<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
PHARMACEUTICAL RESOURCES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On July 30, 1999
To the Shareholders:
The 1999 Annual Meeting of Shareholders of Pharmaceutical Resources, Inc.
(the "Company") will be held on July 30, 1999, at the Holiday Inn-Suffern, 3
Executive Boulevard, Suffern, New York at 10:00 a.m., local time, for the
following purposes:
1. To elect two Class III members of the Company's Board of Directors,
which consists of seven members, to serve for a three-year term and until
their successors have been duly elected and qualified; and
2. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.
The Board of Directors has fixed the close of business on June 10, 1999 as
the record date for the determination of shareholders entitled to notice of,
and to vote at, the 1999 Annual Meeting of Shareholders (the "Meeting"). Only
shareholders of record at the close of business on such date will be entitled
to notice of, and to vote at, the Meeting and any adjournment(s) thereof.
By Order of the Board of Directors
Dennis J. O'Connor
Secretary
June 21, 1999
YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN
IT PROMPTLY IN THE POSTAGE PREPAID ENVELOPE WHICH HAS BEEN PROVIDED, WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. THE PROXY MAY BE REVOKED BY
YOU AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT THE MEETING YOU
MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE YOUR RIGHT TO
VOTE YOUR SHARES PERSONALLY.
<PAGE>
PROXY STATEMENT
PHARMACEUTICAL RESOURCES, INC.
One Ram Ridge Road
Spring Valley, New York 10977
ANNUAL MEETING OF SHAREHOLDERS
To Be Held On July 30, 1999
GENERAL INFORMATION
This Proxy Statement is being furnished to shareholders of Pharmaceutical
Resources, Inc. (the "Company"), a New Jersey corporation, in connection with
the solicitation by the Company's Board of Directors (the "Board") of proxies
to be voted at the 1999 Annual Meeting of Shareholders (the "Meeting"), and at
any adjournment(s) thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. The Meeting is to be held on July
30, 1999, at the Holiday Inn-Suffern, 3 Executive Boulevard, Suffern, New York
at 10:00 a.m., local time.
The principal executive offices of the Company are located at One Ram Ridge
Road, Spring Valley, New York 10977, and its telephone number is (914) 425-
7100. The accompanying proxy card and this Proxy Statement are being sent to
shareholders of the Company on or about June 22, 1999.
Solicitation and Revocation; Quorum
The accompanying proxy card is being solicited by and on behalf of the
Board. The costs of soliciting proxies will be borne by the Company. The
solicitation of proxies will be made principally by mail and, in addition, may
be made by directors, officers and employees of the Company personally, or by
telephone or telegraph, without extra compensation. The Company will reimburse
brokers, custodians, nominees and fiduciaries for their out-of-pocket and
clerical expenses in transmitting proxies and related material to beneficial
owners. The Company has also retained Georgeson & Company Inc. to assist it in
the distribution of proxies for a nominal fee and it is estimated that the
total costs for soliciting proxies will be immaterial.
Any proxy conferred by a shareholder pursuant to this solicitation may be
revoked by such shareholder at any time before it is exercised by written
notification delivered to the Secretary of the Company, by voting in person at
the Meeting, or by duly executing and delivering another proxy bearing a later
date. Attendance by a shareholder at the Meeting does not alone serve to
revoke the proxy.
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of the Company's common stock, $.01 par
value (the "Common Stock") will constitute a quorum. The accompanying proxy
card is intended to permit a shareholder of record on June 10, 1999, to vote
at the Meeting on the proposals described in this Proxy Statement, whether or
not the shareholder attends the Meeting in person. Persons who acquire shares
of record after the close of business on June 10, 1999 will not be entitled to
vote such shares at the Meeting by proxy or by voting at the Meeting in person
unless properly authorized by the record holder of such shares as of such
date.
The persons named in the accompanying proxy card have been designated as
proxies by the Board. Shares represented by properly executed proxies received
by the Company will be voted at the Meeting in the manner specified therein
or, if no specification is made, will be voted "FOR" the election of the two
Class III nominees for director named herein, and, at the discretion of the
proxy holders in respect of such other business, if any, as may properly be
brought before the Meeting.
Directors will be elected by a plurality of the votes cast, and approval of
any other proposal at the Meeting will, subject to applicable law, require the
affirmative vote of a majority of the votes cast in person or by proxy
<PAGE>
at the Meeting. Abstentions and shares of record held by a broker or nominee
("Broker Shares") that are voted on any matter will be included in determining
the existence of a quorum. Broker Shares that are not voted on any matter will
not be included in determining the existence of a quorum. Neither abstentions
nor non-voted Broker Shares will have an effect on the outcome of the election
of the two Class III nominees for directors, which requires only that a
plurality of the votes cast be in favor of each nominee, in person or by
proxy, at the Meeting.
Recent Developments
At a meeting of the Board held on December 14, 1998, the Board decided to
change the Company's fiscal year from one ending on September 30, to one
ending December 31 commencing with the fiscal year ending December 31, 1999.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
Record Date; Outstanding Shares
The Board has fixed the close of business on June 10, 1999 as the record
date (the "Record Date") for the determination of shareholders of the Company
who are entitled to receive notice of, and to vote at, the Meeting. An
aggregate of 29,413,991 shares of Common Stock were outstanding at the close
of business on the Record Date. Each share of Common Stock outstanding on the
Record Date is entitled to one vote on each matter to be voted upon at the
Meeting. The Company has no other class of voting securities entitled to vote
at the Meeting, and the Company's shareholders do not have cumulative voting
rights.
Ownership of Voting Securities
The following table sets forth, as of the close of business on the Record
Date, the beneficial ownership of the Common Stock by (i) each person known to
the Company to be the beneficial owner of more than 5% of the Common Stock
(based solely upon filings by said persons with the Securities and Exchange
Commission (the "Commission") on Schedule 13D or Schedule 13G pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), (ii) each current director and nominee for election as a director of
the Company, (iii) the Named Executives, as defined in the "Executive
Compensation" section of this Proxy Statement, and (iv) all directors and
current executive officers of the Company, as a group (based solely in respect
of clauses (ii), (iii) and (iv) upon information furnished by such persons).
Under the rules of the Commission, a person is deemed to be a beneficial owner
of an equity 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 equity securities of which that person has the right
to acquire beneficial ownership within 60 days. Accordingly, more than one
person may be deemed to be a beneficial owner of the same securities.
