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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): April 16, 1997
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Watson Pharmaceuticals, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 0-20045 95-3872914
- ---------------------------- ----------- -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File number) Identification No.)
311 Bonnie Circle
Corona, CA 91720
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 270-1400
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Former name or former address, if changed since last report
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ITEM 2. Acquisition or Disposition of Assets.
On April 16, 1997, the stockholders of Royce Laboratories, Inc. ("Royce") voted
to approve the Agreement and Plan of Merger (the "Merger Agreement") dated
December 24, 1996, as amended effective as of March 4, 1997, by and among
Watson Pharmaceuticals, Inc. (the "Registrant"), Dolphins Acquisition Corp., a
wholly-owned subsidiary of the Registrant, and Royce, whereby Royce was merged
with Dolphins Acquisition Corp. in exchange for shares of the Registrant's
common stock (the "Merger"), with Royce being the surviving corporation in the
Merger. Immediately after the Merger, Royce became a wholly-owned subsidiary
of the Registrant.
Pursuant to the terms and conditions of the Merger Agreement, each share of
common stock, par value $.005 per share, of Royce was converted into the right
to receive approximately 0.19 of a share of common stock, par value $.0033 per
share, of the Registrant (the "Registrant Common Stock"). An aggregate of
approximately 2,588,061 shares of Registrant Common Stock was issued pursuant
to the Merger. With the future exercise of all outstanding Royce warrants and
options assumed in the Merger, an additional 386,502 shares of Registrant
Common Stock may be issued pursuant to the Merger. No shares of any other
class of stock of Royce were outstanding on the date of the Merger.
Additional information with respect to the Merger is set forth in Royce's Proxy
Statement, dated March 13, 1997, which was contained in the Registrant's
Registration Statement on Form S-4 (Registration No. 333-20029) filed with the
Securities and Exchange Commission on March 13, 1997, which is incorporated
herein by reference.
A copy of the joint press release of the Registrant and Royce, dated April 16,
1997, is attached hereto as Exhibit 99 and is hereby incorporated by reference.
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Consolidated Financial Statements of Royce
Laboratories, Inc. for the year ended December 31,
1996 and for each of the three years ended December
31, 1996, 1995 and 1994 (incorporated by reference to
the Annual Report on Form 10-K of Royce Laboratories,
Inc. for the fiscal year ended December 31, 1996,
filed as of March 27, 1997)
2
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(b) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Combined Financial
Statements as of December 31, 1996 and for the year
ended December 31, 1996.
(c) Exhibits.
2 Agreement and Plan of Merger dated December 24, 1996,
as amended effective March 4, 1997, by and among the
Registrant, Dolphins Acquisition Corp. and Royce
(incorporated herein by reference to Registrant's
Current Report on Form 8-K dated January 9, 1997).
20 Proxy Statement/Prospectus of Royce dated March 13,
1997 (incorporated herein by reference to the
Registrant's Registration Statement on Form S-4
(Registration No. 333-20029) filed with the
Securities and Exchange Commission on March 13,
1997).
99 Joint Press Release of Watson Pharmaceuticals, Inc.
and Royce Laboratories, Inc. relating to the
consummation of the Merger.
3
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WATSON PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Financial Statements
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combined Balance Sheet ........................F-2
Unaudited Pro Forma Condensed Combined Statement of Income ..................F-3
Notes to Unaudited Pro Forma Condensed Combined Financial Statements ........F-4
</TABLE>
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
WATSON PHARMACEUTICALS, INC. AND
ROYCE LABORATORIES, INC.
The following unaudited pro forma condensed combined financial statements are
derived from and should be read in conjunction with the audited supplementary
consolidated financial statements, including the notes thereto, of Watson that
are contained in the Post-Effective Amendment No. 1 on Form S-3 to Form S-4
filed on April 11, 1997 and of Royce that are contained in Royce's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, which is incorporated
by reference herein. The audited supplementary consolidated financial
statements of Watson, referred to above, give retroactive effect to the merger
of Watson with Oclassen Pharmaceuticals, Inc. which occurred on February 27,
1997. Royce's common stock has been de-registered under the Securities Exchange
Act of 1934, and consequently, Royce will not file a Form 10-Q for the quarter
ended March 31, 1997. The following unaudited pro forma information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the merger
had been consummated as of January 1, 1996, nor is it necessarily indicative of
future operating results or financial position.
