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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Amendment No. 1 to Form 8-K (Date of earliest event reported):
April 30, 1997 (April 2, 1997)
CHIREX INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27698 04-3296309
(State or other jurisdiction (Commission File No.) (IRS Employer Identification No.)
of incorporation)
65 William Street
Suite 330
Wellesley, Massachusetts
(Address of principal executive offices)
(617) 431-2200
(Registrant's telephone number, including area code)
Page 1 of 4 Pages
Exhibit Index on Page 4
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 9, 1997, ChiRex Inc., a Delaware corporation (the "Company" or
"ChiRex"), announced the sale of its acetaminophen business, including related
intellectual property, to the French pharmaceutical company, Rhone-Poulenc
Chimie S.A. ("RPC") pursuant to an Asset Purchase Agreement between ChiRex,
ChiRex Limited, an indirect wholly-owned subsidiary of ChiRex, and RPC dated
April 2, 1997 (the "Agreement"). Under the terms of the Agreement, ChiRex will
continue to manufacture acetaminophen (also known as paracetamol or APAP) for
RPC pursuant to a Supply Agreement for a period to effect a seamless transfer of
customers. In addition, the parties are seriously exploring opportunities to
develop a partnership whereby ChiRex and RPC will jointly develop and ChiRex
will manufacture intermediates and active ingredients for RPC.
In connection with the sale, ChiRex expects to receive total net proceeds of
U.S.$6.3 ((pound)3.8) million, of which U.S.$4.1 ((pound)2.5) million has been
received, with the balance being paid over three years subject to certain
conditions. ChiRex will record a second quarter charge of U.S.$4.4 million
(approximately 5.0% of networth) or U.S.$0.39 per share in connection with the
sale including: (i) a net asset write-off of U.S.$5.6 million, (ii) severance
and restructuring of U.S.$3.1 million offset by, (iii) net after-tax proceeds of
U.S.$4.2 million. ChiRex expects to file pro forma financial statements with its
1997 first quarter 10Q Securities and Exchange Commission filing that reflect
the sale of the acetaminophen business.
"The sale of the acetaminophen business reflects our commitment to eliminate
low-margin, low-growth non-core products and to focus on the production of
high-margin, high-growth core products," said Alan R. Clark, Chairman and CEO of
ChiRex. "Unfortunately, one of the results is a reduction of employment at our
Dudley site. In addition, we have embarked on an across-the-board expense
reduction, which is metered to make this divestiture earnings-neutral in
1997. Significantly, this sale is the final strategic measure to position
ChiRex as a leading contract manufacturing organization for the pharmaceutical
industry and to focus management attention on the growth opportunity before
us."
ChiRex is a Contract Manufacturing Organization serving the outsourcing needs
of the pharmaceutical industry through its extensive pharmaceutical fine
chemical manufacturing and process development capabilities and proprietary
technologies. The Company supports and supplements the in-house development and
manufacturing capabilities of its pharmaceutical and biotechnology customers
with a broad range of fully integrated services, accelerating the time from
drug discovery to commercialization. ChiRex currently produces 54 products, of
which 29 are core products, in its world-class, cGMP manufacturing facilities
located in Dudley, Northumberland, England. ChiRex holds 54 patents and patent
applications in the field of chiral chemistry.
Any statements contained in this Current Report on Form 8-K that relate to
future plans, events or performance, including the scheduled disposition of the
acetaminophen business, are forward-looking statements that involve risks and
uncertainties, including, but not limited to, product development and market
acceptance risks, product manufacturing risks, the impact of competitive
products and pricing, the results of current and future licensing and other
collaborative relationships, the results of financing efforts, developments
regarding intellectual property rights and litigation, risks of product
nonapproval or delays or post-approval reviews by the FDA or foreign regulatory
authorities, and other risks identified in ChiRex's other Securities and
Exchange Commission filings. Actual results, events or performance may differ
materially. Readers are cautioned not to place undo reliance on these
forward-looking statements, which speak only as the date hereof. ChiRex
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Statements.
The following unaudited pro forma combined statements of operations are
based on the historical statements of operations of the Company for the year
ended December 31, 1996 and the three month period ended March 31, 1997,
adjusted to give effect to (i) the disposition of the acetaminophen business,
(ii) the merger of a subsidiary of the Company with and into ChiRex America Inc.
(formerly SepraChem Inc.) (the "Merger") and (iii) the acquisition of ChiRex
(Holdings) Limited, the corporate parent of ChiRex Limited (formerly Sterling
Organics Limited) (the "Contribution") as if all events had occurred as of
January 1, 1996. The pro forma adjustments are based upon available information
and certain assumptions that management believes are reasonable. The voluntary
disposition of the acetaminophen business was timed to take advantage of
increased core production activity within the Company's manufacturing
facilities, and the associated benefit of additional overhead absorption. The
Company has also announced and implemented a 4% cost reduction program. The
following combined pro forma statements of operations do not show the effect of
either of these facts.
The combined pro forma statements of operations are not necessarily
indicative of future operating results or what the Company's results of
operations would actually have been had the disposition, Merger and Contribution
occurred on January 1, 1996. The pro forma combined statement of operations
should be read in conjunction with the historical financial statements of the
Company.