<TABLE>
<CAPTION>
Amount of Percentage of
Common Common
Name and Address of Beneficial Owner Stock Stock
------------------------------------ ---------- -------------
<S> <C> <C>
Merck KGaA(1)..................................... 12,462,972 42.01%
Kenneth I. Sawyer(2).............................. 141,900 *
Mark Auerbach(2)(3)............................... 29,833 *
Dennis J. O'Connor(3)............................. 34,118 *
Stephen A. Ollendorff(2)(3)....................... 38,000 *
Francis Michael J. Urwin(2)....................... 0 --
Klaus H. Jander(2)................................ 0 --
Anthony S. Tabatznik(2)(4)........................ 2,500 *
J. Neil Tabatznik(2).............................. 2,500 *
Scott Tarriff(5).................................. 11,010 *
All directors and current executive officers
as a group (nine persons) (3).................... 259,861 *
</TABLE>
2
<PAGE>
- --------
*Less than 1%.
(1) The business address of Merck KGaA is Frankfurter Strasse 250, 64271,
Darmstadt, Germany. Includes 249,700 shares of Common Stock which may be
acquired by Genpharm, Inc. ("Genpharm"), a subsidiary of Merck KGaA, upon
exercise of warrants exercisable on or prior to August 9, 1999. Warrants
for 99,700 of such shares have an exercise price of $6.00 per share and
warrants for 150,000 of such shares have an exercise price of $10.00 per
share. Does not include an additional 1,171,040 shares which may be
acquired upon exercise of options granted to Merck KGaA and Genpharm. Such
options are not exercisable on or prior to August 9, 1999.
(2) A current Director of the Company.
(3) Includes the following shares of Common Stock which may be acquired upon
the exercise of options which are exercisable on or prior to August 9,
1999 under the Company's stock option plans: Mr. Auerbach--24,333; Mr.
O'Connor--32,499; and Mr. Ollendorff--33,000; and all directors and
executive officers as a group (9 persons)--89,832.
(4) Does not include 501,400 shares of Common Stock held by a family trust,
the corporate trustee of which has the power to direct the disposition and
voting of such shares. Mr. Tabatznik disclaims beneficial ownership of
such shares of Common Stock.
(5) Includes 1,500 shares of common stock held in an Individual Retirement
Account for the benefit of Mr. Tarriff's wife.
The business address of each Director and Named Executive of the Company,
for the purposes hereof, is c/o Pharmaceutical Resources, Inc., One Ram Ridge
Road, Spring Valley, New York 10977.
Voting Arrangements
The Company and Lipha Americas, Inc. ("Lipha"), a subsidiary of Merck KGaA
(a pharmaceutical laboratory and chemical company located in Darmstadt,
Germany), entered into a Stock Purchase Agreement, dated March 25, 1998 (the
"Stock Purchase Agreement") pursuant to which Lipha has the right to designate
a majority of the directors of the Board and the Company has agreed to use its
best efforts to cause such designees to be elected to the Board. (See "Certain
Relationships and Related Transactions.") Pursuant to this right, Lipha has
designated Messrs. Jander, Urwin, A. Tabatznik and N. Tabatznik, each of whom
(except for Mr. Urwin) was elected by the shareholders of the Company at the
Company's 1998 annual meeting. Mr. Urwin was elected, effective January 1,
1999, by the Board on December 30, 1998 to fill the vacancy created by the
resignation of Bernhard Scheuble, a prior designee of Lipha who had been
elected by the shareholders of the Company at the Company's 1998 annual
meeting.
Additionally, in accordance with the Stock Purchase Agreement, Mr. Sawyer
has agreed to vote all shares of Common Stock owned by him for the election of
the two Class III nominees for director at the Meeting.
3
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
Directors
The Company's Certificate of Incorporation provides that the Board is
divided into three classes, with the term of office of one class expiring each
year. The maximum number of directors is set by the Company's By-laws at 15,
and the number of directors is presently set, by Board resolution, at seven.
The Class I and Class II directors of the Company have terms which expire in
the years 2000 and 2001, respectively. The Class III directors have terms
which expire this year. The current Class I directors are Anthony S. Tabatznik
and J. Neil Tabatznik, the current Class II directors are Kenneth I. Sawyer,
Mark Auerbach and Stephen A. Ollendorff, and the current Class III directors
are Francis Michael J. Urwin and Klaus H. Jander. Only Class III directors are
being elected at the Meeting.
Proxies will be voted at the Meeting in favor of the election of the two
Class III nominees listed on the accompanying form of proxy card, unless
authority to do so is withheld as to a specified nominee or all nominees as a
group. Proxies cannot be voted for a greater number of persons than the number
of nominees named herein. It is expected that each of the nominees will be
able to serve, but if before the election it develops that any one or more of
the nominees will be unable to serve or for good cause will not serve, the
proxyholders reserve the discretion to vote or refrain from voting for a
substitute nominee or nominees. Each of the two Class III nominees has
consented to serve as a director of the Company and to be named herein.
Directors will be elected by a plurality of the votes cast by the holders of
shares who are present at the Meeting in person or by proxy.
The following table sets forth certain information with respect to each
nominee for election as a Class III director of the Company at the Meeting and
the year each was first elected as a director:
<TABLE>
<CAPTION>
Year of
Name Age First Election
- ---- --- --------------
<S> <C> <C>
Class III
Francis Michael J. Urwin(2)................................. 46 1998
Since April 1999, Chief Executive Officer, and from 1991
until April 1999, Group Financial Director (Chief
Financial Officer), of Merck Generics Group BV; director
of Merck Generics Group BV, Merck Generics Limited,
Generics (UK) Ltd., Resolution Chemicals Limited, Generics
Pharmaceuticals Limited, Genpharm Limited, Biokinetix
Limited and MacDermot Laboratories Limited.
Klaus H. Jander(1)(2)....................................... 59 1998
Since 1990, a member of Rogers & Wells LLP, a law firm.
Since 1997, a member of the Executive Committee of Rogers
& Wells LLP.
