-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VurdGCFYEcu+Jc8GnldQ9E5S1szw0dTrQPHmSh11Bo7zG7zfeH8bg5iQWkBQY3Yg GWfvS4bd5oQsNn/cAkm5vA== 0000950130-97-003603.txt : 19970813 0000950130-97-003603.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950130-97-003603 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970812 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACEUTICAL RESOURCES INC CENTRAL INDEX KEY: 0000878088 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 223122182 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10827 FILM NUMBER: 97657444 BUSINESS ADDRESS: STREET 1: ONE RAM RIDGE RD CITY: SPRING VALLEY STATE: NY ZIP: 10977 BUSINESS PHONE: 9144257100 MAIL ADDRESS: STREET 1: ONE RAM RIDGE RD CITY: SPRING VALLEY STATE: NY ZIP: 10977 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10--Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 1997 PHARMACEUTICAL RESOURCES, INC. (Exact name of registrant as specified in its charter) NEW JERSEY 22-3122182 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK 10977 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (914) 425-7100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 18,683,998 Number of shares of Common Stock outstanding as of August 6, 1997. This is page 1 of 28 pages. The exhibit index is on page 15. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
JUNE 28, SEPTEMBER 30, ASSETS 1997 1996 ------ --------- -------------- (Unaudited) (Audited) Current assets: Cash and cash equivalents - $ 299 Temporary investments $ 15 158 Accounts receivable, net of allowances of $4,320 and $2,643 7,325 7,645 Inventories 16,110 19,352 Prepaid expenses and other current assets 1,811 3,894 -------- ------- Total current assets 25,261 31,348 Property, plant and equipment, at cost less accumulated depreciation and amortization 24,371 26,068 Deferred charges and other assets 1,591 1,222 Investments 4,871 8,672 Investment in joint venture 2,418 3,028 Non-current deferred tax benefit 14,608 14,608 -------- ------- Total assets $ 73,120 $84,946 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 220 $ 2,142 Short term debt 9,415 - Accounts payable 3,315 4,163 Accrued salaries and employee benefits 2,253 3,299 Accrued expenses and other current liabilities 1,400 1,028 -------- ------- Total current liabilities 16,603 10,632 Long-term debt, less current portion 1,185 2,971 Accrued pension liability 719 719 Shareholders' equity: Common Stock, par value $.01 per share; authorized 60,000,000 shares; issued and outstanding 18,682,135 and 18,661,869 shares 187 187 Additional paid in capital 67,138 67,081 Accumulated (deficit) (15,088) (1,509) Additional minimum liability related to defined benefit pension plan (117) (117) Unrealized gain on investment 2,493 4,982 -------- ------- Total shareholders' equity 54,613 70,624 -------- ------- Total liabilities and shareholders' equity $ 73,120 $84,946 ======== =======
The accompanying notes are an integral part of these statements. -2- PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (In Thousands, Except Per Share Amounts) (Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED ----------------- ------------------ JUNE 28, JUNE 29, JUNE 28, JUNE 29, 1997 1996 1997 1996 -------- -------- -------- -------- Net sales $ 36,001 $45,008 $ 11,749 $14,788 Cost of goods sold 34,626 34,031 11,132 12,078 -------- ------- -------- ------- Gross margin 1,375 10,977 617 2,710 Operating expenses: Research and development 4,627 4,319 850 2,737 Selling, general and administrative 9,478 12,876 3,132 4,366 Restructuring charge - 549 - 549 -------- ------- -------- ------- Total operating expenses 14,105 17,744 3,982 7,652 Operating (loss) (12,730) (6,767) (3,365) (4,942) Other income (expense) (28) 631 (277) 160 Interest expense (411) (310) (193) (104) -------- ------- -------- ------- (Loss) before provision (credit) for income taxes (13,169) (6,446) (3,835) (4,886) Provision (credit) for income taxes 410 (2,578) - (1,956) -------- ------- -------- ------- NET (LOSS) (13,579) (3,868) (3,835) (2,930) Retained earnings (deficit), beginning of period (1,509) 6,783 (11,253) 5,845 -------- ------- -------- ------- Retained earnings (deficit), end of period $(15,088) $ 2,915 $(15,088) $ 2,915 ======== ======= ======== ======= NET (LOSS) PER SHARE OF COMMON STOCK $(.73) $(.21) $(.21) $(.16) ======== ======= ======== ======= Weighted average number of common and common equivalent shares outstanding 18,687 18,453 18,679 18,505 ======== ======= ======== =======
The accompanying notes are an integral part of these statements. -3- PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
NINE MONTHS ENDED ----------------- JUNE 28, JUNE 29, 1997 1996 -------- -------- Cash flows from operating activities: Net (loss) $(13,579) $ (3,868) Adjustments to reconcile net (loss) to net cash (used in) operating activities: (Credit) for income tax expense - (2,578) Joint venture research and development 610 324 Restructuring charge - 549 Depreciation and amortization 2,059 2,138 Allowances against accounts receivable (1,677) 274 Write-off of inventories 1,148 932 Other - (12) Changes in assets and liabilities: Decrease in accounts receivable 1,997 37 Decrease (increase) in inventories 2,094 (5,536) Decrease in prepaid expenses and other assets 2,068 936 (Decrease) in accounts payable (848) (1,371) (Decrease) increase in accrued expenses and other liabilities (674) 288 -------- -------- Net cash (used in) operating activities (6,802) (7,887) Cash flows from investing activities: Capital expenditures (716) (3,650) Decrease (increase) in investments 1,312 (2,470) Decrease in temporary investments 143 82 -------- -------- Net cash provided by (used in) investing activities 739 (6,038) Cash flows from financing activities: Proceeds from issuance of capital stock 57 1,797 Net proceeds from revolving credit line, proceeds from issuance of notes payable and other debt 9,415 4,342 Principal payments under long-term debt and other borrowings (3,708) (5,032) Payments due to stock conversion - (5) -------- -------- Net cash provided by financing activities 5,764 1,102 Net (decrease) in cash and cash equivalents (299) (12,823) Cash and cash equivalents at beginning of period $ 299 17,986 -------- -------- Cash and cash equivalents at end of period - $ 5,163 ======== ========
