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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For Fiscal Year Ended September 30, 1997
Commission File Number 1-10827
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 office) (Zip Code)
Registrant's telephone number, including area code: (914) 425-7100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
The New York Stock Exchange, Inc.
Common Stock, $.01 par value The Pacific Stock Exchange, Inc.
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The New York Stock Exchange, Inc.
Common Stock Purchase Rights The Pacific Stock Exchange, Inc.
---------------------------- --------------------------------
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
$28,101,719
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF DECEMBER 17, 1997 (ASSUMING SOLELY FOR PURPOSES OF THIS
CALCULATION THAT ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ARE
"AFFILIATES").
18,897,629
Number of shares of common stock outstanding as of December 17, 1997
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE FOLLOWING DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE INTO
THIS ANNUAL REPORT ON FORM 10-K: NONE
This is page 1 of 165 pages. The exhibit index is on page 29.
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PART I
ITEM 1. BUSINESS.
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GENERAL
Pharmaceutical Resources, Inc. ("PRI" or the "Company") is a holding company
which, through its subsidiaries, is in the business of manufacturing and
distributing a broad line of generic drugs. PRI operates primarily through its
wholly-owned subsidiary, Par Pharmaceutical, Inc. ("Par"), a manufacturer and
distributor of generic drugs.
The Company's current product line consists of prescription and, to a much
lesser extent, over-the-counter drugs. Approximately 100 products representing
various dosage strengths of 37 drugs are currently being marketed (see "--
Product Line Information"). Generic drugs are the pharmaceutical and
therapeutic equivalents of brand name drugs and are usually marketed under their
generic (chemical) names rather than by a brand name. Normally, a generic drug
cannot be marketed until the expiration of applicable patents on the brand name
drug. Generic drugs must meet the same government standards as brand name drugs,
but are typically sold at prices below those of brand name drugs.
The Company markets its products primarily to wholesalers, drug distributors,
repackagers and retail drug store chains principally through its own sales
staff. In addition, the Company promotes the sales efforts of wholesalers and
drug distributors that sell the Company's products to clinics, government
agencies and other managed health care organizations (see "--Marketing and
Customers").
PRI was organized as a subsidiary of Par under the laws of the State of New
Jersey on August 2, 1991. On August 12, 1991, Par effected a reorganization of
its corporate structure, pursuant to which PRI became Par's parent company.
References herein to the "Company" shall be deemed to refer to PRI and all of
its subsidiaries since August 12, 1991, or Par and all of its subsidiaries prior
thereto, as the context may require. The Company's executive offices are
located at One Ram Ridge Road, Spring Valley, New York 10977, and its telephone
number is (914) 425-7100.
Significant Developments:
Financial Condition. The Company, in the fiscal year ended September 30,
1997, continued to experience declines in sales and gross margins which resulted
in net losses of $8,901,000. Net sales in fiscal year 1997 declined by 8% and
gross margins declined by 64% from the prior fiscal year. The decreases in
sales and gross margins continue to be attributable to lower pricing of the
Company's products as a result of intense competition and a less profitable
product mix. The trend in decreasing sales and gross margins was partially
offset by the implementation in the fourth quarter of fiscal year 1997 of a new
manufacturing and supply agreement with BASF Corporation (see "--Product Line
Information", "--Competition" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
In response to its operating results and industry trends, the Company
implemented measures in the fourth quarter of fiscal year 1996, which have
continued in fiscal year 1997, to reduce costs and increase operating
efficiencies. Such measures resulted in a decrease in selling, general and
administrative costs of 27% during fiscal year 1997 and included reductions of
work force, changes in various senior management, a reorganization of certain
existing personnel and reductions in certain expenses. In fiscal year 1997, the
Company further reduced its work force primarily as a result of the Company's
new manufacturing and supply agreement with BASF Corporation described below.
The Company is continuing its search for strategic alliances which would
enable the Company, among other things, to expand its product line, increase
research and development activities and obtain additional capital. The Company,
in fiscal year 1997, increased its spending on research and development by 13%.
In August 1997, the Company purchased the 51% interest in its research and
development joint venture, now named Israel Pharmaceutical Resources L.P.
("IPR"), it did not previously own, giving the Company full control over the
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research and development operation located in Israel. IPR was formed in May
1995 to research and develop generic pharmaceutical products (see "--Product
Line Information" and "--Research and Development").
The continuing losses incurred by the Company have adversely affected and
will continue to adversely affect the Company's liquidity and, accordingly, its
ability to fund its operations, including research and development as well as
ventures relating to the development or distribution of new products. The
Company, in fiscal year 1997, entered into a new three-year loan arrangement
providing for a revolving line of credit up to the lesser of $20,000,000 or the
borrowing base as provided in the loan agreement. The loan is secured by
substantially all of the assets of the Company other than real property and the
Company has entered into a new cash management system requiring the deposit of
all receipts into a lockbox under the lender's control. The new loan
arrangement replaced the Company's previous revolving and term loan facility
(see "--Research and Development" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
Manufacturing Agreement. On April 30, 1997, Par and BASF Corporation
("BASF"), a manufacturer of pharmaceutical products, entered into a
Manufacturing and Supply Agreement (the "Supply Agreement"). Under the Supply
Agreement, Par agreed to purchase certain minimum quantities of certain products
manufactured by BASF and to discontinue manufacturing those products. BASF
agreed to discontinue direct sale of those products. As a result of the Supply
Agreement, the Company has reduced its operating expenses and increased the
gross margin with respect to the products covered by the Supply Agreement (see
"--Product Line Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
PRODUCT LINE INFORMATION
The Company operates primarily in one industry segment, namely, the
manufacture and distribution of generic pharmaceuticals. Products are marketed
principally in solid oral dosage form consisting of tablets, caplets and two-
piece hard-shell capsules. The Company also distributes one product in the
semi-solid form of a cream (see "--Research and Development").
Par markets approximately 77 products, representing various dosage strengths
of 26 drugs manufactured by the Company and approximately 23 products,
representing various dosage strengths of 11 drugs, that are manufactured for it
by other companies (see "--Research and Development", "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations" and "Notes to Financial Statements--Distribution Agreements"). Par
holds abbreviated new drug applications ("ANDAs") for the drugs which it
manufactures. Below is a list of drugs manufactured and/or distributed by Par.
The names of all of the drugs under the caption "Competitive Brand-Name Drug"
are trademarked. The holders of the trademarks are non-affiliated
pharmaceutical manufacturers.
NAME COMPETITIVE BRAND-NAME DRUG
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Central Nervous System:
Alprazolam Xanax
Benztropine Mesylate Cogentin
Carisoprodol and Aspirin Soma Compound
Chlorzoxazone Paraflex
Cyproheptadine Hydrochloride Periactin
Doxepin Hydrochloride Sinequan, Adapin
Fluphenazine Hydrochloride Prolixin
Flurazepam Hydrochloride Dalmane
Haloperidol Haldol
Imipramine Hydrochloride Tofranil
Meclizine Hydrochloride Antivert
Methocarbamol and Aspirin Robaxisal
Temazepam Restoril
Triazolam Halcion
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Cardiovascular:
Atenolol Tenormin
Captopril Capoten
Clonidine and Chlorthalidone Combipres
Hydralazine Hydrochloride Apresoline
Hydra-Zide Apresazide
Isosorbide Dinitrate Isordil
Methyldopa and
Hydrochlorothiazide Aldoril
Metoprolol Tartrate Lopressor
Minoxidil Loniten
Pindolol Visken
Triamterene and
Hydrochlorothiazide Maxzide
Anti-Inflammatory:
Ibuprofen Advil, Nuprin, Motrin
Piroxicam Feldene
Anti-Infective:
Acyclovir Zovirax
Metronidazole Flagyl
Nystatin Mycostatin
Anti-Cancer:
Megestrol Acetate Megace
Other:
Allopurinol Zyloprim
Dexamethasone Decadron
Glipizide Glucotrol
Metaproterenol Sulfate Alupent
Silver Sulfadiazine (SSD) Silvadene
The Company seeks to introduce new products not only through internal
research and development, but also through joint venture, distribution and other
agreements with pharmaceutical companies located throughout the world. As part
of that strategy, it has pursued and continues to pursue arrangements or
affiliations which it believes, in general, will provide access to raw materials
at favorable prices, share development costs, generate profits from jointly
developed products and expand distribution channels for new and existing
products (see "Notes to Financial Statements--Distribution Agreements").
In April 1997, Par entered into the Supply Agreement with BASF. Under the
Supply Agreement, Par agreed to purchase certain minimum quantities of certain
products manufactured by BASF at one of its facilities, and Par agreed to phase
out its manufacturing of those products. BASF agreed to discontinue its direct
sale of those products. The Supply 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. If BASF
elected to terminate the agreement, Par could either seek another contract
manufacturer or reestablish its manufacturing capacity for certain of those
products. The Company began selling drugs manufactured by BASF and BASF had
transferred to Par the marketing and sales of certain products covered by the
Supply Agreement in June 1997. The Supply Agreement became fully implemented in
August 1997.
In May 1995, the Company formed a joint venture located in Israel with Clal
Pharmaceutical Industries Ltd. ("Clal") to research and develop generic
pharmaceutical products. Clal beneficially owns approximately 12% of the
Company's Common Stock. In August 1997, the Company acquired Clal's 51% interest
in the joint venture in which the Company previously owned 49%. The joint
venture was renamed Israel Pharmaceutical Resources, L.P. Eight compounds
currently are under active development by IPR. (see "--Research and
Development",
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition" and "Certain Relationships and Related
Transactions--Clal Agreements").
In July 1997, Par amended its 1994 distribution agreement with Sano
Corporation ("Sano"). Par has retained the right to exclusively distribute
three of Sano's generic transdermal products in the United States. Sano
develops transdermal delivery systems utilizing a patch that incorporates the
appropriate drug dosage into an adhesive that attaches the patch to the skin.
Transdermal delivery offers significant benefits over oral delivery, including
increased patient compliance, reduced side effects, reduced interaction with
other drugs in use by a patient and a more consistent and appropriate drug level
in the bloodstream, all of which generally result in lower overall patient care
costs. Sano is developing two generic nitroglycerin patches and one generic
nicotine patch which are covered by the agreement. Par has paid Sano a portion
of the development expense for such products. To date, Sano received U.S. Food
and Drug Administration ("FDA") approval for its nicotine patch in October 1997
and awaits approval on two ANDAs for its nitroglycerin patches. The Company
intends to begin marketing the nicotine patch in fiscal year 1998. Under the
agreement, Par will purchase manufactured products from Sano, when approved by
the FDA, at cost and share in the gross profits from the sales. However, there
can be no assurance that any other products under Sano's ANDAs will obtain FDA
approval or that any Sano products, if brought to market, will generate
significant revenues. Under the July 1997 amendment to the distribution
agreement, Par ceded its distribution rights to three products for which
submissions have not been filed yet with the FDA. PRI also released
distribution rights outside of the United States for the retained products (see
"--Research and Development", "--Competition" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Condition").
RESEARCH AND DEVELOPMENT
The Company's research and development activities consist of (i) identifying
and conducting patent and market research on brand name drugs for which patent
protection has expired or is to expire in the near future, (ii) researching and
developing new product formulations based upon such drugs, (iii) obtaining
approval from the FDA for such new product formulations, and (iv) introducing
technology to improve production efficiency and enhance product quality. The
Company contracts with outside laboratories to conduct biostudies which, in the
case of oral solids, generally are required for FDA approval. Biostudies are
used to demonstrate that the rate and extent of absorption of a generic drug are
not significantly different from the corresponding brand name drug and currently
cost in the range of $100,000 to $500,000 per study. During the 1997 fiscal
year, the Company contracted with outside laboratories to conduct biostudies for
three potential new products and will continue to do so in the future.
Biostudies must be conducted and documented in conformity with FDA standards
(see "--Government Regulation").
The research and development of oral solid products, including preformulation
research, process and formulation development, required studies and FDA
approval, has historically taken approximately two to three years. Accordingly,
Par typically selects for development products that it intends to market several
years in the future. However, the length of time necessary to bring a product
to market can vary significantly and can depend on, among other things,
availability of funding or problems relating to formulation, safety or efficacy
(see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Liquidity and Capital Resources"). Currently,
the Company has ANDAs pending with the FDA for four potential products and Sano
has ANDAs pending with the FDA for two potential products which the Company has
exclusive rights to distribute in the United States. No assurance can be given
that the Company or Sano will successfully complete the development of products
currently under development or proposed for development, that they will obtain
regulatory approval for any such product or that any approved product will be
produced in commercial quantities. Improvement in the Company's financial
condition depends upon the acquisition and introduction of new products at
profitable prices to replace declining revenues from older products. The
failure of the Company to introduce profitable new products in a timely manner
could have a material adverse effect on the Company's operating results and
financial condition (see "--Competition").
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For its 1997, 1996 and 1995 fiscal years, the Company incurred research and
development expenses of $5,843,000, $5,160,000 and $5,487,000, respectively,
including the amounts expended by the Company for IPR and under the distribution
agreement with Sano. The Company plans that its expenditures will remain at
approximately the same levels over the next fiscal year (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Operating Results--Research and Development" and "--Financial Condition--
Liquidity and Capital Resources").
IPR has identified approximately 35 products for research, eight of which are
currently under active development by IPR. The Company expects that
approximately six of such products will be the subject of a biostudy in fiscal
year 1998. The Company has not filed any ANDAs with respect to such potential
products. The scientific process of developing new products is complex and time
consuming, as is obtaining FDA approval, and the development of products by IPR
may be curtailed in the early or later stages of development due to the
introduction of competing generic products or for other reasons. At the present
time, there is uncertainty under Israeli law as to whether some research
functions can be conducted prior to patent expiration in Israel. The outcome of
this could affect the research being done by IPR. Legislation is currently
pending in Israel which would expressly permit such research. Depending on the
outcome of the legislation, among other things, the Company may relocate IPR's
operations to the United States in the future.
Since its formation in May 1995, IPR has received an aggregate of
approximately $7,000,000 in funding from the Company and Clal. The Company is
obligated to invest in IPR not less than $1,500,000 each year until the Company
repays the $1,500,000 promissory note delivered as part of the purchase price
for IPR (see "--Product Line Information" and "Management's Discussion and
Analysis of Financial Condition and Results of operations--Financial Condition--
Liquidity and Capital Resources"). Following the acquisition of all of the
interests in IPR, the Company's domestic research and development program was
reorganized and integrated with that of IPR.
Under the terms of the distribution agreement with Sano, the Company advanced
to date $7,629,000 to Sano for the development of products, of which $2,258,000
was advanced in fiscal year 1997. In return for relinquishing the rights
described above, the Company received in July 1997 $1,950,000 in cash and an
interest-bearing promissory note for $1,950,000 due in September 1998. The
Company 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. Sano repaid $1,500,000 of the advances on the retained
products in November 1995 which was treated as a credit to research and
development expenses in fiscal year 1996 (see "--Product Line Information",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Liquidity and Capital Resources" and "Notes to
Financial Statements--Investments").
MARKETING AND CUSTOMERS
The Company markets its products under both Par and private labels
principally to wholesalers, distributors, repackagers, retail drug store chains
and, to a lesser extent, drug manufacturers and government agencies primarily
through its own sales staff. The Company sells to customers in the managed
health care market. Such customers include health maintenance organizations,
nursing homes, hospitals, clinics, pharmacy benefit management companies and
mail order customers.
The Company has experienced a significant change in its distribution channels
in the last several years. In general, sales of generic drugs to distributors
have been decreasing, while sales to wholesalers and repackagers have been
increasing. The Company believes that competition between distributors and
consolidation among wholesalers and retailers have resulted in additional
pressure to decrease prices. Additionally, aggressive pricing strategies by
distributors which are attempting to maintain or increase market share have
adversely affected the Company's ability to market its products. Consequently,
price reductions have resulted in lower gross margins for the Company (see "--
Competition" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations").
The Company has approximately 200 customers. During fiscal year 1997, sales
to the Company's three largest customers, Leiner Health Products Inc., McKesson
Drug Co. and Bergen Brunswig Corporation accounted for
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approximately 16%, 11% and 10%, respectively, of net sales (see "Notes to
Financial Statements--Accounts Receivable--Major Customers"). None of these
customers has written agreements with the Company.
ORDER BACKLOG
The dollar amount of open orders, as of September 30, 1997, believed by
management to be firm, was approximately $3,300,000, as compared to
approximately $4,200,000 at September 30, 1996. Although these orders are
subject to cancellation without penalty, management expects to fill
substantially all of them in the near future.
COMPETITION
The generic pharmaceutical industry is highly and increasingly competitive.
The Company has identified at least ten principal competitors, and experiences
varying degrees of competition from numerous other companies in the health care
industry. The Company's competitors include many generic drug manufacturers and
a number of major branded pharmaceutical companies which, as part of their
business, market both brand-name prescription drugs and generic versions of
these brand-name drugs. Many of the Company's competitors have greater
financial and other resources than the Company and are able to expend more for
product development and marketing.
Many major branded pharmaceutical companies have directly launched, or have
formed alliances to market, their patented drugs prior to patent expiration as
generic drugs. Because branded pharmaceutical companies do not have to wait
until the expiration of patent protection before manufacturing such generic
drugs, they have a distinct timing advantage over strictly generic drug
manufacturers. This competitive effort has had a negative impact on the
Company's ability to sell certain generic drugs to its customers and to generate
customary revenues from the launch of its new products, as the channel of
distribution is either closed or severely limited or the Company is forced to
meet lower market pricing.
As other manufacturers introduce generic products in competition with the
Company's existing products, market share and prices with respect to such
existing products typically decline. Similarly, the Company's potential for
profits is significantly reduced, if not eliminated, as competitors introduce
products prior to the Company. Accordingly, the level of revenues and gross
profit generated by the Company's current and prospective products depends, in
part, on the number and timing of introductions of competing products and the
Company's timely development and introduction of new products (see "--Research
and Development").
During fiscal year 1997, four of the Company's products accounted for
approximately 59% of its net sales compared to 58% and 63%, respectively, of net
sales in fiscal years 1996 and 1995. One of such products contributed
significantly to the sales and gross margin in all three periods. A competitor
of the Company received FDA approval for this product in fiscal year 1996 where,
prior to that time, the Company had been the sole generic manufacturer. During
the second half of calendar 1995, two generic pharmaceutical manufacturers
received FDA approval for a product in which the Company had also been the sole
generic manufacturer. These products, along with one other product, had
historically accounted for a significant percentage of the Company's net sales
and gross margin. Due to the increased competition with respect to these
products, the Company's sales and gross margins have been materially and
adversely affected (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--General", "--Sales",
"--Gross Margins" and "Notes to Financial Statements--Distribution Agreements").
The principal competitive factors in the generic pharmaceutical market are
(i) price, (ii) the ability to introduce generic versions of brand name drugs
promptly after their patents expire, (iii) reputation as a manufacturer with
integrity and quality products, (iv) level of service (including maintaining
sufficient inventory levels for timely deliveries), (v) product appearance, and
(vi) breadth of product line.
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RAW MATERIALS
The raw materials essential to the Company's manufacturing business are
purchased primarily from United States distributors of bulk pharmaceutical
chemicals manufactured by foreign companies. To date, the Company has
experienced no significant difficulty in obtaining raw materials and expects
that raw materials will generally continue to be available in the future.
However, since the federal drug application process requires specification of
raw material suppliers, if raw materials from a specified supplier were to
become unavailable, FDA approval of a new supplier would be required. While a
new supplier becomes qualified by the FDA and its manufacturing process is
judged to meet FDA standards, a delay of six months or more in the manufacture
and marketing of the drug involved could result, which could in turn have an
adverse effect on the Company's financial condition. Generally the Company
attempts to minimize the effects of any such situation by specifying, where
economical and feasible, two or more suppliers for its drug approvals.
EMPLOYEES
As of September 30, 1997, the Company had approximately 335 employees.
GOVERNMENT REGULATION
All pharmaceutical manufacturers are subject to extensive regulation by the
Federal government, principally by the FDA, and, to a lesser extent, by the Drug
Enforcement Administration and state governments. The Federal Food, Drug, and
Cosmetic Act, the Controlled Substances Act, and other Federal statutes and
regulations govern or influence the testing, manufacture, safety, labeling,
storage, record keeping, approval, advertising and promotion of the Company's
products. Noncompliance with applicable requirements can result in judicially
and/or administratively imposed sanctions including the initiation of product
seizures, injunction actions, fines and criminal prosecutions. Administrative
enforcement measures can involve the recall of products, as well as the refusal
of the government to enter into supply contracts or to approve new drug
applications. The FDA also has the authority to withdraw approval of drugs in
accordance with regulatory due process procedures.
FDA approval is required before any new drug, including a generic equivalent
of a previously approved drug, can be marketed. To obtain FDA approval for a
new drug, a prospective manufacturer must, among other things, demonstrate that
its manufacturing facilities comply with the FDA's current Good Manufacturing
Practices ("cGMP") regulations. The FDA may inspect the manufacturer's
facilities to assure such compliance prior to approval or at any other
reasonable time. CGMP regulations must be followed at all times during the
manufacture and other processing of drugs. To comply with the standards set
forth in these regulations, the Company must continue to expend significant
time, money and effort in the areas of production, quality control and quality
assurance.
To obtain FDA approval of a new drug, a manufacturer must demonstrate, among
other requirements, the safety and effectiveness of the proposed drug. There
are currently three basic ways to satisfy the FDA's safety and effectiveness
requirements:
1. New Drug Applications ("NDA" or "full NDA"): Unless either of the
procedures discussed in paragraphs 2 and 3 below is available, a
prospective manufacturer must submit to the FDA full reports of well-
controlled clinical studies and other data to prove that a drug is safe
and effective and meets other requirements for approval.
2. "Paper" NDAs: In certain instances in the past, the FDA permitted safety
and effectiveness to be shown by submission of published literature and
journal articles in a so-called "paper" NDA. As a result of passage of the
Drug Price Competition and Patent Term Restoration Act of 1984 (the
"Waxman-Hatch Act"), "paper" NDAs are now recognized in the statute,
although they are infrequently used because of the lack of sufficient or
otherwise useable information in the literature on the majority of drugs.
3. Abbreviated New Drug Applications: The Waxman-Hatch Act established a
statutory procedure for submission and FDA review and approval of ANDAs
for generic versions of drugs previously approved
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by the FDA (such previously approved drugs are hereinafter referred to as
"listed drugs"). As the safety and efficacy have already been established
by the innovator company, the FDA waives the right for complete clinical
trials. However, a generic manufacturer is typically required to conduct
bioavailability/bioequivalence studies of its test product against the
listed drug. The bioavailability/bioequivalence studies assess the rate
and extent of absorption and concentration levels of a drug in the blood
stream required to produce a therapeutic effect. Bioequivalence is
established when the rate of absorption and concentration levels of a
generic product are substantially equivalent to the listed drug. For some
drugs (e.g., topical antifungals), other means of demonstrating
bioequivalence may be required by the FDA, especially where rate and/or
extent of absorption are difficult or impossible to measure. In addition
to the bioequivalence data, an ANDA must contain chemistry, manufacturing,
labeling, and stability data.
The Waxman-Hatch Act also established certain statutory protections for
listed drugs. Under the Waxman-Hatch Act, approval of an ANDA for a generic
drug may not be made effective for interstate marketing until all relevant
patents for the listed drug have expired or been determined to be invalid or not
infringed by the generic drug. Prior to enactment of the Waxman-Hatch Act, the
FDA did not consider the patent status of a previously approved drug. In
addition, under the Waxman-Hatch Act, statutory non-patent exclusivity periods
are established following approval of certain listed drugs, where specific
criteria are met by the drug. If exclusivity is applicable to a particular
listed drug, the effective date of approval of ANDAs (and, in at least one case,
submission of an ANDA) for the generic version of the listed drug is usually
delayed until the expiration of the exclusivity period, which, for newly
approved drugs, can be either three or five years. The Waxman-Hatch Act also
provides for extensions of up to five years of certain patents covering drugs to
compensate the patent holder for reduction of the effective market life of the
patented drug resulting from the time involved in the Federal regulatory review
process.
During 1995, patent terms for a number of listed drugs were extended when the
Uruguay Round Agreements Act (the "URAA") went into effect to implement the
latest General Agreement on Tariffs and Trade (the "GATT") to which the United
States became a treaty signatory in 1994. Under GATT, the term of patents was
established as 20 years from the date of patent application. In the United
States, the patent terms historically have been calculated at 17 years from the
date of patent grant. The URAA provided that the term of issued patents be
either the existing 17 years from the date of patent grant or 20 years from the
date of application, whichever was longer. The effect generally was to add
patent life to already issued patents, thus delaying FDA approvals of
applications for generic products.
In addition to the Federal government, states have laws regulating the
manufacture and distribution of pharmaceuticals, as well as regulations dealing
with the substitution of generic for brand-name drugs. The Company's operations
are also subject to regulation, licensure and inspection by the states in which
they are located and/or do business.
The Company also is governed by Federal and state laws of general
applicability, including laws regulating matters of environmental quality,
working conditions, and equal employment opportunity.
The Federal government made significant changes to Medicaid drug
reimbursement as part of the Omnibus Budget Reconciliation Act of 1990 ("OBRA").
Generally, OBRA provides that a generic drug manufacturer must offer the states
an 11% rebate on drugs dispensed under the Medicaid program and must have
entered into a formal drug rebate agreement, as the Company has, with the
Federal Health Care Financing Administration. Although not required under OBRA,
the Company has also entered into similar state agreements.
ITEM 2. PROPERTIES.
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The Company owns its executive offices and a substantial portion of its
research and production facilities which are housed in an approximately 92,000
square foot facility built to Par's specifications. This building, occupied by
Par since fiscal year 1986, also includes research and quality control
laboratories, as well as packaging and warehouse facilities. The building is
located in Chestnut Ridge, New York, on a parcel of land of approximately 24
acres, of which approximately 15 acres are available for future expansion.
9
<PAGE>
The Company owns an approximately 36,000 square foot building on two acres in
Chestnut Ridge, New York, across the street from its executive offices. This
property was acquired in fiscal year 1994 and is used for offices. The purchase
of the land and building was financed by a mortgage loan.
Par owns a third facility consisting of an approximately 33,000 square foot
building located on six acres in Congers, New York, which is used for tablet
coating operations and product manufacturing.
Par occupies approximately 47,000 square feet of a building in Chestnut
Ridge, New York for office, warehouse, and research and development space under
a lease which expires December 2004. The Company has the option to extend the
lease for two additional five-year periods. This lease replaces a lease for
77,000 square feet which expires January 1, 1998.
Par also leases an 11,000 square foot facility in Upper Saddle River, New
Jersey, for certain of its manufacturing operations. The lease covering this
facility expires November 1998, and has three two-year renewal options.
IPR leases approximately 13,000 square feet in Even Yehuda, Israel for
product research and development. The lease expires May 1998 and has two two-
year renewal options and one thirty-five month renewal option. The Company
guarantees the lease.
The Company believes that its owned and leased properties are sufficient in
size, scope and nature to meet its anticipated needs for the reasonably
foreseeable future (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition" and "Notes to
Financial Statements--Long Term Debt" and "--Commitments, Contingencies and
Other Matters--Leases").
ITEM 3. LEGAL PROCEEDINGS.
- ------ -----------------
The Company is involved in certain litigation matters, including certain
product liability actions and actions by two former employees 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,
results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ---------------------------------------------------
An Annual Meeting of Shareholders of the Company was held on October 28,
1997. The following matter was voted on and approved by the holders of shares
of the Company's Common Stock:
The proposal to elect two members of the Company's Board of Directors, which
consists of six members, to serve for a three-year term and until their
successors are duly elected and qualified. There were 13,568,992 and
13,556,478 shares of Common Stock cast in favor of electing Mark Auerbach and
H. Spencer Matthews, respectively, which represented a majority of the shares
of the Company's Common Stock cast for such proposal, and 3,089,400 and
3,101,914, shares were withheld, respectively. There were no broker non-
votes. The terms of office of the other directors, Melvin Van Woert, Andrew
Maguire, Kenneth I. Sawyer and Robin O. Motz, continued after the meeting.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ------ ---------------------------------------------------------------------
(a) Market information. The Company's Common Stock is traded on The New York
Stock Exchange ("NYSE") and the Pacific Stock Exchange under the ticker
symbol PRX. The following table shows the range of closing prices for the
Common Stock as reported by the NYSE for each calendar quarter during the
Company's two most recent fiscal years.
FISCAL YEAR ENDED IN
---------------------------
QUARTER ENDED 1997 1996
------------- ------------- ------------
HIGH LOW HIGH LOW
------ ----- ----- -----
December 31 $6.00 $3.38 $9.13 $7.25
March 31 4.38 2.88 8.00 6.75
June 30 3.75 2.13 8.50 5.00
September 30 2.88 1.94 5.50 3.38
(b) Holders. As of December 19, 1997, there were approximately 3,500 holders
of record of the Common Stock. The Company believes that, in addition,
there are a significant number of beneficial owners of its Common Stock
whose shares are held in "street name."
(c) Dividends. During the two most recent fiscal years, the Company paid no
cash dividends on its Common Stock. The payment of future dividends on
its Common Stock is subject to the discretion of the Board of Directors
and is dependent upon many factors, including the Company's earnings, its
capital needs, the terms of its financing agreements and its general
financial condition (see "Notes to Financial Statements--Long Term
Debt"). The Company's current loan agreement prohibits the declaration or
payment of any dividend, or the making of any distribution to any of the
Company's stockholders.
(d) Recent Stock Price. On December 17, 1997, the closing price of the Common
Stock on the NYSE was $1.50 per share.
(e) Recent Sales of Unregistered Securities. Pursuant to the Third Amendment
to Stock Purchase Agreement, dated July 28, 1997, between the Company and
Clal, the Company sold 186,000 shares of its Common Stock (the "New
Shares") to Clal. The New Shares were issued in consideration of the
surrender by Clal for cancellation of warrants to purchase an aggregate of
2,005,107 shares of Common Stock, nominal cash consideration, and the
amendment of certain provisions of the Stock Purchase Agreement, dated
March 25, 1995, between the Company and Clal. The New Shares were issued
pursuant to an exemption provided by Section 4(2) and/or Section 4(6) of
the Securities Act of 1933 (see "Certain Relationships and Related
Transactions--Clal Agreements").