F-1
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WATSON PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WATSON ROYCE ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 153,625 $ 4,596 $ (6,500) $ 151,721
Marketable securities 80,966 80,966
Accounts receivable, net 29,636 3,209 32,845
Royalty receivable 5,554 5,554
Inventories 27,143 5,286 32,429
Deferred tax assets 9,807 9,807
Other current assets 5,689 692 6,381
--------- --------- -------- ---------
Total current assets 312,420 13,783 319,703
Property and equipment, net 74,918 3,511 78,429
Investments in joint ventures and
other long-term investments 61,164 61,164
Other assets 6,995 63 7,058
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$ 455,497 $ 17,357 $ (6,500) $ 466,354
========= ========= ======== =========
Accounts payable and accruals $ 29,069 $ 2,688 $ 31,757
Current portion of long-term debt 673 352 1,025
Income taxes payable 473 473
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Total current liabilities 30,215 3,040 33,255
Long-term debt 2,904 957 3,861
Deferred tax liabilities 12,226 12,226
Other liabilities 3 3
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Total liabilities 45,348 3,997 49,345
Minority interest 401 401
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Common stock 133 67 $ (59) 141
Additional paid-in capital 201,255 30,349 59 231,663
Retained earnings (deficit) 201,898 (17,045) (6,500) 178,353
Notes receivable - common stock (727) (727)
Treasury stock, at cost (11) (11)
Unrealized holding gain 7,189 7,189
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Total stockholders' equity 409,748 13,360 416,608
--------- --------- -------- ---------
$ 455,497 $ 17,357 $ (6,500) $ 466,354
========= ========= ======== =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-2
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WATSON PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
PRO FORMA
WATSON ROYCE COMBINED
--------- -------- ----------
<S> <C> <C> <C>
Revenues:
Product sales, net $ 201,322 $ 22,317 $ 223,639
Royalty income 27,162 27,162
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Total revenues 228,484 22,317 250,801
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Operating expenses:
Cost of revenues 86,861 15,060 101,921
Research and development 21,180 1,715 22,895
Selling, general and
administrative 34,446 4,831 39,277
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Total operating expenses 142,487 21,606 164,093
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Operating income 85,997 711 86,708
Other income:
Equity in earnings of joint ventures 17,909 17,909
Investment and other income 9,725 136 9,861
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Total other income 27,634 136 27,770
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Income before provision for income taxes 113,631 847 114,478
Provision for income taxes 35,875 41 35,916
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Net income $ 77,756 $ 806 $ 78,562
========= ======== =========
Net income available to common stockholders $ 75,039 $ 806 $ 75,845
========= ======== =========
Per share data:
Earnings per share - primary $ 1.94 $ 0.06 $ 1.84
========= ======== =========
Earnings per share - fully diluted $ 1.88 $ 1.78
========= =========
Weighted average number of
common and common equivalent
shares outstanding - primary 38,657 13,900 41,242
========= ======== =========
- fully diluted 41,388 44,040
========= =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-3
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WATSON PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(1) Historical Presentation. The foregoing unaudited pro forma condensed
combined financial statements are derived from and should be read in
conjunction with the audited supplementary consolidated financial statements,
including the notes thereto, of Watson and the audited consolidated financial
statements of Royce for the year ended December 31, 1996. The audited
supplementary consolidated financial statements of Watson, referred to above,
give retroactive effect to the merger of Watson with Oclassen which occurred on
February 27, 1997. The fiscal years of Watson and Royce end on December 31,
and, as such, the unaudited pro forma condensed combined financial statements
have been reported on such fiscal year bases. No adjustments have been made to
the unaudited pro forma condensed combined financial statements for differences
in the application of generally accepted accounting principles between Watson
and Royce, as the impact of such adjustments would not be material. The
unaudited pro forma condensed combined financial statements give effect to
Watson's merger with Royce under the pooling of interests accounting method as
if the merger had occurred on January 1, 1996.
Certain amounts in the supplementary and historical audited consolidated
financial statements of Watson and Royce have been reclassified to conform with
the unaudited pro forma condensed combined financial statement presentation.
No adjustments are necessary to eliminate intercompany transactions and
balances in the unaudited pro forma condensed combined financial statements as
there were no intercompany transactions or balances.
The pro forma statements are presented for illustrative purposes only and are
not necessarily indicative of the operating results or financial position that
would have occurred if the merger had been consummated in accordance with the
assumptions set forth in these notes, nor is it necessarily indicative of
future operating results or financial position.
(2) Pro Forma Adjustments. The following pro forma adjustments were made to
arrive at the pro forma combined financial statements:
(A) On April 16, 1997, the stockholders of Royce voted to approve the
Agreement and Plan of Merger (the "Merger Agreement") dated December 24, 1996,
as amended effective as of March 4, 1997, by and among Watson and Royce,
whereby Royce became a wholly-owned subsidiary of Watson. Under the terms of
the Merger Agreement, each share of common stock, par value $.005 per share, of
Royce was converted into the right to receive approximately 0.19 of a share of
common stock, par value $.0033 per share, of Watson ("Watson Common Stock").