The accompanying notes are an integral part of these statements. -4- PHARMACEUTICAL RESOURCES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 28, 1997 (UNAUDITED) Pharmaceutical Resources, Inc. (the "Company" or "PRI") operates in one business segment, the manufacture and distribution of generic pharmaceuticals. Marketed products are principally in oral solid (tablet, caplet and capsule) form, with a small number of products in the form of creams and liquids. BASIS OF PREPARATION: The accompanying financial statements at June 28, 1997 and for the nine-month and three-month periods ended June 28, 1997 and June 29, 1996 are unaudited; however, in the opinion of management of PRI, such statements include all adjustments (consisting of normal recurring accruals) necessary to a fair statement of the information presented therein. The balance sheet at September 30, 1996 was derived from the audited financial statements at such date. Pursuant to accounting requirements of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the accompanying financial statements and these notes do not include all disclosures required by generally accepted accounting principles for audited financial statements. Accordingly, these statements should be read in conjunction with PRI's most recent annual financial statements. Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years. SHORT TERM DEBT: In December 1996, Par Pharmaceutical, Inc., the Company's operating subsidiary ("Par"), entered into a Loan and Security Agreement (the "Loan Agreement") with General Electric Capital Corporation ("GECC") which provides Par with a three-year revolving line of credit. The Loan Agreement was amended in May 1997. Pursuant to the Loan Agreement, as amended, Par is permitted to borrow up to the lesser of (i) the borrowing base established under the Loan Agreement or (ii) $20,000,000. The borrowing base is limited to 85% of eligible accounts receivable plus 50% of eligible inventory of Par as determined from time to time by GECC. The interest rate charge on the line of credit is based upon a per annum rate of 3.50% above the 30-day commercial paper rate for high- grade unsecured notes adjusted monthly. The line of credit with GECC is secured by the assets of Par and PRI other than real property and is guaranteed by PRI. In connection with such facility, Par, PRI, and their affiliates have established a cash management system pursuant to which all cash and cash equivalents received by any of such entities are deposited into a lockbox account over which GECC has sole operating control and which are applied on a daily basis to reduce amounts outstanding under the line of credit. The revolving credit facility is subject to covenants based on various financial benchmarks. Under the May 1997 amendment, GECC waived events of default related to financial covenants and amended the financial covenants of Par. As of June 28, 1997, the borrowing base was approximately $12,300,000 and $9,415,000 was outstanding under such line of credit. Any significant reduction in the borrowing base from current levels will adversely affect the Company's liquidity. INCOME TAXES: Based on the Company's recent performance and the uncertainty of the generic business in which it operates, management believes that future operating income might not be sufficient to recognize fully the net operating loss carryforwards of the Company. Therefore, the Company is not recognizing a benefit for its operating loss in the nine-month period ended June 28, 1997. If the Company is unable to generate sufficient taxable income in the future, increases in the valuation allowance will be required through a charge to expense. The Company incurred income tax expense of $410,000 in the first quarter of fiscal 1997 due to interest relating to a settlement with the Internal Revenue Service in fiscal 1995 for the disallowance of the Company's tax credit in prior periods with respect to certain research and development credits. -5- PHARMACEUTICAL RESOURCES, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED JUNE 28, 1997 (UNAUDITED) EARNINGS PER SHARE: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), which is effective for financial statements for periods ending after December 15, 1997, and requires retroactive restatement of all earnings per share data. SFAS 128 requires replacement of primary and fully diluted earnings per share with basic and diluted earnings per share. For the current nine and three-month periods and the comparative periods of the prior year, SFAS 128 would not have had an impact on earnings per share. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: Retirement Plans: The Company has a defined contribution, social security integrated Retirement Plan providing retirement benefits to eligible employees as defined in the Retirement Plan. The Board of Directors of Par authorized the cessation of employer contributions effective December 30, 1996. Consequently, participants in the Retirement Plan will no longer be entitled to any employer contributions under such plan for 1996 or subsequent years. The Company also maintains a Retirement Savings Plan whereby eligible employees are permitted to contribute from 1% to 12% of pay to this Plan. The Company contributes an amount equal to 50% of the first 6% of the pay contributed by the employee. In calendar 1997, the Company intends to merge the Retirement Plan into the Retirement Savings Plan. Legal Proceedings: The Company is involved in certain litigation matters, including certain product liability actions and actions by two former officers for, among other things, breach of contract. Such actions seek damages from the Company, including compensatory and punitive damages. The Company intends to defend these actions vigorously. The Company believes that these actions are incidental to the conduct of its business and that the ultimate resolution thereof will not have a material adverse effect on its financial condition or results of operations. Manufacturing Agreement: On April 30, 1997, Par entered into a Manufacturing and Supply Agreement (the "Supply Agreement") with BASF Corporation ("BASF"), a manufacturer of pharmaceutical products. Under the Supply Agreement, Par agreed to purchase certain minimum quantities of certain products manufactured by BASF at one of its facilities, and Par will phase out its manufacturing of those products. BASF will discontinue its direct sale of those products at the particular facility. The agreement has an initial term of three years (subject to earlier termination upon the occurrence of certain events as provided therein) and thereafter renews automatically for successive two-year periods to December 31, 2005, if Par has met certain purchase thresholds. In the event that Par's purchases do not equal or exceed the thresholds, BASF may elect to terminate the Supply Agreement effective one year later. The Company began selling drugs manufactured by BASF and BASF has transferred to Par the marketing and sales of certain products covered by the Supply Agreement in June 1997, however the agreement will not be fully implemented until August 1997. Restructuring and Cost Reductions: Primarily as a result of the Supply Agreement, the Company has further reduced the work force during the third fiscal quarter by approximately forty five employees, primarily in manufacturing functions and a smaller number in administrative and product development positions. The work force reduction included a layoff of employees at the end of June 1997 and the elimination of positions currently open. The Company established a liability for the work force reduction of $280,000 and subsequent charges are included in the current quarter's operating results. The charge includes $231,000 for severance pay, employee benefits