</TABLE>
The following table sets forth certain information with respect to each of
the Class I directors (whose terms expire in 2000) and Class II directors
(whose terms expire in 2001) and the year each was first elected as a
director:
<TABLE>
<CAPTION>
Year of
Name Age First Election
- ---- --- --------------
<S> <C> <C>
Class I
Anthony S. Tabatznik (2).................................... 51 1998
Since 1983, Chairman and director of Generics (UK) Ltd.;
since 1989, Chairman and director of Generics Group BV,
now known as Merck Generics Group BV and since 1994,
Chairman and director of Merck Generics Ltd. Such
companies are involved in the manufacture and distribution
of generic pharmaceutical products. Founder of The
Generics Group Ltd. and brother of J. Neil Tabatznik.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Year of
Name Age First Election
- ---- --- --------------
<S> <C> <C>
J. Neil Tabatznik (2)....................................... 49 1998
Since July 1993, Chairman of Genpharm, a Canadian
manufacturer and distributor of generic pharmaceutical
products. Prior to July 1993, an attorney in private
practice. Brother of Anthony S. Tabatznik.
Class II
Kenneth I. Sawyer (2)....................................... 53 1989
Since October 1990, Chairman of the Board of the Company.
Since October 1989, President and Chief Executive Officer
of the Company.
Mark Auerbach (1)(2)........................................ 61 1990
Since June 1993, Senior Vice President and Chief Financial
Office 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 December
1995 to January 1999, Chief Financial Officer of Oakhurst
Company, Inc., and Steel City Products, Inc., each a
publicly-traded distributor of automotive products, and
Chief Executive Officer of Oakhurst Company, Inc. from
December 1995 to May 1997. Also a director of Oakhurst
Company, Inc.
Stephen A. Ollendorff (2)................................... 60 1998
Practicing attorney for more than the past five years.
From February 1999, of counsel to Kirkpatrick & Lockhart
LLP, a law firm; from December 1990 to January 1999, of
counsel to Hertzog, Calamari & Gleason, a law firm. Chief
Executive Officer and director of Acorn Holding Corp., a
manufacturer of microcrystalline silicon wafers, for more
than the past five years. Director of Artesyn
Technologies, Inc., a publicly traded designer,
manufacturer and seller of power supplies.
</TABLE>
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(1) A member of the Audit Committee of the Board.
(2) The entire Board serves as members of the Compensation and Stock Option
Committee.
The Board of Directors unanimously recommends a vote "FOR" the election of
the two Class III nominees named above as directors of the Company.
Board and Committee Meetings
The Board met six times during fiscal year 1998 which ended September 30,
1998. The Audit Committee met once during fiscal year 1998. The primary
function of the Audit Committee is to review the Company's financial
statements with its auditors. Prior to June 30, 1998, the Compensation and
Stock Option Committee, consisting of non-employee directors (namely Mark
Auerbach, H. Spencer Matthews and Robin O. Motz), held five meetings during
fiscal year 1998. Subsequent to June 30, 1998 the Compensation and Stock
Option Committee was comprised of the entire Board of Directors and no matters
were brought before such Committee for action. The functions of the
Compensation and Stock Option Committee are to set and approve salary and
bonus levels of corporate officers and to administer the Company's 1990 Stock
Incentive Plan, including primary responsibility for the granting of options
and other awards thereunder. During fiscal year 1998, no current director
attended fewer than 75% of the meetings of the Board or of its committees of
which he was a member during fiscal year 1998.
Compensation of Directors
For service on the Board in fiscal year 1998, directors who are not also
employees of the Company or any of its subsidiaries received an annual
retainer of $12,000, a fee of $1,000 for each meeting of the Board attended,
in person or by telephone conference, and a fee of $750 for each committee
meeting attended in person or by
5
<PAGE>
telephone conference, subject to a maximum of $1,750 per day. Chairmen of
committees receive an additional annual retainer of $5,000 per committee. Non-
employee directors are granted options to purchase 5,000 shares of Common
Stock on the date they are initially elected to the Board and on each day on
which the shareholders elect directors pursuant to the Company's 1997
Directors Stock Option Plan (the "Directors Plan"). Non-employee directors are
also entitled to purchase an additional 6,500 shares of Common Stock each year
that they own at least 2,500 shares of issued Common Stock for each year they
are granted options under the Plan. These additional options are subject to
forfeiture under certain circumstances if the non-employee director sells
Common Stock of the Company. Directors who are employees of the Company
received 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. Messrs. A. Tabatznik, N. Tabatznik, Jander and Urwin have
waived their rights to receive options to purchase Common Stock under the
Directors Plan. In addition, Messrs. Ollendorff, A. Tabatznik, N. Tabatznik
and Urwin have waived their receipt of cash compensation for service on the
Board.
Certain Relationships and Related Transactions
Merck KGaA Transactions. On June 30, 1998, the Company completed a strategic
alliance with Merck KGaA, Darmstadt, Germany, following approval by the
shareholders of the Company at its Annual Meeting of Shareholders held in June
1998. The strategic alliance included the sale by the Company of 10,400,000
shares of its Common Stock (the "Shares") to Lipha, a subsidiary of Merck
KGaA, at $2.00 per Share, and the issuance to Merck KGaA and Genpharm, a
subsidiary of Merck KGaA, of options (each, an "Option" and collectively, the
"Options") to purchase up to an aggregate of 1,171,040 shares of Common Stock
(the "Option Shares") at an exercise price of $2.00 per share in exchange for
certain services. The sale of the Shares was made pursuant to the terms and
conditions of the Stock Purchase Agreement. The issuance of the Options was
made pursuant to the terms and conditions of separate Services Agreements
entered into with each of Merck KGaA and Genpharm.
The Company used a significant portion of the net cash proceeds from the
sale of the Shares to repay certain advances made to it under its existing
line of credit and is using the remainder for working capital, including
expansion of the Company's operations. The agreement by the Company to sell
the Shares and to grant and issue the Options was part of an overall
transaction in which certain exclusive distribution rights and services are to
be provided to the Company under the Genpharm Distribution Agreement and the
Services Agreements, as described below.
Stock Purchase Agreement. The Stock Purchase Agreement contains certain
significant terms, obligations and other agreements, as described below,
including Lipha's right to designate a majority of the Board members, Lipha's
right of first refusal in respect of certain equity offerings and Lipha's
agreement not to engage in certain extraordinary transactions.
Lipha has the right to designate a majority of the members of the Board.
Pursuant to this right, Lipha has designated Messrs. A. Tabatznik, N.
Tabatznik, Jander and Urwin, each of whom (except Mr. Urwin who was elected by
the Board of Directors, effective January 1, 1999) was elected by the
shareholders of the Company. Three members of the Board are comprised of Mr.
