SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 205497
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 30, 1998
PHARMACEUTICAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY File Number 1-10827 22-3122182
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
One Ram Ridge Road, Spring Valley, New York 10977
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (914) 425-7100
TOTAL NUMBER OF PAGES -- 252
EXHIBIT INDEX IS LOCATED ON PAGE 9
Item 1. Change of Control.
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Introduction
On June 30, 1998 (the "Closing Date"), Pharmaceutical Resources, Inc.,
a New Jersey corporation (the "Company" or the "Registrant"), completed the sale
of 10,400,000 shares (the "Shares") of the Company's common stock, par value
$.01 per share (the "Common Stock"), to Lipha Americas, Inc., a Delaware
corporation ("Lipha"), at a price of $2.00 per share or $20,800,000 in the
aggregate. Also on the Closing Date, the Company issued options (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 to Merck KGaA, Darmstadt,
Germany, a Kommanditgesellschaft auf Aktien organized under the laws of Germany
("Merck KGaA"), and Genpharm Inc., a Canadian corporation ("Genpharm"), in
exchange for certain services to be provided to the Company. Lipha and Genpharm
are subsidiaries of Merck KGaA. Simultaneously with the sale of the Shares and
the issuance of the Options, Merck KGaA purchased 1,813,272 shares of Common
Stock from Clal Pharmaceutical Industries Ltd. ("Clal"). Such transactions and
certain related transactions are referred to in this Form 8-K as the
"Transaction."
Immediately following the closing of the Transaction, Merck KGaA
beneficially owned approximately 42% of the outstanding Common Stock. If Merck
KGaA and its affiliates exercise the Options and Merck KGaA acquires from Clal
an additional 500,000 shares of Common stock it has rights to in the future,
Merck KGaA would beneficially own approximately 46% of the outstanding Common
Stock. Through its subsidiary Lipha, Merck KGaA designated a majority of the
directors on the Company's Board of Directors. As a result of its large stock
ownership and ability to appoint directors of the Company, Merck KGaA is likely
to be able to exercise control over matters requiring shareholder approval. The
Company believes that the source of funds for the purchase price for the Shares
and the shares purchased from Clal was the working capital of Lipha and Merck
KGaA.
The following is a description of certain terms of the Stock Purchase
Agreement, dated March 25, 1998, between the Company and Lipha (the "Stock
Purchase Agreement") and related agreements. Such agreements are attached to
this Form 8-K as exhibits. The following description of the terms of such
agreements is qualified in their entirety by reference to such exhibits.
General
Stock Purchase Agreement. On the Closing Date, the Company sold to
Lipha the Shares at an aggregate purchase price of $20,800,000 in cash, or $2.00
per Share. The closing price of the Common Stock on The New York Stock Exchange
on March 25, 1998, the day the Stock Purchase Agreement was executed, was $2.625
per share. The Shares are not registered under the Securities Act of 1933, as
amended (the "Securities Act"). However, Lipha has certain demand and piggy-back
registration rights with respect to the Shares. See "--Registration Rights
Agreement" below. The Stock Purchase Agreement contains certain significant
terms, obligations and other agreements, as described below, including the
obligation to grant and issue the Options in return for the right to receive
certain services, Lipha's right to designate a majority of the members of the
Company's Board of Directors (the "Board"), Lipha's right of first refusal in
respect of certain equity offerings, and Lipha's agreement not to engage in
certain extraordinary transactions.
Board Representation. Lipha has the right to designate a majority of
the members of the Board. Pursuant to this right, Lipha has designated Bernhard
Scheuble, Anthony S. Tabatznik, J. Neil Tabatznik and Klaus Jander. Three
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members of the Board are comprised of Kenneth I. Sawyer, the Chairman, President
and Chief Executive Officer of the Company, and two additional designees of the
Board prior to the consummation of the Stock Purchase Agreement (collectively,
the "Company Designees"). Mark Auerbach and Stephen A. Ollendorff are the two
other Company Designees. All of such seven persons have been elected by the
shareholders at the Annual Meeting of Shareholders of the Company held on June
26, 1998 (the "Annual Meeting"). 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. Mr. Sawyer will continue to serve as Chairman and Chief
Executive Officer of the Company and each of its subsidiaries upon Lipha's
designation of a President. The effect of the foregoing agreement is to afford
voting control to the designees of Lipha with respect to matters determined by
the Board.
Mr. J. Neil Tabatznik, a director of the Company, is the Chairman of
Genpharm, which will develop, manufacture and distribute products to the Company
pursuant to the Distribution Agreement, dated March 25, 1998, between the
Company and Genpharm (the "Distribution Agreement"). See "--Distribution
Agreement" below. Mr. Anthony S. Tabatznik, a director of the Company, is a
board member of Merck Pharma which controls the pharmaceutical operations of
Merck KGaA, including Genpharm. Dr. Bernhard Scheuble, a director of the
Company, is Deputy Member of the Executive Board 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 1997 accounted for less
than five percent of the Company's and Genpharm's consolidated gross revenues.