and out placement services and $49,000 in legal fees. The Company began implementing measures during the fourth quarter of fiscal 1996, which have continued in fiscal 1997, in an effort to reduce costs and increase operating efficiencies. Such measures have provided for a reduction in the work force, changes in senior management, a reorganization of certain existing personnel and reductions in certain expenses. -6- PHARMACEUTICAL RESOURCES, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED JUNE 28, 1997 (UNAUDITED) SUBSEQUENT EVENTS: Distribution Agreement: On July 28, 1997, PRI announced that it had amended a 1994 distribution agreement with Sano Corporation ("Sano"), a developer and manufacturer of transdermal drug delivery products. Pursuant to the amendment, the Company ceded its distribution rights to three products of which submissions have not yet been filed with the Food and Drug Administration ("FDA"), while retaining exclusive United States distribution rights to three products, a nicotine and two nitroglycerin transdermal patches, currently filed with the FDA and awaiting approval. In addition, PRI has released distribution rights outside the United States for the retained products. In return for relinquishing the rights described above, PRI received in July 1997 $1,950,000 in cash and an interest bearing promissory note for $1,950,000 which will be due in September 1998. PRI has also retained the rights to recover certain of its prior payments to Sano, including $1,500,000 from the gross profits earned on sales of two of the retained products. -7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN STATEMENTS IN THIS FORM 10-Q CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, INCLUDING THOSE CONCERNING MANAGEMENT'S EXPECTATIONS WITH RESPECT TO FUTURE FINANCIAL PERFORMANCE AND FUTURE EVENTS, PARTICULARLY RELATING TO SALES OF CURRENT PRODUCTS AS WELL AS THE INTRODUCTION OF NEW MANUFACTURED AND DISTRIBUTED PRODUCTS. SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY, WHICH COULD CAUSE ACTUAL RESULTS AND OUTCOMES TO DIFFER MATERIALLY FROM THOSE EXPRESSED HEREIN. FACTORS THAT MIGHT AFFECT SUCH FORWARD-LOOKING STATEMENTS SET FORTH IN THIS FORM 10-Q INCLUDE, AMONG OTHERS, (I) INCREASED COMPETITION FROM NEW AND EXISTING COMPETITORS AND PRICING PRACTICES FROM SUCH COMPETITORS, (II) THE AMOUNT OF FUNDS CONTINUING TO BE AVAILABLE FOR INTERNAL RESEARCH AND DEVELOPMENT AND RESEARCH AND DEVELOPMENT JOINT VENTURES, (III) RESEARCH AND DEVELOPMENT PROJECT DELAYS OR DELAYS IN OBTAINING REGULATORY APPROVALS, (IV) THE ABILITY OF THE COMPANY TO RETAIN AND ATTRACT MANAGEMENT PERSONNEL IN KEY OPERATIONAL AREAS AND (V) CONTINUED AVAILABILITY OF BORROWINGS UNDER THE COMPANY'S CREDIT LINE WITHOUT SIGNIFICANT REDUCTION. RESULTS OF OPERATIONS GENERAL The Company incurred operating losses of $12,730,000 and $3,365,000, respectively, for the nine-month and three-month periods ended June 28, 1997 compared to losses of $6,767,000 and $4,942,000 in the corresponding periods of the prior fiscal year. The losses are principally due to sales and gross margin declines, as described below, partially offset by decreases in operating expenses. The Company's gross margins for the nine-month and three-month periods ended June 28, 1997 were $1,375,000 and $617,000, respectively, compared to $10,977,000 and $2,710,000 for the same periods in fiscal year 1996. The decreased gross margins experienced in the current periods reflect the continuing trend of lower pricing on certain manufactured products. If sales declines are not offset by increased sales of new distributed or manufactured products, net sales and gross margin declines will continue and, accordingly, result in continuing losses. As a result of the recent losses, the Company is continuing to search for strategic alternatives to improve its financial condition and product line while working on process improvements to reduce its current manufacturing costs. The continued price and profit margin erosion on certain of the Company's products reflects a continuing trend in the generic drug industry in the United States. The factors contributing to the intense competition and affecting both the introduction of new products and the pricing and profit margins of the Company, include, among other things, (i) introduction of other generic drug manufacturer's products in direct competition with the Company's significant products, (ii) competition from brand name drug manufacturers selling generic versions of their drugs, (iii) increased ability of generic competitors to enter the market after patent expiration, diminishing the amount and duration of significant profits, and (iv) willingness of generic drug customers, including wholesale and retail customers, to switch among pharmaceutical manufacturers. During the current fiscal quarter, the Company has implemented additional work force reductions primarily as a result of the manufacturing and supply agreement described below. The Company began implementing cost reduction measures in the fourth quarter of fiscal 1996, which have continued in fiscal 1997, in response to recent results and industry trends (see "Notes to Financial Statements-Commitments, Contingencies and Other Matters-Restructuring and Cost Reductions"). These measures have reduced certain operating costs in fiscal 1997. No assurances can be given that reduced costs will return the Company to profitability. On July 28, 1997, PRI announced that it had amended a distribution agreement with Sano Corporation ("Sano"), a developer and manufacturer of transdermal drug delivery products, ceding its distribution rights, created under a 1994 agreement, to three products of which submissions have not yet been filed with the Food and Drug Administration ("FDA"), while retaining exclusive United States distribution rights to three products, a nicotine and two nitroglycerin transdermal patches, currently filed with the FDA and awaiting approval (see "Notes to Financial Statements-Subsequent Events-Distribution Agreement"). In addition, PRI has released distribution rights outside the United States for the retained products. In return for relinquishing the rights described above, PRI received in July 1997 $1,950,000 in cash and an interest bearing promissory note for $1,950,000 which will be due in September 1998. PRI has also retained the rights to recover certain of its prior payments to Sano, including $1,500,000 from the gross profits earned on sales of two of the retained products. -8- On April 30, 1997, Par Pharmaceutical, Inc., the Company's operating subsidiary ("Par"), entered into a Manufacturing and Supply Agreement (the "Supply Agreement") with BASF Corporation ("BASF"), a manufacturer of pharmaceutical products (see "Notes to Financial Statements-Commitments, Contingencies and Other Matters-Manufacturing Agreement"). Under the Supply Agreement, Par agreed to purchase certain minimum quantities of certain products manufactured by BASF at one of its facilities, and Par will phase out its manufacturing of those products. BASF will