Sawyer and two additional designees of the Board (collectively, the "Company
Designees"). The Board has designated Messrs. Auerbach and Ollendorff, each of
whom, together with Mr. Sawyer, were elected by the shareholders of the
Company. In addition, Lipha has the right to designate (i) jointly with the
Company Designees, two members of the Board to comprise the Audit Committee of
the Board and (ii) the President and Chief Operating Officer of the Company.
The effect of the foregoing agreement is to afford voting control to the
designees of Lipha with respect to matters determined by the Board.
Lipha has the right of first refusal for a period ending on June 30, 2004 to
purchase all, but not less than all, of any equity securities to be sold by
the Company pursuant to any proposed non-registered offering or any registered
offering solely for cash. If Lipha does not exercise its first refusal rights
within 30 days of notice from the Company, the Company may sell such
securities to any third party on substantially the same terms and conditions
as first offered to Lipha. The Shares and the Option Shares do not have any
preemptive rights.
6
<PAGE>
Lipha has agreed, for a period ending on June 30, 2001, not to cause or
permit the Company to engage in any transactions or enter into any agreements
or arrangements with, or make any distributions to, any Affiliate or Associate
(each as defined in the Stock Purchase Agreement) of Lipha without the prior
written consent of a majority of the Company Designees. In addition, Lipha has
agreed, for a period ending on June 30, 2001, not to propose that the Company,
or to cause or permit the Company to, engage in business combinations or other
extraordinary transactions, including mergers and tender offers, without the
prior written consent of a majority of the Company Designees and the prior
receipt of a fairness opinion from an independent nationally recognized
investment bank. The Company and Lipha agreed that an executive committee of
the Board continue in existence until June 30, 2001, and to cause Mr. Sawyer
to be appointed to the executive committee, if any.
As a condition to the closing of the Stock Purchase Agreement, certain
holders of options to purchase Common Stock, including Mr. Sawyer and Mr.
Tarriff, have agreed not to exercise their options during the period ending on
July 10, 2001, and certain other holders, including the Directors of the
Company, have agreed not to exercise more than one-third of their options
annually commencing on June 30, 1999.
Distribution Agreement. In connection with the Stock Purchase Agreement,
Genpharm and the Company have entered into the Genpharm Distribution Agreement
dated March 25, 1998, pursuant to which Genpharm granted exclusive
distribution rights to the Company within the United States and certain other
United States territories with respect to approximately 40 generic
pharmaceutical products currently being developed or identified for
development.
Services Agreements. Each of Merck KGaA and Genpharm entered into separate
Services Agreements on June 30, 1998 to provide various services to the
Company for a period of 36 months, including, but not limited to, rendering
advice and providing technical support and assistance in the areas of research
and development, regulatory compliance, manufacturing, quality control and
quality assurance, administration, marketing and promotion (collectively, the
"Services"). In consideration for the Services, the Company issued an Option
to Merck KGaA to purchase up to 820,000 shares of Common Stock and an Option
to Genpharm to purchase up to 351,040 shares of Common Stock.
Options. The Options entitle Merck KGaA and Genpharm to purchase up to an
aggregate of 1,171,040 Option Shares at an exercise price of $2.00 per share
with one-third of the total Option Shares vesting annually commencing on June
30, 1999. The Options will be exercisable at any time beginning on July 10,
2001, and will terminate, to the extent unexercised, on April 30, 2003. The
Options contain provisions that protect the holder against dilution by
adjustment of the exercise price and the number of Option Shares issuable upon
exercise in certain events, such as stock dividends, stock splits,
consolidation, merger, or sale of all or substantially all of the Company's
assets. The holders of the Options do not have any rights as shareholders of
the Company unless and until the Options have been exercised.
Clal Sale Agreement. Pursuant to a letter agreement, dated March 25, 1998,
between the Company, Merck KGaA and Clal Pharmaceutical Industries Ltd.
("Clal") (the "Clal Sale Agreement"), Clal sold to Lipha on June 30, 1998,
1,813,272 shares of Common Stock at a price of $2.00 per share. Merck KGaA
also agreed to pay Clal, on June 30, 2000, an amount equal to the excess, if
any, of the weighted average trading price of all trades in shares of Common
Stock on The New York Stock Exchange during the 30 trading days preceding such
date over $2.00, multiplied by 500,000. In addition, Clal has the right to
cause Merck KGaA and/or the Company to purchase Clal's remaining 500,000
shares of Common Stock during the five-day period commencing July 5, 2001, in
certain circumstances, at a price of $2.50 per share. If Clal does not
exercise such right, then Merck KGaA and the Company have the right to cause
Clal to sell its remaining shares in open market transactions and Merck KGaA
and the Company will purchase from Clal all shares which have not been sold
within 90 days. The shares of Common Stock purchased or which may be purchased
from Clal under the Clal Sale Agreement are referred to herein as the "Clal
Shares". Clal has agreed, for the period ending on July 5, 2001, not to
acquire or sell, directly or indirectly, any shares of Common Stock, other
than pursuant to the Clal Sale Agreement, enter into any agreement with
respect to the voting, holding or transferring of any shares of Common Stock
or to propose or participate in any transactions involving the Company or
recommend others to take any of such actions.
7
<PAGE>
Registration Rights Agreement. The Company granted to Lipha, Merck KGaA and
Genpharm (collectively, the "Holders") certain registration rights under a
registration rights agreement (the "Registration Rights Agreement"). None of
the Shares, the Options or the Option Shares are registered under the
Securities Act of 1933, as amended. Starting on March 30, 1999, the Holders
will be entitled to three demand registrations of the Shares, the Option
Shares and the Clal Shares (the "Registrable Shares") and two additional
demand registrations if the Options are exercised. In addition, the Company
will grant to the Holders the right to register the Registrable Shares on each
occasion that the Company registers shares of Common Stock, subject to certain
limitations and exceptions. If the Company at any time registers shares of
Common Stock for sale to the public, the Holders will agree not to sell
publicly, make any short sale, grant any option for the purchase of or
otherwise publicly dispose of shares of Common Stock during the same period
during which directors and executive officers of the Company are similarly
limited in selling the Company's securities up to 180 days after the effective
date of the applicable registration statement.
Development Agreement. The Company, Israel Pharmaceutical Resources L.P.