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------ -----------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED IN
--------------------
1997 1996 1995 1994 1993
--------- -------- ------- ------- --------
INCOME STATEMENT DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales $ 53,172 $ 57,959 $66,503 $69,169 $ 74,535
Cost of goods sold 49,740 48,299 45,514 45,774 48,387
-------- -------- ------- ------- --------
Gross margin 3,432 9,660 20,989 23,395 26,148
Operating expenses:
Research and development 5,843 5,160 5,487 3,874 1,959
Selling, general and administrative 12,461 17,168 16,192 13,463 12,673
Restructuring charge - 549 - - -
-------- -------- ------- ------- --------
Total operating expenses 18,304 22,877 21,679 17,337 14,632
-------- -------- ------- ------- --------
Operating income (loss) (14,872) (13,217) (690) 6,058 11,516
Settlements - - 2,029 - (10,500)
Other income 6,968 2,557 608 425 347
Interest expense (587) (432) (499) (465) (602)
-------- -------- ------- ------- --------
Income (loss) from continuing operations
before provision for income taxes (8,491) (11,092) 1,448 6,018 761
Provision for income taxes 410 - 836 1,785 650
-------- -------- ------- ------- --------
Income (loss) from continuing operations (8,901) (11,092) 612 4,233 111
Income from discontinued operations - 2,800 - 466 -
-------- -------- ------- ------- --------
Income (loss) before extraordinary item (8,901) (8,292) 612 4,699 111
Extraordinary item - tax benefit of utilization
of net operating loss carryforward - - - - 300
-------- -------- ------- ------- --------
Income (loss) before change in accounting principle (8,901) (8,292) 612 4,699 411
Cumulative effect of change in accounting principle - - - 14,128 -
-------- -------- ------- ------- --------
Net income (loss) $ (8,901) $ (8,292) $ 612 $18,827 $ 411
======== ======== ======= ======= ========
Income (loss) per share of common stock:
Continuing operations $(.48) $(.60) $.04 $.26 $.01
Discontinued operations - .15 - .03 -
Extraordinary item - - - - .02
Change in accounting principle - - - .85 -
-------- -------- ------- ------- --------
Net income (loss) $(.48) $(.45) $.04 $1.14 $.03
======== ======== ======= ======= ========
Weighted average number of common and
common equivalent shares outstanding 18,681 18,467 17,143 16,495 15,814
======== ======== ======= ======= ========
BALANCE SHEET DATA
Working capital $ 15,959 $ 20,716 $34,907 $19,996 $ 13,141
Property, plant and equipment (net) 27,832 26,068 24,371 23,004 20,037
Total assets 72,697 84,946 90,917 69,202 57,239
Long-term debt, less current portion 2,651 2,971 4,259 5,490 5,820
Shareholders' equity 57,268 70,624 71,954 49,276 24,081
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS.
-------------
CERTAIN STATEMENTS IN THIS FORM 10-K 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-K INCLUDE, AMONG OTHERS, (I) INCREASED COMPETITION FROM NEW AND
EXISTING COMPETITORS AND PRICING PRACTICES FROM SUCH COMPETITORS, (II) PRICING
PRESSURES RESULTING FROM THE CONTINUED CONSOLIDATION BY THE COMPANY'S
DISTRIBUTION CHANNELS, (III) THE AMOUNT OF FUNDS CONTINUING TO BE AVAILABLE FOR
INTERNAL RESEARCH AND DEVELOPMENT AND RESEARCH AND DEVELOPMENT JOINT VENTURES,
(IV) RESEARCH AND DEVELOPMENT PROJECT DELAYS OR DELAYS IN OBTAINING REGULATORY
APPROVALS, (V) THE ABILITY OF THE COMPANY TO RETAIN AND ATTRACT MANAGEMENT
PERSONNEL IN KEY OPERATIONAL AREAS AND (VI) CONTINUED AVAILABILITY OF BORROWINGS
UNDER THE COMPANY'S CREDIT LINE WITHOUT SIGNIFICANT REDUCTION.
RESULTS OF OPERATIONS
GENERAL
The Company incurred an operating loss of $14,872,000 for the fiscal year
ended September 30, 1997 compared to $13,217,000 for the fiscal year ended
September 30, 1996 and $690,000 for the fiscal year ended September 30, 1995.
The losses were principally due to sales and gross margin declines, as described
below, partially offset by decreases in operating expenses in fiscal year 1997
and the latter part of fiscal year 1996. The Company's gross margin decline to
$3,432,000 for the current fiscal year from $9,660,000 and $20,989,000 in fiscal
years 1996 and 1995, respectively, was attributable to the continuing trend of
lower pricing on certain manufactured products. The trend was partially offset
in the last two months of fiscal year 1997 by increased sales and margins
generated from certain distributed products under the Supply Agreement with BASF
described above. If sales declines of certain manufactured products are not
offset by increased sales of new distributed or manufactured products, lower net
sales and gross margins will continue and, accordingly, result in further
losses. As a result of the recent losses, the Company is continuing to search
for strategic alternatives to strengthen its financial condition and product
line while working on process improvements to reduce its current manufacturing
costs.
For the three-month period ended September 30, 1997, the Company's operating
loss of $2,142,000 decreased 67% from $6,450,000 for the three-month period
ended September 30, 1996. The improvement was primarily related to increased
sales and margins generated from certain products as a result of the Supply
Agreement with BASF and cost reductions and process improvements implemented
throughout the year.
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) consolidation among distribution outlets, (iii) increased ability
of generic competitors to enter the market after patent expiration, diminishing
the amount and duration of significant profits, (iv) willingness of generic drug
customers, including wholesale and retail customers, to switch among
pharmaceutical manufacturers, and (v) competition from brand name drug
manufacturers selling generic versions of their drugs. In response to these
conditions, the Company has continued to reduce operating costs and entered into
several significant agreements, as described elsewhere in this Form 10-K, which
should enable the Company to better compete in the current environment (see
"Business-Marketing and Customers" and "Competition").
In the fourth quarter of fiscal year 1996, the Company began implementing
cost reduction measures which continued throughout fiscal year 1997. Such
measures have provided for a reduction in the work force, changes in senior
management, a reorganization of certain existing personnel, reductions in
certain operating expenses and the implementation of several process
improvements (see "Notes to Financial Statements-Commitments,
13
<PAGE>
Contingencies and Other Matters-Restructuring and Cost Reductions"). These
measures have reduced certain operating costs in fiscal year 1997. No assurances
can be given that reduced costs will return the Company to profitability.
Critical to significant improvement in the Company's financial condition is
the introduction and acquisition of new manufactured and distributed products at
profitable prices. 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 were no significant sales of
any new manufactured or distributed products, other than those sold under the
Supply Agreement with BASF, introduced during 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. No assurance can be given that any additional products
for sale by the Company will occur 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").
SALES
Net sales of $53,172,000 for the fiscal year ended September 30, 1997
decreased $4,787,000, or 8%, from sales for the same period in the prior fiscal
year. The decline was due principally to decreased sales of manufactured
products which resulted primarily from lower pricing and continuing 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 due to increased demand from one customer. The reductions in pricing
and volume resulted from increased competition from other drug manufacturers.
Net sales in the fourth quarter of fiscal year 1997 of two distributed products
manufactured by BASF under the Supply Agreement experienced significant
increases over the same period of the prior year helping to offset the decline
in sales of certain manufactured products in the current fiscal year.
Sales for the fourth quarter of fiscal year 1997 of $17,171,000 increased
$4,220,000, or 33%, from $12,951,000 for the fourth quarter of fiscal year 1996.
The increase was primarily due to higher volumes of a lower margin manufactured
product and two products manufactured by BASF. The increase was partially
offset by the continuing lower sales of certain of the Company's significant
products as previously discussed.
Net sales of $57,959,000 for the year ended September 30, 1996 decreased
$8,544,000, or 13%, from $66,503,000 for the year ended September 30, 1995. The
decline primarily resulted from decreased sales of manufactured product due to
lower pricing and decreases in volume of one of the Company's significant
products, and to a lesser extent, two other significant products, which was
caused principally by the introduction of competitive products by other drug
manufacturers. The decline in sales of manufactured products was partially
offset by higher volumes of a lower margin distributed 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 (see "Business--Competition").
GROSS MARGINS
The Company's gross margin for the year ended September 30, 1997 was
$3,432,000 (6% of net sales) compared to $9,660,000 (17% of net sales) for the
prior fiscal year. The gross margin decline is primarily due to continued 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 on distributed products for the current year increased primarily
due to the contribution from the additional sales in the fourth quarter of
fiscal year 1997 of products manufactured by BASF, however, the effect on the
total margin for the year was negligible.
14
<PAGE>
The gross margin for the three-month period ended September 30, 1997
increased $3,374,000 to $2,057,000 (12% of net sales) from ($1,317,000) (-10% of
net sales) recorded in the corresponding period of the prior fiscal year. The
improvement in margin is primarily due to the increased volumes of a lower
margin manufactured product together with more favorable raw material pricing,
and the contribution from additional sales of distributed product manufactured
by BASF. In addition, an inventory adjustment was recorded in the corresponding
quarter of last year which lowered the cost of one of the Company's manufactured
products to its market value, adversely affecting the margin in that period.
Lower sales in the current three-month period of certain significant
manufactured products, as discussed above, partially offset the increases in
margin.
Inventory write-offs, taken in the normal course of business, amounted to
$1,630,000, $1,395,000 and $2,203,000 for the fiscal years ended September 30,
1997, September 30, 1996 and September 30, 1995, respectively, and $482,000,
$463,000 and $632,000 for the fourth quarters of fiscal years 1997, 1996 and
1995, respectively. The inventory write-offs are related principally to the
disposal of finished products due to short shelf life.
During fiscal year 1997, four of the Company's products accounted for
approximately 59% of its net sales compared to 58% and 63%, respectively, of net
sales in fiscal 1996 and 1995. One of such products contributed significantly
to the sales and gross margin in all three periods. A competitor of the Company
received FDA approval for this product in fiscal year 1996 where, prior to that
time, the Company had been the sole generic manufacturer. As a result of the
increased competition, net sales of that product decreased from $20,834,000 in
fiscal year 1995 to $13,581,000 in fiscal year 1996 to $6,098,000 in fiscal year
1997 with decreases in gross margin. During the second half of calendar 1995,
two generic pharmaceutical manufacturers received FDA approval for a product
which the Company had also been the sole generic manufacturer. As a result of
the increased competition on that product, net sales decreased from $5,652,000
in fiscal year 1995 to $3,959,000 in fiscal year 1996 to $2,110,000 in fiscal
year 1997 with decreases in gross margin. These products, along with one other
product, had historically accounted for a significant percentage of the
Company's net sales and gross margin. Due to the increased competition with
respect to these products, the Company's sales and gross margins have been
materially and adversely affected. During the current fiscal year, the Company
has implemented measures to lessen the overall impact of these products by
increasing margins on higher volume products through the Supply Agreement with
BASF, manufacturing process improvements and cost reductions. There can be no
assurances that these measures will return the Company to profitability.
Gross margin of $9,660,000 (17% of net sales) in fiscal year 1996 decreased
$11,329,000 from $20,989,000 (32% of net sales) in fiscal year 1995 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. Gross margins on distributed products decreased principally due to
lower sales levels of higher margin products and increased sales of a lower
margin product.
OPERATING EXPENSES
Research and Development
Research and development expenses for the twelve-month period ended September
30, 1997 increased $683,000, or 13%, to $5,843,000 from $5,160,000 for the
twelve-month period ended September 30, 1996. In the current period, advances
to Sano for the development of certain generic transdermal products amounted to
$2,258,000, while in the prior year payments of $2,942,000 were partially offset
by a reimbursement from Sano of $1,500,000. In August 1997, the Company
acquired Clal's 51% ownership interest in IPR in which PRI previously had owned
49% (see "Notes to Financial Statements-Acquisition of Joint Venture"). The
Company recorded an aggregate of $1,030,000 in research and development expenses
for IPR in fiscal year 1997 compared to $499,000 in the prior year. The higher
cost of the Sano transactions and IPR were partially offset by lower personnel
costs.
15
<PAGE>
During fiscal year 1997 the Company's domestic research and development
program was fully integrated with the research operations in Israel. Currently,
the Company's research program has eight products in various stages of
development. The Company has ANDAs for four potential products pending with the
FDA and Sano has ANDAs for two potential products, which are covered by the
distribution agreement with Sano, filed with the FDA and awaiting approval (see
"Notes to Financial Statements-Distribution Agreements").
Research and development expenses of $1,216,000 for the three-month period
ended September 30, 1997 increased $375,000, or 45%, from $841,000 in the
corresponding period in the prior year primarily as a result of payments to Sano
of $301,000 in the fourth quarter. In addition, expenses for IPR in the fourth
quarter were $421,000 compared to $175,000 for the corresponding period of the
prior year.
For the fiscal year ended September 30, 1996 research and development
expenses of $5,160,000 decreased $327,000, or 6% from $5,487,000 in the fiscal
year 1995. During the first quarter of fiscal year 1996, the Company received a
$1,500,000 reimbursement from Sano for advances made to them in prior fiscal
years for research and development expenses. Payments to Sano amounted to
$2,942,000 in fiscal year 1996 compared to $1,429,000 in the prior year.
Selling, General and Administrative
Selling, general and administrative costs were $12,461,000 (23% of net sales)
for the fiscal year ended September 30, 1997 compared to $17,168,000 (30% of net
sales) for the corresponding period in the prior fiscal year. The decrease of
27% in the period was primarily attributable to a decline in personnel costs
resulting from recent head count reductions and the amendment of a retirement
plan (see "--Restructuring Charge" and "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 fiscal year 1997.
In the fourth quarter of fiscal year 1997, selling, general and
administrative costs of $2,983,000 (17% of net sales) decreased $1,309,000 from
$4,292,000 (33% of net sales) in the corresponding quarter of last year. The
decrease of 30% was primarily the result of decreased personnel costs,
professional fees, advertising and marketing costs and bad debt expense, as
discussed above.
Selling, general and administrative costs were $17,168,000 (30% of net sales)
for the year ended September 30, 1996 versus $16,192,000 (24% of net sales) for
the fiscal year ended September 30, 1995. The increase was primarily
attributable to fees for consulting and professional services, higher
advertising and developmental marketing costs, severance costs, increased bad
debt expense and costs related to implementing information systems to support
the Company's operations. In addition, the Company incurred costs in
strengthening its in-house sales force in an effort to compete more effectively
under the market conditions.
Restructuring Charge
The Company recorded a restructuring charge of $549,000 in fiscal year 1996
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
(see "Notes to Financial Statements-Commitments, Contingencies and Other
Matters-Restructuring and Cost Reductions").
SETTLEMENTS
In fiscal year 1995, the Company resolved claims against certain former
management members of the Company for recovery of, among other items, salaries
and money paid for indemnification. The settlements, in the form of cash and
securities of the Company, were valued at $2,029,000.
16
<PAGE>
OTHER INCOME
Other income of $6,968,000 for the fiscal year ended September 30, 1997
increased $4,411,000, or 173%, from $2,557,000 in the prior fiscal year. The
increase is attributable to approximately $3,900,000 of income resulting from
the amendment in fiscal year 1997 of a distribution agreement with Sano (see
"Notes to Financial Statements-Distribution Agreements") and a gain of
$1,574,000 on the sale of Sano common stock (see "--Financial Condition--
Liquidity and Capital Resources"). The income from the Sano transactions was
partially offset by a loss on the sale of Fine-Tech Ltd. stock in the third
quarter of fiscal year 1997.
For the three-month period ended September 30, 1997, other income was
$6,996,000 compared to $1,926,000 in the corresponding period of the prior
year. The increase was attributable to the $3,900,000 of income recorded
pursuant to the amendment of the distribution agreement with Sano and a gain on
the sale of Sano common stock in the current period of $1,218,000.
Other income in fiscal year 1996 increased to $2,557,000 from $608,000 in
fiscal year 1995 due to the sale of Sano common stock during the fiscal 1996
fourth quarter (see "--Financial Condition--Liquidity and Capital Resources").
INCOME TAXES
Management has determined, based on the Company's recent performance and the
uncertainty of the generic business in which the Company operates, that future
operating income might not be sufficient to recognize fully the net operating
loss carryforwards of the Company. Therefore, the Company did not recognize a
benefit for its operating losses in either fiscal 1997 or 1996 (see "Notes to
Financial Statements-Income Taxes"). The Company incurred income tax expense of
$410,000 in the first quarter of fiscal year 1997 due to interest relating to a
settlement with the Internal Revenue Service in fiscal year 1995 for the
disallowance of the Company's tax credit for prior periods with respect to
certain research and development credits. In fiscal year 1995, the Company
recorded income tax expense of $836,000.
DISCONTINUED OPERATIONS
In fiscal year 1996, the Company recorded income from discontinued operations
of $2,800,000, reversing the remaining reserves which had been provided for Quad
Pharmaceuticals, Inc., whose operations were discontinued in fiscal year 1991
(see "Notes to Financial Statements-Discontinued Operations").
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital of $15,959,000 at September 30, 1997 decreased $4,757,000
from $20,716,000 at September 30, 1996. The decrease is principally due to the
use of capital 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"), the only remaining cash balance
at September 30, 1997 was cash at IPR (see "--Financing"). The working capital
ratio of 2.3x in the current period declined from 2.9x at fiscal 1996 year end.
During fiscal year 1997, the Company reduced inventory levels to $13,239,000
from $19,352,000.
In August 1997, the Company, through one of its subsidiaries, acquired Clal's
51% ownership interest in their research and development joint venture in
Israel for $447,000 in cash obtained from the sale of Fine-Tech Ltd.
("Fine-Tech") stock and a non-recourse secured promissory note for $1,500,000
(see "Notes to Financial Statements-Acquisition of Joint Venture"). The Company
has the option to prepay the note for $600,000 by August 12, 1998. The Company
is obligated to invest not less than $1,500,000 each year in IPR until the note
is repaid.
17
<PAGE>
During the twelve months ended September 30, 1997, the Company sold its
remaining 378,887 shares of Sano stock yielding net proceeds of approximately
$6,123,000 which was used to reduce the revolving credit balance. In September
1996, the Company sold 135,000 shares of its holdings in Sano receiving net
proceeds of $2,669,000. In return for relinquishing certain rights pursuant to
the amendment of the Company's distribution agreement with Sano (see "Notes to
Financial Statements-Distribution Agreement"), PRI received $1,950,000 in cash
in the fourth quarter of fiscal year 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.
In June 1997, the Company sold all of its shares of Fine-Tech, an Israeli
chemical manufacturer, for $447,000. The Company purchased 10% of the shares of
Fine-Tech in December 1995 for $1,000,000.
The Company expects to fund its operations, including research and
development activities and 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.
FINANCING
At September 30, 1997, the Company's total outstanding short-term and long-
term debt amounted to $3,947,000 and $2,869,000, 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 a bank and a non-recourse secured promissory note resulting from the
acquisition of Clal's interest in IPR in fiscal year 1997.
In December 1996, Par entered into a Loan and Security Agreement (the "Loan
Agreement") with GECC which provided Par with a three-year revolving line of
credit. 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 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. In fiscal year 1997, GECC
waived events of default on three occasions unrelated to the repayment of debt
under the Loan Agreement. As of September 30, 1997, the borrowing base was
approximately $10,900,000 and $3,947,000 was outstanding under the line of
credit. Any significant reduction in the borrowing base from its current levels
will adversely affect the Company's liquidity.
At September 30, 1997, the Company has a non-recourse secured promissory note
for $1,500,000 bearing interest at 7% payable in eight equal installments to a
subsidiary of Clal (see "Notes to Financial Statements-Acquisition of Joint
Venture" and "-Long-Term Debt"). The first installment is due in July, 1999,
with the remaining seven payments due each January and July through and
including January, 2003. The Company has the option to prepay the note for
$600,000 on or before August 12, 1998. Additionally, the Company has a mortgage
loan with a bank in the original principal amount of $1,340,000. The loan bears
interest during the first five years of its term at a rate of 8.5% per annum and
thereafter at the prime rate plus 1.75%. It is due in equal monthly
installments until May 1, 2001, at which time the remaining principal balance
with interest is due. The loan is secured by certain real property (see
"Business-Property"). At September 30, 1997, the outstanding balance of the
loan was $1,117,000. At September 30, 1997, the Company had also borrowed
$167,000 under a line of credit maintained at the same bank, which line is
secured by equipment purchased. The interest rate is based on the prime rate
plus a premium (see "Notes to Financial Statements-Long-Term Debt").
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- ------- ----------------------------------------------------------
18
<PAGE>
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
See Index to Financial Statements after Signature Page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
- --------------------
Not applicable.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------- --------------------------------------------------
DIRECTORS
The Company's Certificate of Incorporation provides that the Board shall be
divided into three classes, with the term of office of one class expiring each
year. The Class I, Class II and Class III directors of the Company have terms
which expire in 2000, 1998 and 1999, respectively. The following table sets
forth certain information with respect to each of Class I, II and III directors
and the year each was first elected as a director:
<TABLE>
<CAPTION>
YEAR
OF FIRST
NAME AGE (AS OF 12/97) ELECTION
---- ----------------- --------
<S> <C> <C>
CLASS I
Mark Auerbach(1)(2) 59 1990
Since June 1993, the Senior Vice President and Chief
Financial Officer of Central Lewmar L.P., a distributor of
fine papers. From August 1992 to June 1993, a partner of
Marron Capital L.P., an investment banking firm. From July
1990 to August 1992, President, Chief Executive Officer and
Director of Implant Technology Inc., a manufacturer of
artificial hips and knees. Director of Acorn Venture Capital
Corporation, a closed-end investment company, and a director
of Oakhurst Company, Inc., a holding company for
automotive after-market distributors.
H. Spencer Matthews(2) 76 1990
Since 1986, President and Chief Executive Officer of
Dispense-All South Coast, Inc., and Dispense-All of Central
Florida, Inc., two companies which are wholesalers of juice
concentrates. Rear Admiral, United States Navy (Retired).
CLASS II
Andrew Maguire, Ph.D.(1)(3)(4) 57 1990
Since January 1990, President and Chief Executive Officer of
Appropriate Technology International, a not-for-profit
development assistance corporation. From January 1989 to
December 1994, Senior Vice President of Washington
Financial Group, an investment banking firm. From June
1987 to January 1989, Executive Vice President of the North
American Securities Administration Association.
Melvin H. Van Woert, M.D.(1)(3)(4)(5) 68 1990
Since 1974, Physician and Professor of Neurology and
Pharmacology and Doctoral Faculty, Mount Sinai Medical
Center, New York.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
YEAR
OF FIRST
NAME AGE (AS OF 12/97) ELECTION
---- ----------------- --------
<S> <C> <C>
CLASS III
Kenneth I. Sawyer(3)(4)(5) 52 1989
Since October 1990, Chairman of the Board of the Company.
Since October 1989, President and Chief Executive Officer of
the Company. From September 1989 to October 1989,
Interim President and Chief Executive Officer of the
Company. From August 1989 to September 1989, counsel to
the Company. Director of Acorn Venture Capital Corporation,
a closed-end investment company.
Robin O. Motz, M.D., Ph.D.(1)(2)(4)(5) 58 1992
Since July 1978, Assistant Professor of Clinical Medicine,
Columbia University College of Physicians and Surgeons.
Physician engaged in a private practice of internal medicine.
</TABLE>
- ------------
(1) A member of the Audit Committee of the Board of the Company.
(2) A member of the Compensation and Stock Option Committee of the Board of the
Company.
(3) A member of the Strategic Planning Committee of the Board of the Company.
(4) A member of the Nominating Committee of the Board of the Company.
(5) A member of the Executive Committee of the Board of the Company.
Clal has the right to designate up to two-sevenths of the members of the
Board of the Company (see "Certain Relationships and Related Transactions-- Clal
Agreements"). No member of the Board has been designated by Clal.
EXECUTIVE OFFICERS
The executive officers of the Company consist of Mr. Sawyer as President,
Chief Executive Officer and Chairman of the Board and Dennis J. O'Connor as Vice
President, Chief Financial Officer and Secretary. The executive officers of Par
consist of Mr. Sawyer, Mr. O'Connor and Joseph Gokkes as Chief Operating
Officer. Par is currently negotiating a modification of Mr. Gokkes'
responsibilities. Mr. O'Connor has served as Vice President, Chief Financial
Officer and Secretary of the Company since October 1996. From June 1995 to
October 1996, he served as Controller of Par. Mr. O'Connor served as Vice
President--Controller of Tambrands, Inc., a consumer products company, from
November 1989 to June 1995. Mr. Gokkes has served as Chief Operating Officer of
Par since May 1997. From April 1996 until May 1997, he was employed by Clal in
its international operations and from February 1990 to February 1996, he served
in several capacities, including Vice President for International Marketing and
General Manager of Taro Pharmaceutical Industries Ltd. (Israel) and Taro
International, respectively.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
As a public company, the Company's directors, executive officer and 10%
beneficial owners are subject to reporting requirements under Section 16(a) of
the Securities Exchange Act of 1934, as amended. Under such Act, Mr. Gokkes
delinquently filed one Initial Statement of Beneficial Ownership of Securities
during fiscal year 1997.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
- ------- ----------------------
The following table sets forth compensation earned by or paid, during fiscal
years 1995 through 1997, to the Chief Executive Officer of the Company and the
most highly compensated executive officers of the Company and/or Par who earned
over $100,000 in salary and bonus at the end of fiscal year 1997 (the "Named
Executives"). The Company awarded or paid such compensation to all such persons
for services rendered in all capacities during the applicable fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------ ----------------------------
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($)(1) OPTIONS(#) COMPENSATION($)(2)
- -------------------- ---- -------- -------- ------------ ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer, 1997 350,000 - - - 12,985
President, Chief 1996 370,692 - - 75,000 38,530
Executive Officer 1995 427,153 200,000 - - 49,806
and Chairman
Dennis J. O'Connor 1997 137,994 - - 30,000 2,121
Vice President
Chief Financial
Officer and
Secretary
Joseph Gokkes 1997 56,883 10,000 - 30,000 6,787
Chief Operating
Officer of Par(3)
</TABLE>
- --------------------------
(1) The Named Executives did not hold any shares of restricted stock at the end
of fiscal year 1997.
(2) For fiscal year 1997, includes insurance premiums paid by the Company for
term life insurance for the benefit of the Named Executives as follows: Mr.
Sawyer-$74, Mr. O'Connor-$51 and Mr. Gokkes-$25. The amounts for Mr. Sawyer
include the maximum potential estimated dollar value of the Company's
portion of insurance premium payments from a split-dollar life insurance
policy as if premiums were advanced to the executive without interest until
the earliest time the premiums may be refunded by Mr. Sawyer to the Company.
Includes $6,762 paid to Mr. Gokkes for relocation. Also includes the
following amounts contributed by the Company to the Company 401(k) plan:
Mr. O'Connor-$2,070.
(3) Par is currently negotiating a modification of Mr. Gokkes' responsibilities.
The following table sets forth stock options granted to the Named Executives
during fiscal year 1997.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants Option Term
------------------------------------------------------ ------------------
Shares % of Total
Underlying Options Granted
Options to Employees in Exercise Expiration
Name Granted(#) Fiscal Year Price ($) Date 0%($) 5%($) 10%($)
- --------------------------- ---------- ---------------- --------- ---------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Dennis J. O'Connor(1) 20,000 6.37% $3.375 10/22/01 - $ 86,149 $108,709
Dennis J. O'Connor(2) 10,000 3.19% $2.125 9/7/02 - $ 27,121 $ 34,223
Joseph Gokkes(3) 30,000 9.56% $2.625 5/29/02 - $100,507 $126,828
</TABLE>
22
<PAGE>
(1) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on October 23, 1996, of which 10,000 became exercisable October 23,
1997 and 10,000 become exercisable on October 23, 1998.
(2) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on September 8, 1997 of which 3,333 become exercisable on March 8,
1998, 3,333 become exercisable on March 8, 1999, and 3,334 become
exercisable on March 8, 2000.
(3) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on May 30, 1997, of which 10,000 become exercisable on May 30, 1998,
10,000 become exercisable on May 30, 1999 and 10,000 become exercisable on
May 30, 2000.
The following table sets forth the stock options exercised by the Named
Executives during fiscal year 1997 and the value, as of September 30, 1997, of
unexercised stock options held by the Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
---------------------- --------------------
Shares
Acquired on Value
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer 0 0 550,000 25,000 -- --
Dennis J. O'Connor 0 0 15,833 31,667 -- --
Joseph Gokkes 0 0 0 30,000 -- --
</TABLE>
On October 28, 1997, the Board approved the grant of new 5-year options to
the Named Executives at an exercise price of $2.25, upon surrender for
cancellation of certain options set forth above in the table. Pursuant to the
Board action, the Named Executives hold repriced options as follows: Mr.
Sawyer-500,000, Mr. O'Connor-37,500 and Mr. Gokkes-30,000. Of the repriced
options held by Mr. Sawyer, 50,000 are immediately exercisable. The balance of
Mr. Sawyer's repriced options and all of the repriced options held by Mr.
O'Connor and Mr. Gokkes will become exercisable as follows: one third become
exercisable on April 28, 1998, one third become exercisable on April 28, 1999
and one third become exercisable on April 28, 2000.
COMPENSATION OF DIRECTORS
For service on the Board in fiscal year 1997, Directors who are not
employees of the Company or any of its subsidiaries receive an annual retainer
of $12,000, a fee of $1,000 for each meeting of the Board attended in person or
by teleconference, and a fee of $750 for each committee meeting attended in
person or by teleconference, subject to a maximum of $1,750 per day. Chairmen
of committees receive an additional annual retainer of $5,000 per committee.
New Directors are granted options to purchase shares on the date initially
elected to the Board. Directors who are employees of the Company or any of its
subsidiaries or are designated by Clal receive no additional remuneration for
serving as directors or as members of committees of the Board. All directors are
entitled to reimbursement for out-of-pocket expenses incurred in connection with
their attendance at Board and committee meetings.
EMPLOYMENT AGREEMENTS AND TERMINATION ARRANGEMENTS
The Company has entered into an Employment Agreement with Mr. Sawyer, which
provides for his employment in his current position through October 4, 1996,
subject to earlier termination by the Company for Cause (as such term is defined
in the agreement). Mr. Sawyer's term of employment will be automatically
extended each year for an additional one-year period unless either party
provides written notice by July 4th of such year that he or it desires to
terminate the agreement. Under the agreement with Mr. Sawyer, the Company is
required to use its best efforts to cause him to be reelected to the Board of
Directors during his term of employment. Mr. Sawyer, pursuant to the terms of
his employment agreement, is and will be required to serve, if so elected, on
the Board of Directors of the Company as well as any committees thereof.
23
<PAGE>
Mr. Sawyer's agreement provides for certain payments upon termination of
his employment as a result of a material breach by the Company of his employment
agreement following a Change of Control (as such term is defined in the
agreement) of the Company. A material breach by the Company of the employment
agreement includes, but is not limited to, termination without Cause and a
change of his responsibilities. Mr. Sawyer is entitled to receive, if such a
termination occurs within two years following the Change of Control of the
Company, a lump sum payment equal to the lesser of three times the sum of his
annual base salary and most recent bonus or the maximum amount permitted without
the imposition of an excise tax on Mr. Sawyer or the loss of a deduction to the
Company under the Internal Revenue Code of 1986, as amended (the "Code"), plus
reimbursement of certain legal and relocation expenses incurred by Mr. Sawyer as
a result of the termination of his employment and maintenance of insurance,
medical and other benefits for 24 months or until Mr. Sawyer is covered by
another employer for such benefits.
The Company has entered into a severance agreement with Mr. O'Connor dated
October 23, 1996. The agreement provides, with certain limitations, that upon
the termination of Mr. O'Connor's employment by the Company for any reason other
than For Cause or by Mr. O'Connor for Good Reason or following a Change of
Control (as such terms are defined in the agreement), Mr. O'Connor is entitled
to receive a severance payment. The amount of the payment is to be equal to six
months of his salary at the date of termination, with such amount to be
increased by an additional month of salary for every full month he is employed
by the Company in his present position, up to a maximum of six additional months
salary. Under the stock option agreements between Mr. O'Connor and the Company,
any unexercised portion of the options becomes immediately exercisable in the
event of a Change of Control (as such term is defined in the agreement).
Par has entered into an employment agreement with Mr. Gokkes, dated May 30,
1997. The agreement provides that upon termination of Mr. Gokkes' employment by
Par for any reason except For Cause (as such term is defined in the agreement),
Mr. Gokkes is entitled to receive severance pay equal to 12 months of his base
salary in effect for the year prior to his termination. In the event of a
voluntary termination of employment by Mr. Gokkes, he is not entitled to receive
severance pay except in the event that a President of Par other than Mr. Gokkes
is put in place who is not the President of the Company. Par is currently
negotiating a modification of Mr. Gokkes' responsibilities.