discontinue its direct sale of those products manufactured at the particular facility. The Company commenced selling certain products manufactured by BASF and BASF transferred the marketing and sales of certain products covered by the Supply Agreement in June 1997, however the agreement will not be fully implemented until August 1997. In April 1997, the Company entered into an agreement with Lek Pharmaceutical and Chemical Company d.d. ("Lek"), a European manufacturer of pharmaceutical products located in Slovenia, in which it had obtained rights to distribute Acyclovir, the generic equivalent of Zovirax(R). The non-exclusive distribution agreement covers three dosage forms manufactured by Lek. The product, introduced in the current quarter of fiscal 1997, has experienced intense pricing pressure from competitors and has not significantly added to sales or gross margins. The Company plans to continue to invest in research and development efforts in addition to pursuing additional products for sale through new and existing distribution agreements. There have been no significant sales of any new manufactured or distributed products introduced in the first nine months of the current fiscal year. The Company is engaged in efforts, subject to FDA approval and other factors, to introduce new products as a result of its research and development efforts and distribution agreements. Sano has advised the Company that the FDA has not yet approved its previously submitted Abbreviated New Drug Applications ("ANDAs") for the nicotine and nitroglycerine patches and, accordingly, such patches may not be available for marketing in fiscal 1997. As the submission is at the FDA, Sano cannot determine when or if approvals will be granted. No assurance can be given that any additional products for sale by the Company will happen or that sales of additional products will reduce losses or return the Company to profitability. Continuing losses will adversely affect the Company's liquidity and, accordingly, its ability to fund research and development or ventures relating to the sale of new products (see "-Financial Condition-Liquidity and Capital Resources"). NET SALES Net sales for the nine-month period ended June 28, 1997 of $36,001,000 decreased $9,007,000, or 20%, from $45,008,000 for the nine-month period ended June 29, 1996. The decline is primarily due to decreased sales of manufactured products which resulted, in large part, from lower pricing and decreases in volume of one of the Company's significant products, and to a lesser extent, two other significant products, partially offset by higher volumes of a lower margin product. The reduction in pricing and volume results from increased competition from other drug manufacturers. Sales of distributed product decreased slightly compared to the levels achieved in the corresponding period of the prior fiscal year. Net sales were $11,749,000 for the current three-month period compared to $14,788,000 in the corresponding quarter of last year. The decline of $3,039,000, or 21% is principally attributable to the continuing lower sales of certain significant products, partially offset by higher volumes of a lower margin product. Levels of sales are principally dependent upon, among other things, (i) pricing levels and competition, (ii) market penetration for the existing product line, (iii) approval of ANDAs and introduction of new manufactured products, (iv) introduction of new distributed products and (v) the level of customer service. GROSS MARGIN The Company's gross margin of $1,375,000 (4% of net sales) for the nine-month period ended June 28, 1997 decreased by $9,602,000 from $10,977,000 (24% of net sales) in the corresponding period of the prior fiscal year. The gross margin decline is primarily due to lower selling prices and decreased volumes of certain significant manufactured products resulting from the introduction of other generic drug manufacturers' products in direct competition with the Company's significant products. The gross margin contribution from distributed products was negligible in both periods. -9- The gross margin in the current quarter of $617,000 (5% of net sales) is $2,093,000 lower than the margin of $2,710,000 (18% of net sales) in the corresponding quarter of the prior year. The decline is primarily attributable to the lower sales and pricing of certain manufactured products which continued the trend of lower margins in the current period. Inventory write-offs, taken in the normal course of business, amounted to $1,148,000 and $514,000, respectively, for the nine-month and three-month periods ended June 28, 1997, compared to $932,000 and $303,000 in the corresponding periods of the prior year. The increase in inventory write-offs are related principally to the disposal of finished products due to short shelf life. OPERATING EXPENSES Research and Development Research and development expenses for the nine-month period ended June 28, 1997 were $4,627,000 versus $4,319,000 for the nine-month period ended June 29, 1996. In the current period, advances to Sano amounted to $1,957,000, while in the prior year payments of $2,942,000 were partially offset by a reimbursement from Sano of $1,500,000. The Company recorded its share of research and development expenses from the joint venture with Clal Pharmaceutical Industries, Ltd. ("Clal") for the current nine-month and three- month periods of $610,000 and $231,000, respectively, compared to expense of $324,000 and income of $29,000 for the corresponding periods of the prior year. Research and development expenses of $850,000 in the current three- month period were lower than costs of $2,737,000 in the corresponding period in the prior year primarily as a result of advances to Sano of $1,867,000 in the prior quarter not incurred in the current quarter. Selling, General and Administrative Selling, general and administrative costs are $9,478,000 (26% of net sales) for the nine-month period ended June 28, 1997 compared to $12,876,000 (29% of net sales) for the corresponding period in the prior fiscal year. The decrease in the period is primarily attributable to a decline in personnel costs resulting from recent headcount reductions and the amendment of a retirement plan (see "Notes to Financial Statements-Commitments, Contingencies and Other Matters-Retirement Plans" and "-Restructuring and Cost Reductions"). In addition, fees for consulting and professional services, costs for advertising and developmental marketing, and bad debt expense have been reduced in the current fiscal year. In the current quarter, selling, general and administrative costs of $3,132,000 (27% of net sales) decreased $1,234,000 from $4,366,000 (30% of net sales) in the corresponding quarter of last year. The decrease is primarily the result of decreased personnel costs, professional fees and advertising and marketing costs, as discussed above. In June 1997, the Company announced the appointment of a Chief Operating Officer of Par. As part of the management team of Par, the Chief Operating Officer will assist in establishing