("IPR") (through which the Company conducts a significant portion of its
research and development in Israel), and Generics (UK) Ltd. ("Generics"), have
entered into a development agreement (the "Development Agreement"), dated
August 11, 1998, pursuant to which Generics will fund one-half of the costs of
the operating budget of IPR in exchange for the exclusive distribution rights
worldwide (except for the United States) to products developed by IPR after
the date of the Development Agreement. The Development Agreement has an
initial term of five years and shall automatically renew for additional
periods of one year or earlier termination upon six months notice in certain
circumstances. Pursuant to the Development Agreement, Generics paid the
Company an initial fee of $600,000 in August 1998. The Company utilized such
funds to prepay an outstanding note to Clal, which resulted in the termination
of certain money liens Clal had on the assets of IPR. Under the Development
Agreement, Generics is not required to fund more than $1,000,000 in any one
calendar year.
Transactions with Officers, Directors and Nominees. At various times during
fiscal years 1996 and 1997, the Company made unsecured loans to Mr. Sawyer.
Such loans are evidenced by a single promissory note, which bears interest at
the rate of 8.25% per annum. Interest and principal are due on the earlier of
August 14, 2002, or the termination of Mr. Sawyer's employment with the
Company. As of September 30, 1998, the outstanding principal balance of the
note, plus accrued interest, was approximately $318,000. As part of Mr.
Sawyer's compensation, the Company has agreed to forgive the note over a
three-year period, provided that Mr. Sawyer remains employed by the Company.
See "Executive Compensation--Employment Agreements and Termination
Arrangements."
Stephen A. Ollendorff, a director of the Company, is of counsel to the law
firm of Kirkpatrick & Lockhart LLP, which currently provides legal services to
the Company, and, during the Company's 1998 fiscal year was of counsel to the
law firm of Hertzog, Calamari & Gleason, which received fees and expenses in
fiscal year 1998 for various legal services rendered to the Company. In
addition, Mr. Ollendorff is a consultant to the Company and was paid $76,550
in fiscal year 1998, pursuant to a renewable one-year consulting agreement.
Mr. Ollendorff also holds stock options to purchase 71,000 shares of Common
Stock, of which 33,000 are presently exercisable.
The Company believes that all of the above transactions were on terms that
were fair and reasonable to the Company when such transactions were
consummated.
Executive Officers
The executive officers of the Company presently consist of Mr. Sawyer who is
the President, Chief Executive Officer and Chairman of the Board, and Dennis
J. O'Connor who is the Vice President, Chief Financial Officer and Secretary.
The executive officers of Par Pharmaceutical, Inc., the Company's principal
subsidiary ("Par"), presently consist of Mr. Sawyer, who is the Chairman and
Chief Executive Officer, Mr. O'Connor, who is Vice President, Chief Financial
Officer and Secretary and Scott Tarriff, who is the Executive Vice President
of Business, Sales and Marketing.
8
<PAGE>
The following table sets forth certain information with respect to the
current executive officers of the Company and Par who are not directors or
nominees for election as directors:
<TABLE>
<CAPTION>
Name Age
- ---- ---
<S> <C>
Dennis J. O'Connor......................................................... 47
Since October 1996, Vice President, Chief Financial Officer and Secretary
of the Company and Par. From June 1995 to October 1996, Controller of
Par. From November 1989 to June 1995, Vice President--Controller of
Tambrands, Inc., a consumer products company.
Scott Tarriff.............................................................. 39
Since January 1998, Executive Vice President of Business, Sales and
Marketing of Par. From June 1989 until January 1998, an employee of
Bristol-Myers Squibb, a drug manufacturer, serving as Senior Director of
Marketing, Business Development and Strategic Planning from 1995 to 1997
and Director of Marketing from 1992 to 1995.
</TABLE>
9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation earned by or paid, during fiscal
years 1996, 1997 and 1998, to the Chief Executive Officer of the Company and
the most highly compensated executive officers of the Company and/or Par who
earned over $100,000 in salary and bonus during fiscal year 1998 (the "Named
Executives"). The Company awarded or paid such compensation to all such
persons for services rendered in all capacities during the applicable fiscal
years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------- ---------------------------------------
Restricted Securities
Name and Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Awards($)(1) Options(#) Compensation($)
- ------------------ ---- --------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer,..... 1998 350,000 -- -- 500,000 $78,401(2)
President, Chief 1997 350,000 -- -- -- 2,707
Executive Officer 1996 370,692 -- -- 75,000 2,674
and Chairman
Dennis J. O'Connor(3).. 1998 142,500 -- -- 37,500 2,191(2)
Vice President 1997 137,994 -- -- 30,000 2,121
Chief Financial
Officer and
Secretary
Scott Tarriff.......... 1998 $124,519 -- -- 200,000 46(2)
Executive Vice
President
of Business, Sales and
Marketing
</TABLE>
- --------
(1) The Named Executives did not hold any shares of restricted stock at the
end of fiscal year 1998.
(2) For fiscal year 1998, includes insurance premiums paid by the Company for
term life insurance for the benefit of the Named Executives as follows:
Mr. Sawyer-$74, Mr. O'Connor-$53 and Mr. Tarriff-$46. The amounts for Mr.
Sawyer include $75,500 for the forgiveness of a loan from the Company and
$2,827 for the maximum potential estimated dollar value of the Company's
portion of insurance premium payments from a split-dollar life insurance
policy as if premiums were advanced to the executive without interest
until the earliest time the premiums may be refunded by Mr. Sawyer to the
Company. Also includes the following amount contributed by the Company to
the Company's 401(k) plan on behalf of such Named Executive Officer: Mr.
O'Connor-$2,138.
(3) Mr. O'Connor did not qualify as a Named Executive until fiscal year 1997,
even though he was employed previously by the Company.
10
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table sets forth stock options granted to the Named Executives
during fiscal year 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
---------------------------------------------- ---------------------
% of Total
Shares Options
Underlying Granted to Exercise
Options Employees Price Expiration 0% 5% 10%
Name Granted (#) in Fiscal Year ($) Date ($) ($) ($)
- ---- ---------- -------------- -------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer(1).... 500,000 33.79% $2.250 10/27/02 -- $310,817 $686,824
Scott Tarriff(2)........ 200,000 13.51% $1.500 1/5/03 -- $ 82,884 $183,153
Dennis J. O'Connor(3)... 5,000 0.34% $2.250 10/27/02 -- $ 3,108 $ 6,868
Dennis J. O'Connor(1)... 17,500 1.18% $2.250 10/27/02 -- $ 10,879 $ 24,039
Dennis J. O'Connor(2)... 15,000 1.01% $1.500 1/5/03 -- $ 6,216 $ 13,736
</TABLE>
- --------
(1) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on October 28, 1997, one-third of which become exercisable on July 1,
1999 and two-thirds of which become exercisable on July 1, 2001. On
October 28, 1997, the Board approved the grant of new five-year options to
the Named Executives at an exercise price of $2.25, upon surrender for
cancellation of certain outstanding options.
