1. Minimum EBIT. Parent and its Subsidiaries on a consolidated
------------
basis shall maintain, for the following periods, EBIT of not less than: (i)
$(9,200,000) for the two Fiscal Quarter period ending on or about March 31, 1997
and (ii) $(13,000,000) for the three Fiscal Quarter period ending on or about
June 30, 1997. Parent and its Subsidiaries on a consolidated basis shall
maintain for each four Fiscal Quarter period, commencing with the four Fiscal
Quarter period ending on or about September 30, 1997, EBIT for such period of
not less than the amount for such period set forth below:
Four Fiscal Quarter Period Ending
- ------------------------------------
on or about: Minimum EBIT
- ------------------------------------ ------------
September 30, 1997 $(14,000,000)
December 31, 1997 (11,400,000)
March 31, 1998 (4,800,000)
June 30, 1998 (2,000,000)
September 30, 1998 0
December 31, 1998 0
March 31, 1999 0
June 30, 1999 0
September 30, 1999 and thereafter 0
2. Minimum Tangible Net Worth. Parent and its Subsidiaries on a
--------------------------
consolidated basis shall maintain, as at the end of each Fiscal Quarter,
Tangible Net Worth of not less than the amount for such period set forth below:
Fiscal Quarter Ending
- ---------------------
on or about: Minimum Tangible Net Worth
- ----------- --------------------------
March 31, 1997 $43,000,000
June 30, 1997 38,000,000
September 30, 1997 36,000,000
December 31, 1997 34,500,000
March 31, 1998 34,500,000
June 30, 1998 35,000,000
September 30, 1998 35,000,000
December 31, 1998 35,000,000
March 31, 1999 35,000,000
June 30, 1999 35,000,000
September 30, 1999 35,000,000
December 31, 1999 and thereafter 35,000,000
6. Waiver. Lender hereby waives any Event of Default under Section 8.1(b)
------ --------------
of the Loan Agreement solely arising out of the failure of Parent and its
Subsidiaries to maintain on a consolidated basis (a) EBIT of not less than
($4,500,000) for the two Fiscal Quarter period ending on or about March 31, 1997
as required by Section 4.2 of the Loan Agreement and Section 1 of Schedule F
thereto and (b) Minimum Tangible Net Worth of $50,000,000 as at the end of the
Fiscal Quarter ending on or about March 31, 1997 as required by Section 4.2 of
the Loan Agreement and Section 2 of Schedule F thereto.
-17-
<PAGE>
7. Representations and Warranties. To induce Lender to enter into this
------------------------------
Amendment, each Credit Party hereby represents and warrants that:
(a) The execution, delivery and performance by each Credit Party of this
Amendment: (i) are within their respective corporate powers; (ii) have been
duly authorized by all necessary corporate and shareholder action; and (iii)
are not in contravention of any provision of their respective certificates or
articles of incorporation or by-laws or other organizational documents.
(b) This Amendment has been duly executed and delivered by or on behalf
of each Credit Party.
(c) This Amendment constitutes a legal, valid and binding obligation of
each Credit Party enforceable against each Credit Party in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and by general equitable principles (whether enforcement is
sought by proceedings in equity or at law).
(d) No Default has occurred and is continuing after giving effect to this
Amendment.
(e) No action, claim or proceeding is now pending or, to the knowledge of
each Credit Party, threatened against any Credit Party, at law, in equity or
otherwise, before any court, board, commission, agency or instrumentality of
any federal, state, or local government or of any agency or subdivision
thereof, or before any arbitrator or panel of arbitrators, which challenges
any Credit Party's right, power, or competence to enter into this Amendment
or, to the extent applicable, perform any of its obligations under this
Amendment, the Loan Agreement as amended hereby or any other Loan Document, or
the validity or enforceability of this Amendment, the Loan Agreement as
amended hereby or any other Loan Document or any action taken under this
Amendment, the Loan Agreement as amended hereby or any other Loan Document or
which if determined adversely could have or result in a Material Adverse
Effect.
8. No Other Amendments/Waivers. Except as expressly amended herein,
---------------------------
the Loan Agreement shall be unmodified and shall continue to be in full force
and effect in accordance with its terms. In addition, except as expressly
provided in Section 3 hereof, this Amendment shall not be deemed a waiver of any
term or condition of any Loan Document and shall not be deemed to prejudice any
right or rights which Lender may now have or may have in the future under or in
connection with any Loan Document or any of the instruments or agreements
referred to therein, as the same may be amended from time to time.