PENSION PLAN
The Company maintains a defined benefit plan (the "Pension Plan") intended
to qualify under Section 401(a) of the Code. Effective October 1, 1989, the
Company ceased benefit accruals under the Pension Plan with respect to service
after such date. The Company intends that distributions will be made, in
accordance with the terms of the Plan, to participants as of such date and/or
their beneficiaries. The Company will continue to make contributions to the
Pension Plan to fund its past service obligations. Generally, all employees of
the Company or a participating subsidiary who completed at least one year of
continuous service and attained 21 years of age were eligible to participate in
the Pension Plan. For benefit and vesting purposes, the Pension Plan's "Normal
Retirement Date" is the date on which a participant attains age 65 or, if later,
the date of completion of 10 years of service. Service is measured from the
date of employment. The retirement income formula is 45% of the highest
consecutive five-year average basic earnings during the last 10 years of
employment, less 83 1/3% of the participant's Social Security benefit, reduced
proportionately for years of service less than 10 at retirement. The normal
form of benefit is life annuity, or for married persons, a joint survivor
annuity. None of the Named Executives had any years of credited service under
the pension plan.
Par currently maintains a retirement plan (the "Retirement Plan") and a
retirement savings plan. The Board of Directors of Par has authorized the
cessation of employer contributions to the Retirement Plan 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.
COMPENSATION AND STOCK OPTION COMMITTEE
The compensation and stock option committee consists of Mark Auerbach, H.
Spencer Matthews, and Robin O. Motz.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- ---------------------------------------------------------------
24
<PAGE>
The following table sets forth, as of the close of business on December 12,
1997, the beneficial ownership of the Common Stock by (i) each person known
(based solely on a review of Schedules 13D) to the Company to be the beneficial
owner of more than 5% of the Common Stock, (ii) each director of the Company,
(iii) the Named Executives, as defined in the "Executive Compensation" section
of this report, and (iv) all directors and current executive officers of the
Company and Par as a group (based upon information furnished by such persons).
Under the rules of the Securities and Exchange Commission, a person is deemed to
be a beneficial owner of a security if such person has or shares the power to
vote or direct the voting of such security or the power to dispose of or to
direct the disposition of such security. In general, a person is also deemed to
be a beneficial owner of any securities of which that person has the right to
acquire beneficial ownership within 60 days. Accordingly, more than one person
may be deemed to be a beneficial owner of the same securities.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES % OF
- -------------------------------------------------------------------- OF COMMON
COMMON STOCK
STOCK
<S> <C> <C>
Clal Pharmaceutical Industries Ltd.(1) 2,313,272 12.2
Kenneth I. Sawyer(2)(3)(4) 206,900 1.1
Melvin H. Van Woert, M.D.(2)(3) 70,050 *
Andrew Maguire, Ph.D.(2)(3) 36,300 *
H. Spencer Matthews(2)(3) 36,900 *
Mark Auerbach(2)(3) 49,000 *
Robin O. Motz, M.D., Ph.D.(2)(3) 42,000 *
Dennis J. O'Connor(2)(4) 1,619 *
Joseph Gokkes(2)(4) 381 *
All directors and current executive officers (as of 12/12/97) as a 443,150 2.3
group (8 persons)(2)
</TABLE>
- ------------------------
* Less than 1%.
(1) The address of Clal is Clal House, 5 Druyanov Street, Tel Aviv 63143,
Israel. All 2,313,272 shares of Common Stock shown as beneficially owned
by Clal are issued and outstanding.
(2) The business address of each of these individuals, for the purposes hereof,
is in care of Pharmaceutical Resources, Inc., One Ram Ridge Road, Spring
Valley, New York 10977. Includes shares of Common Stock which may be
acquired upon the exercise of options which are exercisable on or prior to
February 10, 1998, under the Company's stock option plans as follows: Mr.
Sawyer, 50,000 shares; Dr. Van Woert, 69,000 shares; Mr. Maguire, 36,000
shares; Mr. Matthews, 36,000 shares; Mr. Auerbach, 47,000 shares; and Dr.
Motz, 42,000 shares.
(3) A director of the Company.
(4) Reflects the repricing of stock options approved by the Board on October
28, 1997 (see "Executive Compensation").
On October 28, 1997, the Board of Directors approved the adoption of the
1997 Directors' Stock Option Plan (the "1997 Plan"). The 1997 Plan is subject
to the approval of the Company's shareholders. Pursuant to the 1997 Plan, each
current non-executive director would be entitled to receive stock options to
purchase 10,000 shares of Common Stock for each year of service as a director,
but not in excess of the number of stock options held by them at October 28,
1997. The options would have an exercise price of $2.25 per share and would be
issued only upon surrender for cancellation by the director of an equal number
of stock options held by them. Each stock option to be issued under the 1997
Plan would become exercisable one year after the date of grant. The 1997 Plan
also provides for the automatic grant of stock options to non-executive
directors each year, subject to certain conditions.
25
<PAGE>
Under the 1997 Plan, non-executive directors would be granted options to
purchase 5,000 shares of Common Stock each year on the date of the Company's
annual meeting of shareholders and would be entitled to receive an additional
grant of up to 6,000 options each year if such directors continuously owned
2,500 shares of Common Stock for each additional grant received. Further, the
Plan provides for the grant of options for 5,000 shares as of October 28, 1997
and an additional grant of options for up to 6,000 shares if the director owns
2,500 shares of Common Stock on March 31, 1998.
VOTING ARRANGEMENTS
The Company and Clal entered into a Stock Purchase Agreement, dated March
25, 1995 (as amended, the "Stock Purchase Agreement"), pursuant to which Clal,
among other things, purchased 2,027,272 shares of Common Stock on May 1, 1995.
Clal acquired 100,000 shares of Common Stock in June 1996 from Mr. Sawyer and
acquired an additional 186,000 shares of Common Stock from the Company in
connection with an amendment of the Stock Purchase Agreement in July 1997.
Under the Stock Purchase Agreement, Clal agreed to vote all of the shares of
Common Stock held by it in favor of certain business combination transactions of
the Company and certain sales of assets or securities of the Company. In
addition, Clal has certain rights under the Stock Purchase Agreement to nominate
directors to the Company's Board and committees thereof (see "Certain
Relationships and Related Transactions--Clal Agreements").
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
Clal Agreements. On May 1, 1995, the Company consummated several
transactions with Clal consisting primarily of (i) the sale by the Company of
2,027,272 shares of the Company's Common Stock for $20,000,000, or $9.87 per
share, (ii) the issuance by the Company of warrants to purchase 2,005,107 shares
of Common Stock (the "Warrants") and (iii) the formation of a joint venture to
research and develop generic pharmaceutical products. The Stock Purchase
Agreement included terms of the Company's and Clal's business relationship,
including issuance to Clal of 2,027,272 shares of Common Stock, rights to
nominate Board members, rights of first refusal, voting agreements, rights to
invest in others, standstill agreements and agreements with respect to the
issuance of the Warrants.
In accordance with the terms of the Stock Purchase Agreement, Clal has the
right to designate one-seventh of the members of the Board as long as Clal owns
8% of the issued and outstanding Common Stock, and a total of two-sevenths of
the members of the Board if Clal owns at least 16% of the issued and outstanding
Common Stock. The Company has the right to reject a designee of Clal if such
person is not satisfactory to the Company for good faith reasons. The Company
also agreed to elect Clal's designee to the Audit Committee, Compensation and
Stock Option Committee and Strategic Planning Committee of the Board. In the
event that Clal does not nominate directors to the Board or its committees or if
Clal's designees are not elected to the Board or its committees, Clal is
permitted, under the Stock Purchase Agreement, to designate representatives who
may attend meetings of the Board and its committees. Additionally, if Clal's
appointment of a director to the Audit Committee is prohibited by the rules and
regulations of the New York Stock Exchange, Inc., the Company will provide Clal
materials which are provided to committee members, the appointment of the
Company's auditors will be approved by the entire Board, the Company will
consult with directors nominated by Clal with respect to Audit Committee actions
and the directors nominated by Clal will have the right to consent to certain
changes in the Company's accounting principles. Pursuant to the Stock Purchase
Agreement, Clal has designated an observer to meetings of the Board and its
committees. Clal also has the right to designate a member of the Company's
management.
Clal has a right of first refusal with respect to certain business
combination transactions of the Company and certain sales of the assets or
securities of the Company. Such right extends until May 1, 2000, provided that
Clal, when exercising such right (i) has not sold or disposed of shares of
Common Stock representing more than 337,045 shares of Common Stock and (ii) owns
or has the right to acquire 16% of the Common Stock (the "Restricted Period").
If Clal does not exercise its right of first refusal with respect to any of the
above-mentioned transactions, Clal will, subject to certain exceptions, be
required to vote its shares of Common Stock in favor of such transactions. Such
obligation will terminate upon the expiration of the Restricted Period. Clal
has no obligation to vote its shares of Common Stock in favor of such a
transaction if (i) Clal exercises its right of first refusal with respect to
such transaction, (ii) fewer than 75% of the members of the Board (excluding
member(s) of the Board nominated by Clal) vote in favor of the transaction or
(iii) any member of the Board (excluding
26
<PAGE>
member(s) of the Board nominated by Clal) votes against the transaction. In the
event that Clal has an obligation to vote its shares in favor of such a
transaction, Clal also has agreed to take such other actions reasonably required
or appropriate to facilitate the consummation of the transaction. Clal has no
obligation to vote its shares in favor of, or take other actions to facilitate,
any such transaction if Clal notifies the Company that, in Clal's opinion, the
consummation of such a transaction would be detrimental to the Company and/or
its shareholders, except if the Company, in response to such a notice, delivers
to Clal a fairness opinion from a nationally recognized investment banking firm.
Clal has agreed to limit acquisitions of the Company's securities to 19.99%
of the issued and outstanding Common Stock prior to May 1, 1998. In addition,
Clal has agreed to limit such acquisitions to 25% of the issued and outstanding
Common Stock after May 1, 1998. Clal has the right to tender for or purchase no
less than 70% of the issued and outstanding Common Stock after May 1, 2000.
These limitations expire six months following the expiration of the Restricted
Period (the "Consent Period"). Clal also has the right to acquire up to 20% of
any equity securities issued by the Company in an underwritten public offering
so long as Clal, at the time, owns 10% of the issued and outstanding Common
Stock (assuming, for this purpose, the full exercise of the Warrants). Clal has
also agreed not to sell or otherwise dispose of Common Stock or other securities
convertible into Common Stock during the Consent Period unless such securities
are registered or may be sold without registration under Rule 144 promulgated
under the Securities Act of 1933, as amended, or are sold in certain business
combination transactions, unless the sale is approved by the Board (excluding
member(s) of the Board nominated by Clal). Clal will limit, during the Consent
Period, sales of Common Stock to any one person, entity or group to no more than
3% of the issued and outstanding Common Stock, except as otherwise permitted
under the Stock Purchase Agreement.
In consideration of the rights and benefits obtained by the Company under
the Stock Purchase Agreement, the Company also granted to Clal certain
registration rights under a registration rights agreement (the "Registration
Rights Agreement"). In general, Clal will not be able to sell freely the shares
of Common Stock purchased by Clal without registration under applicable
securities laws or unless an exemption from registration is available. Clal is
entitled to two demand registrations. In addition, the Company granted to Clal
the right to register shares of Common Stock owned by Clal on each occasion that
the Company registers shares of Common Stock, subject to certain limitations and
exceptions.
In May 1995, the Company and Clal formed IPR in Israel to research and
develop generic pharmaceutical products. On August 14, 1997, the Company
acquired Clal's 51% ownership interest in IPR for $447,000 in cash obtained from
the sale of Fine-Tech Ltd. ("Fine-Tech") stock owned by the Company and a non-
recourse secured promissory note for $1,500,000. The note bears interest of 7%
per annum, and is payable in eight semi-annual installments commencing in July
1999. The Company has the unconditional option to prepay the note for $600,000
on or before August 12, 1998. Until the note is repaid in full, the Company is
obligated to invest $1,500,000 each year in IPR. In addition, the Company and
Clal agreed to modify certain terms of Clal's investment in the Company,
including the surrender by Clal of the Warrants in exchange for the issuance to
Clal of 186,000 shares of the Company's Common Stock for nominal cash
consideration.
As of December 12, 1997, Clal beneficially owned, to the Company's
knowledge, 2,313,272 shares of Common Stock. Of such shares, 100,000 were
purchased from Mr. Sawyer at a price of $7.125 per share on June 3, 1996.
Prior to becoming an officer of Par in May 1997, Mr. Gokkes served as a
consultant to Par, during which time he was an employee of Clal. The Company
reimbursed Clal $115,000 in fiscal year 1997 for Mr. Gokkes' wages and expenses
during that period.
27
<PAGE>
Investment in Fine-Tech. Under the Stock Purchase Agreement, the Company
obtained the right to participate with Clal and certain of its affiliates in
connection with pharmaceutical acquisitions and transactions. In December 1995,
the Company paid $1,000,000 to purchase 10% of the shares of Fine-Tech, an
Israeli pharmaceutical research and development company in which Clal had a
significant ownership interest. In addition, the Company obtained the exclusive
right to purchase products not commonly sold in North America, South America and
the Caribbean. In June 1997, the Company sold all of the shares of Fine-Tech
for approximately $447,000 and terminated its exclusive purchase rights.
The foregoing descriptions of certain terms of the Stock Purchase
Agreement, the Warrants, the Registration Rights Agreement and the amendments
thereto do not purport to be complete and are qualified in their entirety by
reference to such documents, copies of which were filed as exhibits to the
Current Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on May 12, 1995 or are filed as exhibits to this Report on Form 10-K.
Transactions with Officers and Directors. At various times during fiscal
years 1996 and 1997, the Company made unsecured loans to Mr. Sawyer. Such loans
currently are evidenced by a single promissory note, which bears interest at the
rate of 8.25% per annum. Interest and principal are due on the earlier of
August 14, 2002, or the termination of Mr. Sawyer's employment with the Company.
As of December 19, 1997, the outstanding balance of the note, with interest, was
approximately $372,000.
The Company believes that all of the above transactions were on terms that
were fair and reasonable to the Company.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ------- ----------------------------------------------------------------
(a)(1)&(2) Financial Statements.
See Index to Financial Statements after Signature Page.
(a)(3) Exhibits.
3.1 Certificate of Incorporation of the Registrant. (1)
3.1.1 Certificate of Amendment to the Certificate of Incorporation of
the Registrant, dated August 6, 1992. (2)
3.2 By-Laws of the Registrant, as amended and restated. (3)
4 Rights Agreement, dated August 6, 1991, between the Registrant and
Midlantic National Bank, as Rights Agent. (4)
4.1 Amendment to Rights Agreement between the Registrant and Midlantic
National Bank, as Rights Agent, dated as of April 27, 1992. (3)
4.2 Amendment to Rights Agreement, dated as of March 24, 1995,
between the Registrant and Midlantic National Bank, as Rights
Agent.
4.3 Amendment to Rights Agreement, dated as of September 18, 1997,
between the Registrant and First City Transfer Company, as
Rights Agent.
10.1 1983 Stock Option Plan of the Registrant, as amended. (5)
10.2 1986 Stock Option Plan of the Registrant, as amended. (5)
10.3 1989 Directors' Stock Option Plan of the Registrant, as amended.
(6)
10.4 1989 Employee Stock Purchase Program of the Registrant. (7)
10.5 1990 Stock Incentive Plan of the Registrant, as amended.
10.6 Form of Retirement Plan of Par. (8)
10.6.1 First Amendment to Par's Retirement Plan, dated October 26, 1984.
(9)
10.7 Form of Retirement Savings Plan of Par. (8)
10.7.1 Amendment to Par's Retirement Savings Plan, dated July 26, 1984.
(10)
10.7.2 Amendment to Par's Retirement Savings Plan, dated November 1,
1984. (10)
10.7.3 Amendment to Par's Retirement Savings Plan, dated September 30,
1985. (10)
10.8 Par Pension Plan, effective October 1, 1984. (1)
10.9 Employment Agreement, dated as of October 4, 1992, among the
Registrant, Par and Kenneth I. Sawyer. (10)
29
<PAGE>
10.10 Severance Agreement, dated as of October 23, 1996, between the
Registrant and Dennis J. O'Connor.
10.11 Lease for premises located at 12 Industrial Avenue, Upper Saddle
River, New Jersey, dated October 21, 1978, between Par and Charles
and Dorothy Horton, and extension dated September 15, 1983. (12)
10.12 Lease Agreement, dated as of January 1, 1993, between Par and
Ramapo Corporate Park Associates. (13)
10.13 Lease Extension and Modification Agreement, dated as of August 30,
1997, between Par and Ramapo Corporate Park Associates.
10.14 Amended and Restated Distribution Agreement, dated as of July 28,
1997, among Sano Corporation, the Registrant and Par./*/
10.15 Mortgage and Security Agreement, dated May 4, 1994, between Urban
National Bank and Par. (15)
10.15.1 Mortgage Loan Note, dated May 4, 1994. (15)
10.15.2 Corporate Guarantee, dated May 4, 1994, by the Registrant to Urban
National Bank. (15)
10.16 1995 Directors Stock Option Plan. (16)
10.17 Stock Purchase Agreement, dated March 25, 1995, between the
Registrant and Clal Pharmaceutical Industries Ltd. (17)
10.18 Amendment No. 1 to Stock Purchase Agreement, dated May 1, 1995,
between the Registrant and Clal Pharmaceutical Industries Ltd.
(17)
10.19 Registration Rights Agreement, dated May 1, 1995, between the
Registrant and Clal Pharmaceutical Industries Ltd. (17)
10.20 Non-Recourse Secured Promissory Note, July 28, 1997, of PRI
Research, Inc.
10.21 Third Amendment to Stock Purchase Agreement, dated July 28, 1997,
between the Registrant and Clal Pharmaceutical Industries Ltd.
10.22 Pledge Agreement, dated December 27, 1996, between Par and General
Electric Capital Corporation. (18)
10.23 Pledge Agreement, dated December 27, 1996, between the Registrant
and General Electric Capital Corporation. (18)
10.24 Loan and Security Agreement, dated December 27, 1996, between Par
and General Electric Capital Corporation. (18)
10.25 Manufacturing and Supply Agreement, dated April 30, 1997, between
Par and BASF Corporation. (19)
10.26 First Amendment and Waiver to Loan and Security Agreement, dated
May 22, 1997, between Par and General Electric Capital
Corporation. (20)
30
<PAGE>
10.27 Second Amendment and Waiver to Loan and Security Agreement,
dated as of August 22, 1997, between Par and General Electric
Capital Corporation.
11 Computation of per share data.
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
(a)(4) Reports on Form 8-K. No reports on Form 8-K were filed in the
fourth quarter of the fiscal year ended September 30, 1997.
__________________________________________
(1) Previously filed with the Securities and Exchange Commission (the
"Commission") as an exhibit to the Registrant's Annual Report on
Form 10-K (Commission File No. 1-10827) for 1991 and incorporated
herein by reference.
(2) Previously filed with the Commission as an exhibit to the
Registrant's Statement on Form 8-A (Commission File No. 0-20834)
filed on November 10, 1992 and incorporated herein by reference.
(3) Previously filed with the Commission as an exhibit to Amendment
No. 1 on Form 8 to the Registrant's Registration Statement on Form
8-B filed on May 15, 1992 and incorporated herein by reference.
(4) Previously filed with the Commission as an exhibit to the
Registrant's Registration Statement on Form 8-B dated August 6,
1991 and incorporated herein by reference.
(5) Previously filed with the Commission as an exhibit to the
Registrant's Proxy Statement dated August 10, 1992 and
incorporated herein by reference.
(6) Previously filed with the Commission as an exhibit to the
Registrant's Proxy Statement dated August 14, 1991 and
incorporated herein by reference.
(7) Previously filed with the Commission as an exhibit to Par's Proxy
Statement dated August 16, 1990 and incorporated herein by
reference.
(8) Previously filed with the Commission as an exhibit to Par's
Registration Statement on Form S-1 (Commission No. 2-86614) and
incorporated herein by reference.
(9) Previously filed with the Commission as an Exhibit to Par's Annual
Report on Form 10-K for 1990 and incorporated herein by reference.
(10) Previously filed with the Commission as an exhibit to Par's
Registration Statement on Form S-1 (Commission No. 33-4533) and
incorporated herein by reference.
(11) Previously filed with the Commission as an exhibit to the
Registrant's Annual Report on Form 10-K for 1992 and incorporated
herein by reference.
(12) Previously filed with the Commission as an exhibit to Par's Annual
Report on Form 10-K for 1989 and incorporated herein by reference.
(13) Previously filed with the Commission as an exhibit to the
Registrant's Annual Report on Form 10-K for 1996 and incorporated
herein by reference.
31
<PAGE>
(14) Intentionally omitted.
(15) Previously filed with the Commission as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
April 2, 1994 and incorporated herein by reference.
(16) Previously filed with the Commission as an exhibit to the
Registrant's Annual Report on Form 10-K for 1995 and incorporated
herein by reference.
(17) Previously filed with the Commission as an exhibit to the
Registrant's Report on Form 8-K dated May 2, 1995 and incorporated
herein by reference.
(18) Previously filed with the Commission as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 28, 1996 and incorporated herein by reference.
(19) Previously filed with the Commission as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 29, 1997 and incorporated herein by reference.
(20) Previously filed with the Commission as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997 and incorporated herein by reference.
* Certain portions of Exhibit 10.14 have been omitted and have been filed with
the Commission pursuant to a request for confidential treatment thereof.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: December 19, 1997 PHARMACEUTICAL RESOURCES, INC.
------------------------------
(REGISTRANT)
By: /s/ Kenneth I. Sawyer
-------------------------------------
Kenneth I. Sawyer
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Kenneth I. Sawyer President, Chief Executive Officer, December 19, 1997
- ------------------------ and Chairman of the Board of
Kenneth I. Sawyer Directors
/s/ Dennis J. O'Connor Vice President, Chief Financial December 19, 1997
- ------------------------ Officer and Secretary (Principal
Dennis J. O'Connor Accounting and Financial Officer)
/s/ Mark Auerbach Director December 19, 1997
- ------------------------
Mark Auerbach
/s/ Andrew Maguire Director December 19, 1997
- ------------------------
Andrew Maguire
/s/ H. Spencer Matthews Director December 19, 1997
- ------------------------
H. Spencer Matthews
/s/ Robin O. Motz Director December 19, 1997
- ------------------------
Robin O. Motz
/s/ Melvin Van Woert Director December 19, 1997
- ------------------------
Melvin Van Woert
33
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FILED WITH THE ANNUAL REPORT OF THE
COMPANY ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
PAGE
----
INCLUDED IN PART II:
- -------------------
Report of Independent Public Accountants F-2
Consolidated Balance Sheets at September 30, 1997 and
September 30, 1996 F-3
Consolidated Statements of Operations and Retained Earnings
(Deficit) for the years ended September 30, 1997, September
30, 1996 and September 30, 1995 F-4
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, September 30, 1996 and September 30, 1995 F-5
Notes to Consolidated Financial Statements F-6 through F-18
INCLUDED IN PART IV:
- -------------------
SCHEDULE:
II Valuation and qualifying accounts F-19
_________________________________________________
Other financial statement schedules are omitted because the conditions
requiring their filing do not exist or the information required thereby is
included in the financial statements filed, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Pharmaceutical Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Pharmaceutical
Resources, Inc. (a New Jersey corporation) and subsidiaries as of September 30,
1997 and 1996, and the related consolidated statements of operations and
retained earnings (deficit) and cash flows for each of the three years in the
period ended September 30, 1997. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pharmaceutical Resources, Inc.
and subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
November 25, 1997
F-2
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
ASSETS 1997 1996
------ -------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 181,000 $ 299,000
Temporary investments 15,000 158,000
Accounts receivable, net of allowances of $5,109,000
and $2,643,000 11,414,000 7,645,000
Inventories 13,239,000 19,352,000
Prepaid expenses and other current assets 3,306,000 3,894,000
------------ -----------
Total current assets 28,155,000 31,348,000
Property, plant and equipment, at cost less
accumulated depreciation and amortization 27,832,000 26,068,000
Deferred charges and other assets 2,102,000 1,222,000
Investment in marketable securities - 8,672,000
Investment in joint venture - 3,028,000
Non-current deferred tax benefit, net 14,608,000 14,608,000
------------ -----------
Total Assets $ 72,697,000 $84,946,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 218,000 $ 2,142,000
Short-term debt 3,947,000 -
Accounts payable 5,120,000 4,163,000
Accrued salaries and employee benefits 1,755,000 3,299,000
Accrued expenses and other current liabilities 1,156,000 1,028,000
------------ -----------
Total current liabilities 12,196,000 10,632,000
Long-term debt, less current portion 2,651,000 2,971,000
Accrued pension liability 582,000 719,000
Shareholders' equity:
Common Stock, par value $.01 per share; authorized 60,000,000 shares;
issued and outstanding 18,874,216 and 18,661,869 shares 189,000 187,000
Additional paid in capital 67,520,000 67,081,000
Accumulated deficit (10,410,000) (1,509,000)
Additional minimum liability related to defined benefit pension plan (31,000) (117,000)
Unrealized gain on investment - 4,982,000
------------ -----------
Total shareholders' equity 57,268,000 70,624,000
------------ -----------
Total liabilities and shareholders' equity $ 72,697,000 $84,946,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 53,172,000 $ 57,959,000 $66,503,000
Cost of goods sold 49,740,000 48,299,000 45,514,000
------------ ------------ -----------
Gross margin 3,432,000 9,660,000 20,989,000
Operating expenses:
Research and development 5,843,000 5,160,000 5,487,000
Selling, general and administrative 12,461,000 17,168,000 16,192,000
Restructuring charge - 549,000 -
------------ ------------ -----------
Total operating expenses 18,304,000 22,877,000 21,679,000
------------ ------------ -----------
Operating loss (14,872,000) (13,217,000) (690,000)
Settlements - - 2,029,000
Other income 6,968,000 2,557,000 608,000
Interest expense (587,000) (432,000) (499,000)
------------ ------------ -----------
Income (loss) from continuing operations
before provision for income taxes (8,491,000) (11,092,000) 1,448,000
Provision for income taxes 410,000 - 836,000
------------ ------------ -----------
Income (loss) from continuing operations (8,901,000) (11,092,000) 612,000
Income from discontinued operations - 2,800,000 -
------------ ------------ -----------
NET INCOME (LOSS) (8,901,000) (8,292,000) 612,000
Dividend on preferred stock - - 7,000
Retained earnings (deficit), beginning of year (1,509,000) 6,783,000 6,164,000
------------ ------------ -----------
Retained earnings (deficit), end of year $(10,410,000) $ (1,509,000) $ 6,783,000
============ ============ ===========
Income (loss) per share of common stock:
Continuing operations $(.48) $(.60) $.04
Discontinued operations - .15 -
----- ----- ----
NET INCOME (LOSS) $(.48) $(.45) $.04
===== ===== ====
Weighted average number of common and
common equivalent shares outstanding 18,681,017 18,467,248 17,143,381
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(8,901,000) $ (8,292,000) $ 612,000
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Common stock for research and development expense - - 150,000
Payment of tax audit settlement - - (995,000)
Income from discontinued operations - (2,800,000) -
Restructuring charge - 549,000 -
Gain on sale of investments (2,880,000) (1,859,000) -
Gain on sale of fixed assets (100,000) (53,000) (52,000)
Joint venture research and development 773,000 499,000 -
Provision for income taxes - - 836,000
Depreciation and amortization 2,758,000 2,873,000 2,588,000
Allowances against accounts receivable (2,466,000) (1,055,000) (1,180,000)
Write-off of inventories 1,630,000 1,395,000 2,203,000
Other - 158,000 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,303,000) 2,421,000 1,516,000
Decrease (increase) in inventories 4,483,000 (5,383,000) (1,215,000)
Decrease (increase) in prepaid expenses
and other assets 533,000 (1,431,000) (899,000)
Increase (decrease) in accounts payable 732,000 (2,398,000) 822,000
(Decrease) increase in accrued expenses
and other liabilities (1,467,000) 625,000 (734,000)
---------- ----------- ---------
Net cash (used in) provided by operating activities (6,208,000) (14,751,000) 3,652,000
Cash flows from investing activities:
Capital expenditures (1,049,000) (4,746,000) (3,975,000)
Proceeds from sale of fixed assets 477,000 293,000 106,000
Investment in joint venture - (1,470,000) (2,037,000)
Acquisition of businesses net of cash acquired (311,000) - -
Decrease (increase) in marketable securities 6,570,000 1,669,000 (2,520,000)
Decrease (increase) in temporary investments 143,000 113,000 (95,000)
--------- ---------- ----------
Net cash provided by (used in) investing activities 5,830,000 (4,141,000) (8,521,000)
Cash flows from financing activities:
Proceeds from issuance of common stock 72,000 1,826,000 21,661,000
Net proceeds from revolving credit line, proceeds
from issuance of notes payable and other debt 3,947,000 4,843,000 2,315,000
Principal payments under long-term debt
and other borrowings (3,759,000) (5,459,000) (3,946,000)
Payments due to stock conversion - (5,000) -
Preferred dividends paid - - (305,000)
---------- ---------- ---------
Net cash provided by financing activities 260,000 1,205,000 19,725,000
Net (decrease) increase in cash and cash equivalents (118,000) (17,687,000) 14,856,000
Cash and cash equivalents at beginning of year 299,000 17,986,000 3,130,000
----------- ------------ -----------
Cash and cash equivalents at end of year $ 181,000 $ 299,000 $17,986,000
=========== ============ ===========
Supplemental disclosure of cash flow information
Non-cash investing activities:
Assets assumed in the acquisition of business $ 4,233,000 - -
Liabilities assumed in the acquisition of business 240,000 - -
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Pharmaceutical Resources, Inc. ("PRI") operates in one business segment, the
manufacture and distribution of generic pharmaceuticals. Marketed products are
principally in solid oral dosage form (tablet, caplet and two-piece hard-shell
capsule), with one product in the semi-solid form of a cream.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of PRI and its
wholly-owned subsidiaries, of which Par Pharmaceutical, Inc. ("Par") is its
principal operating subsidiary. References herein to the "Company" refer to PRI
and its subsidiaries. In August 1997, the Company purchased the 51% ownership
interest of Clal Pharmaceutical Industries Ltd. ("Clal") in its research and
development joint venture, located in Israel, in which PRI had previously owned
49%. The acquisition was accounted for as a purchase and the consolidated
financial statements include the operating results from the date of acquisition.
The consolidated balance sheet at September 30, 1997 reflects the allocation of
the purchase price at the date of acquisition. Prior to acquisition the
investment in the joint venture was accounted for by the equity method.
Certain items on the consolidated financial statements for the prior years
have been reclassified to conform to the current year financial statement
presentation.
Use of Estimates:
The financial statements are prepared in conformity with generally accepted
accounting principles and, accordingly, include amounts that are based on
management's best estimates and judgments.
Accounting Period:
In fiscal 1996, the Company changed its fiscal year end from the Saturday
nearest to September 30 to September 30. This change had no material impact on
the fiscal 1996 year end results.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out basis) or
market value.
Depreciation and Amortization:
Property, plant and equipment are depreciated straight-line over their
estimated useful lives which range from three to forty years. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
term of the lease.