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CHIREX INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTH PERIOD ENDED MARCH 31 1997
- ----------------------------------------------
CHIREX INC.
THREE MONTHS
ENDED PRO FORMA
MARCH 31, 1997 ADJUSTMENTS PRO FORMA
-------------- ----------- ---------
Revenues:
Product sales $26,284 $(6,987)(1) $19,297
License fee and royalty income 222 222
------- ------- -------
Total revenues 26,506 (6,987) 19,519
Costs and expenses:
Cost of goods sold 20,591 (6,020)(2) 14,571
Research and development 1,187 (33)(3) 1,154
Selling, general and administrative 2,585 (116)(4) 2,469
------- ------- -------
Total operating expenses 24,363 (6,169) 18,194
Operating income (loss) 2,143 (818) 1,325
Interest expense 134 134
------- ------- -------
Income (loss) before income taxes 2,009 (818) 1,191
Provision for income taxes 811 (270)(6) 541
------- ------- -------
Net income (loss) $ 1,198 $ (548) $ 650(7)
======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1996
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CHIREX INC.
CHIREX INC. JANUARY 1, 1996
YEAR ENDED THROUGH PRO FORMA
DECEMBER 31, 1997 MARCH 11, 1996 ADJUSTMENTS PRO FORMA
----------------- -------------- ----------- ---------
Revenues:
Product sales $73,440 $15,212 $(27,885)(1) $ 60,767
License fee and royalty income 1,175 1,175
------- ------- -------- --------
Total revenues 74,615 15,212 (27,885) 61,942
Costs and expenses:
Cost of goods sold 56,508 12,564 (23,767)(2) 45,305
Research and development 3,517 558 (130)(3) 3,945
Selling, general and administrative 8,876 1,300 (239)(4) 9,937
Write-off of in-process research
and development 5,790 - 5,790
Compensation related to stock plans 5,611 - 5,611
------- ------- -------- --------
Total operating expenses 80,302 14,422 (24,136) 70,588
Operating income (loss) (5,687) 790 (3,749) (8,646)
Interest expense 755 690 (440)(5) 1,005
------- ------- -------- --------
Income (loss) before income taxes (6,442) 100 (3,309) (9,651)
Provision for income taxes 1,867 33 (1,018)(6) 882
------- ------- -------- --------
Net income (loss) $(8,309) $ 67 $ (2,291) $(10,533)(7)
======= ======= ======== ========
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Pro Forma Adjustments to Pro Forma Combined Statements of Operations for
the three month period ended March 31, 1997 and the year ended December 31,
1996 consist of :
(1) Reduction in revenues related to the sale of acetaminophen based on
actual sales of such product in each period.
(2) Reduction of costs of goods sold includes costs associated with the
production of acetaminophen based on actual costs of $23,879 thousand and $6,020
thousand in the year ended December 31, 1996, and three month period ended March
31, 1997, respectively offset by an increase in depreciation of $112 thousand in
the year ended December 31, 1996 reflecting an increased valuation of ChiRex
Holdings Limited.
(3) Reduction of research and development costs associated with the
production of acetaminophen based on actual costs of $130 thousand and $33
thousand in the year ended December 31, 1996, and three month period ended March
31, 1997, respectively.
(4) Reduction of selling, general and administrative costs associated with
acetaminophen based on actual costs of $464 thousand and $116 thousand in the
year ended December 31, 1996, and three month period ended March 31, 1997,
respectively offset by an increase in amortization of goodwill related to the
period prior to the Contribution of $225 thousand in the year ended December 31,
1996.
(5) Reduction in interest expense related to debt retired in connection
with the Contribution.
(6) Income tax effect of pro forma adjustments, excluding amortization of
goodwill which is not deductible for tax purposes.
(7) Pro forma net income does not reflect one time charges associated with
the disposition of the acetaminophen business. Under the agreement of the
disposition, RPC is required to make specified payments to the Company, subject
to certain conditions over a three year period. The Company anticipates it will
recognize net sales proceeds of approximately $6.3 million, after considering
likelihood of receipt of each required payment and the effect of discounting
future cash receipts. In conjunction with the sale of the acetaminophen
business, the Company intends to dispose of the related building and equipment
which is estimated to result in a write down of approximately $8.3 million.
Additionally, the Company has implemented a plan to terminate certain employees
associated with the production of acetaminophen and otherwise restructure its
operations, which is estimated to result in charges of approximately $4.6
million. The Company anticipates this transaction with result in a net negative
impact on earnings of approximately $4.4 million, after consideration for the
effect of tax.
(c) Exhibits.
The exhibits listed on the accompanying Index to Exhibits are filed as part
of this Current Report on Form 8-K.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to the Form 8-K filed on April
11, 1997 to be signed on its behalf by the undersigned hereunto duly
authorized.
CHIREX INC.
By:
Date: April 30, 1997 /S/ MICHAEL A. GRIFFITH
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Name: Michael A. Griffith
Title: Chief Financial Officer
and
Secretary
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
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*2.1 Asset Purchase Agreement between
ChiRex Limited, ChiRex Inc. and
Rhone-Poulenc Chimie S.A.
*99 Press release dated April 9, 1997,
announcing the sale of ChiRex Inc.'s
Acetaminophen Business to Rhone-
Poulenc Chimie S.A.
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* Previously filed.