9. Outstanding Indebtedness; Waiver of Claims. Each Credit Party
------------------------------------------
hereby acknowledges and agrees that as of May 22, 1997 the aggregate outstanding
principal amount of the Revolving Credit Loan is $7,708,649.93 and that such
principal amount is payable pursuant to the Loan Agreement, as amended hereby,
without defense, offset, withholding, counterclaim or deduction of any kind.
Each Credit Party hereby waives, releases, remises and forever discharges Lender
and each other Indemnified Person from any and all Claims of any kind or
character, known or unknown, which each Credit Party ever had, now has or might
hereafter have against Lender which relates, directly or indirectly, to any acts
or omissions of Lender or any other Indemnified Person on or prior to the
Amendment Effective Date.
10. Expenses. Borrower hereby reconfirms its obligations pursuant to
--------
Section 10.2 of the Loan Agreement to pay and reimburse Lender for all
reasonable out-of-pocket expenses (including, without limitation, reasonable
fees of counsel) incurred in connection with the negotiation, preparation,
execution and delivery of this Amendment and all other documents and instruments
delivered in connection herewith.
11. Effectiveness. This Amendment shall become effective as of May
-------------
22, 1997 (the "Amendment Effective Date") only upon satisfaction in full in the
------------------------
judgment of the Lender of each of the following conditions on or prior to May
28, 1997:
-18-
<PAGE>
(a) Documents. Lender shall have received two original copies of this
---------
Amendment duly executed and delivered by Lender and each Credit Party.
(b) Payment of Expenses. Borrower shall have paid to Lender all costs
--------------------
and expenses owing in connection with this Amendment and the other Loan
Documents and due to Lender (including, without limitation, reasonable legal
fees and expenses).
(c) Representations and Warranties. All representations and warranties
------------------------------
of or on behalf of each Credit Party in this Amendment and all the other Loan
Documents shall be true and correct in all respects with the same effect as
though such representations and warranties had been made on and as of the date
hereof and on and as of the date that the other conditions precedent in this
Section 11 have been satisfied, except to the extent that any such
representation or warranty expressly relates to an earlier date.
(d) Secretary's Certificate. Each Credit Party shall have provided
-----------------------
Lender with a certificate in form and substance satisfactory to Lender of
their respective Secretary or an Assistant Secretary certifying the
resolutions adopted by their respective Boards of Directors approving this
Amendment and the transactions contemplated herein.
In the event that each of the foregoing conditions precedent has not been
satisfied on or prior to May 28, 1997, this Amendment shall become, upon written
notice by Lender to each Credit Party, null and void and of no force or effect.
12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
13. Counterparts. This Amendment may be executed by the parties
------------
hereto on any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
Borrower:
--------
PAR PHARMACEUTICAL, INC.
By:___________________________
Name:
Title:
Lender:
------
GENERAL ELECTRIC CAPITAL
CORPORATION
By:___________________________
Name:
Title:
Parent:
------
PHARMACEUTICAL RESOURCES, INC.
By:___________________________
Name:
Title:
(SIGNATURES CONTINUED ON NEXT PAGE)
-20-
<PAGE>
Subsidiary Guarantors:
---------------------
NUTRICEUTICAL RESOURCES, INC.
By:___________________________
Name:
Title:
PARCARE, LTD.
By:___________________________
Name:
Title:
-21-
<PAGE>
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
-22-
<PAGE>
EXHIBIT 10.42
May 30, 1997
Mr. Joseph Gokkes
121 S. Maple Avenue
Park Ridge, New Jersey 07656
Dear Mr. Gokkes:
I am pleased to extend this offer to you to become Chief Operating Officer of
Par Pharmaceutical, Inc. ("Par"). The following are the basic terms of your
employment with the Company.
DEPARTMENT: Executive
REPORTING TO: Mr. Kenneth I. Sawyer
President and Chief Executive Officer
Pharmaceutical Resources, Inc. and Par
Pharmaceutical, Inc.