Research and Development:
Research and development expenses represent costs incurred by the Company to
develop new products and obtain premarketing regulatory approval for such
products. All such costs are expensed as incurred.
Income Taxes:
Deferred income taxes are provided for the future tax consequences
attributable to differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases. Business tax
credits and net operating loss carryforwards are recognized to the extent that
the ultimate realization of such benefit is more likely than not.
F-6
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
Revenue Recognition:
The Company recognizes revenue at the time product is shipped and it provides
for returns and allowances based upon actual subsequent allowances and
historical trends.
Per Share Data:
Per share data is based upon the weighted average number of common shares and
equivalents outstanding. For purposes of per share data, the Series A
Convertible Preferred Stock was considered to be a Common Stock equivalent. The
dilutive effect of outstanding options and warrants is computed using the
"treasury stock" method. Fully dilutive has not been presented because it is not
materially different from primary amounts.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 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
fiscal 1997, SFAS 128 would not have had an impact on reported earnings per
share.
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all highly
liquid money market instruments with original maturity of three months or less
to be cash equivalents. At September 30, 1997, cash equivalents were deposited
in financial institutions and consisted of immediately available fund balances.
Fair Value of Financial Instruments:
The carrying amounts of the Company's accounts receivable, accounts payable,
accrued liabilities and debt approximate fair market value based upon the
relatively short-term nature of these financial instruments.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to credit risk
consist of trade receivables. The Company markets its products primarily to
domestic wholesalers, distributors, repackagers and retail drug store chains.
The risk associated with this concentration is believed by the Company to be
limited due to the number of wholesalers, distributors, repackagers and drug
store chains, their geographic dispersion and the performance of certain credit
evaluation procedures (see "Accounts Receivable-Major Customers").
ACQUISITION OF JOINT VENTURE:
In May 1995, the Company and Clal formed a limited partnership located in
Israel and organized under the laws of the State of Israel, to develop,
manufacture and distribute generic pharmaceutical products worldwide. In August
1997, the Company acquired Clal's 51% ownership interest in the joint venture in
which PRI previously had owned 49%. The joint venture was renamed Israel
Pharmaceutical Resources L.P. ("IPR"). The Company, through one of its
subsidiaries, acquired Clal's ownership interest for $447,000 in cash obtained
from the sale of its holdings in Fine-Tech Ltd. ("Fine-Tech"), an Israeli
pharmaceutical research and development company in which Clal had a significant
ownership interest, and a non-recourse secured promissory note for $1,500,000
due in January 2003. The Company has the unconditional option to prepay the
note for $600,000 by August 12, 1998. The Company is obligated to invest not
less than $1,500,000 each year in IPR until the note is repaid. PRI may
relocate part of IPR's operations to the United States. In addition, the
Company and Clal agreed to modify certain terms of Clal's investment in the
Company, including the surrender by Clal of warrants to purchase approximately
2,005,000 shares of Common Stock of the Company in exchange for the issuance to
Clal of 186,000 shares of the Company's Common Stock for nominal consideration.
At September 30, 1997, Clal owned approximately 12% of PRI's outstanding Common
Stock.
IPR assets included cash, equipment, formulation and research on products
currently under development, all future rights to potential revenues and profits
and all international marketing and distribution rights of products
F-7
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
developed by IPR. The estimated fair market value of the assets and liabilities
of IPR at acquisition were as follows (in thousands):
ASSETS:
Cash and cash equivalents $ 407
Current assets 79
------
486
Property, plant and equipment (net) 4,154
LIABILITIES:
Accounts payable and accrued expenses $ 225
Long term liability 15
DISCONTINUED OPERATIONS:
In September 1996, the Company recorded $2,800,000 as income from
discontinued operations, reversing the remaining reserves of Quad
Pharmaceuticals, Inc., a wholly owned subsidiary of Par whose operations were
discontinued in fiscal 1991. The income from discontinued operations does not
reflect any tax effect.
SETTLEMENTS:
In fiscal 1995, the Company settled claims against former management members
of the Company for recovery of, among other things, salaries and money paid for
indemnification. The total amount of the settlement was $2,029,000, which was
collected between February and April of 1995.
ACCOUNTS RECEIVABLE:
1997 1996
------- -------
(In Thousands)
Accounts receivable $16,523 $10,288
------- -------
Allowances:
Doubtful accounts 685 694
Returns and allowances 544 251
Price adjustments 3,880 1,698
------- -------
5.109 2,643
------- -------
Accounts receivable,
net of allowances $11,414 $ 7,645
======= =======
Major Customers:
Three of the Company's customers accounted for approximately 16%, 11% and 10%
of net sales in fiscal 1997, 7%, 7% and 11% of net sales in fiscal 1996, and 5%,
3% and 6% of net sales in fiscal 1995.
At September 30, 1997, amounts due from these same three customers accounted
for approximately 10%, 26% and 12% of the net accounts receivable balance. At
September 30, 1996, the amounts due from these same three customers accounted
for approximately 6%, 16% and 23% of the net accounts receivable balance.
F-8
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
INVENTORIES:
1997 1996
------- -------
(In Thousands)
Raw materials and supplies $ 6,439 $11,130
Work in process and finished goods 6,800 8,222
------- -------
$13,239 $19,352
======= =======
INVESTMENTS:
As part of a 1994 distribution agreement with Sano Corporation ("Sano), the
Company invested $3,500,000 in the preferred stock of Sano in the prior years
(see "--Distribution Agreements"). In November 1995, Sano sold common stock
through an initial public offering and the Company's preferred stock converted
into 513,887 shares of common stock. In fiscal 1996, the Company sold 135,000
shares of its Sano stock resulting in a gain of $1,859,000. In fiscal 1997, the
Company sold the remaining 378,887 shares of the stock resulting in a gain of
$3,433,000 (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Results of Operations-Other Income"). The investment was
classified as an "available for sale security" pursuant to SFAS No. 115. This
standard requires that certain investments in debt and equity securities be
adjusted to fair market value at the end of each accounting period and
unrealized gains or losses recorded as a separate component of shareholders'
equity. In accordance with SFAS No. 115, the investment was carried at its fair
market value on September 30, 1996 of $20 1/4 per share, or $7,672,000, and the
unrealized gain on the investment of $4,982,000 was reflected as a separate
component in shareholders' equity.
The Company has advanced $2,258,000, $2,942,000 and $1,429,000 in fiscal
1997, 1996 and 1995, respectively, to Sano as funding for the research and
development costs of the generic transdermal products. Due to the uncertainty
with respect to the collectability of such advances, the Company has expensed
them and will treat them as a reduction of research and development expense if
repaid. In November 1995, the Company received $1,500,000 from the proceeds of
Sano's initial public offering in repayment of a portion of total advances
outstanding from the Company. The Company has reflected this as a reduction of
research and development expense in fiscal 1996. Pursuant to an amendment to
the Sano distribution agreement in which the Company ceded certain distribution
rights, the Company has recorded $3,900,000 in other income in fiscal 1997 (see
"--Distribution Agreements").
In December 1995, the Company purchased a 10% interest in Fine-Tech, an
Israeli pharmaceutical research and development company in which Clal had a
significant ownership interest, for $1,000,000. In addition, the Company
obtained certain exclusive rights to purchase products from Fine-Tech not
commonly sold in North America, South America or the Caribbean. In June 1997,
the Company sold all the shares of Fine-Tech for $447,000 and recorded a loss on
the sale in the current period. During fiscal 1997, the Company did not
purchase raw materials from Fine-Tech compared to approximately $1,500,000 of
raw materials purchased in fiscal 1996.
PROPERTY, PLANT AND EQUIPMENT:
1997 1996
------- -------
(In Thousands)
Land $ 2,230 $ 2,230
Buildings 18,509 17,237
Machinery and equipment 16,810 20,532
Office equipment, furniture and fixtures 3,838 5,863
Leasehold improvements 4,297 944
------- -------
45,684 46,806
Less accumulated depreciation
and amortization 17,852 20,738
------- -------
$27,832 $26,068
======= =======
F-9
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
DISTRIBUTION AGREEMENTS:
In April, 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 agreed to phase out its manufacturing of those products.
BASF agreed to discontinue its direct sale of those products. 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 transferred to Par the marketing and sales of certain products covered
by the Supply Agreement in June 1997 and the agreement became fully implemented
in August 1997.
The Company has a distribution agreement with Sano which gives Par the right
to exclusively distribute three of Sano's generic transdermal products in the
United States. Sano develops transdermal delivery systems utilizing a patch
that incorporates the appropriate drug dosage into an adhesive that attaches the
patch to the skin. The Company amended its 1994 distribution agreement in July
1997 ceding its distribution rights to three products for which submissions have
not yet been filed with the U.S. Food and Drug Administration ("FDA"), while
retaining exclusive United States distribution rights to three products, a
nicotine transdermal patch and two nitroglycerin transdermal patches. In
addition, PRI 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 up to $1,500,000 of certain of its prior payments to Sano
from the gross profits earned on sales of two of the retained products. The
Company intends to purchase manufactured products from Sano, when approved by
the FDA, at cost and share in the gross profits from the sale.
SHORT-TERM DEBT:
In December 1996, Par entered into a Loan and Security Agreement (the "Loan
Agreement") with General Electric Capital Corporation ("GECC") which provided
Par with a three-year revolving line of credit. 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 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. In fiscal year 1997, GECC waived events
of default on three occasions unrelated to the repayment of debt under the Loan
Agreement. As of September 30, 1997, the borrowing base was approximately
$10,900,000 and $3,947,000 was outstanding under the line of credit. Any
significant reduction in the borrowing base from current levels will adversely
affect the Company's liquidity.
LONG-TERM DEBT:
F-10
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
At September 30, 1997, the Company's long-term debt of $2,869,000 consisted
primarily of a non-recourse promissory note secured by the 51% interest in IPR
purchased from Clal (see "--Acquisition of Joint Venture") and a mortgage loan,
secured by the assets of the Company. At September 30, 1997, the Company had
also borrowed $167,000 under a line of credit. The interest rate is based on
the prime rate plus a premium and the line of credit is collateralized by the
equipment purchased.
1997 1996
------ -----
(In Thousands)
Term loans (a) $1,117 4,683
Promissory note (b) 1,500 -
Other (c) 252 430
------ ------
2,869 5,113
Less current portion 218 2,142
------ ------
$2,651 $2,971
====== ======
(a) Mortgage loan with a fixed rate of 8.5% until May 1999, at which time the
fixed rate will be reset, paid in monthly installments until May 2001 when
the remaining balance of $877,000 becomes due. Two additional loans in
fiscal 1996 were paid in full pursuant to the Loan Agreement with GECC
(see "--Short-Term Debt").
(b) Non-recourse secured promissory note bearing interest at 7%. The first
installment is due in July 1999, with the remaining seven installments due
each January and July through and including January 2003. The Company has
the unconditional option to prepay the note for $600,000 on or before
August 12, 1998.
(c) Includes amount outstanding under line of credit with interest based upon
prime rate in effect at the time of borrowing, with a minimum of 1/2 of 1%
per annum premium which increases based upon the length of time the loan
is outstanding. Also includes amounts due under a capital lease.
Long-term debt maturities during the next five years, including the portion
classified as current, are $218,000 in 1998, $356,000 in 1999, $442,000 in 2000,
$1,291,000 in 2001, $375,000 in 2002 and $187,000 thereafter.
During the fiscal 1997, 1996 and 1995, the Company incurred total interest
expense of $587,000, $432,000, and $499,000, respectively. Interest paid
approximated interest expense in each of the years.
SHAREHOLDERS' EQUITY:
Preferred Stock:
In 1990, the Company's shareholders authorized 6,000,000 shares of a newly
created class of preferred stock with a par value of $.0001 per share. The
preferred stock is issuable in such series and with such dividend rates,
redemption prices, preferences and conversion or other rights as the Board of
Directors may determine at the time of issuance.
Pursuant to a settlement of shareholder litigation reached in 1991, 2,000,000
shares of Series A Convertible Preferred Stock (the "Preferred Stock") had been
issued in 1992. In fiscal 1995, the Company converted each remaining
outstanding share of Preferred Stock into 1.1 shares of Common Stock for an
aggregate of 1,055,815 shares of Common Stock.
Common Stock:
In May 1995, the Company sold 2,027,272 shares of Common Stock for $20,000,000
($9.87 per share) to Clal as part of a strategic alliance and formation of a
research and development joint venture with Clal. Clal also
F-11
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
received two three-year warrants to purchase up to 2,005,107 shares of Common
Stock at prices between $11 and $12 per share. In connection with the
acquisition of Clal's interest in IPR by the Company in August 1997, the Company
and Clal agreed to modify certain terms of Clal's investment in the Company,
including the surrender by Clal of the warrants in exchange for the issuance to
Clal of 186,000 shares of the Company's Common Stock (see "--Acquisition of
Joint Venture"). In fiscal 1996, Clal purchased an additional 100,000 shares of
the Company's Common Stock from a third party. At September 30, 1997, Clal owned
approximately 12% of the Company's outstanding Common Stock.
Dividend:
The fiscal 1994 dividend on Preferred Stock was paid in February 1995. There
was no dividend on Common Stock in fiscal 1995, 1996 or 1997.
Changes in Shareholders' Equity:
Changes in the Company's Common Stock, Preferred Stock and Additional Paid in
Capital accounts during fiscal 1995, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
Series A Convertible Additional
Preferred Stock Common Stock Paid In
Shares Amount Shares Amount Capital
---------------- ------------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1994 1,058,400 $ 1,000 14,482,632 $145,000 $43,066,000
Exercise of stock options - - 424,750 4,000 2,247,000
Exercise of warrants - - 45,000 - 270,000
Investment shares issued - - 2,042,272 21,000 19,139,000
Conversion of preferred shares (1,058,400) (1,000) 1,153,647 12,000 (32,000)
Compensatory arrangements - - 20,324 - 586,000
--------------- ------------ ---------- -------- -----------
Balance, September 30, 1995 - - 18,168,625 182,000 65,276,000
Exercise of stock options - - 470,000 5,000 1,017,000
Investment shares issued - - - - (12,000)
Conversion of preferred shares - - - - (5,000)
Compensatory arrangements - - 23,244 - 805,000
--------------- ------------ ---------- -------- -----------
Balance, September 30, 1996 - - 18,661,869 187,000 67,081,000
Investment shares issued - - 186,000 2,000 370,000
Compensatory arrangements - - 26,347 - 69,000
--------------- ------------ ---------- -------- -----------
Balance, September 30, 1997 - - 18,874,216 $189,000 $67,520,000
=============== ============ ========== ======== ===========
</TABLE>
Share Purchase Rights Plan:
Each share of Common Stock outstanding carries with it one Common Share
Purchase Right ("Right"). Generally, the Rights will become exercisable only if
a person or group has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the Common Stock, or if the Board of Directors has
determined that a person or group has sought control of the Company with the
result that control by such person or group ("Disqualifying Persons") would be
detrimental to the maintenance, renewal or acquisition of the Company's
governmental or regulatory approvals. If a person or group thereafter acquires
beneficial ownership of 25% or more of the outstanding Common Stock or if the
Board of Directors determines that there is a reasonable likelihood that control
of the Company by a Disqualifying Person would result in the loss of, or denial
of approval for, any governmental or regulatory approval of the Company, each
outstanding Right not owned by such person or group would entitle the holder to
purchase, for $25 (the exercise price of the Right), Common Stock having a
market value of $50. Under certain other circumstances, including the
acquisition of the Company in a merger or other business combination, each Right
not owned by the acquiring party will entitle the holder to purchase for $25,
securities of the acquirer having a market value of $50. The Rights are subject
to redemption by the Company at a redemption price of $.01 per Right.
Employee Stock Purchase Program:
The Company maintains an Employee Stock Purchase Program ("Program"). The
Program is designed to qualify as an employee stock purchase plan under Section
423 of the Internal Revenue Code of 1986, as amended.
F-12
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
It enables eligible employees to purchase shares of Common Stock at a discount
of up to 15% from the fair market value. An aggregate of 1,000,000 shares of
Common Stock have been reserved for sale to employees under the Program.
Employees purchased 26,347 shares, 23,244 shares and 18,074 shares during fiscal
1997, 1996 and 1995, respectively. At September 30, 1997, 890,944 shares remain
available for sale under the Program.
Stock Options:
The following is a summary of stock option activity during fiscal 1997, 1996
and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ---------------------
Price Per Price Per Price Per
Shares Share Shares Share Shares Share
---------- -------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,013,750 $3.13 to 2,357,750 $2.63 to 2,533,500 $2.63 to
$13.88 $14.13 $14.13
Granted 313,900 $2.13 to 210,500 $7.00 to 289,500 $8.50 to
$3.38 $7.38 $10.63
Exercised - - (470,000) $3.50 to (424,750) $2.63 to
- $7.00 $10.50
Cancelled/Surrendered (576,250) $6.25 to (84,500) $2.63 to (40,500) $7.38 to
--------- $13.88 --------- $14.13 --------- $14.13
Outstanding at end of year 1,751,400 $2.13 to 2,013,750 $3.13 to 2,357,750 $2.63 to
========= ========= =========
$10.63 $13.88 $14.13
</TABLE>
Shareholders approved the 1995 Directors' Stock Option Plan (the "1995
Directors' Plan") through which options will be awarded to future non-employee
directors upon the date elected to the Board. Current directors are not
eligible for awards under the 1995 Directors' Plan. The Company has reserved
100,000 shares of Common Stock for issuance under the 1995 Directors' Plan.
The Company's 1990 Stock Incentive Plan (the "1990 Plan") provides for the
granting of stock options, restricted stock awards, deferred stock awards, stock
appreciation rights and other stock based awards or any combination thereof to
employees of the Company or to others. The Company has reserved 2,800,000
shares of Common Stock for issuance under the 1990 Plan.
Under the 1989 Directors' Stock Option Plan (the "Directors' Plan"), options
were granted to directors of the Company who are not employees of the Company or
are otherwise ineligible to receive options under any other plan adopted by the
Company. The Company has reserved 550,000 shares of Common Stock for issuance
under the Directors' Plan. The Company does not intend to grant further options
under this Plan.
The Company's 1986 Stock Option Plan provides that options may be granted to
employees of the Company or to others for the purchase of up to 900,000 shares
of the Company's Common Stock. Options granted under the Plan may be incentive
stock options or nonqualified options. The Company may not grant further
options under this Plan.
At September 30, 1997 and September 30, 1996, options for 1,120,850 and
388,000 shares, respectively, were available for future grant under the various
stock option plans.
F-13
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company adopted the disclosure provisions of
SFAS 123 in 1997, but opted to remain under the expense recognition provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", in accounting for stock option plans. Had compensation expense for
stock options granted under the Plan been determined based on fair value at the
grant dates consistent with the disclosure method required for 1997 in
accordance with SFAS 123, the Company's net loss for 1997 and 1996 would have
increased to the pro forma amounts shown below:
1997 1996
---- ----
Net loss: (In Thousands)
As reported $(8,901) $(8,292)
Pro forma $(9,076) $(8,568)
Net loss per share:
As reported $ (.48) $ (.45)
Pro forma $ (.49) $ (.46)
The weighted average fair value of options granted in 1997 and 1996 was
estimated as of the date of grant using the Black-Scholes stock option pricing
model, based on the following weighted average assumptions:
1997 1996
---- ----
Risk free interest rate 6.3% 6.0%
Expected term 5.0 years 3.4 years
Expected volatility 64.1% 64.1%
No dividend will be paid for the entire term of the option.
INCOME TAXES:
In February 1992, the FASB issued SFAS No. 109 "Accounting for Income Taxes"
("SFAS 109"), which required the Company to recognize deferred tax assets and
liabilities for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, SFAS 109 required the recognition of
future tax benefits, such as net operating loss ("NOL") carryforwards, to the
extent that realization of such benefits is more likely than not. The Company
adopted the new accounting standard during the quarter ended January 1, 1994
and, as a result, recognized future tax benefits of $14,128,000 which were
reflected as the cumulative effect of a change in accounting principle in fiscal
1994.
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 did not recognize a benefit for its
operating losses in either fiscal 1997 or 1996. Based on recent events
including the Supply Agreement with BASF, cost reductions and process
improvements, and a commitment to research and development of new products
management believes that its valuation allowance is adequate. However, there
can be no assurance that the Company will generate taxable earnings or any
specific level of continuing earnings in the future. 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. At September 30, 1997,
the Company had NOL carryforwards for tax purposes of approximately $56,000,000
that expire in September 2006 through September 2012.
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.
F-14
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities are as follows:
September 30, September 30,
1997 1996
------------- -------------
Deferred assets: (In Thousands)
Federal NOL carryforwards $19,250 $17,598
Accounts receivable 2,044 1,058
Accrued expenses 448 830
Research and development expenses 637 1,194
Inventory 463 302
State tax NOL 2,192 1,603
Taxes payable to the IRS - 171
Other 629 630
------- -------
25,663 23,386
Valuation allowance (8,308) (5,978)
------- -------
17,355 17,408
Deferred liabilities:
Fixed assets 2,747 2,800
------- -------
Net deferred assets $14,608 $14,608
======= =======
Included in the recognition of future tax benefits is approximately $1,678,000
of stock option compensation credited to additional capital. Of this amount,
$1,244,000 was recorded upon adoption of SFAS 109 and $434,000 was credited in
fiscal 1995. A valuation allowance was recorded in fiscal 1996 and 1995 for an
additional $683,000 and $558,000, respectively, related to stock option
compensation which will be credited to equity upon utilization of tax
carryforwards.
The components of income tax expense are as follows:
1997 1995
---- ----
(In Thousands)
Federal:
Current $ 410 $1,769
Deferred - (995)
----- ------
$ 410 $ 774
----- ------
State:
Current - 62
Deferred - -
----- ------
- 62
----- ------
$ 410 $ 836
===== ======
The table below provides the details of the differences between the provision
for income taxes and the amount determined by multiplying income before income
taxes by the applicable federal statutory rate:
1997 1995
----- -----
Statutory tax rate - 34%
State tax - net - 6%
Interest on IRS settlement - net 5% 18%
---- ----
Effective tax rate 5% 58%
==== ====
F-15
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
Leases:
At September 30, 1997, the Company had minimum rental commitments
aggregating $2,674,000 under noncancelable operating leases expiring through
2004. Amounts payable thereunder are $615,000 in fiscal 1998, $375,000 in
fiscal 1999, $311,000 in fiscal 2000, $314,000 in fiscal 2001, $319,000 in
fiscal 2002, and $740,000 thereafter. Rent expense charged to operations in
fiscal 1997, 1996 and 1995 was $932,000, $863,000, and $811,000, respectively.
Retirement Plans:
The Company has a defined contribution, social security integrated
Retirement Plan providing retirement benefits to eligible employees as defined
in the Plan. The Board of Directors of Par authorized the cessation of employer
contributions effective December 30, 1996. Consequently, participants in the
Retirement Plan are no longer entitled to any employer contributions under such
plan for 1996 or subsequent years. The Company also maintains a Retirement
Savings Plan 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. The Company's provisions for
these plans and the defined benefit plan discussed below were $344,000 (reduced
by $22,000 in forfeitures) in fiscal 1997, $729,000 in fiscal 1996 (reduced by
$24,000 in forfeitures) and $1,107,000 in fiscal 1995 (reduced by $289,000 in
forfeitures). In fiscal 1998, the Company intends to merge the Retirement Plan
into the Retirement Savings Plan.
The Company maintains a Defined Benefit Pension Plan covering eligible
employees as defined in the Plan, which was frozen October 1, 1989. Since the
benefits under this Plan are based on the participants' length of service and
compensation (subject to Employee Retirement Income Security Act of 1974 and
Internal Revenue Service limitations), service costs subsequent to October 1,
1989 are excluded from benefit accruals under the Plan. The funding policy for
this Plan is to contribute amounts actuarially determined as necessary to
provide sufficient assets to meet the benefit requirements of the Plan retirees.
The assets of the Plan are invested in mortgages and bonds.
Net pension expense for fiscal 1997, 1996 and 1995 included the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Interest cost $ 135 $ 132 $ 129
Actual return on assets (167) (71) (200)
Net amortization and deferral:
Asset gain (loss) 58 (34) 77
Amortization of initial unrecognized transition obligation 51 51 51
Amortization of unrecognized net gain - 3 -
----- ----- -----
Net pension expense $ 77 $ 81 $ 57
===== ===== =====
</TABLE>
The discount rate used to measure the projected benefit obligation for the
Plan is 6.75%. The assumed long-term rate of return on plan assets in fiscal
1997 was 7%.
F-16
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
The Plan's funded status and the amounts recorded on the Company's
consolidated balance sheets are as follows:
1997 1996
------- -------
(In Thousands)
Vested benefit obligations $1,961 $1,989
====== ======
Accumulated benefit obligations $1,961 $1,989
====== ======
Projected benefit obligations $1,961 $1,989
Market value of assets 1,643 1,594
------ ------
Projected benefit obligation in excess of market value (318) (395)
Unrecognized net obligation 551 602
Unrecognized net loss 31 117
Adjustment for minimum liability (582) (719)
------ ------
Net recorded pension (liability) $ (318) $ (395)
In accordance with SFAS 87, the Company has recorded an additional minimum
pension liability for underfunded plans of $582,000 in fiscal 1997 and $719,000
in fiscal 1996, representing the excess of underfunded accumulated benefit
obligations over previously recorded pension cost liabilities. A corresponding
amount is recognized as an intangible asset except to the extent that these
additional liabilities exceed related unrecognized prior service cost and net
transition obligation, in which case the increase in liabilities is charged
directly to shareholders' equity. As of September 30, 1997, $31,000 of the
excess minimum pension liability resulted in a charge to equity. As of
September 30, 1996, the excess minimum liability was $117,000.
Legal Proceedings:
The Company is involved in certain litigation matters, including certain
product liability actions and actions by two former employees 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,
results of operations or liquidity.
In June 1996, the Company settled a claim with its insurance carrier, filed
in 1995, for $1,455,000 related to the interruption of business at one of its
manufacturing facilities. The settlement favorably affected gross margins by
$618,000 in the third quarter of fiscal year 1996, but did not have a material
effect on its financial condition, results of operations or liquidity for the
fiscal year.
Restructuring and Cost Reductions:
Primarily as a result of the Supply Agreement, the Company further reduced
the work force during the third quarter of fiscal 1997 by approximately forty-
five employees, primarily in manufacturing functions and a smaller number in
administrative and product development positions (see "--Distribution
Agreements"). 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 provision for the work force reduction of $280,000 and subsequent
charges are included in the fiscal 1997 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 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.
A provision of $549,000 was established for the cost of a restructuring
during fiscal 1996 and the subsequent charge to expense was classified as
"Restructuring charge" on the statement of operations. The charge
F-17
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997
included $424,000 for severance pay, employee benefits, and out placement
services and $125,000 in consulting and legal fees. The amount of actual
termination benefits paid approximated the original provision and, consequently,
no restructuring liability exists on the balance sheet at September 30, 1997.
Other Matters:
During fiscal 1997, four of the Company's products accounted for
approximately 59% of its net sales compared to 58% and 63%, respectively, of net
sales in fiscal 1996 and 1995. One of such products contributed significantly
to the sales and gross margin in all three periods. A competitor of the Company
received FDA approval for this product in fiscal 1996 where, prior to that time,
the Company had been the sole generic manufacturer. During the second half of
calendar 1995, two generic pharmaceutical manufacturers received FDA approval
for a product in which the Company had also been the sole generic manufacturer.
These products, along with one other product, had historically accounted for a
significant percentage of the Company's net sales and gross margin. Due to the
increased competition with respect to these products, the Company's sales and
gross margins have been materially and adversely affected.
F-18
<PAGE>
SCHEDULE II
PHARMACEUTICAL RESOURCES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended September 30, 1997 $694,000 $ 3,000 12,000 (a) $685,000
Year ended September 30, 1996 $208,000 $486,000 - $694,000
Year ended September 30, 1995 $124,000 $108,000 24,000 (a) $208,000
</TABLE>
Allowance for returns and price adjustments:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year ended September 30, 1997 $1,949,000 $9,698,000 7,223,000 (b) $4,424,000
Year ended September 30, 1996 $1,380,000 $5,886,000 5,317,000 (b) $1,949,000
Year ended September 30, 1995 $2,644,000 $3,632,000 4,896,000 (b) $1,380,000
</TABLE>
(a) Write-off of uncollectible accounts.
(b) Returns and allowances charged against allowance provided therefor.
F-19
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Incorporation of the Registrant. (1)
3.1.1 Certificate of Amendment to the Certificate of Incorporation of the
Registrant, dated August 6, 1992. (2)
3.2 By-Laws of the Registrant, as amended and restated. (3)
4 Rights Agreement, dated August 6, 1991, between the Registrant and
Midlantic National Bank, as Rights Agent. (4)
4.1 Amendment to Rights Agreement between the Registrant and Midlantic
National Bank, as Rights Agent, dated as of April 27, 1992. (3)
4.2 Amendment to Rights Agreement, dated as of March 24, 1995, between the
Registrant and Midlantic National Bank, as Rights Agent.
4.3 Amendment to Rights Agreement, dated as of September 18, 1997, between
the Registrant and First City Transfer Company, as Rights Agent.
10.1 1983 Stock Option Plan of the Registrant, as amended. (5)
10.2 1986 Stock Option Plan of the Registrant, as amended. (5)
10.3 1989 Directors' Stock Option Plan of the Registrant, as amended. (6)
10.4 1989 Employee Stock Purchase Program of the Registrant. (7)
10.5 1990 Stock Incentive Plan of the Registrant, as amended.
10.6 Form of Retirement Plan of Par. (8)
10.6.1 First Amendment to Par's Retirement Plan, dated October 26, 1984.
(9)
10.7 Form of Retirement Savings Plan of Par. (8)
10.7.1 Amendment to Par's Retirement Savings Plan, dated July 26, 1984.
(10)
10.7.2 Amendment to Par's Retirement Savings Plan, dated November 1, 1984.
(10)
10.7.3 Amendment to Par's Retirement Savings Plan, dated September 30,
1985. (10)
10.8 Par Pension Plan, effective October 1, 1984. (1)
10.9 Employment Agreement, dated as of October 4, 1992, among the
Registrant, Par and Kenneth I. Sawyer. (10)
10.10 Severance Agreement, dated as of October 23, 1996, between the
Registrant and Dennis J. O'Connor.
10.11 Lease for premises located at 12 Industrial Avenue, Upper Saddle
River, New Jersey, dated October 21, 1978, between Par and Charles and
Dorothy Horton, and extension dated September 15, 1983. (12)
<PAGE>
10.12 Lease Agreement, dated as of January 1, 1993, between Par and Ramapo
Corporate Park Associates. (13)
10.13 Lease Extension and Modification Agreement, dated as of August 30,
1997, between Par and Ramapo Corporate Park Associates.
10.14 Amended and Restated Distribution Agreement, dated as of July 28,
1997, among Sano Corporation, the Registrant and Par./*/
10.15 Mortgage and Security Agreement, dated May 4, 1994, between Urban
National Bank and Par. (15)
10.15.1 Mortgage Loan Note, dated May 4, 1994. (15)
10.15.2 Corporate Guarantee, dated May 4, 1994, by the Registrant to Urban
National Bank. (15)
10.16 1995 Directors Stock Option Plan. (16)
10.17 Stock Purchase Agreement, dated March 25, 1995, between the
Registrant and Clal Pharmaceutical Industries Ltd. (17)
10.18 Amendment No. 1 to Stock Purchase Agreement, dated May 1, 1995,
between the Registrant and Clal Pharmaceutical Industries Ltd. (17)
10.19 Registration Rights Agreement, dated May 1, 1995, between the
Registrant and Clal Pharmaceutical Industries Ltd. (17)
10.20 Non-Recourse Secured Promissory Note, July 28, 1997, of PRI Research,
Inc.