(2) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on January 1, 1998, one-third of which became exercisable July 1,
1998, one-third of which become exercisable on July 1, 1999 and one-third
of which become exercisable on July 1, 2000.
(3) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on October 28, 1997, one-third of which became exercisable on April
28, 1998, one-third of which become exercisable on April 28, 1999, and
one-third of which become exercisable on April 28, 2000.
In connection with the strategic alliance with Merck KGaA, each of Messrs.
Sawyer and Tarriff have agreed not to exercise their respective stock options
until July 10, 2001, and Mr. O'Connor has agreed not to exercise certain of
his stock options until June 30, 2001, except for installments of one-third of
his stock options on each of June 30, 1999, 2000 and 2001.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information with respect to stock
options exercised by the Named Executives during fiscal year 1998 and, as of
September 30, 1998, the number of unexercised stock options and the value of
in-the-money options held by the Named Executives.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at FY-End(#) at FY-End ($)(1)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer....... -- -- -- 500,000 -- $1,000,000
Scott Tarriff........... -- -- -- 200,000 -- $ 550,000
Dennis J. O'Connor...... -- -- 23,333 44,167 $24,583 $ 100,417
</TABLE>
- --------
(1)Based upon the closing price of the Common Stock on September 30, 1998 of
$4.25.
Employment Agreements and Termination Arrangements
The Company has entered into an employment agreement with Mr. Sawyer, which
provides for his employment through October 4, 2000, subject to earlier
termination by the Company for Cause (as such term is defined in the
agreement). Mr. Sawyer's agreement provides for a rolling three-year term of
employment which is automatically extended each year for an additional one
year unless either party provides written notice by July
11
<PAGE>
4th of such year that he or it desires not to renew the agreement. Under the
agreement with Mr. Sawyer, the Company is required to use its best efforts to
cause him to be reelected to the Board during his term of employment. Mr.
Sawyer, pursuant to the terms of his employment agreement, is and will be
required to serve, if so elected, on the Board as well as any committees
thereof.
Mr. Sawyer's agreement provides for certain payments upon termination of his
employment. Upon termination of Mr. Sawyer's employment without cause (as such
term is defined in the agreement) by the Company or for the Company's material
breach, Mr. Sawyer is entitled to receive the balance of his current salary
for the remainder of the employment term and the amount of his current bonus
multiplied by the number of years remaining under his agreement. A material
breach by the Company of the employment agreement includes, but is not limited
to, a termination without cause and a change of his responsibilities. In the
event of termination of Mr. Sawyer's employment for death, disability or for
cause, Mr. Sawyer is entitled to receive his current base salary through the
date of termination and, in the event of death or disability, a pro-rated
amount of his last annual bonus. As a result of a material breach by the
Company of his employment agreement following a change of control (as such
term is defined in the agreement) of the Company, 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 April 1998, Mr. Sawyer and the Company amended Mr. Sawyer's employment
agreement. Mr. Sawyer agreed to waive breaches of his employment agreement
which would arise out of consummation of the strategic alliance with Merck
KGaA and to relinquish his title and position as President of the Company and
each of its subsidiaries if Lipha exercises its right to designate the
President of the Company and each of its subsidiaries. The Company agreed to
forgive, in each year that Mr. Sawyer remains employed by the Company, one-
third of the principal amount of his promissory note, plus accrued interest on
the forgiven portion. The outstanding balance of the note, including interest,
was $318,000 at September 30, 1998. In addition, the entire unpaid principal
of the promissory note and accrued interest would be canceled upon certain
events, including termination of Mr. Sawyer's employment without cause and the
expiration of this employment agreement in accordance with its terms.
The Company has entered into a severance agreement with Mr. O'Connor, dated
October 23, 1996. The agreement provides, with certain limitations, that upon
the termination of Mr. O'Connor's employment by the Company for any reason
other than for cause or by Mr. O'Connor for good reason or following a change
of control (as such terms are defined in the agreement), Mr. O'Connor is
entitled to receive a severance payment. The amount of the payment is to be
equal to six months of his salary at the date of termination, with such amount
to be increased by an additional month of salary for every full month he has
been employed by the Company in his present position, up to a maximum of six
additional month's salary.
The Company has entered into an employment agreement with Mr. Tarriff, dated
February 20, 1998. Upon termination of Mr. Tarriff's employment within the
first year of employment other than by the Company for cause (as such term is
defined in the agreement), Mr. Tarriff is entitled to receive the balance, if
any, of his salary for the first year of employment. In the event of
termination of Mr. Tarriff's employment after one year of employment by Mr.
Tarriff for good reason (as such term is defined in the agreement) or by the
Company without cause, Mr. Tarriff is entitled to receive a severance payment
equal to one year of his then current salary less any amount of compensation
paid by a new employer for the balance of the year from the termination date.
In connection with his employment by the Company, Mr. Tarriff was granted
options to purchase 200,000 shares of Common Stock at an exercise price of
$1.50 per share.
Under the stock option agreements with Messrs. Sawyer, O'Connor and Tarriff,
any unexercised portion of the options becomes immediately exercisable in the
event of a change of control (as such term is defined in their
12
<PAGE>
respective agreements). However, each of such persons has agreed not to
consider the consummation of the strategic alliance with Merck KGaA as a
change in control under his respective stock option agreement.
Pension Plan
The Company maintains a defined benefit plan (the "Pension Plan") intended
to qualify under Section 401 (a) of the Code. Effective October 1, 1989, the
Company ceased benefit accruals under the Pension Plan with respect to service
after such date. The Company intends that distributions will be made, in
accordance with the terms of the Plan, to participants as of such date and/or
their beneficiaries. The Company will continue to make contributions to the
Pension Plan to fund its past service obligations. Generally, all employees of
the Company or a participating subsidiary who had 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 has any years
of credited service under the pension plan.
The Company has a defined contribution, social security integrated
Retirement Plan (the "Retirement Plan") providing retirement benefits to
eligible employees as defined in such Retirement Plan. The Company has
suspended employer contributions to the Retirement Plan effective December 30,
1996. Consequently, participants in the Retirement Plan are no longer entitled
to any employer contributions under such plan for 1996 or subsequent years.