START DATE: May 1, 1997
INITIAL SALARY: $12,083.33 a month, $145,000 annually, to be reviewed on an
annual basis and adjusted by Par to reflect performance and responsibilities on
a discretionary basis.
BONUS: You will be eligible for an annual bonus based on both your performance
and the performance of the Company during the term of this Agreement. During
fiscal 1997, you will not receive a bonus if Par has a net annual loss for
fiscal year 1997. If, however, Par has a loss of $300,000 or less for fiscal
fourth quarter of 1997, (excluding Sano payments, extraordinary biostudy
expenses or other extraordinary payments and excluding income from sale of Sano
stock, or sale of Sano international rights), you will then receive a bonus of
15% of your then annual salary up to a maximum of $25,000. In addition, Par will
provide you with a "sign on" bonus of $10,000, less applicable taxes, payable as
of your commencing employment.
23
<PAGE>
Mr. Joseph Gokkes
May 30, 1997
Page Two
SPECIAL BONUS PROVISION: If on December 31, 1997, you are still employed by Par
Pharmaceutical, Inc. and there has not been a change of control you will be
entitled to receive a bonus of $15,000 and an additional grant of 10,000
options.
RELOCATION: Par will reimburse you for relocation costs for you and your wife
along with the reasonable shipping costs of household goods using a company
approved moving company. Par will also reimburse you for temporary living
expenses and costs associated with establishing a residence in the United
States, up to $20,000, deducting what the company has already paid on your
behalf, including the purchase of furniture and other out of pocket costs,
subject to submission of acceptable receipts and documentation. The monthly
apartment rent will be excluded from the deduction. This $20,000 allowance will
expire on June 15, 1998. The Company will continue to pay the rent excluding
utilities and you will have use of the apartment until December 31, 1997. If
within twelve months of your start date you should voluntarily terminate your
employment or are terminated for cause, you will be required to reimburse Par on
a prorated basis for all relocation expenses paid by Par based on the number of
full months you were employed.
The Company will provide you with one round trip business class airfare per year
to Israel for you and your spouse provided the trip is booked at least 21 days
in advance.
BENEFITS:
Group Insurance: Health, life and long-term disability insurance programs are
- ----------------
provided to employees and their dependents by the Company, upon payment of the
applicable premium amount.
Vacation: You will be entitled to up to four weeks of paid vacation annually.
- ---------
Automobile: Par will provide you with the use of an automobile,. including
- -----------
reimbursement of all related maintenance, fuel, repairs, insurance and other
costs.
Other: You will be eligible to participate in the Company's 401 (k) Plan, the
- ------
company-sponsored retirement plan, and our Employee Stock Purchase Plan, upon
meeting the eligibility requirements for, and subject to all other terms and
conditions of, each plan.
STOCK: I will recommend to the Board of Directors of Pharmaceutical Resources,
Inc., ("PRI") that you be granted options to purchase 30,000 shares of
Pharmaceutical Resources, Inc. Common Stock at an exercise price per share equal
to the closing price of
24
<PAGE>
Mr. Joseph Gokkes
May 30, 1997
Page Three
Pharmaceutical Resources, Inc. ("PRI") common stock on the date of the grant by
the Board of Directors. The grant should be completed within thirty (30) days
of your commencement of employment. The
terms of the options, including vesting and exercise will be in accordance with
the PRI 1990 Stock Incentive Plan.
TERM OF EMPLOYMENT/TERMINATION/CHANGE OF CONTROL: Your employment by Par
Pharmaceutical, Inc. will commence on May 1, 1997 after you have obtained and
continue to MAINTAIN the requisite visa or work permit from the United States
Government. You will be an at will employee.
If your employment is terminated by Par for any reason except for cause, you
will be entitled to severance pay equal to 12 months base salary in effect for
the year prior to your termination, which will be paid in accordance with the
normal payroll practices of the Company and after execution of a general release
in a form satisfactory to Par.
You may voluntarily terminate your employment at any time upon 90 days written
notice to the Company, provided that facts do not exist at the time that would
constitute cause for termination, as defined below, in which event your
termination would not be treated as voluntary, but for cause. In the event that
you voluntarily terminate your employment, you will not be entitled to any
severance pay except in the event that a President of Par Pharmaceutical, Inc.
other than you is put in place who is not the President of Pharmaceutical
Resources, Inc.