However, in fiscal year 1998, it is expected that, under the Distribution
Agreement and the other distribution agreements, payments by the Company to
Genpharm and its affiliate would exceed five percent of the Company's
consolidated gross revenues.
Right of First Refusal. Lipha has a right of first refusal for a period
of six years following the Closing Date 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.
Limitations on Related Party Transactions and Business Combinations;
Lock-up. Lipha has agreed, for a period of three years following the Closing
Date, 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 of three years following the Closing
Date, 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.
As a condition to the closing of the Stock Purchase Agreement, certain
holders of options to purchase Common Stock, including Mr. Sawyer, and the other
executive officers of the Company, have agreed not to exercise their options for
a period of three years and 10 days from the Closing Date and certain other
holders, including the non-employee directors of the Company immediately prior
to the Closing Date, have agreed not to exercise more than one-third of their
options annually commencing on the first anniversary of the Closing Date.
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Merck KGaA and the Company have reached an agreement in principle for
Merck KGaA to prepay in full a promissory note of a subsidiary of the Company in
the principal amount of $600,000 on behalf of such subsidiary in exchange for
consideration relating to the Company's Israel-based research and development
facility to be agreed upon in the future.
Distribution Agreement. In connection with the Stock Purchase
Agreement, Genpharm and the Company have entered into a Distribution Agreement,
dated March 25, 1998 (the "Distribution Agreement") pursuant to which Genpharm
granted exclusive distribution rights to the Company within the United States
and certain other U.S. territories with respect to approximately 40 generic
pharmaceutical products currently under development or being sold by Genpharm
and its affiliates outside of the United States. Products may be added to or
removed from the Distribution Agreement by mutual agreement of the parties.
Genpharm is required to use commercially reasonable efforts to develop the
products which are subject to the Distribution Agreement and is responsible for
the completion of product development and for obtaining all applicable
regulatory approvals. The Company will pay Genpharm a percentage of gross
profits attributable to sales of such products.
Services Agreements. On the Closing Date, each of Merck KGaA and
Genpharm entered into separate Services Agreements 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 of providing the Services, the Company issued
on the Closing Date, 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 the
first anniversary of the Closing Date. The Options are exercisable at any time
beginning three years and 10 days following the Closing Date 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. The Options are not and the Option Shares will not be registered
under the Securities Act. However, the Option Shares may be registered upon the
exercise of registration rights by the holders of the Options and/or Option
Shares pursuant to certain demand and piggy-back registration rights under the
Registration Rights Agreement described below.
Clal Sale Agreement. Pursuant to a letter agreement, dated March 25,
1998 (the "Clal Sale Agreement"), between the Company, Merck KGaA and Clal, Clal
sold to Lipha on the Closing Date, an aggregate of 1,813,272 shares of Common
Stock at a price of $2.00 per share. Pursuant to the Clal Sale Agreement, Merck
KGaA agreed to pay Clal, on the second anniversary of the Closing Date, 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
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remaining 500,000 shares of Common Stock during the five-day period commencing
three years and five days after the Closing Date, 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
to be purchased from Clal under the Clal Sale Agreement are referred to herein
as the "Clal Shares." Clal has agreed, for the three-year and five-day period
following the Closing Date, 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. All of
Clal's rights under the Stock Purchase Agreement, dated March 25, 1995, between
the Company and Clal, including the right to appoint directors of the Company,
terminated on the Closing Date.
Registration Rights Agreement. In consideration of the rights and
benefits obtained by the Company under the Stock Purchase Agreement and the
services that will be provided to the Company pursuant to the Services
Agreements, the Company, on the Closing Date, granted to Lipha, Merck KGaA and
Genpharm (collectively, the "Holders") certain registration rights under a
registration rights agreement (the "Registration Rights Agreement"). In general,
the Holders will not be able to freely sell the Shares, the Option Shares or the
Clal Shares (collectively, the "Registrable Shares") without registration under
applicable securities laws or unless an exemption from registration is
available.
Starting nine months after the Closing Date, the Holders will be
entitled to three demand registrations of Registrable Shares and two additional
demand registrations if the Options are exercised. In addition, the Holders have
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 have agreed 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.
Amendment to Certificate of Incorporation
At the Annual Meeting, the shareholders of the Company approved an
amendment to Article IV of the Company's Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 60,000,000 to
90,000,000 (the "Common Stock Amendment"). The purpose of the Common Stock
Amendment is to provide additional shares of Common Stock for the consummation
of the Transaction and for other valid corporate purposes without further
shareholder approval unless required by applicable law or regulation. The Common
Stock Amendment was filed with the Secretary of State of New Jersey on June 26,
1998, a copy of which is attached as an exhibit to this Form 8-K.