The Company also maintains a Retirement Savings Plan (the "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 fiscal year 1998, the
Company merged the Retirement Plan into the Retirement Savings Plan.
Compensation and Stock Option Committee Report
The Compensation and Stock Option Committee of the Board (the "Compensation
Committee"), consisting of the entire Board of Directors, approves the
policies and programs pursuant to which compensation is paid or awarded to the
Company's executive officers and key employees. Prior to June 30, 1998, the
Committee, consisting of non-employee directors (namely Mark Auerbach, H.
Spencer Matthews and Robin O. Motz), held five meetings during fiscal year
1998. Subsequent to June 30, 1998 the Board, acting in its role as the
Committee, did not act on any matters requiring Committee action. In reviewing
overall compensation for fiscal year 1998, the Compensation Committee focused
on the Company's objectives to attract executive officers of high caliber from
larger, well-established pharmaceutical manufacturers, to retain the Company's
executive officers, to encourage the highest level of performance from such
executive officers and to align the financial interests of the Company's
management with that of its shareholders by offering awards that can result in
the ownership of Common Stock. The Company did not utilize specific formulae
or guidelines in reviewing and approving executive compensation.
Elements of Executive Officer Compensation Program. The key elements of the
Company's executive officer compensation program consist of base salary,
annual bonus, stock options and other incentive awards through participation
in the Company's 1990 Stock Incentive Plan. In awarding or approving
compensation to executive officers in fiscal year 1998, the Compensation
Committee considered the present and potential contribution of the executive
officer to the Company and the ability of the Company to attract and retain
qualified executive officers in light of the competitive environment of the
Company's industry and the Company's financial condition.
Base Salary and Annual Bonus. Base salary and annual bonus for executive
officers are determined by reference to Company-wide and individual
performances for the previous fiscal year. The factors considered by
13
<PAGE>
the Compensation Committee included both strategic and operational factors,
such as efforts in responding to regulatory challenges, in exploring strategic
alternatives for the Company, in research and development, in reviewing and
implementing updated systems and operational procedures, as well as the
Company's financial performance. In addition to Company-wide measures of
performance, the Compensation Committee considers those performance factors
particular to each executive officer, including the performance of the area
for which such officer had management responsibility and individual
accomplishments.
Base salaries for executive officers were determined primarily by reference
to industry norms, the principal job duties and responsibilities undertaken by
such persons, individual performance and other relevant criteria. Base salary
comparisons for most executive officers were made to a group of pharmaceutical
manufacturers in the United States. Such group was selected by the
Compensation Committee based upon several factors, including, but not limited
to, the duties and responsibilities of the executive officer used in the
comparison, size and complexity of operations, reputation and number of
employees of other companies. With respect to Mr. Sawyer, the Company's Chief
Executive Officer, a comparison was made by an independent consulting firm,
prior to the signing of his employment agreement in 1992, to generic
pharmaceutical companies and turnaround situations selected by the consulting
firm. In keeping with its goal of recruiting executive officers from larger,
well-established pharmaceutical manufacturers, the Compensation Committee
considered the performance of the companies used in the comparisons, as
measured by their quality and regulatory profile, as well as competitive
necessity in determining base salaries. The Compensation Committee considered
it appropriate and in the best interest of the Company and its shareholders to
set the levels of base salary for the Company's Chief Executive Officer and
other executive officers at the median of comparable companies in order to
attract and retain high caliber managers for the Company so as to position the
Company for future growth and improved performance.
The Compensation Committee, in determining the annual bonuses to be paid to
the Company's executive officers for fiscal year 1998, considered the
individual's contribution to the Company's performance as well as the
Company's financial performance and assessments of each executive officer's
participation and contribution to the other factors described above, as
opposed to determination by reference to a formal, goal-based plan. The non-
financial measures varied among executive officers depending upon the
operations under their management and direction. The Compensation Committee
did not grant any cash bonuses in fiscal year 1998 to the Named Executives.
Stock Options and Other Awards. The Company's 1990 Stock Incentive Plan
provides for stock option and other equity-based awards. Under such Plan, the
size of each award and the persons to whom such awards are granted is
determined by the Compensation Committee based upon the nature of services
rendered by the executive officer, the present and potential contribution of
the grantee to the Company and the overall performance of the Company. The
Compensation Committee believes that grants of stock options will enable the
Company to attract and retain the best available talent and to encourage the
highest level of performance in order to continue to serve the best interests
of the Company and its shareholders. Stock options and other equity-based
awards provide executive officers with the opportunity to acquire equity
interests in the Company and to participate in the creation of shareholder
value and benefit correspondingly with increases in the price of the Common
Stock.
Compensation Committee's Actions for Fiscal Year 1998. In determining the
amount and form of executive officer compensation to be paid or awarded for
fiscal year 1998, the Compensation Committee considered the criteria discussed
above. In light of the reduction in sales in fiscal year 1998 from fiscal year
1997 and the Company's overall financial condition, the Compensation Committee
did not award cash bonuses to the Named Executives in fiscal year 1998. The
Compensation Committee awarded stock options to Messrs. Sawyer, O'Connor and
Tarriff in consideration of their reaching certain objectives and to increase
the incentive for each of them to contribute to the financial success of the
Company.
Chief Executive Officer Compensation. The Compensation Committee approved an
employment agreement in October 1992 for Mr. Sawyer, which agreement was
amended in April 1998. In approving such
14
<PAGE>
employment agreement, the Compensation Committee authorized a base annual
salary of $366,993 for Mr. Sawyer. Mr. Sawyer agreed to reduce his salary
effective July 1, 1996 to $350,000 per year. In addition, Mr. Sawyer was
awarded a stock option as set forth above.
Compensation and Stock Option Committee
Kenneth I. Sawyer
Mark Auerbach
Klaus Jander
Stephen A. Ollendorff
Anthony S. Tabatznik
J. Neil Tabatznik
Francis Michael J. Urwin
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of the entire Board.
Mr. J. Neil Tabatznik, a director of the Company, is the Chairman of
Genpharm, which develops, manufactures and distributes products to the Company
pursuant to the Genpharm Distribution Agreement. Messrs. Anthony S. Tabatznik
and Francis Michael J. Urwin, directors of the Company, are directors of
Generics, a subsidiary of Merck KGaA. The Company and Genpharm and its
affiliate are presently parties to distribution agreements entered into in
1992 and 1993. Under such distribution agreements, payments by the Company to
Genpharm and an affiliate in fiscal year 1998 accounted for less than five
(5%) percent of the Company's and Genpharm's consolidated gross revenues.