In addition to its meaning under applicable common law, "cause" for termination,
as used herein, shall include, without limitation: Failure to act in accordance
with the directives of management and the Board of Directors; failure to carry
out your responsibilities in a manner consistent with generally acceptable
standards of conduct for executives of similar position and stature; violation
of company rules, regulations or policies; gross negligence; wilful misconduct;
commission of a crime; excessive absence from work other than due to disability;
and unethical conduct.
In the event of a sale of Pharmaceutical Resources, Inc. or Par Pharmaceutical,
Inc. the result of which you are terminated within one (1) year of such sale,
Par will provide you with 12 months' continuation of your prevailing base salary
as severance compensation.
25
<PAGE>
Mr. Joseph Gokkes
May 30, 1997
Page Four
If after May 1, 2000 and provided that you have given the company six months
prior written notice and are still employed by Par Pharmaceutical, Inc., you
voluntarily choose to terminate your employment and return to Israel, you will
be given one year base salary provided and so long as you do not become employed
by a direct competitor to the Company's business.
Other than as set forth herein, you shall have no entitlement to any severance
payment upon termination of your employment.
As a condition to your employment, you will be required to execute Par's
standard Trade Secret, Non-Disclosure and Restrictive Covenant Agreement, a copy
of which is attached.
Your employment with the Company is not for a specified term and may be
terminated by you or the Company at any time for any reason, with or without
cause. The nature of your employment as set forth in this paragraph cannot be
modified in any way except by a written agreement signed by you and an officer
of the Company.
If you accept this offer of employment, please sign below and return the signed
copy to me as soon as convenient. Once signed by you, this letter will
constitute the complete agreement between you and the Company regarding
employment matters or oral agreements or understandings on these matters.
Sincerely,
Kenneth I. Sawyer
President and CEO
KIS:mh
attach.
Accepted and Agreed this 30th
day of May, 1997.
_________________________
Joseph Gokkes
26
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET (LOSS) $(13,579,000) $(3,868,000) $(3,835,000) $(2,930,000)
Primary:
Weighted average number of common
common shares outstanding 18,677,725 18,232,457 18,678,171 18,338,904
Shares issuable upon exercise of dilutive stock
options and warrants - net of shares assumed to
be repurchased (at the average market price for
the period) from exercise proceeds 9,562 220,441 918 166,449
------------ ----------- ----------- -----------
Shares used for computation 18,687,287 18,452,898 18,679,089 18,505,353
============ =========== =========== ===========
NET (LOSS) PER SHARE OF COMMON STOCK $(.73) $(.21) $(.21) $(.16)
===== ===== ===== =====
Assuming full dilution:
Weighted average number of common shares
outstanding 18,677,725 18,232,457 18,678,171 18,338,904
Shares issuable upon exercise of dilutive stock
options and warrants - net of shares assumed to be
repurchased (at the higher of period-end market
price or the average market price for the period)
from exercise proceeds 9,562 220,441 918 166,449
------------ ----------- ----------- -----------
Shares used for computation 18,687,287 18,452,898 18,679,089 18,505,353
============ =========== =========== ===========
NET (LOSS) PER SHARE OF COMMON STOCK $(.73) $(.21) $(.21) $(.16)
===== ===== ===== =====
</TABLE>
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS INCLUDED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS
ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-28-1997
<CASH> 0
<SECURITIES> 15
<RECEIVABLES> 11,645
<ALLOWANCES> (4,320)
<INVENTORY> 16,110
<CURRENT-ASSETS> 25,261
<PP&E> 45,857
<DEPRECIATION> (21,486)
<TOTAL-ASSETS> 73,120
<CURRENT-LIABILITIES> 16,603
<BONDS> 1,185
187
0
<COMMON> 0
<OTHER-SE> 54,426
<TOTAL-LIABILITY-AND-EQUITY> 73,120
<SALES> 36,001
<TOTAL-REVENUES> 36,001
<CGS> 34,404
<TOTAL-COSTS> 14,123
<OTHER-EXPENSES> 28
<LOSS-PROVISION> (18)
<INTEREST-EXPENSE> 411
<INCOME-PRETAX> (13,169)
<INCOME-TAX> 410
<INCOME-CONTINUING> (13,579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,579)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