Accordingly, these unaudited pro forma condensed combined financial statements
reflect the issuance of approximately 2.6 million shares of Watson Common Stock
pursuant to the merger.
(B) The unaudited pro forma condensed combined balance sheet at December 31,
1996 has been adjusted to reflect estimated nonrecurring merger costs of $6.5
million. The adjustment gives effect to these merger costs as if they had been
paid on December 31, 1996. The estimated merger costs are expected to include
costs associated with investment banking fees, legal, accounting, printing and
other costs with respect to the merger. The estimated merger costs are
expected to be charged to expense in the second quarter of 1997. These costs
have been excluded from the unaudited pro forma condensed combined statement of
income for the year ended December 31, 1996 due to their nonrecurring nature.
F-4
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(C) As of April 16, 1997, the following Royce options and warrants were
outstanding:
<TABLE>
<CAPTION>
Converted at
Immediately Merger
Prior to Merger Exchange Ratio
--------------- --------------
<S> <C> <C>
1992 Stock Option Plan 223,088 42,563
1995 Stock Option Plan 247,635 47,246
Options granted outside of Company Plan 613,417 117,033
Warrants 941,666 179,660
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2,025,806 386,502
========= =======
</TABLE>
Under the Merger Agreement, each of the options and warrants will become an
option or warrant to purchase a number of whole shares of Watson Common Stock
equal to the number of shares of Royce Common Stock into which such Royce
option or warrant is exercisable immediately prior to the effective date of the
merger multiplied by approximately 0.19 at an option or warrant exercise price
determined by dividing the exercise price of such option or warrant immediately
prior to the effective date of the merger by approximately 0.19.
F-5
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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.
Dated: May 1, 1997 WATSON PHARMACEUTICALS, INC.
By:___________________________________________
Name: Allen Chao, Ph.D
Title: Chairman and Chief Executive Officer
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WATSON PHARMACEUTICALS, INC.
EXHIBIT INDEX
FORM 8-K
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
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<S> <C> <C>
99 Joint Press Release of Watson Pharmaceuticals, Inc. and
Royce Laboratories, Inc. relating to the consummation of the
Merger.
</TABLE>
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EXHIBIT 99
WATSON PHARMACEUTICALS COMPLETES ACQUISITION
OF ROYCE LABORATORIES
CORONA, CA - (April 16, 1997) - -Watson Pharmaceuticals, Inc. (Nasdaq: WATS)
and Royce Laboratories, Inc. today announced that the stockholders of Royce
approved the merger of Watson Pharmaceuticals and Royce Laboratories at the
stockholders' meeting on April 16, 1997. The transaction was consummated on
Wednesday, April 16, 1997. In connection with the merger, each outstanding
share of Royce common stock will be exchanged for .19 of a share of Watson
common stock, and each outstanding option and warrant to purchase shares of
Royce common stock will convert into the right to purchase a share of Watson
common stock based on the same exchange ratio. Royce and Watson intend for the
merger to be treated as a "pooling of interests" for accounting purposes and as
a tax-free reorganization for federal income tax purposes. After the merger,
Royce will operate as a wholly-owned subsidiary of Watson.
Dr. Allen Chao, Chairman and Chief Executive Officer of Watson commented,
"Royce fits well with one of our strategies (i.e. expanding our generic product
line). Their product line, which currently includes 21 off-patent prescription
drugs in 43 dosage strengths, complements Watson's with minimal overlap. We
look forward to their contributions from their expertise and their product
line."
Patrick J. McEnany, Chairman and Chief Executive Officer of Royce added, "We
are very excited to become a part of the Watson team and look forward to
increasing our leadership position in specialty and off-patent
pharmaceuticals."
The following important factors may affect both Watson's and Royce's actual
results and could cause such results to differ materially from forward-looking
statements made by, or on behalf of, Watson and/or Royce. Such factors
include, but are not limited to, changing market conditions, the availability
and cost of raw materials, the impact of competitive products and pricing, the
timely development, FDA approval and market acceptance of Watson's and Royce's
products and other risks detailed herein and from time to time in Watson's
Securities and Exchange Commission filings.
Watson Pharmaceuticals, Inc., headquartered in Corona, CA, is engaged in the
manufacture and sale of off-patent medications and proprietary pharmaceutical
products.