Further, Generics and the Company are parties to the Development Agreement
pursuant to which Generics will fund one-half of the costs of the operating
budget of IPR, in exchange for the exclusive rights to manufacture and
distribute products developed by IPR worldwide (except for the United States).
See "Certain Relationships and Related Transactions--Development Agreement."
Until September 1998, Mr. Kenneth I. Sawyer, the Chairman, President and
Chief Executive Officer of the Company, served as a director of Authorgenics,
Inc., a developer of Software ("Authorgenics"), and Mr. Stephen A. Ollendorff
served as a director and Executive Vice President of Authorgenics. Mr.
Ollendorff was not granted any cash compensation for his service as director
and Executive Vice President of Authorgenics.
At various times during fiscal years 1996 and 1997, the Company made
unsecured loans to Mr. Sawyer. See "Certain Relationships and Related
Transactions--Transactions with Officers, Directors and Nominees."
See "Certain Relationships and Related Transactions--Transactions with
Officers, Directors and Nominees" with respect to other relationships
involving Mr. Ollendorff.
Section 16(a) Beneficial Ownership Reporting Compliance
As a public company, the Company's directors, executive officers and
beneficial owners of greater than 10% of the Company's Common Stock are
subject to reporting requirements under Section 16(a) of the Securities
Exchange Act of 1934, as amended and are required to file certain reports with
the Commission in respect of their ownership of Company securities. None of
the Company's directors, executive officers or such 10% beneficial owners
delinquently filed, to the Company's knowledge, any reports required under
Section 16(a) of such Act during fiscal year 1998.
15
<PAGE>
Performance Graph
The graph below compares the cumulative total return of the Common Stock with
the cumulative total return of The New York Stock Exchange Composite Index and
the S&P(R) Health Care Drugs Index--Major Pharmaceuticals for the annual
periods from September 30, 1993 to September 30, 1998. The graph assumes $100
was invested on September 30, 1993 in the Common Stock and $100 was invested on
such date in each of the Indexes. The comparison assumes that all dividends
were reinvested.
[LINE GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
9/30/93 9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
- --------------------------------------------------------------------------------------------------------
Pharmaceutical Resources, Inc. $100 $69 $75 $34 $17 $34
- --------------------------------------------------------------------------------------------------------
NYSE Composite Index $100 $104 $126 $151 $209 $215
- --------------------------------------------------------------------------------------------------------
S&P(R) Health Care Drugs Index-Major
Pharmaceuticals $100 $120 $190 $256 $389 $675
</TABLE>
16
<PAGE>
INDEPENDENT AUDITORS
The Board has selected the firm of Arthur Andersen LLP, independent
certified public accountants, to act as independent public accountants for the
Company for the 1999 fiscal year. Arthur Andersen LLP has acted in such
capacity for the Company from the fiscal year ended September 30, 1995. A
representative of Arthur Andersen LLP is expected to be present at the
Meeting. Such representative will have the opportunity to make a statement if
he or she so desires and is expected to be available to respond to appropriate
questions.
OTHER MATTERS
At the date of this Proxy Statement, the Board has no knowledge of any
business which will be presented for consideration at the Meeting, other than
as described above. If any other matter or matters are properly brought before
the Meeting or any adjournment(s) thereof, it is the intention of the persons
named in the accompanying form of proxy to vote proxies on such matters in
accordance with their judgment.
SUBMISSION OF SHAREHOLDER PROPOSALS
In accordance with the Company's By-laws and Rules 14a-4(c) and 14a-5(e)
promulgated under the Exchange Act, the Company hereby notifies its
shareholders that it did not receive notice by January 5, 1999, of any
proposed matter to be submitted for shareholder vote at the Meeting, and,
therefore, any proxies received in respect of the Meeting will be voted in the
discretion of the Company's management on other matters which may properly
come before the Meeting.
Any proposal which is intended to be presented by any Company shareholder
for action at the 2000 Annual Meeting of Shareholders must be received in
writing by the Secretary of the Company, at One Ram Ridge Road, Spring Valley,
New York 10977, not later than February 23, 2000 in order for such proposal to
be considered for inclusion in the proxy statement and form of proxy relating
to the 2000 Annual Meeting of Shareholders.
The Company further notifies its shareholders that if the Company does not
receive notice by February 23, 2000 of a proposed matter to be submitted for
shareholders vote at the 2000 Annual Meeting of Shareholders, then any proxies
held by members of the Company's management in respect of such Meeting may be
voted at the discretion of such management members on such matter if it shall
properly come before such Meeting, without any discussion of such proposed
matter in the proxy statement to be distributed in respect of such Meeting.
By Order of the Board of Directors
Dennis J. O'Connor
Secretary
Dated: June 21, 1999
17
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
Proxy For Annual Meeting To Be Held on July 30, 1999
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder(s) of PHARMACEUTICAL RESOURCES, INC., a New Jersey
corporation (the "Company"), hereby constitute(s) and appoint(s) Kenneth I.
Sawyer and Dennis J. O'Connor, and each of them, with full power of substitution
in each, as the agent, attorneys and proxies of the undersigned, for and in the
name, place and stead of the undersigned, to vote at the Annual Meeting of
Shareholders of the Company to be held at the Holiday Inn, Suffern, Three
Executive Boulevard, Suffern, New York, on July 30, 1999 at 10:00 A.M. (local
time), and any adjournment(s) thereof, all of the shares of stock which the
undersigned would be entitled to vote if then personally present at such meeting
in the manner specified and on any other business as may properly come before
the Meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ON THE
REVERSE SIDE. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR ITEM 1
AND AT THE PROXIES' DISCRETION, UPON ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING AND ANY ADJOURNMENT(S) THEREOF.
(continued and to be signed and dated on the reverse side.)
<PAGE>
open space for account information
1. ELECTION OF CLASS III DIRECTORS
FOR ALL NOMINEES WITHHOLD AUTHORITY
listed below to vote for all nominees listed below
[ ] [ ]
Nominees: KLAUS H. JANDER FRANCIS MICHAEL J. URWIN
EXCEPTIONS
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2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment(s) thereof
and as set forth in Rule 14a-4c of the Securities Exchange Act of 1934, as
amended.
Please Mark, Sign, Date and Return the Proxy
Card Promptly Using the Enclosed Envelope.
Dated 1999
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Signature
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Signature if held jointly
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