corporate strategies, objectives and goals while overseeing the Company's operations in an effort to achieve those goals. Restructuring Charges The Company recorded a restructuring charge of $549,000 in the prior period to provide for costs associated with the reduction and reorganization of personnel. The implementation of the restructuring plan also included reductions in spending on advertising, marketing, professional services and, to a lesser extent, certain internal and external research and development expenses. OTHER INCOME (EXPENSE) Other expense of $28,000 and $277,000 for the nine and three-month periods ended June 28, 1997, respectively, included gains on the sale of Sano stock offset by a loss on the sale of Fine-Tech Ltd. stock (see "--Liquidity and Capital Resources") compared to other income in the corresponding periods of the prior year of $631,000 and $160,000, respectively, which consisted primarily of interest on short term treasury obligations. -10- INCOME TAXES Management has determined, based on the Company's recent performance and the uncertainty of the generic business in which it operates, that future operating income might not be sufficient to recognize fully the net operating loss carryforwards of the Company. Therefore, the Company is not recognizing a benefit for its operating loss for the nine-month period ended June 28, 1997. The Company incurred income tax expense of $410,000 in the first quarter of fiscal 1997 due to interest relating to a settlement with the Internal Revenue Service in fiscal 1995 for the disallowance of the Company's tax credit for prior periods with respect to certain research and development credits. The Company recorded income tax benefits of $2,578,000 and $1,956,000 for the nine- month and three-month periods of fiscal 1996, respectively, which were reversed during the fourth quarter of the same year. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Working capital of $8,658,000 at June 28, 1997 decreased $12,058,000 from $20,716,000 at September 30, 1996. The decrease is principally due to the use of funds to fund operating losses. As a result of a cash management system pursuant to the financing agreement that the Company entered into with General Electric Capital Corporation ("GECC"), there is no cash balance at June 28, 1997 (see "-Financing"). The working capital ratio of 1.5x declined from 2.9x at fiscal year end. During the nine months ended June 28, 1997, the Company sold 48,666 shares of Sano stock yielding net proceeds of approximately $668,000. In July and August of 1997 the Company sold an additional 235,000 shares of Sano stock yielding net proceeds of approximately $3,725,000 which was used to reduce the revolving credit balance. In return for relinquishing certain rights pursuant to the amendment to the Company's distribution agreement with Sano (see "Notes to Financial Statements-Subsequent Events-Distribution Agreement"), PRI has received $1,950,000 in cash in the fourth quarter of 1997, which was used to reduce the revolving credit line balance, and an interest bearing promissory note for $1,950,000 which will be due in September 1998. The Company is committed to invest $3,920,000 (which includes the balance of the commitment from fiscal year 1996) in the Clal joint venture through fiscal 1997. The Company and Clal were negotiating the terms of their respective funding obligations, however a written agreement has not been reached. In June 1997, the Company sold all of its stock in Fine-Tech Ltd., an Israeli chemical manufacturer, for $447,000. The Company expects to fund its research and development activities, including its obligations under the existing distribution and development arrangements discussed above, out of its working capital, and if necessary with borrowings against its line of credit, to the extent then available (see "-- Financing"). If, however, the Company continues to experience significant losses, its liquidity and, accordingly, its ability to fund research and development or ventures relating to the distribution of new products will be materially and adversely affected. The borrowing base related to the Company's credit line was approximately $11,000,000 as of July 31, 1997. As of such date, approximately $5,300,000 was outstanding under the line of credit (see "---Financing"). FINANCING As of June 28, 1997, the Company's total outstanding short-term and long-term debt amounted to $9,415,000 and $1,405,000, respectively. The short- term debt consists of the outstanding amount under the Company's line of credit with GECC and the long-term debt consists primarily of an outstanding mortgage loan with another bank. -11- In December 1996, Par entered into a Loan and Security Agreement (the "Loan Agreement") with GECC which provides Par with a three-year revolving line of credit. The Loan Agreement was amended in May 1997. Pursuant to the Loan Agreement, as amended, Par is permitted to borrow up to the lesser of (i) the borrowing base established under the Loan Agreement or (ii) $20,000,000. The borrowing base is limited to 85% of eligible accounts receivable plus 50% of eligible inventory of Par, each as determined from time to time by GECC. The interest rate on the line of credit is based upon a per annum rate of 3.50% above the 30-day commercial paper rate for high-grade unsecured notes adjusted monthly. The line of credit with GECC is secured by the assets of Par and PRI other than real property and is guaranteed by PRI. In connection with such facility, Par, PRI and their affiliates have established a cash management system pursuant to which all cash and cash equivalents received by any of such entities are deposited into a lockbox account over which GECC has sole operating control and which are applied on a daily basis to reduce amounts outstanding under the line of credit. The revolving credit facility is subject to covenants based on various financial benchmarks. Under the May 1997 amendment, GECC waived events of default related to the financial covenants and amended the financial covenants of Par. As of June 28, 1997, the borrowing base was approximately $12,300,000. Any significant reduction in the borrowing base from its current levels will adversely affect the Company's liquidity. -12- PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------ -------------------------------- (a) Exhibits: 10.41 - First Amendment and Waiver to Loan and Security Agreement, dated May 22, 1997, between Par Pharmaceutical, Inc. and General Electric Capital Corporation. 10.42 - Employment Agreement, dated as of May 30, 1997, between Par Pharmaceutical, Inc. and Joseph Gokkes. 11 - Computation of per share data. 27 - Financial Data Schedule. (b) Reports on Form 8-K: None. -13- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHARMACEUTICAL RESOURCES, INC. ------------------------------ (Registrant) August 12, 1997 /s/ Kenneth I. Sawyer ------------------------------------------------------ Kenneth I. Sawyer President and Chief Executive Officer (Principal Executive Officer) August 12, 1997 /s/ Dennis J. O'Connor ------------------------------------------------------ Dennis J. O'Connor Vice President - Chief Financial Officer and Secretary (Principal Accounting and Financial Officer) -14- EXHIBIT INDEX -------------