1997 Directors Stock Option Plan
At the Annual Meeting, the shareholders of the Company approved the
Company's 1997 Directors Stock Option Plan (the "Directors Plan"). The Company
has reserved for issuance under the Directors Plan 500,000 shares of Common
Stock. Options granted under the Directors Plan may be granted only to directors
of the Company who are not employees of the Company or otherwise eligible to
receive options under any other plan adopted by the Company. A copy of the
Directors Plan is attached as an exhibit to this Form 8-K. The 1995 Directors
Stock Option Plan terminated upon shareholder approval of the Directors Plan at
the Annual Meeting. A total of 100,000 shares of Common Stock were reserved and
available for issuance under the 1995 Directors Stock Option Plan.
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Item 5. Other Events.
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See Item 1 above.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits.
3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment to the Certificate of
Incorporation of the Registrant, dated August 3, 1993.
3.3 Articles of Amendment to Certificate of Incorporation of
the Registrant, dated June 26, 1998.
3.4 By-Laws of the Registrant, as amended.
10.1 Stock Purchase Agreement, dated March 25, 1998, between the
Company and Lipha Americas, Inc.
10.2 Distribution Amendment, dated March 25, 1998, between the Company
and Genpharm, Inc.*
10.3 Services Agreement, dated June 26, 1998, between the Company and
Merck KGaA.
10.4 Stock Option Agreement, dated June 26, 1998, between the Company
and Merck KGaA.
10.5 Services Agreement, dated June 26, 1998, between the Company and
Genpharm Inc.
10.6 Stock Option Agreement, dated June 26, 1998, between the Company
and Genpharm Inc.
10.7 Registration Rights Agreement, dated June 26, 1998, among the
Company, Lipha Americas, Inc., Merck KGaA and Genpharm Inc.
10.8 Letter Agreement, dated March 25, 1998, among the Company, Merck
KGaA and Clal Pharmaceutical Industries Ltd.
10.9 1997 Directors Stock Option Plan.
10.10 Fourth Amendment and Consent to Loan and Security Agreement,
dated May 5, 1998, among the Company, General Electric Capital
Corporation, and the other parties named therein.
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10.11 Amendment to Employment Agreement, dated as of April 30, 1998,
among the Company, Par Pharmaceutical, Inc. and Kenneth I.
Sawyer.
10.12 Amended and Restated Distribution Agreement, dated
as of May 1, 1998, among the Company, Par Pharmaceutical, Inc.
and SANO Corporation.*
10.13 Release and Amendment Agreement, dated May 1, 1998, among the
Company, Par Pharmaceutical, Inc., SANO Corporation, and Elan
Corporation, plc.*
10.14 Press Release of the Registrant, dated June 26, 1998.
10.15 Press Release of the Registrant, dated June 30, 1998.
* Certain portions of Exhibits 10.2, 10.12 and 10.13 have been omitted and
have been filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange of Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
July 14, 1998
PHARMACEUTICAL RESOURCES, INC.
(Registrant)
/s/Dennis J. O'Connor
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Dennis J. O'Connor
Vice President, Chief Financial
Office and Secretary
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Exhibit Index
Exhibit
No. Description
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3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment to the Certificate of
Incorporation of the Registrant, dated August 3, 1993.
3.3 Articles of Amendment to Certificate of Incorporation of
the Registrant, dated June 26, 1998.
3.4 By-Laws of the Registrant, as amended.
10.1 Stock Purchase Agreement, dated March 25, 1998, between the
Company and Lipha Americas, Inc.
10.2 Distribution Amendment, dated March 25, 1998, between the Company
and Genpharm, Inc.*
10.3 Services Agreement, dated June 26, 1998, between the Company and
Merck KGaA.
10.4 Stock Option Agreement, dated June 26, 1998, between the Company
and Merck KGaA.
10.5 Services Agreement, dated June 26, 1998, between the Company and
Genpharm Inc.
10.6 Stock Option Agreement, dated June 26, 1998, between the Company
and Genpharm Inc.
10.7 Registration Rights Agreement, dated June 26, 1998, among the
Company, Lipha Americas, Inc., Merck KGaA and Genpharm Inc.
10.8 Letter Agreement, dated March 25, 1998, among the Company, Merck
KGaA and Clal Pharmaceutical Industries Ltd.
10.9 1997 Directors Stock Option Plan.
10.10 Fourth Amendment and Consent to Loan and Security Agreement,
dated May 5, 1998, among the Company, General Electric Capital
Corporation, and the other parties named therein.
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10.11 Amendment to Employment Agreement, dated as of April 30, 1998,
among the Company, Par Pharmaceutical, Inc. and Kenneth I.
Sawyer.
10.12 Amended and Restated Distribution Agreement, dated
as of May 1, 1998, among the Company, Par Pharmaceutical, Inc.
and SANO Corporation.*
10.13 Release and Amendment Agreement, dated May 1, 1998, among the
Company, Par Pharmaceutical, Inc., SANO Corporation, and Elan
Corporation, plc.*
10.14 Press Release of the Registrant, dated June 26, 1998.
10.15 Press Release of the Registrant, dated June 30, 1998.
* Certain portions of Exhibits 10.2, 10.12 and 10.13 have been omitted and
have been filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment thereof.
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