10.21 Third Amendment to Stock Purchase Agreement, dated July 28, 1997,
between the Registrant and Clal Pharmaceutical Industries Ltd.
10.22 Pledge Agreement, dated December 27, 1996, between Par and General
Electric Capital Corporation. (18)
10.23 Pledge Agreement, dated December 27, 1996, between the Registrant and
General Electric Capital Corporation. (18)
10.24 Loan and Security Agreement, dated December 27, 1996, between Par and
General Electric Capital Corporation. (18)
10.25 Manufacturing and Supply Agreement, dated April 30, 1997, between Par
and BASF Corporation. (19)
10.26 First Amendment and Waiver to Loan and Security Agreement, dated May
22, 1997, between Par and General Electric Capital Corporation. (20)
10.27 Second Amendment and Waiver to Loan and Security Agreement, dated as
of August 22, 1997, between Par and General Electric Capital
Corporation.
11 Computation of per share data.
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
<PAGE>
27 Financial Data Schedule.
___________
(1) Previously filed with the Securities and Exchange Commission (the
"Commission") as an exhibit to the Registrant's Annual Report on Form
10-K (Commission File No. 1-10827) for 1991 and incorporated herein by
reference.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Statement on Form 8-A (Commission File No. 0-20834) filed on November
10, 1992 and incorporated herein by reference.
(3) Previously filed with the Commission as an exhibit to Amendment No.
1 on Form 8 to the Registrant's Registration Statement on Form 8-B
filed on May 15, 1992 and incorporated herein by reference.
(4) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form 8-B dated August 6, 1991 and
incorporated herein by reference.
(5) Previously filed with the Commission as an exhibit to the Registrant's
Proxy Statement dated August 10, 1992 and incorporated herein by
reference.
(6) Previously filed with the Commission as an exhibit to the Registrant's
Proxy Statement dated August 14, 1991 and incorporated herein by
reference.
(7) Previously filed with the Commission as an exhibit to Par's Proxy
Statement dated August 16, 1990 and incorporated herein by reference.
(8) Previously filed with the Commission as an exhibit to Par's
Registration Statement on Form S-1 (Commission No. 2-86614) and
incorporated herein by reference.
(9) Previously filed with the Commission as an Exhibit to Par's Annual
Report on Form 10-K for 1990 and incorporated herein by reference.
(10) Previously filed with the Commission as an exhibit to Par's
Registration Statement on Form S-1 (Commission No. 33-4533) and
incorporated herein by reference.
(11) Previously filed with the Commission as an exhibit to the Registrant's
Annual Report on Form 10-K for 1992 and incorporated herein by
reference.
(12) Previously filed with the Commission as an exhibit to Par's Annual
Report on Form 10-K for 1989 and incorporated herein by reference.
(13) Previously filed with the Commission as an exhibit to the Registrant's
Annual Report on Form 10-K for 1996 and incorporated herein by
reference.
(14) Intentionally omitted.
(15) Previously filed with the Commission as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended April 2, 1994 and
incorporated herein by reference.
(16) Previously filed with the Commission as an exhibit to the Registrant's
Annual Report on Form 10-K for 1995 and incorporated herein by
reference.
(17) Previously filed with the Commission as an exhibit to the Registrant's
Report on Form 8-K dated May 2, 1995 and incorporated herein by
reference.
(18) Previously filed with the Commission as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 28, 1996
and incorporated herein by reference.
(19) Previously filed with the Commission as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 29, 1997 and
incorporated herein by reference.
<PAGE>
(20) Previously filed with the Commission as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1997 and
incorporated herein by reference.
* Certain portions of Exhibit 10.14 have been omitted and have been
filed with the Commission pursuant to a request for confidential treatment
thereof.
<PAGE>
EXHIBIT 4.2
AMENDMENT TO RIGHTS AGREEMENT dated March 24, 1995, to the Rights
Agreement dated August 6, 1991, as amended (the "Rights Agreement"), by and
between Pharmaceutical Resources, Inc., a New Jersey corporation ("the
"Company"), and Midlantic Bank, a national banking association (the "rights
Agent").
WHEREAS, the Board of Directors of the Company, on August 6, 1991,
authorized and adopted a share purchase rights plan (the "Plan") to protect the
Company's shareholders against unsolicited and hostile attempts to acquire
control of the Company and, in connection therewith, executed and delivered the
Rights Agreement to effectuate the terms of the Plan;
WHEREAS, the Board of Directors of the Company, on March 23, 1995,
approved and adopted an amendment to the Plan as described herein in
contemplation of a certain negotiated transaction;
WHEREAS, the Board of Directors of the Company authorized and directed
the proper officers of the Company as well as the Rights Agent to execute and
deliver this Amendment to the Rights Agreement in order to effectuate the
foregoing amendments to the Plan; and
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Rights Agreement.
NOW, THEREFORE, in consideration of the premises, the Rights Agreement
is hereby amended as follows:
Section 1. Certain Definitions. (a) The definition of "Acquiring
-------------------
Person" as set forth in the first sentence in Section 1(a) shall be amended by
deleting "or" before "(iv)" and inserting in its stead "," and by inserting the
following at the end of the first sentence thereof before the ".":
"and (v) Clal Pharmaceutical Industries Ltd. and its permitted assigns
(collectively, "Clal") under a stock purchase agreement approved by the
Board of Directors of the Company, as amended from time to time, between
the Company and Clal, so long as any acquisition or tender offer is
permitted under such stock purchase agreement"
(b) The definition of "Permitted Offer" in Section 1(n) shall be
amended in its entirety as follows:
"(n) "Permitted Offer" shall mean the following tender offers made in
the manner prescribed by Section 14(d) of the Exchange Act and the rules
and regulations promulgated thereunder: (i) a tender offer for all
outstanding Common Shares; provided, however, that such tender offer occurs
-------- -------
at a time when Continuing Directors are in office and a majority of the
Continuing Directors has determined that the offer is fair to, and
otherwise in the best interests of, the Company and its stockholders, and
(ii) a tender offer for Common Shares as permitted by a stock purchase
agreement approved by the Board of Directors of the Company, as amended
from time to time, between the Company and Clal."
1
<PAGE>
(c) The following shall be inserted before the "." in the definition
of "Person" in Section 1(o):
"; provided, however, that "Person" shall exclude Clal until such time as
-------- -------
any acquisition of or tender offer for Common Shares by Clal shall not be
permitted under a stock purchase agreement approved by the Board of
Directors of the Company, as amended from time to time, between the Company
and Clal"
(d) The following shall be inserted before the "." in the definition
of "Section 11(a)(ii)(A) Event" in Section 1(v):
"; provided, however, in no event shall an acquisition of or tender offer
-------- -------
for Common Shares by Clal constitute a Section 11(a)(ii)(A) Event until
such time as any such acquisition or tender offer shall no longer be
permitted under a stock purchase agreement approved by the Board of
Directors of the Company, as amended from time to time, between the Company
and Clal"
(e) The following shall be inserted before the "." in the definition
of "Section 13 Event" in Section 1(w):
"; provided, however, in no event shall an acquisition of or tender offer
-------- -------
for Common Shares by Clal constitute a Section 13 Event until such time as
any such acquisition or tender offer shall no longer be permitted under a
stock purchase agreement approved by the Board of Directors of the Company,
as amended from time to time, between the Company and Clal"
Section 2. Authority for Amendment. This Amendment is being
------------------------
executed and delivered as of the date hereof by the Company and the Rights Agent
pursuant to and in accordance with Section 27 of the Rights Agreement. By
executing this Amendment, the Company hereby certifies to the Rights Agent that
this Amendment is in compliance with Section 27 of the Rights Agreement. Except
as otherwise amended hereby, all the provisions of the Rights Agreement shall
remain in full force and effect. This Amendment shall be deemed to be a part
of, and shall be construed as part of, the Rights Agreement.
IN WITNESS HEREOF, the parties hereby have caused this Amendment to be
duly executed as of the date first above written.
PHARMACEUTICAL RESOURCES, INC.
By/s/Kenneth I. Sawyer
--------------------------------
Title: President
MIDLANTIC BANK, N.A.
By/s/Devorah H. Rosen
--------------------------------
Title: Devorah H. Rosen
Assistant Vice President
2
<PAGE>
EXHIBIT 4.3
AMENDMENT TO RIGHTS AGREEMENT dated September 18, 1997, to the Rights
Agreement dated August 6, 1991, as amended (the "Rights Agreement"), by and
between Pharmaceutical Resources, Inc., a New Jersey corporation (the
"Company"), and First City Transfer Company (the "Rights Agreement"), as
successor to Midlantic Bank.
WHEREAS, the Board of Directors of the Company, on August 6, 1991,
authorized and adopted a share purchase rights plan (the "Plan") to protect the
Company's shareholders against unsolicited and hostile attempts to acquire
control of the Company and, in connection therewith, executed and delivered the
Rights Agreement to effectuate the terms of the Plan;
WHEREAS, the Plan was amended, on March 23, 1995, in contemplation of
a certain negotiated transaction with Clal Pharmaceutical Industries Ltd.;
WHEREAS, the Board of Directors of the Company, on July 28, 1997,
approved an amendment to the Plan as described herein in contemplation of
modifications to such negotiated transaction;
WHEREAS, the Board of Directors of the Company authorized and directed
the proper officers of the Company as well as the Rights Agent to execute and
deliver this Amendment to the Rights Agreement in order to effectuate the
foregoing amendments to the Plan; and
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Rights Agreement.
NOW, THEREFORE, in consideration of the premises, the Rights Agreement
is hereby amended as follows:
Section 1. Certain Definitions. Section 1(a)(v) of the Rights
-------------------
Agreement shall be amended in its entirety as follows:
"(v) Clal Pharmaceutical Industries Ltd. and its permitted assigns under
Section 16 of the Stock Purchase Agreement, dated March 25, 1995, between
the Company and Clal Pharmaceutical Industries Ltd., as amended (the "Stock
Purchase Agreement") (Clal Pharmaceutical Industries Ltd. and its permitted
assigns under such Section 16 shall be collectively referred to herein as
"Clal"), so long as any acquisition or tender offer by Clal is permitted
under the Stock Purchase Agreement"
(b) The definition of "Permitted Offer" in Section 1(n) of the Rights
Agreement shall be amended in its entirety as follows:
1
<PAGE>
"(n) "Permitted Offer" shall mean the following tender offers made in the
manner prescribed by Section 14(d) of the Exchange Act and the rules and
regulations promulgated thereunder: (i) a tender offer for all outstanding
Common Shares; provided, however, that such tender offer occurs at a time
--------- -------
when Continuing Directors are in office and a majority of the Continuing
Directors has determined that the offer is fair to, and otherwise in the
best interests of, the Company and its stockholders, and (ii) a tender
offer for Common Shares as permitted by the Stock Purchase Agreement."
(c) The proviso in the definition of "Section 11(a)(ii)(A) Event" in
Section 1(v) of the Rights Agreement shall be amended in its entirety as
follows:
"; provided, however, in no event shall an acquisition of or tender offer
--------- -------
for Common Shares by Clal constitute a Section 11(a)(ii)(A) Event until
such time as any such acquisition or tender offer by Clal shall no longer
be permitted under the Stock Purchase Agreement"
(d) The proviso in the definition of "Section 13 Event" in Section
1(w) of the Rights Agreement shall be amended in its entirety as follows:
"; provided, however, in no event shall an acquisition of or tender offer
--------- -------
for Common shares by Clal constitute a Section 13 Event until such time as
any such acquisition or tender offer by Clal shall no longer be permitted
under the Stock Purchase Agreement"
Section 2. Authority for Amendment. This Amendment is being executed
-----------------------
and delivered as of the date hereof by the Company and the Rights Agent pursuant
to and in accordance with Section 27 of the Rights Agreement. By executing this
Amendment, the Company hereby certifies to the Rights Agent that this Amendment
is in compliance with Section 27 of the Rights Agreement. Except as otherwise
amended hereby, all the provisions of the Rights Agreement shall remain in full
force and effect. This Amendment shall be deemed to be a part of, and shall be
construed as part of, the Rights Agreement.
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to
be duly executed as of the date first above written.
PHARMACEUTICAL RESOURCES, INC.
By:/s/Kenneth I. Sawyer
--------------------
Title: President
FIRST CITY TRANSFER COMPANY
By:/s/Kathleen M. Zaleske
----------------------
Title: Assistant Vice President
2
<PAGE>
EXHIBIT 10.5
1990 STOCK INCENTIVE PLAN
PHARMACEUTICAL RESOURCES, INC.
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Pharmaceutical Resources, Inc. 1990 Stock Incentive Plan
(the "Plan") is to enable Pharmaceutical Resources, Inc. (the "Company") to
offer to officers, other employees and independent agents, consultants and
attorneys of the Company and its subsidiaries, long-term performance-based stock
and/or other equity interests in the Company thereby enhancing their ability to
attract, retain and reward such individuals. The various types of long-term
incentive awards which may be provided under the Plan will enable Pharmaceutical
Resources, Inc. to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its businesses.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Agents" means those persons who are not employees of the Company or
any subsidiary, including independent agents, consultants and attorneys for the
Company.
(b) "Board" means the Board of Directors of Pharmaceutical Resources, Inc.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(d) "Committee" means the Stock Option Committee of the Board or any other
committee of the Board which the Board may designate.
(e) "Company" means Pharmaceutical Resources, Inc., a corporation organized
under the laws of the State of New Jersey.
(f) "Deferred Stock" means Stock to be received, under an award made
pursuant to Section 8 below, at the end of a specified deferral period.
(g) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
(h) "Early Retirement" means retirement, with the approval of the Committee
for purposes of one or more award(s) hereunder, from active employment with the
Company or any Subsidiary prior to age 65.
(i) "Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means, as of any
given date: (i) if the Stock is listed on a national securities exchange or
quoted on the NASDAQ National Market System, the closing price of the Stock on
the last preceding day on which the Stock was traded, as reported on the
composite tape or by NASDAQ/NMS System Statistics, as the case may be;
1
<PAGE>
(ii) if the Stock is not listed on a national securities exchange or quoted on
the NASDAQ National Market System, but is traded in the over-the-counter market,
the average of the closing bid and asked prices for the Stock on the last
preceding day for which such quotations are reported by NASDAQ; and (iii) if the
Fair Market Value of the Stock cannot be determined pursuant to clause (i) or
(ii) above, such price as the Committee shall determine.
(j) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(k) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(l) "Normal Retirement" means retirement from active employment with the
Company or any Subsidiary on or after age 65.
(m) "Other Stock-Based Award" means an award under Section 9 below that is
valued in whole or in part by reference to, or is otherwise based upon, Stock.
(n) "Plan" means this Pharmaceutical Resources, Inc. 1990 Stock Incentive
Plan, as hereinafter amended from time to time.
(o) "Qualified Domestic Relations Order" shall have the meaning assigned to
such term under the Code.
(p) "Restricted Stock" means Stock, received under an award made pursuant
to Section 7 below, that is subject to restrictions under said Section 7.
(q) "Retirement" means Normal Retirement or Early Retirement.
(r) "SAR Value" means the value of the excess of the Fair Market Value of
one share of Stock over the option price per share specified in a related Stock
Option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall be exercised, on the date of exercise.
(s) "Stock" means the Common Stock of the Company, par value $.01 per
share.
(t) "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Company all (or a portion) of
a Stock Option in exchange for an amount equal to the SAR Value.
(u) "Stock Option" or "Option" means any option to purchase shares of Stock
which is granted pursuant to the Plan.
(v) "Subsidiary" means any present or future subsidiary corporation of the
Company, as such term is defined in Section 424(f) of the Code, or any successor
thereto.
2
<PAGE>
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee, the membership of which
shall be at all times constituted so as to not adversely affect the compliance
of the Plan with the requirements of Rule 16b-3 under the Securities Exchange
Act of 1934 (the "Exchange Act"), as in effect from time to time, or with the
requirements of any other applicable law, rule or regulation.
The Committee shall have full authority to grant, pursuant to the terms of
the Plan, to officers, other employees and Agents under Section 4 below: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Deferred Stock, and/or (v) Other Stock- Based Awards.
For purposes of illustration and not of limitation, the Committee shall
have the authority (subject to the express provisions of this Plan):
(i) to select the officers, other employees and Agents of the Company or
any Subsidiary to whom Stock Options, Stock Appreciation Rights, Restricted
Stock, Deferred Stock and/or Other Stock-Based Awards may from time to time be
granted hereunder;
(ii) to determine the Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock and/or
Other Stock-Based Awards, or any combination thereof, if any, to be granted
hereunder to one or more officers, other employees and Agents;
(iii) to determine the number of shares to be covered by each award
granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not limited
to, share price, any restrictions or limitations, and any vesting, acceleration
or forfeiture provisions, as the Committee shall determine);
(v) to determine the terms and conditions under which awards granted
hereunder are to operate on a tandem basis and/or in conjunction with or apart
from other awards made by the Company or any Subsidiary outside of this Plan;
(vi) to determine the extent and circumstances under which Stock and
other amounts payable with respect to an award hereunder shall be deferred,
which may be either automatic or at the election of the participant; and
(vii) to substitute (A) new Stock Options for previously granted Stock
Options, which previously granted Stock Options have higher option exercise
prices and/or contain other less favorable terms, and (B) new awards of any
other type for previously granted awards of the same type, which previously
granted awards are upon less favorable terms.
Subject to Section 11 hereof, the Committee shall have the authority to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall, from
3
<PAGE>
time to time, deem advisable, to interpret the terms and provisions of the Plan
and any award issued under the Plan (and to determine the form and substance of
all agreements relating thereto), and to otherwise supervise the administration
of the Plan.
Subject to Section 11 hereof, all decisions made by the Committee pursuant
to the provisions of the Plan shall be made in the Committee's sole discretion
and shall be final and binding upon all persons, including the Company, its
Subsidiaries and Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 2,050,000 shares. Such shares may consist, in whole or
in part, of authorized and unissued shares or treasury shares.
If any shares of Stock that have been optioned cease to be subject to a
Stock Option, or if any shares of Stock that are subject to any Stock
Appreciation Right, Restricted Stock, Deferred Stock award or Other Stock-Based
Award granted hereunder are forfeited or any such award otherwise terminates
without a payment being made to the participant in the form of cash and/or
Stock, such shares shall again be available for distribution in connection with
future grants and awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a dividend or its equivalent which is
credited to a Plan participant or a regular cash dividend), Stock split, or
other change in corporate structure affecting the Stock, such substitution or
adjustment shall be made in the aggregate number of shares reserved for issuance
under the Plan, in the number and option price of shares subject to outstanding
Options granted under the Plan, and in the number of shares subject to other
outstanding awards (including but not limited to awards of Restricted Stock,
Deferred Stock and Other Stock-Based Awards) granted under the Plan as may be
determined to be appropriate by the Committee in order to prevent dilution or
enlargement of rights, provided that the number of shares subject to any award
shall always be a whole number. Such adjusted option price shall also be used
to determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
Officers and other employees of the Company or any Subsidiary (but
excluding members of the Committee and any person who serves only as a director)
who are at the time of the grant of an award under this Plan regularly employed
by the Company or any Subsidiary on a full-time basis and who are responsible
for or contribute to the management, growth and/or profitability of the business
of the Company or any Subsidiary, are eligible to be granted Options and awards
under the Plan. Eligibility under the Plan for such officers and other
employees, and Agents, shall be determined by the Committee.
SECTION 5. STOCK OPTIONS.
(a) Grant and Exercise. Stock Options granted under the Plan may be of two
types: (i) Incentive Stock Options and (iii) Non-Qualified Stock Options. Any
Stock Option granted
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under the Plan shall contain such terms as the Committee may from time to time
approve. The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights), which may be
granted alone or in addition to other awards granted by the Company. To the
extent that any Stock Option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options or any agreement providing for Incentive
Stock Options shall be interpreted, amended or altered, nor shall any discretion
or authority granted under the Plan be so exercised, so as to disqualify the
Plan under Section 422 of the Code, or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under such Section 422.
(b) Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(i) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant
but shall be not less than 100% of the Fair Market Value at the time of grant
(110%, in the case of an Incentive Stock Option granted to an optionee ("10%
Stockholder") who, at the time of grant, owns Stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or its
parent (if any) or subsidiary corporations, as those terms are defined in
Sections 424(e) and (f) of the Code).
(ii) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years (five years, in the case of an Incentive Stock Option granted to a 10%
Stockholder) after the date on which the Option is granted, and no Non-Qualified
Stock Option shall be exercisable more than ten years and one day after the date
on which the Option is granted.
(iii) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by the
Committee. If the Committee provides, in its discretion, that any Stock Option
is exercisable only in installments, the Committee may waive such installment
exercise provisions at any time at or after the time of grant in whole or in
part, based upon such factors as the Committee shall determine.
(iv) Method of Exercise. Subject to whatever installment, exercise and
waiting period provisions are applicable in a particular case, Stock Options may
be exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares of
Stock to be purchased. Such notice shall be accompanied by payment in full of
the purchase price, which shall be in cash or, unless otherwise provided in the
Stock Option agreement referred to in Section 5(b)(xii) below, in whole shares
of Stock which are already owned by the holder of the Option or, unless
otherwise provided in the Stock Option agreement referred to in Section
5(b)(xii) below, partly in cash and partly in such Stock. Cash payments shall
be made by wire transfer, certified or bank check or personal check, in each
case payable to the order of the Company; provided,
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however, that the Company shall not be required to deliver certificates for
shares of Stock with respect to which an Option is exercised until the Company
has confirmed the receipt of good and available funds in payment of the purchase
price thereof. Payments in the form of Stock (which shall be valued at the Fair
Market Value of a share of Stock on the date of exercise) shall be made by
delivery of stock certificates in negotiable form which are effective to
transfer good and valid title thereto to the Company, free of any liens or
encumbrances. The holder of an Option shall have none of the rights of a
stockholder with respect to the shares subject to the Option until such shares
shall be transferred to the holder upon the exercise of the Option. At the
discretion of the Board or the Committee, as the case may be, an Option may be
exercised with respect to a specified number of shares of Stock by written
notice of exercise to the Company stating that (i) the option price for the
shares and any withholding tax due thereon will be paid to the Company directly
by a broker-dealer designated by the optionee and irrevocable instructions to
such effect have been furnished by the optionee to such broker-dealer; and (ii)
an advice from the broker-dealer confirming payment to the Company will be
promptly delivered to the Company. The exercise of any such option shall be
irrevocable at the time of notice to the Company; provided, however, that the
Company shall not be required to deliver certificates for shares of Stock with
respect to the exercise of the option until the Company has confirmed the
receipt of good and sufficient funds in payment of the purchase price thereof.
(v) Transferability; Exercisability. No Stock Option shall be
transferable by the optionee otherwise than by will, by the laws of descent and
distribution or by a Qualified Domestic Relations Order, and all Stock Options
shall be exercisable, during the optionee's lifetime, only by the optionee or by
his spouse to whom the Option has been transferred pursuant to the terms of a
Qualified Domestic Relations Order.
(vi) Termination by Reason of Death. Subject to Section 5(b)(x) below,
in the event of the death of an optionee, any Stock Option held by such
optionee, unless otherwise determined by the Committee, shall be exercisable by
the legal representative of the estate or by the legatee of the optionee under
the will of the optionee, for a period of one year (or such other period as the
Committee may specify) from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period is the shorter, to the
extent such Stock Option was exercisable at the time of death.
(vii) Termination by Reason of Disability of Employee Optionee. Subject
to Section 5(b)(x) below, any Stock Options held by an optionee who is an
officer or employee and whose employment by the Company or any Subsidiary
terminates by reason of Disability, unless otherwise determined by the
Committee, shall be exercisable by the optionee for a period of one year (or
such other period as the Committee may specify) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is the shorter, to the extent such Stock Option
was exercisable at the time of such disability; provided, however, that if the
optionee dies within such one-year period (or such other period as the Committee
shall specify), any unexercised Stock Option held by such optionee shall
thereafter be exercisable to the extent to which it was exercisable at the time
of death for a period of one year from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
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(viii) Termination by Reason of Retirement of Employee Optionee.
Subject to Section 5(b)(x) below, any Stock Options held by an optionee who is
an officer or employee and whose employment by the Company or a Subsidiary
terminates by reason of Normal Retirement, unless otherwise determined by the
Committee, shall be exercisable by the optionee for a period of one year (or
such other period as the Committee may specify) from the date of such
termination of employment or the expiration of the stated term of such Stock
Option, whichever period is the shorter, to the extent such Stock Option was
exercisable at the time of such Normal Retirement; provided, however, that if
the optionee dies within such one-year period, any unexercised Stock Option held
by such optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year from the date of such
death or until the expiration of the stated term of such Stock Option, whichever
period is the shorter. If an optionee's employment with the Company or any
Subsidiary terminates by reason of Early Retirement, the Stock Option shall
thereupon terminate, provided if the Committee so approves at the time of Early
Retirement, any Stock Option held by the optionee shall be fully vested and may
thereafter be exercised by the optionee as provided above in connection with
termination of employment by reason of Normal Retirement.
(ix) Other Termination of Employment of Employee Optionee. Subject to
the provisions of Section 13(g) below and unless otherwise determined by the
Committee, if an optionee who is an officer or employee whose employment by the
Company or any Subsidiary terminates for any reason other than death, Disability
or Retirement, any Stock Options held by him shall thereupon automatically
terminate, except that if the optionee's employment is involuntarily terminated
by the Company or a Subsidiary, without cause, such Stock Option may be
exercised for the lesser of three months after termination of employment or the
balance of such Stock Option's term.
(x) Additional Incentive Stock Option Limitation. In the case of an
Incentive Stock Option, the amount of Stock (determined at the time of grant of
the Option using the Fair Market Value of the Stock as of such date) with
respect to which Incentive Stock Options are exercisable for the first time by
an optionee during any calendar year (under all such plans of optionee's
employer corporation and its parent and subsidiary corporations, as defined in
Sections 424(e) and (f) of the Code) shall not exceed $100,000.
(xi) Buy out and Settlement Provisions. The Committee may at any time
offer to buy out a Stock Option previously granted, based upon such terms and
conditions as the Committee shall establish and communicate to the optionee at
the time that such offer is made.
(xii) Stock Option Agreement. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, an agreement executed by the
Company and the participant.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted by the Company. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such
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Non-Qualified Stock Option. In the case of an Incentive Stock Option, such
rights may be granted only at the time of the grant of such Incentive Stock
Option.
A Stock Appreciation Right which is granted with respect to a given Stock
Option shall terminate and shall no longer be exercisable upon the termination
or exercise of the related Stock Option, except that, unless otherwise
determined by the Committee at the time of grant, a Stock Appreciation Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall not be reduced until after the number of shares remaining
under the related Stock Option equals the number of shares covered by the Stock
Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance
with Section 6(b) below, by surrendering the applicable portion of the related
Stock Option. Upon such exercise and surrender, the optionee shall be entitled
to receive an amount (and in the form) determined in the manner prescribed in
Section 6(b) below. Stock Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
to the following terms and conditions:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 above and this
Section 6 of the Plan; provided, however, that any Stock Appreciation Right
granted subsequent to the grant of the related Stock Option shall not be
exercisable during the first six months of the term of such Stock Appreciation
Right, except that this special limitation shall not apply in the event of
Disability or Termination of an employee optionee or death of an optionee prior
to the expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive up to, but not more than, an amount in cash and/or shares
of Stock equal to the SAR Value with the Committee having the right to determine
the form of payment, subject to Section 6(b)(v) below. For purposes of this
paragraph, the shares of Stock will be valued at their Fair Market Value at the
date of exercise of the Stock Appreciation Right.
(iii) Stock Appreciation Rights shall be transferable and exercisable
only when and to the extent that the underlying Stock Option would be
transferable and exercisable under Section 5(b)(v) of this Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or
part thereof to which such Stock Appreciation Right is related shall be deemed
to have been exercised for the purpose of the limitation set forth in Section 3
of the Plan on the number of shares of Stock to be issued under the Plan, but
only to the extent of the number of shares issued under the Stock Appreciation
Right at the time of exercise based upon the SAR Value.
(v) The Committee may grant "Limited Stock Appreciation Rights", i.e.,
Stock Appreciation Rights that become exercisable only in the event of a Change
in Control as defined in Section 10 below, subject to such terms and conditions
as the Committee may
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specify at the time of grant. Said Limited Stock Appreciation Rights shall be
settled solely in cash, in an amount equal to the SAR Value.
Each grant of Stock Appreciation Rights shall be confirmed by, and shall be
subject to the terms of, an agreement, executed by the Company and the
participant.
SECTION 7. RESTRICTED STOCK.
(a) Grant and Exercise. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted by the Company. The Committee
shall determine the eligible persons to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of shares to be awarded, the
price (if any) to be paid by the recipient, the time or times within which such
awards may be subject to forfeiture (the "Restriction Period"), the vesting
schedule and rights to acceleration thereof, and all other terms and conditions
of the awards.
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Committee
may determine.
(b) Terms and Conditions. Each Restricted Stock award shall be subject to
the following terms and conditions:
(i) Restricted Stock, when issued, will be represented by a stock
certificate or certificates registered in the name of the holder to whom such
Restricted Stock shall have been awarded. During the Restriction Period,
certificates representing the Restricted Stock and any securities constituting
Retained Distributions (as defined below) shall bear a restrictive legend to the
effect that ownership of the Restricted Stock (and such Retained Distributions),
and the enjoyment of all rights appurtenant thereto, are subject to the
restrictions, terms and conditions provided in the Plan and the applicable
Restricted Stock agreement. Such certificates shall be deposited by the holder
with the Company, together with stock powers or other instruments of assignment,
each endorsed in blank, which will permit transfer to the Company of all or any
portion of the Restricted Stock and any securities constituting Retained
Distributions that shall be forfeited or that shall not become vested in
accordance with the Plan and the applicable Restricted Stock agreement.
(ii) Restricted Stock shall constitute issued and outstanding shares of
Common Stock for all corporate purposes. The holder will have the right to vote
such Restricted Stock, to receive and retain all regular cash dividends and
other cash equivalent distributions as the Board may in its sole discretion
designate, pay or distribute on such Restricted Stock and to exercise all other
rights, powers and privileges of a holder of Common Stock with respect to such
Restricted Stock, with the exceptions that (A) the holder will not be entitled
to delivery of the stock certificate or certificates representing such
Restricted Stock until the Restriction Period shall have expired and unless all
other vesting requirements with respect thereto shall have been fulfilled; (B)
the Company will retain custody of the stock certificate or certificates
representing the Restricted Stock during the Restriction Period; (C) other than
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute, the Company will retain
custody of all distributions ("Retained Distributions") made or declared with
respect to the Restricted Stock (and such Retained
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Distributions will be subject to the same restrictions, terms and conditions as
are applicable to the Restricted Stock) until such time, if ever, as the
Restricted Stock with respect to which such Retained Distributions shall have
been made, paid or declared shall have become vested and with respect to which
the Restriction Period shall have expired; (D) the holder may not sell, assign,
transfer, pledge, exchange, encumber or dispose of the Restricted Shares or any
Retained Distributions during the Restriction Period; and (E) a breach by the
holder of any of the restrictions, terms or conditions contained in this Plan or
the Restricted Stock agreement referred to in the following clause (iv) or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(iii) Upon the expiration of the Restriction Period with respect to each
award of Restricted Stock and the satisfaction of any other applicable
restrictions, terms and conditions (A) all or part of such Restricted Stock
shall become vested in accordance with the terms of the Restricted Stock
agreement referred to in the following clause (iv), and (B) any Retained
Distributions with respect to such Restricted Stock shall become vested to the
extent that the Restricted Stock related thereto shall have become vested. Any
such Restricted Stock and Retained Distributions that do not vest shall be
forfeited to the Company and the holder shall not thereafter have any rights
with respect to such Restricted Stock and Retained Distributions that shall have
been so forfeited.