Exhibit Number Description Page Number - -------------- ----------- ----------- 10.41 First Amendment and Waiver to Loan and Security Agreement, dated May 22, 1997, between Par Pharmaceutical, Inc. and General Electric Capital Corporation. 16 10.42 Employment Agreement, dated as of May 30, 1997, between Par Pharmaceutical, Inc. and Joseph Gokkes. 23 11 Computation of per share data. 27 27 Financial Data Schedule. 28
-15- EX-10.41 2 FIRST AMENDMENT & WAIVER TO LOAN AGREEMENT EXHIBIT 10.41 FIRST AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT ------------------------------ FIRST AMENDMENT AND WAIVER, dated as of May 22, 1997 (this "Amendment"), to the Loan and Security Agreement referred to below by and among --------- GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender"), PAR ------ PHARMACEUTICAL, INC., a New Jersey corporation ("Borrower"), PHARMACEUTICAL -------- RESOURCES, INC., a New Jersey corporation ("Parent"), NUTRICEUTICAL RESOURCES, ------ INC., a New York Corporation ("NRI"), and PARCARE, LTD., a New York corporation --- ("ParCare"). Parent, NRI and ParCare are hereinafter referred to as ------- "Guarantors". ---------- W I T N E S S E T H - - - - - - - - - - WHEREAS, Lender, Borrower and Guarantors are parties to that certain Loan and Security Agreement, dated as of December 15, 1996 (as amended, supplemented or otherwise modified, the "Loan Agreement"); -------------- WHEREAS, Lender, Borrower and Guarantors have agreed to amend the Loan Agreement in the manner, and on the terms and conditions, provided for herein; and WHEREAS, Lender has agreed to waive certain violations of the Loan Agreement in the manner, and on the terms and conditions, provided for herein. NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties to this Amendment hereby agree as follows: 1. Definitions. Capitalized terms not otherwise defined herein shall ----------- have the meanings ascribed to them in the Loan Agreement. 2. Recital A of the Loan Agreement is hereby amended to change the reference to "2.50%" under the caption "Revolving Credit Rate" to read "3.50%." 3. Section 1.5(a) of the Loan Agreement is hereby amended to change the reference to "two and one-half percent (2.50%)" to read "three and one-half percent (3.50%)." 4. Section 1.15 of the Loan Agreement is hereby amended to add a new sentence at the end thereof to read as follows: "Upon any prepayment of Revolving Credit Advances from the net proceeds of the Sano Stock Collateral pursuant to Section 1.2(c), Lender shall have the right to establish a reserve -------------- against Borrowing Availability in an amount equal to fifty percent (50%) of such net proceeds." 5. Amendment to Schedule F of the Loan Agreement. Schedule F of the Loan --------------------------------------------- Agreement is hereby amended as of the Amendment Effective Date by deleting Sections 1 and 2 in their entirety and inserting in lieu thereof the following new sections: -16- 1. Minimum EBIT. Parent and its Subsidiaries on a consolidated ------------ basis shall maintain, for the following periods, EBIT of not less than: (i) $(9,200,000) for the two Fiscal Quarter period ending on or about March 31, 1997 and (ii) $(13,000,000) for the three Fiscal Quarter period ending on or about June 30, 1997. Parent and its Subsidiaries on a consolidated basis shall maintain for each four Fiscal Quarter period, commencing with the four Fiscal Quarter period ending on or about September 30, 1997, EBIT for such period of not less than the amount for such period set forth below: Four Fiscal Quarter Period Ending - ------------------------------------ on or about: Minimum EBIT - ------------------------------------ ------------ September 30, 1997 $(14,000,000) December 31, 1997 (11,400,000) March 31, 1998 (4,800,000) June 30, 1998 (2,000,000) September 30, 1998 0 December 31, 1998 0 March 31, 1999 0 June 30, 1999 0 September 30, 1999 and thereafter 0 2. Minimum Tangible Net Worth. Parent and its Subsidiaries on a -------------------------- consolidated basis shall maintain, as at the end of each Fiscal Quarter, Tangible Net Worth of not less than the amount for such period set forth below: Fiscal Quarter Ending - --------------------- on or about: Minimum Tangible Net Worth - ----------- -------------------------- March 31, 1997 $43,000,000 June 30, 1997 38,000,000 September 30, 1997 36,000,000 December 31, 1997 34,500,000 March 31, 1998 34,500,000 June 30, 1998 35,000,000 September 30, 1998 35,000,000 December 31, 1998 35,000,000 March 31, 1999 35,000,000 June 30, 1999 35,000,000 September 30, 1999 35,000,000 December 31, 1999 and thereafter 35,000,000 6. Waiver. Lender hereby waives any Event of Default under Section 8.1(b) ------ -------------- of the Loan Agreement solely arising out of the failure of Parent and its Subsidiaries to maintain on a consolidated basis (a) EBIT of not less than ($4,500,000) for the two Fiscal Quarter period ending on or about March 31, 1997 as required by Section 4.2 of the Loan Agreement and Section 1 of Schedule F thereto and (b) Minimum Tangible Net Worth of $50,000,000 as at the end of the Fiscal Quarter ending on or about March 31, 1997 as required by Section 4.2 of the Loan Agreement and Section 2 of Schedule F thereto. -17- 7. Representations and Warranties. To induce Lender to enter into this ------------------------------ Amendment, each Credit Party hereby represents and warrants that: (a) The execution, delivery and performance by each Credit Party of this Amendment: (i) are within their respective corporate powers; (ii) have been duly authorized by all necessary corporate and shareholder action; and (iii) are not in contravention of any provision of their respective certificates or articles of incorporation or by-laws or other organizational documents. (b) This Amendment has been duly executed and delivered by or on behalf of each Credit Party. (c) This Amendment constitutes a legal, valid and binding obligation of each Credit Party enforceable against each Credit Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (d) No Default has occurred and is continuing after giving effect to this Amendment. (e) No action, claim or proceeding is now pending or, to the knowledge of each Credit Party, threatened against any Credit Party, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, which challenges any Credit Party's right, power, or competence to enter into this Amendment or, to the extent applicable, perform any of its obligations under this Amendment, the Loan Agreement as amended hereby or any other Loan Document, or the validity or enforceability of this Amendment, the Loan Agreement as amended hereby or any other Loan Document or any action taken under this Amendment, the Loan Agreement as amended hereby or any other Loan Document or which if determined adversely could have or result in a Material Adverse Effect. 