(iv) Each Restricted Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and the
participant.
SECTION 8. DEFERRED STOCK.
(a) Grant and Exercise. Deferred Stock may be awarded either alone or in
addition to other awards granted by the Company. The Committee shall determine
the eligible persons to whom and the time or times at which Deferred Stock shall
be awarded, the number of shares of Deferred Stock to be awarded to any person,
the duration of the period (the "Deferral Period") during which, and the
conditions under which, receipt of the Stock will be deferred, and all the other
terms and conditions of the awards.
The Committee may condition the grant of Deferred Stock upon the attainment
of specified performance goals or such other factors or criteria as the
Committee shall determine.
(b) Terms and Conditions. Each Deferred Stock award shall be subject to the
following terms and conditions:
(i) Subject to the provisions of this Plan and the award agreement
referred to in Section 8(b)(vii) below, Deferred Stock awards may not be sold,
assigned, transferred, pledged or otherwise encumbered during the Deferral
Period. At the expiration of the Deferral Period (or the Additional Deferral
Period referred to in Section 8(b)(vi) below, where applicable), share
certificates shall be delivered to the participant, or his legal representative,
in a number equal to the shares covered by the Deferred Stock award.
(ii) As determined by the Committee at the time of award, amounts equal
to any dividends declared during the Deferral Period (or the Additional Deferral
Period referred to
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in Section 8(b)(vi) below, where applicable) with respect to the number of
shares covered by a Deferred Stock award may be paid to the participant
currently or deferred and deemed to be reinvested in additional Deferred Stock.
(iii) Subject to the provisions of the award agreement and this Section
8 and Section 13(g) below, upon termination of a participant who is an officer
or employee whose employment with the Company or any Subsidiary is terminated
for any reason during the Deferral Period (or the Additional Deferral Period
referred to in Section 8(b)(vi) below, where applicable) for a given award, the
Deferred Stock in question will vest or be forfeited in accordance with the
terms and conditions established by the Committee at the time of grant.
(iv) The Committee may, after grant, accelerate the vesting of all or any
part of any Deferred Stock award and/or waive the deferral limitations for all
or any part of a Deferred Stock award.
(v) In the event of hardship or other special circumstances of an Agent
or a participant who is an officer or employee whose employment with the Company
or any Subsidiary is involuntarily terminated (other than for cause), the
Committee may waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder or pursuant to the award agreement referred to in
Section 8(b)(vii) below with respect to any or all of the participant's Deferred
Stock.
(vi) A participant may request to, and the Committee may at any time,
defer the receipt of an award (or an installment of an award) for an additional
specified period or until a specified event (the "Additional Deferral Period").
Subject to any exceptions adopted by the Committee, such request must generally
be made at least one year prior to expiration of the Deferral Period for such
Deferred Stock award (or such installment).
(vii) Each Deferred Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and the
participant.
SECTION 9. OTHER STOCK-BASED AWARDS.
(a) Grant and Exercise. Other Stock-Based Awards which may include
performance shares, and shares valued by reference to the performance of the
Company or any Subsidiary, may be granted either alone or in addition to or in
tandem with Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock under this or any other plan.
The Committee shall determine the eligible persons to whom, and the time or
times at which, such awards shall be made, the number of shares of Stock to be
awarded pursuant to such awards, and all other terms and conditions of the
awards. The Committee may also provide for the grant of Stock under such awards
upon the completion of a specified performance period.
(b) Terms and Conditions. Each Other Stock-Based Award shall be subject to
the following terms and conditions:
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(i) Shares of Stock subject to an Other Stock-Based Award may not be
sold, assigned, transferred, pledged or otherwise encumbered prior to the date
on which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(ii) The recipient of an Other Stock-Based Award shall be entitled to
receive, currently or on a deferred basis, dividends or dividend equivalents
with respect to the number of shares covered by the award, as determined by the
Committee at the time of the award. The Committee may provide that such amounts
(if any) shall be deemed to have been reinvested in additional Stock.
(iii) Any Other Stock-Based Award and any Stock covered by any Other
Stock-Based Award shall vest or be forfeited to the extent so provided in the
award agreement, as determined by the Committee.
(iv) In the event of Retirement, Disability or death of a participant who
is an officer or employee of the Company or any Subsidiary, or in cases of
special circumstances of any participant, the Committee may waive in whole or in
part any or all of the limitations imposed hereunder (if any) with respect to
any or all of an Other Stock-Based Award.
(v) Each Other Stock-Based Award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and by the
participant.
SECTION 10. CHANGE IN CONTROL PROVISIONS.
(a) A "Change of Control" shall be deemed to have occurred on the tenth day
after:
(i) any individual, firm, corporation or other entity, or any group (as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934) (the "Act")
becomes, directly or indirectly, the beneficial owner (as defined in the General
Rules and Regulations of the Securities and Exchange Commission with respect to
Sections 13(d) and 13(g) of the Act) of more than 20% of the then outstanding
shares of the Company's capital stock entitled to vote generally in the election
of directors of the Company; or
(i) the commencement of, or the first public announcement of the
intention of any individual, firm, corporation or other entity or of any group
(as defined in Section 13(d)(3) of the Act) to commence, a tender or exchange
offer subject to Section 14(d)(1) of the Act for any class of the Company's
capital stock; or
(ii) the stockholders of the Company approve (A) a definitive agreement
for the merger or other business combination of the Company with or into another
corporation pursuant to which the stockholders of the Company do not own,
immediately after the transaction, more than 50% of the voting power of the
corporation that survives and is a publicly owned corporation and not a
subsidiary of another corporation, or (B) a definitive agreement for the sale,
exchange or other disposition of all or substantially all of the assets of the
Company, or (C) any plan or proposal for the liquidation or dissolution of the
Company;
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provided, however, that a "Change of Control" shall not be deemed to have
taken place if beneficial ownership is acquired by, or a tender or exchange
offer is commenced or announced by, the Company, any profit-sharing, employee
ownership or other employee benefit plan of the Company, any trustee of or
fiduciary with respect to any such plan when acting in such capacity, or any
group comprised solely of such entities.
(b) In the event of a "Change of Control" as defined in Subsection (a)
above, awards granted under the Plan will be subject to the following
provisions, unless the provisions of this Section 10 are suspended or terminated
by an affirmative vote of a majority of the Board prior to the occurrence of
such a "Change of Control":
(i) all outstanding Stock Options, and all Stock Appreciation Rights
(including Limited Stock Appreciation Rights) shall become exercisable in full,
whether or not otherwise exercisable at such time, and any such Stock Option or
Stock Appreciation Right shall remain exercisable in full thereafter until it
expires pursuant to its terms; and
(ii) all restrictions and deferral limitations contained in Restricted
Stock awards, Deferred Stock awards and Other Stock-Based Awards granted under
the Plan shall lapse.
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may at any time, and from time to time, amend any of the
provisions of the Plan, and may at any time suspend or terminate the Plan;
provided, however, that no such amendment shall be effective unless and until it
has been duly approved by the holders of the outstanding shares of Stock if (a)
it increases the aggregate number of shares of Stock which are issued pursuant
to the Plan, (except as provided in Section 3 above) or (b) the failure to
obtain such approval would adversely affect the compliance of the Plan with the
requirements of Rule 16b-3 under the Act, as in effect from time to time, or
with the requirements of any other applicable law, rule or regulation. The
Committee may amend the terms of any award theretofore granted under the Plan;
provided, however, that subject to Section 3 above, no such amendment may be
made by the Committee which in any material respect impairs the rights of the
participant without the participant's consent.
SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company.
SECTION 13. GENERAL PROVISIONS.
(a) Investment Representations. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the Company in writing that the optionee or
participant is acquiring the shares for investment without a view to
distribution thereof.
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All certificates for shares of Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, any applicable Federal or state securities law, and any applicable
corporate law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(b) Additional Incentive Arrangements. Nothing contained in the Plan shall
prevent the Board from adopting such other or additional incentive arrangements
as it may deem desirable, including, but not limited to, the granting of stock
options and the awarding of stock and cash otherwise than under the Plan; and
such arrangements may be either generally applicable or applicable only in
specific cases.
(c) Continued Employment. Nothing contained in the Plan or in any award
hereunder shall be deemed to confer upon any officer, employee or Agent of the
Company or any Subsidiary any right to continued employment with the Company or
any Subsidiary, nor shall it interfere in any way with the right of the Company
or any Subsidiary to terminate the employment of any of its officers, employees
or Agents at any time.
(d) Withholding. Not later than the date as of which an amount first
becomes includable in the gross income of the participant for Federal income tax
purposes with respect to any award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. If permitted by the Committee,
tax withholding or payment obligations may be settled with Stock, including
Stock that is part of the award that gives rise to the withholding requirement.
The obligations of the Company under the Plan shall be conditional upon such
payment or arrangements and the Company or the participant's employer (if not
the Company) shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the participant from
the Company or any Subsidiary.
(e) Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).
(f) Other Benefit Plans. Any Stock Option granted or other award made under
the Plan shall not be deemed compensation for purposes of computing benefits
under any retirement plan of the Company or any Subsidiary and shall not affect
any benefits under any other benefit plan now or subsequently in effect under
which the availability or amount of benefits is related to the level of
compensation (unless required by specific reference in any such other plan to
awards under this Plan).
(g) Employee Status. A leave of absence, unless otherwise determined by the
Committee prior to the commencement thereof, shall not be considered a
termination of employment. Any Stock Option granted or awards made under the
Plan to officers and employees of the Company or any Subsidiary shall not be
affected by any change of employment, so long as the holder continues to be an
employee of the Company or any Subsidiary.
14
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(h) Non-Transferability. Except as otherwise expressly provided in the
Plan, no right or benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbered or charged, otherwise
than by will, by the laws of decent and distribution or by a Qualified Domestic
Relations Order, and any attempt otherwise to alienate, sell, assign,
hypothecate, pledge, exchange, transfer, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the person entitled to
such benefit.
(i) Applicable Laws. The obligations of the Company with respect to all
Stock Options and awards under the Plan shall be subject to (i) all applicable
laws, rules and regulations and such approvals by any governmental agencies as
may be required, including, without limitation, the effectiveness of a
registration statement under the Securities Act of 1933, and (ii) the rules and
regulations of any securities exchange on which the Stock may be listed.
(j) Conflicts. If any of the terms or provisions of the Plan conflict with
the requirements of Rule 16b-3 under the Act, as in effect from time to time, or
with the requirements of any other applicable law, rule or regulation, and/or
with respect to Incentive Stock Options, Section 422 of the Code, then such
terms or provisions shall be deemed inoperative to the extent they so conflict
with the requirements of said Rule 16b-3, and/or with respect to Incentive Stock
Options, Section 422 of the Code. With respect to Incentive Stock Options, if
this Plan does not contain any provision required to be included herein under
Section 422 of the Code, such provision shall be deemed to be incorporated
herein, with the same force and effect as if such provision had been set out at
length herein.
(k) Written Agreements. The Committee may terminate any Stock Option or
other award made under the Plan if a written agreement relating thereto is not
executed and returned to the Company within 30 days after such agreement has
been delivered to the participant for his or her execution.
(l) Consideration for Stock. The Committee may not grant any awards under
the Plan pursuant to which the Company will be required to issue any shares of
Stock unless the Company will receive consideration for the shares of Stock
sufficient under the laws of the State of New Jersey so that such shares of
Stock will be fully paid and nonassessable when issued.
SECTION 14. EFFECTIVE DATE OF PLAN.
The Plan was deemed adopted on the date it was approved by the stockholders
of Par and became effective as to Par as of March 23, 1990. The Plan was
adopted as to the Company on the date of adoption and assumption by the Board,
and the Plan became effective as to the Company on the effective date of the
merger of Par Merging Corp., a subsidiary of the Company, with and into Par.
15
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SECTION 15. TERM OF PLAN.
No Stock Option, Stock Appreciation Rights Restricted Stock award, Deferred
Stock award or Other Stock-Based Award shall be granted pursuant to the Plan on
or after March 23, 2000, but awards granted prior to such date may extend beyond
that date.
AS OF JUNE 1995
16
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EXHIBIT 10.10
SEVERANCE AGREEMENT
-------------------
AGREEMENT made this 23rd day of October, 1996, between PHARMACEUTICAL
RESOURCES, INC., a New Jersey corporation (the "Company"), and DENNIS J.
O'CONNOR (the "Executive").
W I T N E S S E T H :
-------------------
WHEREAS, the Executive has been elected as Vice President and Chief
Financial Officer of the Company, and to induce the Executive to continue his
employment with the Company, the Company desires to offer the Executive, and the
Executive desires to accept, the severance benefits set forth herein, on the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties hereby agree as follows:
1. Severance Benefits.
------------------
(a) Upon either: (i) the termination of the Executive's employment
with the Company for Good Reason (as hereinafter defined), or by the Company for
any reason other than the death or Disability (as hereinafter defined) of the
Executive or For Cause (as hereinafter defined) or (ii) the termination of
Executive's employment with the Company within eight months following a Change
of Control (as hereinafter defined) for any reason (other than the death or
Disability of the Executive or For Cause) so long as written notice of such
termination shall be given to the Company not later than the 180th day following
the date on which a Change of Control shall occur, the Company will pay to the
Executive: an amount equal to six months of his then current annual salary at
the date of termination, with such amount to be increased by an additional month
of salary for every full month he is employed by the Company in his present
position, up to a maximum of six additional months' salary (collectively,
"Compensation"); provided, however, if the Executive's employment by the Company
-------- -------
is terminated (i) voluntarily by him (except for Good Reason); (ii) due to his
death or disability, (iii) For Cause, then, in any of such events, the Company
will have no obligation to pay the Compensation to the Executive; provided,
--------
further, that in the event of the Executive's breach of the covenants set forth
- -------
in Section 2 hereof, the Company's obligation to pay the Compensation or provide
any severance benefits (except as otherwise provided by law) will terminate as
of the date of his breach, as determined in accordance with this Agreement.
(b) Severance Payments. (i) The Compensation, if any, shall be payable
------------------
in accordance with the normal salary payment procedures of the Company. In
addition, in the event that the Executive's employment is terminated pursuant to
subsection 1(a), then the Executive shall be entitled to, in addition to the
Compensation: (x) COBRA benefits, at the Company's expense, until the earlier
of twelve (12) months or the date he is covered for such benefits by reason of
his being employed with any other person or entity and (y) purchase, for its
cash surrender value(s), all insurance policies owned by the Company insuring
the life of the Executive. The Executive acknowledges and agrees that the
Compensation, if any, is in full
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satisfaction and final settlement of any and all severance claims that the
Executive now has or hereafter may have against the Company and/or any of its
subsidiaries.
(c) Definitions. (i) As used in this Agreement, "Good Reason" shall
-----------
mean a termination of the Executive's employment, (a) based on the assignment by
the President of the Company to the Executive, without the Executive's express
written consent, of any duties inconsistent with his positions, duties,
responsibilities and status with the Company as Vice President and Chief
Financial Officer or any plan, act, scheme or design to constructively terminate
the Executive, or a material decrease in the Executive's reporting
responsibilities, titles or offices as Vice President and Chief Financial
Officer, or any removal of the Executive from or any failure to re-elect the
Executive to any of such positions, except in connection with the termination of
the Executive's employment by the Company For Cause, as a result of the
Executive's death or disability or by the Executive other than for Good Reason;
or (b) based on a reduction by the Company in the Executive's base salary or
substantial change in his benefits as in effect immediately prior such
termination.
(ii) As used in this Agreement, "Disability" shall mean the inability
of the Executive for 180 consecutive days to substantially perform his duties
hereunder as a result of a physical or mental illness, all as determined in good
faith by the Board of Directors of the Company.
(iii) As used in this Agreement, "For Cause" shall be based on
objective factors determined in good faith by the President of the Company as
set forth in a written notice from the Company specifying the reasons for said
determination ("For Cause Notice"), and the failure of the Executive to cure
same within ten (10) days of his receiving the For Cause Notice; provided, that,
-------- ----
in the event the President of the Company in good faith determines that the
underlying reasons giving rise to such termination cannot be cured, then said
cure period shall not apply and the Executive's employment hereunder shall
terminate on the date of his receipt of the For Cause Notice.
(iv) As used in this Agreement, "Change of Control" means (A) the
sale, lease, exchange or other transfer (other than pursuant to internal
reorganization) by the Company of all or substantially all of its assets to a
single purchaser or to a group of associated purchasers; (B) the first purchase
of shares of securities of the Company pursuant to a tender offer or exchange
offer (other than an offer by the Company) for all, or any substantial part of,
the securities of the Company; (C) the merger or consolidation in which the
Company does not survive as an independent, publicly owned corporation (other
than a merger or consolidation with a wholly owned subsidiary of the Company);
(D) a single purchaser or a group of associated purchasers acquires securities
of the Company representing thirty-five (35%) percent or more of the combined
voting power of the Company's then outstanding securities in one or a related
series of transactions (other than pursuant to an internal reorganization); or
(E) during any period of two consecutive years, individuals who at the beginning
of such period constitute the entire Board of Directors of the Company shall
cease for any reason to constitute a majority thereof unless the election, or
the nomination for election by the Company's stockholders, of each new director
was approved by a vote of at least two-thirds of the directors still in office
who were directors at the beginning of the period.
2. Nondisclosure: Nonsolicitation.
------------------------------
2
<PAGE>
2.1 "Confidential Information" Defined. As used in this
----------------------------------
Agreement, "Confidential Information" shall mean any and all information (oral
or written) relating to the Company, any of its subsidiaries (existing as of the
date of the Executive's termination of employment with the Company for whatever
reason) or any person controlling, controlled by, or under common control with
the Company or any of its subsidiaries, or any of its or their activities,
except such information which can be shown by the Executive to be generally in
the public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the public
domain), other than as the result of a breach of the provisions of Section 2.2
hereof, including, but not limited to, information relating to technology;
research; test procedures and results; machinery and equipment; manufacturing
processes; financial information; products; identity and description of raw
materials and services used; purchasing; costs; pricing; customers and
prospects; advertising, promotion and marketing; selling, servicing and
information pertaining to any governmental investigation.
2.2 Nondisclosure of Confidential Information. The Executive
-----------------------------------------
will not, at any time, directly or indirectly, use, communicate, disclose or
disseminate any Confidential Information in any manner whatsoever, except
pursuant to a subpoena or other duly issued court process or order, or by prior
written agreement of the Company; provided, that, the Executive shall first give
-------- ----
notice to the Company in the event of a subpoena, court process or order in
order that the Company may seek a protective order with respect thereto.
2.3 Nonsolicitation. In addition to, and not in lieu of, the
---------------
provisions contained in Sections 2.1 and 2.2 hereof, inclusive, the Executive
will not, at any time, directly or indirectly hire, offer to hire, entice away
of in any other manner persuade or attempt to persuade any officer, employee,
agent, lessor, lessee, licensor, licensee, customer, prospective customer or
supplier or prospective supplier of the Company of any of its subsidiaries to
discontinue or alter his, her or its relationship with the Company or any of its
subsidiaries.
2.4 Injunctive Relief, etc. The parties hereto hereby
----------------------
acknowledge and agree that: (i) the Company and/or one or more if its
subsidiaries would be irreparably injured in the event of a breach by the
Executive of any of his obligations under this Section 2; (ii) monetary damages
might not be an adequate remedy for any such breach; and (iii) the Company will
be entitled to injunctive relief, in addition to any other remedy which it may
have, in the event of any such breach.
2.5 Nonexclusivity. The undertakings of the Executive contained
--------------
in this Section 2 are in addition to, and not in lieu of, any obligations which
he may have with respect to the subject matter hereof, whether by contract, as a
matter of law or otherwise.
3. Miscellaneous Provisions.
------------------------
3.1 Execution in Counterparts. This Agreement may be executed
-------------------------
in one or more counterparts, each of which will be deemed an original, but all
of which together shall constitute one and the same document.
3.2 Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand or mailed
3
<PAGE>
by registered or certified mail, postage prepaid, return receipt requested, via
facsimile (with confirmed answerback) or sent by private courier, as follows:
If to the Company, to:
Pharmaceutical Resources, Inc.
One Ram Ridge Road
Spring Valley, NY 10977
Attn: President
With a copy to:
Hertzog, Calamari & Gleason
100 Park Avenue
New York, NY 10017
Attn: Stephen A. Ollendorff, Esq.
If to the Executive, to:
Dennis J. O'Connor
765 West Road
New Canaan, CT 06840
or to such other address as either party hereto shall have designated by like
notice to the other party hereto, except that notices for changes of address
shall be effective only upon receipt.
3.3 Amendment. This Agreement may only be supplemented,
---------
terminated, discharged or amended by a written instrument executed by each of
the parties hereto.
3.4 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and understandings of the
parties hereto, oral or written, with respect to the subject matter hereof.
3.5 Applicable Law. This Agreement will be governed by and
--------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be wholly performed therein without regard to its conflict
or choice of law provisions.
3.6 Headings. The headings contained herein are for the sole
--------
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
3.7 Binding Effect: Successors and Assigns. The Executive may
--------------------------------------
not delegate any of his duties or assign his rights hereunder. This Agreement
will inure to the benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns. The
Company shall require any successor (whether direct or indirect and whether by
purchase, merger, consolidation or otherwise) to all or substantially all
4
<PAGE>
of the business or assets of the Company, by an agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
3.8 Waiver, etc. The failure of either of the parties hereto at
-----------
any time to enforce any of the provisions of this Agreement will not be deemed
or construed to be a waiver of any such provision, not to in any way affect the
validity of this Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement will be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.
3.9 Capacity, etc. The Executive hereby represents and warrants
-------------
to the Company that: (i) he has capacity to execute and deliver this Agreement,
and to perform his obligations hereunder, (ii) said execution, delivery and
performance will not (and with the giving of notice or lapse of time or both
would not) result in the breach of any agreements or other obligations to which
he is a party or otherwise bound and (iii) this Agreement is his valid and
binding obligation, enforceable against him in accordance with its terms.
3.10 Enforcement. If any party institutes legal action to enforce or
-----------
interpret the terms and conditions of this Agreement, the prevailing party shall
be awarded reasonable attorneys' fees at all trial and appellate levels, and the
expenses and costs incurred by such prevailing party in connection therewith.
Venue for any such action shall exclusively be the Borough of Manhattan, City of
New York.
3.11 Arbitration.
-----------
(a) Any dispute under Section 1 of this Agreement, including but not
limited to the termination by the President of a termination For Cause or in
respect of the breach thereof will be settled by arbitration in the Borough of
Manhattan, City of New York. The arbitration will be accomplished in the
following manner. Either party may serve upon the other party written demand
that the dispute, specifying the nature thereof, shall be submitted to
arbitration. Within ten (10) days after the service of such demand, each of the
parties will designate an arbitrator and serve written notice of such
appointment upon the other party. If either party fails within the specified
time to appoint such arbitrator, the other party will be entitled to appoint
both arbitrators. The two arbitrators so appointed will appoint a third
arbitrator. If the two arbitrators appointed fail to agree upon a third
arbitrator within ten (10) days after their appointment, then an application may
be made by either party hereto, upon notice to the other party, to the American
Arbitration Association (the "AAA"), or any successor thereto, or if the AAA or
its successor fail to appoint a third arbitrator within ten (10) days after such
request, then either party may apply, with notice to the other, to the Supreme
Court of the State of New York, New York County (the "Court"), for the
appointment of a third arbitrator, and any such appointment so made will be
binding upon both parties hereto.
(b) The decision of the arbitrators will be final and binding upon the
parties. The party against whom the award is rendered (the "non-prevailing
party") will pay
5
<PAGE>
all fees and expenses incurred by the prevailing party in connection with the
arbitration (including fees and disbursements of the prevailing party's
counsel), as well as the expenses of the arbitration proceeding. The arbitrators
will determine in their decision and award which of the parties is the
prevailing party, which is the non-prevailing party, the amount of the fees and
expenses of the prevailing party and the amount of the arbitration expenses. The
arbitration will be conducted, to the extent consistent with this Section 3.11,
in accordance with the then prevailing rules of commercial arbitration of the
AAA or its successor. The arbitrators will have the right to retain and consult
experts and competent authorities skilled in the matters under arbitration, but
all consultations will be made in the presence of both parties, who will have
full right to cross-examine the experts and authorities. The arbitrators will
render their award, upon the concurrence of at least two (2) of their number,
not later than thirty (30) days after the appointment of the third arbitrator.
The decision and award shall be in writing, and counterpart copies shall be
delivered to each of the parties. In rendering an award, the arbitrators will
have no power to modify any of the provisions of this Agreement, and the
jurisdiction of the arbitrators is expressly limited accordingly. Judgment may
be entered on the award of the arbitrators and may be enforced in any court
having jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
PHARMACEUTICAL RESOURCES, INC.
By:/s/Kenneth I. Sawyer, President
--------------------------------
Kenneth I. Sawyer, President
/s/Dennis J. O'Connor
-----------------------------------
DENNIS J. O'CONNOR
6
<PAGE>
EXHIBIT 10.13
LEASE EXTENSION AND MODIFICATION AGREEMENT
This Lease Extension and Modification Agreement (this "Agreement") is
made as of the 30 day of August, 1997, by and between RAMAPO CORPORATE PARK
--
ASSOCIATES, a New York general partnership, having an office at 100 Red
Schoolhouse Road, Chestnut Ridge, New York 10977-6715 ("Landlord") and PAR
PHARMACEUTICAL, INC., a New Jersey corporation, having an office at One Ram
Ridge Road, Chestnut Ridge, New York 10977 ("Tenant").
RECITALS
--------
A. Landlord and Tenant (by its predecessor-in-interest) have entered
into a certain lease (the "Original Lease") dated as of January 1, 1993,
relating to certain space in the buildings (the "Building") located at and known
as 100 Red Schoolhouse Road, Chestnut Ridge, New York (the "Original Leased
Premises").
B. By its terms, the Original Lease expires as of December 31, 1997.
C. The Tenant has (a) exercised its rights pursuant to Section 1.2
of the Original Lease to extend the term of the Original Lease solely as to that
portion of the Original Demised Premises shown as attributed to "Par" on the
exhibit annexed hereto as Exhibit A (the "New Leased Premises"), (b) agreed to
surrender to the Landlord the remaining portion of the Original Leased Premises,
and (c) agreed to certain other modifications of the Original Lease.
D. Landlord and Tenant have agreed to modify the Lease as set forth
herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
AGREEMENT
---------
1. DEFINITIONS.
(a) Except as herein modified, all capitalized terms used in this
Agreement shall have the same meanings as set forth in the Original Lease.
(b) From and after the Effective Date (hereinbelow defined) the
following terms used in the Lease or in this Agreement shall have the following
meanings:
(i) "Base Rent" shall mean the following annual amounts, payable in
equal monthly installments, in advance on the first day of each calendar month:
(A) During the Initial Extension Term
---------------------------------
1
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(1) January 1, 1998 to and including December 31, 1999 - Two Hundred
Sixty-Seven One Hundred Eighty-Eight and 50/100 ($267,188.50) Dollars,
payable at the rate of Twenty-Two Thousand Two Hundred Sixty-Five and
70/100 ($22,265.70) Dollars per month.
(2) January 1, 2000 to and including May 31, 2002 - Two Hundred
Seventy-Nine Thousand Eleven ($279,011.00) Dollars, payable at the rate of
Twenty-Three Thousand Two Hundred Fifty ($23,250.00) Dollars per month.
(3) June 1, 2002 to and including December 31, 2004 - Two Hundred
Ninety Thousand Eight Hundred Thirty-Three and 50/100 ($290,833.50)
Dollars, payable at the rate of Twenty-Four Thousand Two Hundred Thirty-Six
and 12/100 Dollars per month.
(B) During Each Additional Extension Term
-------------------------------------
Base Rent shall be equal to the fair market rental value of the Leased
Premises as of the date which is six (6) months prior to each Additional
Extension Term, determined as set forth in Section 4 below.
(ii) "Lease" shall mean the Original Lease as modified by this
Agreement.
(iii) "Leased Premises" shall mean the New Leased Premises.
(iv) "Effective Date" shall mean January 1, 1998.
(v) "Excess Space" shall mean that portion of the Original Leased
Premises which is not included in the New Leased Premises.
(vi) "Expiration Date" shall mean December 31, 2004.
(vii) "Tenant's Proportionate Share" shall mean 30.79% as of the
date of this Agreement.
(viii) "Security Deposit" shall mean an amount equal to one month's
Base Rent, together with the letter of credit described in Section 6 below, so
long as such letter of credit is required pursuant to such section.
(ix) "Initial Extension Term" shall mean January 1, 1998 to and
including December 31, 2004.
(x) "Additional Extension Term" shall mean each of the two five-
year periods following the Initial Extension Term.
2. EXTENSION OF LEASE. The parties hereby agree that the Original
Lease is extended for the Initial Extension Term upon all the same terms and
conditions contained in the Original Lease, as modified by this Agreement.
Tenant shall have the right to further extend the Lease for two additional five-
year periods ("Additional Extension Terms"), upon the same terms and conditions
as contained in the Lease, by giving written notice to Landlord of its intention
2
<PAGE>
to further extend the Lease. Such notice must be given not later than the later
of: (a) nine (9) months prior to expiration of the then-current term or (b) if
Tenant shall not have given such notice by that date, then thirty (30) days
after written notice from landlord that such extension notice date has passed.
3. TENANT'S OBLIGATION TO VACATE. Subject to the provisions of
Section 9 below, the Tenant shall vacate the Excess Space prior to the Effective
Date, leaving the same in vacant and broom-clean condition, but otherwise in its
"as is" condition at such date.
4. DETERMINATION OF FAIR MARKET RENTAL VALUE. In the event that the
Landlord and Tenant shall not have agreed upon the fair market rental value of
the Leased Premises at least six (6) months prior to the commencement date of
the applicable Additional Extension Term, such value shall be determined by two
commercial real estate MAI appraisers, one of whom is selected by the Landlord
and one of whom is selected by the Tenant. If the appraisals of such two
appraisers shall differ by less than 10%, the two appraisals shall be averaged
and the result thereof shall constitute the agreed upon fair market rental value
of the Leased Premises for the purposes of this Agreement. If the two
appraisals shall differ by 10% or more, then the two appraisers so selected
shall select another mutually acceptable MAI appraiser who shall select from the
two existing appraisals that appraisal which the third appraiser believes to be
the most fair and accurate appraisal of the fair market rental, which appraisal
shall constitute the agreed upon fair market rental value of the Leased Premises
for the purposes of this Agreement. The cost and expense of such third
appraiser, if required, shall be shared equally by Landlord and Tenant.
5. BROKER. Landlord and Tenant each warrant to the other that it
has not consulted or dealt with any broker in connection with this Agreement
other than CB Commercial Real Estate Inc. and Strategic Alliance Realty, Inc.