8. No Other Amendments/Waivers. Except as expressly amended herein, --------------------------- the Loan Agreement shall be unmodified and shall continue to be in full force and effect in accordance with its terms. In addition, except as expressly provided in Section 3 hereof, this Amendment shall not be deemed a waiver of any term or condition of any Loan Document and shall not be deemed to prejudice any right or rights which Lender may now have or may have in the future under or in connection with any Loan Document or any of the instruments or agreements referred to therein, as the same may be amended from time to time. 9. Outstanding Indebtedness; Waiver of Claims. Each Credit Party ------------------------------------------ hereby acknowledges and agrees that as of May 22, 1997 the aggregate outstanding principal amount of the Revolving Credit Loan is $7,708,649.93 and that such principal amount is payable pursuant to the Loan Agreement, as amended hereby, without defense, offset, withholding, counterclaim or deduction of any kind. Each Credit Party hereby waives, releases, remises and forever discharges Lender and each other Indemnified Person from any and all Claims of any kind or character, known or unknown, which each Credit Party ever had, now has or might hereafter have against Lender which relates, directly or indirectly, to any acts or omissions of Lender or any other Indemnified Person on or prior to the Amendment Effective Date. 10. Expenses. Borrower hereby reconfirms its obligations pursuant to -------- Section 10.2 of the Loan Agreement to pay and reimburse Lender for all reasonable out-of-pocket expenses (including, without limitation, reasonable fees of counsel) incurred in connection with the negotiation, preparation, execution and delivery of this Amendment and all other documents and instruments delivered in connection herewith. 11. Effectiveness. This Amendment shall become effective as of May ------------- 22, 1997 (the "Amendment Effective Date") only upon satisfaction in full in the ------------------------ judgment of the Lender of each of the following conditions on or prior to May 28, 1997: -18- (a) Documents. Lender shall have received two original copies of this --------- Amendment duly executed and delivered by Lender and each Credit Party. (b) Payment of Expenses. Borrower shall have paid to Lender all costs -------------------- and expenses owing in connection with this Amendment and the other Loan Documents and due to Lender (including, without limitation, reasonable legal fees and expenses). (c) Representations and Warranties. All representations and warranties ------------------------------ of or on behalf of each Credit Party in this Amendment and all the other Loan Documents shall be true and correct in all respects with the same effect as though such representations and warranties had been made on and as of the date hereof and on and as of the date that the other conditions precedent in this Section 11 have been satisfied, except to the extent that any such representation or warranty expressly relates to an earlier date. (d) Secretary's Certificate. Each Credit Party shall have provided ----------------------- Lender with a certificate in form and substance satisfactory to Lender of their respective Secretary or an Assistant Secretary certifying the resolutions adopted by their respective Boards of Directors approving this Amendment and the transactions contemplated herein. In the event that each of the foregoing conditions precedent has not been satisfied on or prior to May 28, 1997, this Amendment shall become, upon written notice by Lender to each Credit Party, null and void and of no force or effect. 12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 13. Counterparts. This Amendment may be executed by the parties ------------ hereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. -19- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. Borrower: -------- PAR PHARMACEUTICAL, INC. By:___________________________ Name: Title: Lender: ------ GENERAL ELECTRIC CAPITAL CORPORATION By:___________________________ Name: Title: Parent: ------ PHARMACEUTICAL RESOURCES, INC. By:___________________________ Name: Title: (SIGNATURES CONTINUED ON NEXT PAGE) -20- Subsidiary Guarantors: --------------------- NUTRICEUTICAL RESOURCES, INC. By:___________________________ Name: Title: PARCARE, LTD. By:___________________________ Name: Title: -21- THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT. -22- EX-10.42 3 EMPLOYMENT AGEEMENT WITH JOSEPH GOKKES. EXHIBIT 10.42 May 30, 1997 Mr. Joseph Gokkes 121 S. Maple Avenue Park Ridge, New Jersey 07656 Dear Mr. Gokkes: I am pleased to extend this offer to you to become Chief Operating Officer of Par Pharmaceutical, Inc. ("Par"). The following are the basic terms of your employment with the Company. DEPARTMENT: Executive REPORTING TO: Mr. Kenneth I. Sawyer President and Chief Executive Officer Pharmaceutical Resources, Inc. and Par Pharmaceutical, Inc. START DATE: May 1, 1997 INITIAL SALARY: $12,083.33 a month, $145,000 annually, to be reviewed on an annual basis and adjusted by Par to reflect performance and responsibilities on a discretionary basis. BONUS: You will be eligible for an annual bonus based on both your performance and the performance of the Company during the term of this Agreement. During fiscal 1997, you will not receive a bonus if Par has a net annual loss for fiscal year 1997. If, however, Par has a loss of $300,000 or less for fiscal fourth quarter of 1997, (excluding Sano payments, extraordinary biostudy expenses or other extraordinary payments and excluding income from sale of Sano stock, or sale of Sano international rights), you will then receive a bonus of 15% of your then annual salary up to a maximum of $25,000. In addition, Par will provide you with a "sign on" bonus of $10,000, less applicable taxes, payable as of your commencing employment. 23 Mr. Joseph Gokkes May 30, 1997 Page Two SPECIAL BONUS PROVISION: If on December 31, 1997, you are still employed by Par Pharmaceutical, Inc. and there has not been a change of control you will be entitled to receive a bonus of $15,000 and an additional grant of 10,000 options. RELOCATION: Par will reimburse you for relocation costs for you and your wife along with the reasonable shipping costs of household goods using a company approved moving company. Par will also reimburse you for temporary living expenses and costs associated with establishing a residence in the United States, up to $20,000, deducting what the company has already paid on your behalf, including the purchase of furniture and other out of pocket costs, subject to submission of acceptable receipts and documentation. The monthly apartment rent will be excluded from the deduction. This $20,000 allowance will expire on June 15, 1998. The Company will continue to pay the rent excluding utilities and you will have use of the apartment until December 31, 1997. If within twelve months of your start date you should voluntarily terminate