Landlord shall pay the commission of such brokers in accordance with Landlord's
separate agreement and agrees to indemnify and hold Tenant harmless from any
claims, costs, actions or other expenses (including attorneys' fees and
expenses) arising therefrom. Landlord and Tenant shall each indemnify, defend
and hold the other harmless from any and all liability or expense, including but
not limited to attorneys' fees, incurred due to any claim for commissions, fees
or other compensation which arises from a breach of covenant or
misrepresentation herein.
6. REDUCTION OF SECURITY DEPOSIT. Not later than the Effective
Date, (a) Landlord shall refund to Tenant the entire amount of the Security
Deposit being held by it pursuant to the Original Lease, except for the sum of
Twenty-Two Thousand Two Hundred Sixty-Five and 70/100 ($22,265.70) Dollars which
it shall continue to hold and (b) Tenant shall deliver to Landlord a letter of
credit from a New York bank, substantially in the form attached to this
Agreement as Exhibit B, but conditioned for payment upon the default by Tenant
under the Lease (after expiration of any applicable grace period) (the "L/C"),
in an amount equal to two months' Base Rent, to be held by Landlord as
additional Security Deposit under the Original Lease, to be in effect for the
Extension Term and each Additional Extension Term; provided however, that if the
L/C is not effective for the entire Extension Term and each applicable
Additional Extension Term, Tenant shall cause the L/C to be renewed from time to
time, or Landlord may draw down under the L/C; and provided further, that the
L/C shall be returned to Tenant which shall cause the same to be cancelled
promptly following Tenant's parent company,
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<PAGE>
Pharmaceutical Resources, Inc., having two consecutive profitable fiscal
quarters and written notice of such profitable fiscal quarters is given to
Landlord.
7. CERTAIN PAYMENTS DUE OR PAID TO TENANT. The parties acknowledge
that Tenant: (a) has received a $120,000 payment pursuant to Section 4.4 of the
Original Lease, (b) is or may be entitled to an additional payment pursuant to
Section 4.5 of the Original Lease upon the execution and delivery of this
Agreement and (c) is entitled to receive from Landlord an amount equal to one-
half (1/2) of the interest earned by Landlord on the Security Deposit paid under
the Original Lease. Tenant shall be entitled to retain the payment described in
subsection (a) above. Tenant hereby agrees to waive its right to receive the
payment described in subsection (b) above. Landlord shall pay to Tenant, within
thirty (30) days after execution and delivery of this Agreement, the amount due
pursuant to subsection (c) above.
8. CAM CHARGES. The amount of CAM charges payable during the first
year of the Initial Extension Term shall be equal to Thirty Thousand One Hundred
Seventy-Seven and 17/100 ($30,177.17) Dollars per annum, payable in equal
monthly installments of Two Thousand Five Hundred Fourteen and 76/100
($2,514.76) Dollars each, beginning on the Effective Date. Such amount shall be
increased annually by five (5%) percent per annum, beginning January 1, 1999.
9. LANDLORD'S WORK. Promptly following the date of this Agreement,
Landlord shall, at its sole cost and expense, perform the following alterations
to the New Leased Premises (collectively, "Landlord's Work"):
(a) Remove and erect partition walls as shown on the plan attached to
this Agreement as Exhibit A (the "Plan");
(b) Re-locate the existing "Mixing Room" as shown on the Plan;
(c) Add the "Pharmacy Room", as shown on the Plan;
(d) Separate existing utilities serving the Leased Premises, so that
such utilities serve only the New Leased Premises shall serving the New Leased
Premises exclusively.
In connection with the performance of Landlord's Work, Landlord shall
construct all partitions, doors and ceilings. All Landlord's Work shall be
performed in accordance with all applicable laws, codes and regulations, and
otherwise in a good and workmanlike manner. Without limiting the foregoing,
Landlord covenants that the exterior access to the New Leased Premises shall
comply with the Americans with Disabilities Act, and regulations thereunder.
All Landlord's Work shall be completed by December 1, 1997, time of the essence.
In the event that Landlord's Work is not completed by that date, in addition to
all other rights and remedies then available to Tenant, Tenant shall not be
required to vacate the Excess Space prior to the Effective Date, notwithstanding
that Base Rent shall be reduced to the amount specified in this Agreement from
and after the Effective Date.
10. NON-DISTURBANCE. Landlord covenants and agrees to obtain and to
deliver to Tenant on or prior to the Effective Date, a "non-disturbance"
agreement in writing executed by the holders of any mortgage and any ground
lessor affecting the Demised Premises at that date
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which, in substance, shall provide that any mortgagee or ground lessor shall
recognize the validity and continuance of the Lease in the event of a
foreclosure of the Landlord's interest in and to the Demised Premises so long as
Tenant shall not be in default under the Lease, including applicable grace
period (but subject to no other conditions or qualifications) or to exhibit to
Tenant a true copy of any mortgage or mortgages or ground lease affecting the
fee, which shall provide in a separate clause that the holder of said mortgage
or mortgages or ground lease shall recognize the validity and continuance of the
Lease in the event of a foreclosure of the Landlord's interest in and to the
Demised Premises so long as Tenant herein shall not be in default, including
applicable grace period (but subject to no other conditions or qualifications).
If and only if such a "non-disturbance" agreement is delivered to Tenant, the
Lease shall be subject and subordinate to the mortgages or ground leases which
may affect the real property of which the Demised Premises forms a part. This
clause shall be self-operative and no further instrument or subordination shall
be required.
11. AFFIRMATION OF LEASE. In the event that any of the terms or
provisions of this Agreement are inconsistent with any of the terms or
provisions of the Original Lease, the terms and provisions of this Agreement
shall govern and supersede the terms and provisions of the Original Lease. As
herein specifically and expressly modified, the Original Lease shall remain in
full force and effect, in accordance with its terms. The parties each hereby
represent and warrant that it has no claims of default by the other under the
Original Lease.
12. MULTIPLE COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original but all of
which, taken together, shall constitute but one and the same instrument.
13. HEADINGS. The captions of the individual sections of this
Agreement are for convenience of reference only and shall not affect the
construction to be given any provision hereof.
14. NON-BINDING EFFECT. This Agreement shall not be binding upon, or
inure to the benefit of, either party hereto unless and until this Agreement
shall have been duly executed by or on behalf of both parties. Upon such due
execution, this Agreement and the Original Lease shall contain the fully-
integrated understanding of the parties and no provisions may be modified,
waived or revoked in any respect except in writing signed by the party to be
charged.
15. DUE AUTHORITY. The persons executing this Agreement on behalf of
each of the parties hereby represent and warrant that they are duly authorized
to enter into this Agreement without further consent, authorization or approval.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to
be duly executed and delivered as of the date first above written.
RAMAPO CORPORATE PARK ASSOCIATES
By:/s/Steven Iser
--------------------------------
Steven Iser, General Partner
PAR PHARMACEUTICAL, INC.
By:/s/Dennis O'Connor
--------------------------------
6
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EXHIBIT A
ARCHITECTURAL DRAWING
OF THE LEASED PREMISES
7
<PAGE>
FORM OF LETTER OF CREDIT
------------------------
8
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EXHIBIT 10.14
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
-------------------------------------------
This Amended and Restated Distribution Agreement (the "Agreement") is
entered into as of the 28th day of July , 1997 (the "Execution Date") by and
---- ---------
among SANO Corporation, a Florida corporation ("SANO"), Pharmaceutical
Resources, Inc., a New Jersey corporation ("PRI"), and Par Pharmaceutical, Inc.,
a New Jersey corporation ("PPI").
WHEREAS, SANO, PRI and PPI have previously entered into that certain
Distribution Agreement as of the 24/th/ day of February, 1994 (the "Original
Agreement"); and
WHEREAS, SANO, PRI and PPI wish to amend and restate their agreement with
respect to the subject matter of the Original Agreement, and supersede the
Original Agreement in its entirety;
NOW, therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
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CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
ARTICLE I
TERMS AND CONDITIONS
--------------------
1.1 Definitions. As used in this Agreement, the following terms shall have
-----------
the meaning ascribed to them below:
(a) "Affiliate," as to any Person, shall have the meaning set forth in
Rule 405 under the Securities Act of 1933.
(b) "Costs" shall mean, with respect to production of a Licensed
Product, the cost of goods incurred by SANO in the production thereof determined
in accordance with generally accepted accounting principles applied on a
consistent basis, as determined by SANO's independent certified public
accountants; provided, however, that notwithstanding the foregoing, it being the
intent of the parties that Costs make SANO whole with respect to all reasonable
expenditures related to the Licensed Product, Costs shall include, without
limitation, (i) the delivered cost of all ingredients and other raw materials
used therein, (ii) a percentage of SANO's overall labor cost equal to the
portion which labor hours devoted to the Licensed Product's production bears to
total labor hours devoted to all SANO product production, (iii) packaging and
other direct manufacturing and quality control costs and (iv) ratably allocated
costs of marketing and promotion (if any), product liability insurance and
general overhead; provided, further, that, notwithstanding the foregoing, Costs
shall not include (i) any cost incurred by SANO in completing the Development
Program, (ii) any royalties or similar payments paid or payable by SANO with
respect to any Licensed Product, or (iii) any cost specifically related to the
distribution of the Licensed Product outside the United States; additionally,
(x) with respect to the transdermal nicotine Licensed Product (generic of
Habitrol(R)) described herein as Product B, Costs shall be reduced on a one-time
basis by [*****], (y) with respect to the transdermal nitroglycerin Licensed
Product (generic of Nitro Dur(R)) described herein as Product A, Costs shall be
reduced on a one-time basis by the sum of the amount set forth in Section 7.1
hereof as the Licensed Product Fee for such Licensed Product and the amount set
forth as an additional Licensed Product Fee for that Licensed Product pursuant
to Section 7.4 hereof, and (z) with respect to the transdermal nitroglycerin
Licensed Product (generic of Transderm Nitro(R)) described herein as Product C,
Costs shall be reduced on a one-time basis by the sum of the amount set forth in
Section 7.1 hereof as the Licensed Product Fee for such Licensed Product and the
amounts set forth as an Additional Licensed Product Fee for that Licensed
Product pursuant to Section 7.4 hereof.
(c) "Development Program" shall mean all actions, including, without
limitation, research conducted as a part of SANO's pre-clinical and clinical
activities, which is required or reasonably necessary to obtain all requisite
governmental approvals for the testing, manufacture and sale of Licensed
Products during the term of this Agreement.
2
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(d) "Exclusive" shall mean, with respect to any right herein granted,
that no other party shall have such right, directly or indirectly.
(e) "Generic" shall mean, with respect to any drug or product, that
such drug or product does not comprise a substance or compound that is covered
by a claim under any unexpired U.S. Patent and/or which is not entitled to any
period of market exclusivity under the Orphan Drug Act or the Drug Price
Competition and Patent Term Restoration Act of 1984 according to 21 U.S.C.A.
355(j)(4)(D)(i)or (ii).
(f) "Licensed Product" shall mean the Transdermal Generic Drug Delivery
Systems listed on Exhibit A hereto.
(g) "Net Sales" shall have the meaning set forth in Exhibit B hereto.
(h) "Person" shall include any individual, corporation, partnership,
association, cooperative, joint venture, or any other form of business entity
recognized under the law.
(i) "Sale" shall mean any action involving selling.
(j) "SANO's Technology" shall mean any and all data, information,
technology, know-how, process, technique, method, skill, proprietary
information, trade secret, development, discovery, and inventions, owned or
controlled by SANO and specifically related to a Transdermal Generic Drug
Delivery System for the Licensed Products now existing or developed in the
future under and during the course of the Development Program or otherwise, as
well as information related to the manufacture of Licensed Product(s) and
specifications and procedures related thereto.
(k) "Sell" shall mean to, directly or indirectly, sell, distribute,
supply, solicit or accept orders for, negotiate for the sale or distribution of,
or take any other action that is in furtherance of any of the foregoing.
(l) "Specifications" shall mean the terms and conditions applicable to
the Licensed Product(s) as described in the abbreviated new drug application
("ANDA") approved by the United States Food and Drug Administration (the "FDA")
covering the Licensed Product(s), as the same may be supplemented from time to
time.
(m) "Standard Packaging" shall mean a Licensed Product packaged in
individual pouches and in individual folding cartons consisting of pouch units
per carton reasonably specified by PPI and containing any labels and labelling
required therefor by the FDA and provided in packages that are appropriate for
regulatory and marketing purposes, and produced at a SANO facility in the United
States, the grade and quality of the labels, labelling and packaging materials
being as specified in the ANDA therefor.
(n) "Transdermal Generic Drug Delivery System" shall mean a generic
version of a branded transdermal adhesive patch.
(o) "United States" shall mean the 50 states of the United States of
America, plus the District of Columbia, the Commonwealth of Puerto Rico, the
U.S. Virgin Islands, Guam, Samoa and any other territory which, on the Execution
Date, is a United States
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government protectorate wherein an ANDA approved by the FDA is required to sell
the Licensed Products in such territory.
ARTICLE II
REPRESENTATIONS OF SANO
-----------------------
2.1 SANO represents and warrants as follows:
2.1.1 Organization, etc. It is duly organized and validly
------------------
existing under the laws of the State of Florida, has all requisite power and
authority to conduct its business as now, and as proposed to be, conducted and
to execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly authorized, executed and delivered by SANO and
represents a valid and binding obligation enforceable against SANO in accordance
with its terms.
2.1.2 No Conflicts; Consents. Execution and delivery hereof, or
----------------------
performance by SANO hereunder, will not (a) violate or create a default under
(i) SANO's Articles of Incorporation or by-laws (true and correct copies of
which have been delivered to PPI), (ii) any mortgage, indenture, agreement, note
or other instrument to which it is a party or to which its assets are subject or
(iii) any court order or decree or other governmental directive or (b) result in
the action of any lien, charge or encumbrance on any material portion of SANO's
assets, except as contemplated hereby.
2.1.3 SANO's Technology. SANO's Technology is, to the best
-----------------
knowledge of SANO, sufficient to enable SANO to complete the Development Program
as contemplated hereby. Except as set forth in Schedule 2.1.3, SANO has
received no notice, and is not aware, that any portion of SANO's Technology
infringes upon the rights of any other Person.
2.1.4 Development Program. SANO has filed an ANDA with respect to
-------------------
each of the Licensed Products and has no knowledge of any fact or circumstance
which is reasonably likely to prevent approval by the FDA, other than general
conditions related to the approval process; SANO does not hereby represent or
warrant that any Licensed Product will be approved for commercial sale, or will
ultimately be marketed.
2.1.5 Information. All data and other information relating to
-----------
SANO and/or the Licensed Products provided by SANO, or its agents, to PPI was
derived from SANO's records (which have been diligently, and to the best of
SANO's knowledge, accurately maintained in all material respects) and is an
accurate copy or summary thereof in all material respects.
2.1.6 Employees. All key employees of SANO have executed
---------
appropriate confidentiality agreements with SANO and assignments of intellectual
property rights in favor of SANO. All key employees of SANO have executed
appropriate non-compete agreements which, by their terms, extended at least
until December 31, 1996.
2.1.7 Status. SANO represents and warrants to PPI that, to the
------
best of its knowledge, information and belief, it is not prohibited by any
federal, state or local law, rule or regulation or by any order, directive or
policy of the United States government or any state or local government thereof
or any federal, state or local regulatory agency or authority having
4
<PAGE>
jurisdiction with respect to the distribution of pharmaceutical products within
its territorial jurisdiction from selling the Licensed Products within the
territorial jurisdiction of such government, regulatory agency or authority (on
the assumption that it holds whatever licenses are required for a foreign
corporation to carry on business generally within such jurisdiction) and that
SANO is not an Ineligible Person or Person from whom any United States federal,
state or local government, regulatory authority or agency which purchases
pharmaceutical products (including, without limitation, the federal Defense
Logistics Agency) will or may not purchase any products manufactured by it or
with whom it will or may not otherwise conduct business as a result its being
publicly listed or otherwise (except for the fact that it is a foreign
corporation).
ARTICLE III
OBLIGATIONS OF SANO
-------------------
3.1 Level of Effort. SANO shall use its reasonable efforts, including,
---------------
without limitation, the employment of a sufficient number of technically
qualified officers and employees, to attempt to complete the Development Program
for each Licensed Product.
3.2 Progress Reports. SANO shall, on a monthly basis, by the tenth day of
----------------
each month, inform PPI in writing of the progress of the Development Program and
the commencement of any project within the Development Program.
3.3 Program Updates. On a date which shall be approximately three (3)
---------------
months after the date hereof, and at three-month intervals thereafter,
representatives of SANO and of PPI shall meet to review the progress and status
of the Development Program then underway. At such meetings, PPI shall have the
right to request the allocation of priorities to the various projects comprising
the Development Program and to suggest procedures for their implementation,
which requests shall be reasonably considered by SANO.
3.4 Intentionally omitted.
3.5 Supply and Use of Information. The parties shall, as promptly as
-----------------------------
possible, provide to each other any information that comes to the knowledge of a
responsible officer of any party relating to any adverse reaction or other
adverse event occasioned during research on, development or use of a Licensed
Product. Any provision of information to PPI shall be subject to the
confidentiality obligations of Section 14.4.
3.6 Clinical Testing. All pre-clinical, clinical and post-clinical testing
----------------
and stability testing and other actions, including but not limited to completion
of the Development Program, required to obtain all requisite government
approvals in the United States for the manufacture and sale of each Licensed
Product shall be conducted by SANO, at its expense unless otherwise set forth
herein.
3.7 Governmental Approvals. SANO shall file all appropriate requests and
----------------------
other filings with the appropriate government agencies within the United States
in order to seek to obtain all requisite approvals for the testing, manufacture,
sale and use of the Licensed Product(s). The decision regarding the timing of
said filings shall be in SANO's sole discretion. SANO shall have full and
complete ownership of all governmental approvals relating to
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<PAGE>
Licensed Products. SANO shall provide PPI with appropriate sections of and a
right of reference to any application for registration in the United States
except with respect to those aspects of any formulation or manufacturing process
that is reasonably deemed proprietary by SANO.
3.8 Other Products. SANO shall reasonably apportion or allocate its
--------------
resources among its products to accommodate the Development Programs for
Licensed Products.
3.9 Title. SANO will protect and defend its rights to all Licensed
-----
Products and SANO's Technology, and will indemnify and hold PPI, PRI and their
Affiliates, harmless, from and against any claims of infringement or other claim
that SANO is not the owner thereof.
3.10 Subsidiaries and Affiliates. SANO will cause its subsidiaries and
---------------------------
affiliates to comply with the restrictions and limitations imposed on SANO
hereunder with respect to Licensed Products.
ARTICLE IV
EXCLUSIVE DISTRIBUTOR
---------------------
4.1 Subject to the provisions of this Agreement, SANO hereby appoints PPI
as the exclusive distributor of the Licensed Products for the United States and
PPI hereby accepts such appointment and agrees to act as such exclusive
distributor. The rights and licenses granted to PPI under this Agreement shall
henceforth be referred to as "the Right." PPI acknowledges that it has no
rights with respect to SANO's Technology or the Licensed Products, except for
the distribution rights with respect to the Licensed Products as herein
described.
4.2 SANO, or PPI, as applicable, covenants and agrees that, during the term
of this Agreement or until the Right (or its exclusive nature) is terminated in
accordance with the provisions hereof:
4.2.1 SANO will refer to PPI all inquiries concerning potential
purchases of Licensed Products received by it from Persons located in the United
States or from Persons outside the United States if SANO knows or reasonably
suspects that such Person intends to resell or export the Licensed Product to
the United States;
4.2.2 SANO will not, directly or indirectly, knowingly sell any
Licensed Product in the United States nor to any Person outside of the United
States if SANO reasonably expects that such Person intends to resell or export
the Licensed Product to the United States and, if notified by PPI that one of
SANO's customers is selling the Licensed Product in the United States in any
material respect, SANO shall either cease to supply such customer or obtain (and
enforce, if necessary) an undertaking from such customer not to sell the
Licensed Product in the United States (unless SANO is precluded from taking such
action under applicable law). PPI acknowledges that SANO will use reasonable
efforts to prevent the sale of Licensed Products in United States by Persons
other than PPI, but shall not be held responsible if, despite such efforts, it
is unsuccessful in so doing (subject to its obligations above to cease to supply
or to obtain and enforce the undertaking as and to the extent contemplated
above).
4.2.3 PPI shall not, and shall not authorize, permit or suffer any
of its Affiliates to, purchase any Transdermal Generic Drug Delivery System
which has the same strength,
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contains the same active ingredient and is for the same indication as, and is
competitive with, any of the Licensed Products (a "Competitive Product") for
distribution, sale or use in the United States from any Person other than SANO.
PPI shall not, and shall not authorize, permit or suffer any of its Affiliates
to, seek regulatory approval in the United States for any Competitive Product or
to, directly or indirectly, manufacture, sell, handle, distribute or be
financially interested (except as a stockholder with not greater than a 5%
interest in a public company) in the sales of such products within the United
States for its own account or for the account of any other Person as agent,
distributor or otherwise.
Notwithstanding the foregoing, if PPI or PRI becomes an Affiliate of an
entity (the "Merger Partner") as a result of a merger, acquisition, or other
similar extraordinary corporate transaction, and such Merger Partner is engaged
in the manufacture or distribution of a Competitive Product, PPI shall so notify
SANO and shall offer (the "Offer") to sell, assign and transfer to SANO the
Right with respect to the Licensed Product with which such Competitive Product
is competitive in exchange for an amount equal to the Licensed Product Fee (as
hereinafter defined) for such Licensed Product. If, within thirty (30) days
after its receipt of the Offer, SANO accepts the Offer, SANO shall, within
fifteen (15) days of such acceptance, deliver to PPI, against delivery of
appropriate instruments of release and transfer, its promissory note in form and
substance reasonably acceptable to PPI, payable to the order of PPI, in the
principal amount of the Licensed Product Fee, bearing interest at the prime rate
of Citibank, N.A., as announced from time to time at its offices in New York
City (the "Prime Rate"), with interest and principal payable on the first
anniversary of the date of delivery of such note. From and after the date of
delivery of such note, PPI shall have no rights with respect to the relevant
Licensed Product and SANO shall be free to grant any rights related thereto to a
third party or to retain such rights for itself. If SANO declines to accept the
Offer or fails to accept the Offer within the aforesaid 30-day period, this
Agreement shall remain in full force and effect, except that the provisions of
this Section 4.2.3 shall not apply to that Competitive Product. PPI shall
notify SANO promptly if any Merger Partner has a Competitive Product.
4.2.4 PPI shall not, and shall not authorize, permit or suffer any
of its Affiliates to, directly or indirectly, sell any Licensed Product to any
Person outside of the United States, nor to any Person in the United States if
PPI or any of its Affiliates reasonably expects that such Person intends,
directly or indirectly, to sell or export the Licensed Product outside of the
United States. If PPI is notified by SANO that one of its customers or a
customer of PPI or any of its Affiliates is exporting the Licensed Product from
the United States in any material respect PPI shall (or shall cause its
Affiliates to) either cease to supply such customer or obtain (and enforce, if
necessary) an undertaking from such customer not to sell the Product outside of
the United States (unless PPI or any such Affiliate is precluded from taking
such action under applicable law). SANO acknowledges that PPI will use (and will
cause its Affiliates to use) reasonable efforts to prevent its customers from
exporting any Licensed Product out of the United States but shall not be held
responsible if, despite such efforts, it is unsuccessful in so doing (subject to
its obligations above to cease to supply or to obtain and enforce the
undertaking as and to the extent contemplated above).
4.2.5 PPI shall refer to SANO any inquiry or order for Licensed
Products which PPI or any of its Affiliates may receive from any Person located
outside of the United States and from any Person located in the United States
where PPI or any of its Affiliates knows or has
7
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reason to suspect that such Person intends to export the Licensed Products
outside of the United States.
4.2.6 The parties acknowledge, agree and declare that the
relationship hereby established between PPI and SANO is solely that of buyer and
seller, that each is an independent contractor engaged in the operation of its
own respective business, that neither party shall be considered to be the agent
of the other party for any purpose whatsoever, except as otherwise expressly
indicated in this Agreement, and that, except as otherwise expressly indicated
in this Agreement, neither party has any authority to enter into any contract,
assume any obligations or make any warranties or representations on behalf of
the other party. Nothing in this Agreement shall be construed to establish a
partnership or joint venture relationship between or among the parties.
4.2.7 SANO shall not engage in marketing and promotion of the
Licensed Products in the United States unless reasonably requested to do so by
PPI.
ARTICLE V
REPRESENTATIONS OF PPI AND PRI; OBLIGATIONS
-------------------------------------------
5.1 PPI and PRI jointly and severally represent, warrant and covenant as
follows:
5.1.1 Organization, etc. They are duly organized and validly
------------------
existing under the laws of the State of New Jersey, have all requisite power and
authority to conduct their business as now and as proposed to be conducted and
to execute, deliver and perform their obligations under this Agreement. This
Agreement has been duly authorized, executed and delivered by PPI and PRI and
represents a valid and binding obligation enforceable against PPI and PRI in
accordance with its terms.
5.1.2 No Conflicts; Consents. Execution and delivery hereof, or
----------------------
performance by either PPI or PRI hereunder, will not (a) violate or create a
default under (i) PPI's and PRI's Certificates of Incorporation or by-laws (true
and correct copies of which have been delivered to SANO), (ii) any mortgage,
indenture, agreement, note or other instruments to which either is a party or by
which either's assets are subject or (iii) any court order or decree or other
governmental direction or (b) result in the action of any lien, charge or
encumbrance on any material portion of PPI's and PRI's assets.
5.1.3 Information. All data and other information relating to PPI
-----------
and PRI provided to SANO by PPI and PRI, or their agents, was derived from PPI's
and PRI's records (which have been diligently maintained) and is an accurate
copy or summary thereof in all material respects.
5.1.4 Sufficiency. PPI maintains and agrees that it will continue
-----------
to maintain those places of business and equipment to be used in storing and
shipping the Licensed Products in accordance with Current Good Manufacturing
Practices of the FDA and all other applicable requirements of the FDA (as the
same may be modified from time to time). PPI hereby further represents and
warrants that it currently has and/or has available to it and maintains and
agrees to continue to have and/or to have available to it and maintain an
adequate marketing
8
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organization and qualified sales persons to promote the sale of the Licensed
Products in the United States.
5.2 PPI shall purchase the Licensed Products from SANO as contemplated in
Article VI hereof.
5.3 PPI will use its reasonable efforts (utilizing its marketing,
distribution and management systems and those of its Affiliates) to develop a
market for and sell the Licensed Products in the United States, such efforts to
be not less rigorous than those efforts used by PPI in relation to its leading
or principal products. PPI shall devote particular attention to the marketing
and sale of the Licensed Products and shall use its resources in a way it deems
most effective in promoting the Licensed Products given market conditions.
5.4 PPI shall have sole discretion in setting the sales price for the sale
of the Licensed Products, provided that PPI shall not specifically discount the
price of the Licensed Products for the benefit of PPI or any of its Affiliates'
other products or to otherwise use the Licensed Products as a loss leader or
incentive to procure the sale of PPI's or any of its Affiliates' other products.
Rebate and other discount programs (excluding any program where the price of the
Licensed Products are discounted primarily for the benefit of enhancing the sale
of PPI's or any of its Affiliates' other products) generally available to PPI's
customers on the purchase of pharmaceutical products shall not be prohibited by
this Section 5.4, provided that such programs shall be in accordance with
industry standards for comparable products and shall be designed to promote the
sale of the Licensed Products and not other products.
5.5 PPI shall comply with all applicable laws, rules and regulations
relating to transporting, storing, advertising, promoting and selling of the
Licensed Products within the United States and shall assume sole responsibility
for all credit risks and collection of receivables with respect to Licensed
Products sold by it and its Affiliates, and, except as expressly provided
herein, in respect of all dealings between itself (and its Affiliates) and its
(and their) customers.
5.6 PPI shall notify SANO promptly upon becoming aware of any adverse
information relating to the safety or effectiveness of a Licensed Product and
shall consult from time to time with regard to competition or potentially
competitive products.
5.7 PPI hereby further represents and warrants to SANO that, to the best of
its knowledge, information and belief, neither it nor any of its Affiliates is
prohibited by any federal, state or local law, rule or regulation or by any
order, directive or policy of the United States government or any state or local
government thereof or any federal, state or local regulatory agency or authority
having jurisdiction with respect to the distribution of pharmaceutical products
within its territorial jurisdiction from selling the Licensed Products within
the territorial jurisdiction of such government, regulatory agency or authority
and that neither PPI nor any of its Affiliates is a Person who, by public
notice, is listed by a United States federal agency as debarred, suspended,
proposed for debarment or otherwise ineligible for federal programs in the
United States (an "Ineligible Person") or Person from whom any United States
federal, state or local government, regulatory authority or agency which
purchases pharmaceutical products (including, without limitation, the federal
Defense Logistics Agency)
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will or may not purchase any products or with whom it will or may not otherwise
conduct business as a result of any of its Affiliates or PPI being publicly
listed or otherwise.
ARTICLE VI
DELIVERY
--------
6.1 Licensed Products shall be made available to PRI for pickup ready for
shipment in Standard Packaging, or as otherwise permitted by the FDA, at SANO's
facilities located in Plantation, Florida, or such other facilities in the
continental United States as SANO may utilize with the consent of PPI, which
consent shall not be unreasonably withheld or delayed, and SANO shall use its
reasonable efforts to make available to PPI sufficient quantities of the
Licensed Products to satisfy orders for the Licensed Products. SANO shall be
solely responsible for the contents of the labels and artwork on all finished
labelled products sold by PRI and its Affiliates. SANO shall provide all
Standard Packaging for the Licensed Products.
6.2 To assist SANO in scheduling production for the manufacture of the
Licensed Products, PPI shall provide to SANO, quarterly, a nine month rolling
forecast of its requirements for a Licensed Product. The first forecast shall
be provided by PPI to SANO approximately six months prior to the anticipated
market launch of a Licensed Product, as reasonably estimated by the parties, and
thereafter shall be provided to SANO on or before the 20th day of the first
month of each successive quarterly period (to forecast the requirements for the
next nine succeeding calendar months). It is understood and agreed that all
forecasts are estimates only and PPI shall only be bound to purchase the
Licensed Products pursuant to purchase orders submitted by it to SANO. All
purchase orders shall be for minimum batch size quantities reasonably agreed by
the parties and shall anticipate an order/production/availability cycle of
approximately twelve weeks during the first two contract years (as defined
below) of this Agreement and an order/production/availability cycle of
approximately sixteen weeks thereafter.
6.3 PPI shall arrange for shipping and/or transportation of the Licensed
Products from SANO's facility to PPI's Spring Valley, New York facility and pay
all shipping and related costs. Risk of loss and title to the Licensed
Product(s) shall pass to PPI upon pick-up of the Licensed Products by, on behalf
of or for the account of PPI at SANO's facility.
6.3.1 SANO shall promptly notify PPI by both fax and telephone
that any order (or part thereof acceptable to PPI) is available for pick-up at
SANO (this notice shall hereafter be referred to as the "Availability Notice").
6.3.2 PPI shall use reasonable and good faith efforts to pick up
the Licensed Products that are the subject of an Availability Notice within ten
(10) business days of receipt of the Availability Notice; provided that, if such
pickup has not occurred on or prior to the expiry of such ten day period, PPI
shall, for purposes of its payment obligations to SANO pursuant to Section 7.2
below, be deemed to have picked up the Licensed Products which are the subject
of the Availability
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
10
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Notice on the last business day of such ten-day period. If the Licensed
Products in question have not been picked up by or on behalf of PPI within
twenty (20) business days of an Availability Notice, SANO may, but shall not be
obligated to, cause the Licensed Products to be delivered to PPI's Spring
Valley, New York, facility by truck or other overland delivery at PPI's sole
cost and expense and risk of loss and title to the Products shall pass to PPI
upon pickup of the Products at SANO's facility in the same manner as if the
pickup had been effected by PPI itself, provided that SANO shall provide for the
Licensed Products to be insured during transit in a commercially reasonable
manner at PPI's sole cost and expense.