your employment or are terminated for cause, you will be required to reimburse Par on a prorated basis for all relocation expenses paid by Par based on the number of full months you were employed. The Company will provide you with one round trip business class airfare per year to Israel for you and your spouse provided the trip is booked at least 21 days in advance. BENEFITS: Group Insurance: Health, life and long-term disability insurance programs are - ---------------- provided to employees and their dependents by the Company, upon payment of the applicable premium amount. Vacation: You will be entitled to up to four weeks of paid vacation annually. - --------- Automobile: Par will provide you with the use of an automobile,. including - ----------- reimbursement of all related maintenance, fuel, repairs, insurance and other costs. Other: You will be eligible to participate in the Company's 401 (k) Plan, the - ------ company-sponsored retirement plan, and our Employee Stock Purchase Plan, upon meeting the eligibility requirements for, and subject to all other terms and conditions of, each plan. STOCK: I will recommend to the Board of Directors of Pharmaceutical Resources, Inc., ("PRI") that you be granted options to purchase 30,000 shares of Pharmaceutical Resources, Inc. Common Stock at an exercise price per share equal to the closing price of 24 Mr. Joseph Gokkes May 30, 1997 Page Three Pharmaceutical Resources, Inc. ("PRI") common stock on the date of the grant by the Board of Directors. The grant should be completed within thirty (30) days of your commencement of employment. The terms of the options, including vesting and exercise will be in accordance with the PRI 1990 Stock Incentive Plan. TERM OF EMPLOYMENT/TERMINATION/CHANGE OF CONTROL: Your employment by Par Pharmaceutical, Inc. will commence on May 1, 1997 after you have obtained and continue to MAINTAIN the requisite visa or work permit from the United States Government. You will be an at will employee. If your employment is terminated by Par for any reason except for cause, you will be entitled to severance pay equal to 12 months base salary in effect for the year prior to your termination, which will be paid in accordance with the normal payroll practices of the Company and after execution of a general release in a form satisfactory to Par. You may voluntarily terminate your employment at any time upon 90 days written notice to the Company, provided that facts do not exist at the time that would constitute cause for termination, as defined below, in which event your termination would not be treated as voluntary, but for cause. In the event that you voluntarily terminate your employment, you will not be entitled to any severance pay except in the event that a President of Par Pharmaceutical, Inc. other than you is put in place who is not the President of Pharmaceutical Resources, Inc. In addition to its meaning under applicable common law, "cause" for termination, as used herein, shall include, without limitation: Failure to act in accordance with the directives of management and the Board of Directors; failure to carry out your responsibilities in a manner consistent with generally acceptable standards of conduct for executives of similar position and stature; violation of company rules, regulations or policies; gross negligence; wilful misconduct; commission of a crime; excessive absence from work other than due to disability; and unethical conduct. In the event of a sale of Pharmaceutical Resources, Inc. or Par Pharmaceutical, Inc. the result of which you are terminated within one (1) year of such sale, Par will provide you with 12 months' continuation of your prevailing base salary as severance compensation. 25 Mr. Joseph Gokkes May 30, 1997 Page Four If after May 1, 2000 and provided that you have given the company six months prior written notice and are still employed by Par Pharmaceutical, Inc., you voluntarily choose to terminate your employment and return to Israel, you will be given one year base salary provided and so long as you do not become employed by a direct competitor to the Company's business. Other than as set forth herein, you shall have no entitlement to any severance payment upon termination of your employment. As a condition to your employment, you will be required to execute Par's standard Trade Secret, Non-Disclosure and Restrictive Covenant Agreement, a copy of which is attached. Your employment with the Company is not for a specified term and may be terminated by you or the Company at any time for any reason, with or without cause. The nature of your employment as set forth in this paragraph cannot be modified in any way except by a written agreement signed by you and an officer of the Company. If you accept this offer of employment, please sign below and return the signed copy to me as soon as convenient. Once signed by you, this letter will constitute the complete agreement between you and the Company regarding employment matters or oral agreements or understandings on these matters. Sincerely, Kenneth I. Sawyer President and CEO KIS:mh attach. Accepted and Agreed this 30th day of May, 1997. _________________________ Joseph Gokkes 26 EX-11 4 COMPUTATION OF PER SHARE DATA EXHIBIT 11 COMPUTATION OF PER SHARE DATA (UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED ----------------- ------------------ JUNE 28, JUNE 29, JUNE 28, JUNE 29, 1997 1996 1997 1996 ---- ---- ---- ---- NET (LOSS) $(13,579,000) $(3,868,000) $(3,835,000) $(2,930,000) Primary: Weighted average number of common common shares outstanding 18,677,725 18,232,457 18,678,171 18,338,904 Shares issuable upon exercise of dilutive stock options and warrants - net of shares assumed to be repurchased (at the average market price for the period) from exercise proceeds 9,562 220,441 918 166,449 ------------ ----------- ----------- ----------- Shares used for computation 18,687,287 18,452,898 18,679,089 18,505,353 ============ =========== =========== =========== NET (LOSS) PER SHARE OF COMMON STOCK $(.73) $(.21) $(.21) $(.16) ===== ===== ===== ===== Assuming full dilution: Weighted average number of common shares outstanding 18,677,725 18,232,457 18,678,171 18,338,904 Shares issuable upon exercise of dilutive stock options and warrants - net of shares assumed to be repurchased (at the higher of period-end market price or the average market price for the period) from exercise proceeds 9,562 220,441 918 166,449 ------------ ----------- ----------- ----------- Shares used for computation 18,687,287 18,452,898 18,679,089 18,505,353 ============ =========== =========== =========== NET (LOSS) PER SHARE OF COMMON STOCK $(.73) $(.21) $(.21) $(.16) ===== ===== ===== =====
27 EX-27 5 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCLUDED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1996 JUN-28-1997 0 15 11,645 (4,320) 16,110 25,261 45,857 (21,486) 73,120 16,603 1,185 187 0 0 54,426 73,120 36,001 36,001 34,404 14,123 28 (18) 411 (13,169) 410 (13,579) 0 0 0 (13,579) (.73) (.73)
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