ARTICLE VII
PAYMENTS AND PAYMENT TERMS
--------------------------
7.1 Licensed Product Fee. As consideration for the rights herein granted,
--------------------
upon execution hereof, PRI shall pay to SANO a fee (each, a "Licensed Product
Fee") as follows:
Product A (described in SANO's pending ANDA for transdermal nitroglycerin-
-generic to Nitro Dur(R))---[*****]
Product B (described in SANO's pending ANDA for transdermal nicotine--
generic to Habitrol(R))---[*****]
Product C (described in SANO's pending ANDA for transdermal nitroglycerin-
-generic to Transderm Nitro(R))---[*****]
7.2 Price. The price to PRI for each order, or part thereof reasonably
-----
acceptable to PRI as contemplated in Section 8.2(d), of Licensed Products made
available to PRI hereunder shall be SANO's Costs related to such order or part
thereof. PPI shall also pay to SANO any applicable federal or state sales or
excise tax payable on the purchase of such Licensed Products, which payment
shall be remitted with the payment of the price as contemplated in Section 7.3
below and upon payment thereof by PPI to SANO, SANO shall be solely responsible
for remitting the amount so paid on account of such taxes to the relevant
governmental collecting authorities. Promptly upon PPI's request, SANO shall
provide PPI with reasonable evidence of such direct costs and applicable taxes
and payment of such taxes.
7.3 Payment Terms. Payment for each order of Licensed Products made
-------------
available by SANO for pick-up by PPI shall be due within 35 days of pick-up
(whether actual or deemed pursuant to Section 6.3.2) by PPI at SANO's facility.
7.4 Additional Licensed Product Fee. Upon request by SANO, PPI will remit
-------------------------------
up to an aggregate of [*****] to fund skin irritation studies required by the
FDA for any of the Licensed
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
11
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Products. Such request shall specify the amount to be paid for the specific
Licensed Product which is the subject of such study or studies, and the amount
so paid by PPI shall be deemed an addition to and part of the Licensed Product
Fee for such Licensed Product.
7.5 Additional Consideration. PPI shall pay to SANO the Additional
------------------------
Consideration described in Section 11.1 and Schedule B hereto, in accordance
with the provisions of said Section 11.1.
7.6 Payments by SANO. As consideration for prior payments by PPI and for
----------------
PPI's and PRI's agreements set forth herein, upon execution hereof, SANO will
(i) pay PPI [*****], and (ii) deliver its promissory note in the form attached
hereto as Schedule C.
ARTICLE VIII
PRODUCT ACCEPTANCE
------------------
8.1 SANO shall manufacture the Licensed Products and make them available
for pickup by PPI in accordance with all applicable laws, rules and regulations
including, without limitation, the Specifications applicable to the Licensed
Product in question, Current Good Manufacturing Practices of the FDA (as the
same may change from time to time) and all other applicable requirements of the
FDA and other governmental authorities having jurisdiction.
8.2 All Licensed Products made available for pick up by PPI shall be
accompanied by quality control certificates of analysis signed by a duly
authorized laboratory official of SANO confirming that each batch of Licensed
Product covered by such certificate meets its release Specifications and shall
be deemed accepted by it unless PPI, acting reasonably and in good faith, shall
give written notice of rejection (hereafter referred to as a "Rejection Notice")
to SANO within 35 days after pick up of the Licensed Products by, on behalf of
or for the account of PPI at SANO's facility.
(a) The Rejection Notice shall state in reasonable detail (sufficient
to enable SANO to identify the nature of the problem and the tests or studies to
be conducted by or on its behalf to confirm or dispute same) the reason why the
Licensed Products are not acceptable to PPI. If the Licensed Products meet the
applicable provisions of Section 8.1 and are in quantities specified in a
purchase order, PPI shall not be entitled to reject them. Any Rejection Notice
shall be accompanied by copies of all written reports relating to tests, studies
or investigations performed to that date by or for PPI on the Licensed Product
batch rejected.
(b) Upon receipt of such Rejection Notice, SANO may require PPI to
return the rejected Licensed Products or samples thereof to SANO for further
testing, in which event such Licensed Products or samples thereof, as the case
may be, shall be returned by PPI to SANO or, at SANO's direction, at SANO's
expense. If it is later determined by the parties or by an independent
laboratory or consultant that PPI was not justified in rejecting the Licensed
Products or that PPI or its Affiliates were the cause of or were responsible for
the problem, PPI shall reimburse SANO for the costs of the return, as well as
any other costs or expenses incurred by SANO as a result of the rejection or
return.
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(c) PPI's test results or basis for rejection shall be conclusive
unless SANO notifies PPI, within 30 days of receipt by SANO of the rejected
Licensed Products or samples or such longer periods of time as may be reasonable
in the circumstances to enable SANO to conduct (and receive the results of) the
appropriate tests, studies or investigations which SANO should reasonably
conduct to confirm the problem in question and to identify the source thereof,
that it disagrees with such test results or its responsibility for the problem
in question. In the event of such a notice by SANO, representative samples of
the batch of the Licensed Product in question shall be submitted to a mutually
acceptable independent laboratory or consultant (if not a laboratory analysis
issue) for analysis or review, the costs of which shall be paid by the party
that is determined by the independent laboratory or consultant to have been
responsible for the rejection.
(d) If a Licensed Product is rejected by PPI, PPI's duty to pay the
amount payable to SANO pursuant to Section 7.2 hereof in respect of the rejected
Licensed Product shall be suspended until such time as it is determined (I) by
an independent laboratory or consultant that the Licensed Product in question
should not have been rejected by PPI or (II) by the parties or by any
arbitration conducted pursuant hereto or by a final order of a court of
competent jurisdiction (which is not subject to further appeal) that any act or
omission of, on behalf of or for which PPI or its Affiliates is responsible was
the cause of the problem that was the basis for the rejection. If only a
portion of an order is rejected, only the duty to pay the amount allocable to
such portion shall be suspended.
8.3 In the event any Licensed Products are appropriately rejected by PPI
(being Licensed Products that do not meet the applicable provisions of Section
8.1 other than as a result of any act or omission by PPI or its Affiliates),
SANO shall replace such Licensed Products with conforming goods or, if requested
by PPI, shall provide a credit to PPI for the amount, if any, previously paid by
PPI to SANO on account of the Licensed Products in question. The credit shall
be provided by SANO to PPI immediately following the expiry of the period during
which SANO may dispute a Rejection Notice as contemplated in Section 8.2(c)
above (unless the Rejection Notice is disputed by SANO, in which event such
credit shall be given only if the dispute is resolved in favor of PPI).
Replacement Licensed Products, as aforesaid, shall be delivered to PPI at no
cost to PPI if PPI has already paid for the rejected Licensed Products and not
received a credit therefor, as aforesaid. All delivery costs, including
insurance, incident to the return of Licensed Products to SANO and delivery of
the replacement Licensed Products to PPI's Spring Valley facility shall be paid
by SANO, unless the rejection is determined not to have been appropriately
rejected, in which case the last sentence of Section 8.2(a) shall apply.
ARTICLE IX
RETURNS AND ALLOWANCES
----------------------
9.1 Returns. If PPI, acting reasonably and in good faith, accepts from a
-------
customer a return of a Licensed Product and issues to such customer a credit for
the invoice price thereof, PPI may debit against the amount of Additional
Consideration, as hereinafter defined, due to SANO with respect to Net Sales, as
hereinafter defined, in the month in which such return occurs, any Gross Profit,
as hereinafter defined, previously paid, credited or due to SANO in respect of
the sale of such returned Licensed Product.
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9.2 Handling of Returns.
-------------------
(a) In the event any Licensed Product is returned to PPI by its
customers because the Licensed Product is alleged to be defective and PPI
reasonably believes that such defect is due to the fault of SANO, PPI shall
notify SANO within ten (10) working days of any such return and provide or make
available to SANO such samples (if available) and other information concerning
the returned Licensed Product so as to allow SANO to test and evaluate the
allegedly defective Licensed Product. PPI shall retain a sufficient number of
samples of the allegedly defective Licensed Product so that additional samples
are available at a later date should additional testing be required by an
independent testing laboratory as described in Section 9.3(b) below, or by PPI
or SANO for their own purposes. If not enough samples exist to be so divided,
then the parties shall confer and reach agreement as to the handling of any
available samples.
(b) SANO shall complete its review and evaluation of the returned
Licensed Product within twenty (20) business days of receiving the returned
Licensed Product from PPI or such longer period of time as may be reasonable in
the circumstances to enable SANO to conduct or cause to be conducted such tests,
studies or investigations (and to receive the results therefrom) as may be
required to confirm or dispute the existence of the problem or to identify the
cause or source thereof.
9.3 Costs and Credits.
-----------------
(a) If SANO concludes or it is otherwise determined pursuant to Section
9.3(b) hereof that the returned Licensed Product is defective due to the fault
of SANO:
(i) any replacement Licensed Product to be provided by SANO in
respect of the returned Licensed Product shall be made available to PPI
without charge or appropriate credit shall be given therefor (giving account
to any adjustment made pursuant to Section 9.1 hereof);
(ii) all delivery costs, including insurance, incident to the
delivery of the replacement Licensed Products to PPI's Spring Valley
facility shall be paid by SANO or appropriate credit shall be given
therefor; and
(iii) SANO shall provide a credit to PPI for the reasonable costs
incurred by PPI (or where the duty has been performed by an Affiliate,
pursuant to the provisions of this Agreement, for the reasonable costs
incurred by such Affiliate) in respect of the defective Licensed Product.
(b) If SANO asserts that the returned Licensed Product is defective due
primarily to any act or omission of PPI or its Affiliates or any agents or other
persons acting on their behalf as aforesaid, then representative samples of the
Licensed Products shall be submitted to a mutually acceptable independent
laboratory or consultant (if not a laboratory analysis issue) for analysis or
review, the costs of which shall be paid by the party determined by the
independent laboratory or consultant to have been responsible.
(c) If it is determined in accordance with Section 9.3(b) above that
any such defect is primarily due to any act or omission by PPI, then no credit
or other payment of costs
14
<PAGE>
shall be due from SANO, and PPI shall reimburse SANO for all costs and expenses
it incurred in connection with the return and investigation.
(d) If it is determined in accordance with Section 9.3(b) above that no
such defect exists or, if existing, cannot be attributable primarily to an act
or omission of either party, then any replacement Licensed Product in respect of
the returned Licensed Product shall be made available to PPI without additional
charge or appropriate credit, if any, shall be given therefor, but no other
credits or payments of costs shall be due from SANO.
9.4 PPI acknowledges that the Licensed Products may be of a perishable
nature and that the Licensed Product must be stored and shipped in accordance
with the Specifications applicable thereto (to the extent disclosed in writing
to PPI or its Affiliates) or the conditions, if any, set forth on its package
label.
9.5 PPI agrees to notify SANO of any customer complaints with respect to
the quality, nature or integrity of a Licensed Product or alleged adverse-drug
experiences ("ADE") within five (5) working days of their receipt by PPI and of
any PPI or FDA complaints within 24 hours, except on weekends and holidays.
SANO shall have the sole and primary obligation to file any required adverse
experience report with FDA. SANO shall also be responsible for maintaining
complaint files as required by FDA regulations. SANO agrees to investigate and
respond in writing to any complaint or ADE forwarded to it by PPI promptly and
in no event later than 30 days after receipt of the ADE or complaint from PPI
(or such longer period as may be required in the circumstances to enable SANO to
conduct such tests, studies or investigations as may be reasonably required [and
to receive the results therefrom] to enable SANO to appropriately respond).
SANO shall provide PPI with a copy of any correspondence, reports, or other
documents relating to a complaint or ADE within a reasonable period following
generation of such document by SANO.
9.6 The provisions of this Article 9 shall survive the termination or
expiration of this Agreement.
ARTICLE X
DAMAGES, INDEMNIFICATION AND INSURANCE
--------------------------------------
10.1 Subject to the limitations set forth in this Article X and to the other
provisions of this Agreement, SANO, on the one hand, and PPI, on the other hand,
covenant and agree to indemnify and save harmless the other of them from and
against any and all claims, demands, actions, causes of action, suits,
proceedings, judgments, damages, expenses (including reasonable attorney fees
and expenses), losses, fines, penalties and other similar assessments (the
"Damages") relating to or arising out of a breach by any such party of any of
its representations, warranties, covenants or agreements contained herein;
provided that, except where the breach arises out of a representation or
warranty made by a party in this Agreement being intentionally false or
inaccurate, or constitutes a willful material breach by a party of any of its
duties or obligations hereunder, the claim of an aggrieved party for Damages
arising out of the breach shall be limited to claiming the amounts owing or
payable to it in accordance with the provisions of this Agreement and any out-
of-pocket costs and expenses (including amounts paid or payable by it to third
parties, other than re-procurement costs [except to the extent contemplated in
15
<PAGE>
Section 14.3 hereof] which it has incurred and the aggrieved party shall not be
entitled to recover from the defaulting or breaching party any lost profits or
consequential or punitive damages, including loss or damage to its goodwill or
reputation. For purposes of this Agreement where PPI is in breach of its duties
or obligations hereunder and such duties or obligations, if delegated by PPI to
any of its Affiliates, could reasonably be performed by such Affiliate and PPI
has either not delegated such duty or obligation to such Affiliate or such
Affiliate has either refused to perform or willfully breached such duty or
obligation then PPI shall be deemed to have willfully breached such duty or
obligation hereunder. Similarly, whenever in this Agreement PPI is required to
cause any of its respective Affiliates to do r to refrain from doing any thing
herein provided and such Affiliate refuses to do or refrain from doing such
thing or otherwise willfully breaches the provision herein contemplated (on the
assumption that such Affiliate were bound by the provision herein contemplated
as if a signatory hereto) then PPI will be deemed to have willfully breached the
provision of this Agreement in question.
10.2 In the event that the release of a Licensed Product by PPI or its
Affiliates in the United States results in a third party claim:
(a) to the extent that the Damages awarded or incurred relate to or
arise out of the safety or effectiveness of the Licensed Product or the
manufacturing, packaging, labelling, storage or handling of the Product by SANO,
SANO shall be responsible therefor and shall indemnify and hold PPI harmless
from and against all such damages; and
(b) to the extent that the Damages awarded or incurred relate to or
arise out of the transportation, storage, handling or selling of the Licensed
Product by PPI or its Affiliates, then PPI shall be responsible therefor and
shall indemnify and hold SANO harmless from and against all such damages.
Upon the assertion of any third party claim against a party hereto that may
give rise to a right of indemnification under this Agreement, the party claiming
a right to indemnification (the "Indemnified Party") shall give prompt notice to
the party alleged to have the duty to indemnify (the "Indemnifying Party") of
the existence of such claim and shall give the Indemnifying Party reasonable
opportunity to control, defend and/or settle such claim at its own expense and
with counsel of its own selection; provided, however, that the Indemnified Party
shall, at all times, have the right fully to participate in such defense at its
own expense and with separate counsel and, provided, further, that both parties,
to the extent they are not contractually or legally excluded therefrom or
otherwise prejudiced in their legal position by so doing, shall cooperate with
each other and their respective insurers in relation to the defense of such
third party claims. In the event the Indemnifying Party elects to defend such
claim, the Indemnified Party may not settle the claim without the prior written
consent of the Indemnifying Party. The Indemnifying Party may not settle the
claim without the prior written consent of the Indemnified Party unless, as part
of such settlement, the Indemnified Party shall be unconditionally released
therefrom or the Indemnified Party otherwise consents thereto in writing. If
the Indemnifying Party shall, within a reasonable time after such notice has
been given, fail to defend, compromise or settle such claim, then the
Indemnified Party shall have the right to defend, compromise or settle such
claim without prejudice to its rights of indemnification hereunder.
Notwithstanding the foregoing, in the event of any dispute with respect to
indemnity hereunder, each party shall be entitled to participate in the defense
of such claim and to join and implead the other in any such action.
16
<PAGE>
In addition to the foregoing, SANO will defend, at its sole cost and
expense, its rights with respect to the Licensed Products and PPI's rights to
distribute the Licensed Products hereunder against any claim, action, suit or
proceeding ("Action") by any third party asserting prior or superior rights with
respect to the Licensed Product, product infringement or similar claims (other
than as may be based on acts of PPI not contemplated herein or authorized
hereby) and shall indemnify and hold PPI and its affiliates harmless from the
cost of the defense thereof. PPI shall, at all times, have the right fully to
participate in such defense at its own expense. SANO shall control such defense
and shall, in its reasonable discretion, defend or settle such Action; provided
that, notwithstanding the foregoing SANO shall not enter into any settlement or
compromise of any such Action which requires PPI or any of its Affiliates to
make payments of any kind without the prior written consent of PPI or an
unconditional release of PPI and its Affiliates with respect to the subject
matter of such Action. The provisions of this paragraph should not be construed
as requiring SANO to bear any damages, judgments or other liabilities entered
against PPI in any such Action, provided that the foregoing shall not be
construed as or deemed a waiver of any rights PPI may have against SANO as a
result of such Action hereunder, at law or otherwise, and all of such rights, if
any, are expressly reserved.
10.3 Insurance. Each of SANO and PPI shall carry product liability
---------
insurance in an amount at least equal to Ten Million Dollars ($10,000,000) with
an insurance carrier reasonably acceptable to the other party, such insurance to
be in place at times reasonably acceptable to the parties, but not later than
the date of the first commercial sale of a Licensed Product. Each party shall
promptly furnish to the other evidence of the maintenance of the insurance
required by this Section 10.3 and shall name the other as an "additional
insured" under such insurance policy. Each party's coverage shall (i) include
broad form vendor coverage and such other provisions as are typical in the
industry and (ii) name the other party as an additional insured thereunder. SANO
shall carry clinical testing insurance in an amount and at times reasonably
acceptable to the parties.
10.4 Survival. The provisions of this Article X shall survive the
--------
termination or expiration of this Agreement, provided that the requirement to
maintain the insurance contemplated in Section 10.3 above shall only survive for
a period of 36 months from the effective date of termination or expiration of
this Agreement.
ARTICLE XI
ADDITIONAL CONSIDERATION, REPORTING AND VERIFICATION
----------------------------------------------------
11.1 Additional Consideration. As additional consideration for SANO
------------------------
entering into this Agreement and permitting PPI to sell the Licensed Products in
the United States in accordance with the provisions hereof, PPI agrees to pay to
SANO the additional amounts more particularly described in Exhibit B to this
Agreement in respect of the aggregate Gross Profit (as that term is defined in
Exhibit B) of the Licensed Products. The amount payable to SANO determined in
accordance with Exhibit B is herein and in Exhibit B annexed hereto referred to
as the "Additional Consideration." PPI shall pay to SANO, monthly, on the
seventh day of each month, commencing on the seventh day of the third month
after the month in which sales of the Licensed Products commence, the Additional
Consideration payable to SANO in respect of the Net Sales of the Licensed
Products made by PPI and its Affiliates during the third preceding month. For
greater certainty, examples of what constitutes the "third preceding calendar
month"
17
<PAGE>
are contained in Exhibit B annexed hereto. The consideration payable to SANO
pursuant to this Article XI shall be paid to it as part of the sale price of the
Licensed Product from SANO to PPI and shall not be treated as a royalty or
similar payment.
11.2 Reporting and Information Obligations of PPI.
--------------------------------------------
(a) Approved Contracts. PPI shall provide to SANO, monthly, within
------------------
seven days of the expiry of each calendar month during the term hereof, a copy
of each Approved Contract (as hereinafter defined), entered into by PPI with its
customers during the immediately preceding month irrespective of whether a copy
of such contract had previously been forwarded to SANO. If the Approved
Contract has a term of less than 18 months, PPI may delete (e.g., by blacking
out) any information in the Approved Contract that tends to indicate the
identity or location of the PPI customer; provided, however, that PPI marks each
such Approved Contract with a unique customer code relative to the customer that
is the party to that Approved Contract.
(b) Net Sales and Gross Profits. PPI shall report to SANO monthly, on
---------------------------
the 7th day of each calendar month during the term hereof and for 12 months
after the termination hereof:
(i) a sales summary, in the form annexed hereto as Exhibit D,
showing all sales of the Licensed Products made by PPI and its Affiliates
during the immediately preceding calendar month;
(ii) a detailed statement showing all returns and all credits,
rebates, allowances and other debit and credits relevant to the calculation
of Net Sales and Gross Profits (as those terms are defined in Exhibit B
annexed hereto) for the immediately preceding calendar month together with
copies of all documentation to support allowable adjustments used in
computing Net Sales during the period in question;
(iii) a certificate signed by the Chief Financial Officer of PPI
certifying that, to the best of his knowledge, information and belief, after
reasonable investigation, the foregoing statements contemplated in (i) and
(ii) above are true and correct and do not omit any material information
required to be provided pursuant to this Section 11.2(b) and
(iv) a summary of the calculation of the Additional Consideration
payable to SANO on such date.
For purposes of this Agreement a sale shall be considered to have been made
at the time the Product(s) are shipped to the customer.
11.3 PPI shall make available for inspection by SANO at PPI's facilities and
shall cause its Affiliates to make available for inspection by SANO at their
respective facilities, promptly following a reasonable request therefor, such
additional information concerning any sales (including, without limitation, in
respect of any sale, the date of the shipment, the code number of the customer
[or the name of the customer in the case of a customer disclosed to SANO
pursuant to Section 11.2(a) hereof and an Approved Contract], the number of
units of each Licensed Product in each dosage involved (broken down by container
size per Product [e.g., 18 boxes of 30 patches of Product A], and the invoice
price charged by PPI or its Affiliates), credits,
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returns, allowances and other credits and debits previously reported to SANO
pursuant to Section 11.2(b)(ii) hereof or with respect to Approved Contracts
previously reported to SANO pursuant to Section 11.2(a) hereof as SANO may
reasonably require from time to time (except information concerning the identity
or location of a customer where PPI is not already required to disclose that
information to SANO pursuant to Section 11.2(a) hereof) to enable SANO to
confirm or reconcile the amounts which are or were to have been paid to it
pursuant to this Agreement (without the need to audit the books and records of
PPI or its Affiliates pursuant to Section 11.4 hereof).
11.4 PPI shall keep and shall cause its Affiliates to keep complete and
accurate records and books of account containing all information required for
the computation and verification of the amounts to be paid to SANO hereunder.
PPI further agrees that at the request of SANO, it will permit and will cause
its Affiliates to permit one or more accountants selected by SANO, except any to
whom PPI or such Affiliate has some reasonable objection, at any time and from
time to time, to have access during ordinary working hours to such records as
may be necessary to audit, with respect to any payment report period ending
prior to such request, the correctness of any report or payment made under this
Agreement, or to obtain information as to the payments due for any such period
in the case of failure of PPI to report or make payment pursuant to the terms of
this Agreement. Such accountant shall not disclose to SANO any information
relating to the business of PRI except that which is reasonably necessary to
inform SANO of:
(i) the accuracy or inaccuracy of PPI's reports and payments;
(ii) compliance or non-compliance by PPI with the terms and
conditions of this Agreement; and
(iii) the extent of any such inaccuracy or non-compliance;
provided, that if it is not reasonably possible to separate information
relating to the business of PPI from that which is reasonably necessary to
so inform SANO, the accountant may disclose any information necessary to so
inform SANO and SANO shall retain all other information disclosed as
confidential.
PPI shall provide and shall cause its Affiliates to provide full and
complete access to the accountant to PPI's and such Affiliates' pertinent books
and records and the accountant shall have the right to make and retain copies
(including photocopies). Should any such accountant discover information
indicating inaccuracy in any of PPI's payments or non-compliance by PPI or its
Affiliates with any of such terms and conditions, and should PPI fail to
acknowledge in writing to SANO the deficiency or non-compliance discovered by
such accountant within ten (10) business days of being advised of same in
writing by the accountant, the accountant shall have the right to deliver to
SANO copies (including photocopies) of any pertinent portions of the records and
books of account which relate to or disclose the deficiency or non-compliance
(to the extent not acknowledged by PPI). In the event that the accountant shall
have questions which are not in its judgment answered by the books and records
provided to it, the accountant shall have the right to confer with officers of
PPI or such Affiliate, including PPI's or such Affiliate's Chief Financial
Officer. If any audit under this Section shall reveal an underpayment or
understatement of the amount payable to SANO by more than $10,000.00 for any
period in question, PPI shall reimburse SANO for all costs and expenses relating
to such investigational audit. SANO shall only have the right to audit such
books and records of PPI and its Affiliates
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pursuant to this Section 11.4 no more often than twice in any contract year
unless earlier in such contract year or in any of the prior three contract years
such investigation revealed a discrepancy of more than $10,000.00, as aforesaid,
in which case SANO shall have the right to audit such books and records three
times in such contract year. For purposes of this Agreement, a contract year
shall be a period of twelve months commencing on either the date of this
Agreement or on an anniversary thereof. Unless the disclosure of same is
reasonably required by SANO in connection with any litigation or arbitration
arising out of such audit, the accountant shall not reveal to SANO the name or
address (or other information reasonably tending to identify the location of a
customer) of any customer of PPI or its Affiliates [other than one whose name
has been disclosed to SANO pursuant to Section 11.2 hereof], but shall identify
such customer to SANO, if necessary, by the customer code number used by PPI in
its reporting obligations to SANO [and PPI and its Affiliates shall make such
information known to the accountant]. PPI may, as a condition to providing any
accountant access to its books and records (or those of its Affiliates), require
SANO to execute a reasonable confidentiality agreement consistent with the terms
of this Section 11.4.
11.5 Except as specifically set forth to the contrary, all payments to be
made under this Agreement shall bear interest equal to two percent above the
prime rate as quoted by Citibank N.A., New York, New York, calculated daily (as
at the close of business on each such day) and compounded monthly, from the day
following the day the payment is due until the date on which it is paid. Any
adjustment to the prime rate as quoted by Citibank N.A. from time to time shall
result in a corresponding adjustment to the rate of interest payable hereunder,
the rate of interest quoted by Citibank N.A. at the close of business on each
day to be the rate applicable for such day.
11.6 The obligation of PPI to make the payments contemplated in Section 11.1
and to provide the reports and information contemplated in Sections 11.2 and
11.3 and the right of SANO to conduct its audits or investigations pursuant to
Section 11.4 hereof shall survive the termination or expiration of this
Agreement and shall apply to all Licensed Products made available to PPI by SANO
prior to the effective date of the termination or expiration of this Agreement
(or made available to PPI after such date pursuant to any provision of this
Agreement) notwithstanding that such Licensed Products may have been resold by
PPI or its Affiliates to its or their customers after the effective date of
termination or expiration. For greater certainty, the parties acknowledge and
agree that it is their intention that PPI pay to SANO the Additional
Consideration applicable to Net Sales of all Licensed Products supplied by SANO
to PPI pursuant to this Agreement (in respect of which the purchase price
charged by SANO to PPI therefor [whether paid or owing] was determined in
accordance with the provisions of Section 7.2 hereof or was provided to PPI free
of such charge pursuant to any other provision of this Agreement) irrespective
of whether such Licensed Product is resold by PPI or its Affiliates prior to or
subsequent to the effective date of termination or expiration of this Agreement
and that SANO's rights pursuant to Section 11.4 hereof shall continue for a
period of twelve (12) months following the final sale of all such Licensed
Products.
11.7 PPI shall have the right, upon reasonable advance written notice to
SANO, to inspect SANO's facilities at which the Licensed Products are being
manufactured to monitor compliance by SANO with FDA Good Manufacturing Practices
and to otherwise confirm that the Licensed Products are being manufactured in
accordance with their respective Specifications. Similarly, SANO shall have the
right, upon reasonable advance written notice to PPI to inspect
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those facilities of PPI and any of its Affiliates which are used in the storage
of any of the Licensed Products to ensure compliance by PPI or such Affiliate
with FDA Good Manufacturing Practices and to otherwise ensure that the Licensed
Products do not cease to meet their Specifications as a result of any storage or
shipping conducted by PPI or its Affiliates. SANO shall cooperate with PPI in
providing access to its facilities and PPI shall cooperate and shall cause its
Affiliates to cooperate in providing access to SANO to its facilities and those
of its Affiliates used as aforesaid.
11.8 SANO shall keep complete and accurate records and books of account
containing all information required for the computation and verification of
SANO's Costs as contemplated in Section 7.2 hereof with respect to the Licensed
Product(s) made available to PPI by SANO pursuant hereto. SANO further agrees
that at the request of PPI it will permit one or more accountants selected by
PPI except any to whom SANO has some reasonable objection, to have access during
ordinary working hours to such books and records as may be necessary to audit
the amounts previously charged by SANO to PPI pursuant to Section 7.2 hereof.
Such accountant shall not disclose to PPI any information relating to the
business of SANO except the accuracy or inaccuracy of SANO's previously reported
charges and the amount, if any, that PPI may have been overcharged or
undercharged with respect to Licensed Products made available to it. Should any
such accountant discover information indicating that PPI has been overcharged
for Products made available to it, and should SANO fail to acknowledge in
writing to PPI the inaccuracy discovered by such accountant within ten (10)
business days of being advised of same in writing by the accountant, the
accountant shall have the right to make and retain copies (including
photocopies) of any pertinent portions of the records and books of account which
relate to or disclose the inaccuracy (to the extent not acknowledged by SANO).
SANO shall provide full and complete access to the accountant to SANO's
pertinent books and records. In the event that the accountant shall have
questions which are not in its judgment answered by such books and records, the
accountant shall have the right to confer with officers of SANO, including
SANO's Chief Financial Officer. If any audit under this Section shall reveal an
overstatement of the amount payable to SANO by more than $10,000.00 for the
Licensed Products in question, SANO shall reimburse PPI for all costs and
expenses relating to such investigation/audit. It is understood and agreed that
PPI shall only have the right to audit such books ad records of SANO pursuant to
this Section 11.8 no more often than twice in any contract year unless earlier
in such contract year or in any of the prior three contract years such
investigation revealed a discrepancy of more than $10,000.00, as aforesaid, in
which case PPI shall have the right to audit such books and records three times
in such contract year. Unless the disclosure of same is reasonably required by
PPI in connection with any litigation or arbitration arising out of such audit,
the accountant shall not reveal to PPI the name or address (or other information
reasonably tending to identify the location of a supplier) of any supplier of
materials to SANO in the manufacturing or packaging of the Licensed Products
(but shall identify such supplier to PPI if necessary, by a code name or number
supplied by such accountant) or the name of or financial information relating to
any employee of SANO. SANO may, as a condition to providing any accountant
access to its books-and records, require PPI to execute a reasonable
confidentiality agreement consistent with the terms of this Section 11.8. The
rights of PPI pursuant to this Section 11.8 shall survive the termination or
expiration of this Agreement for a period of one year.
ARTICLE XII
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RIGHT OF FIRST REFUSAL
----------------------
12.1 Right of First Refusal. During the term hereof, PPI shall have the
----------------------
right of first refusal to distribute the Licensed Products in the State of
Israel, on a product by product basis, in accordance with the following
procedures.
12.2 Procedures. For each Licensed Product with respect to which SANO
----------
proposes to enter into a distribution agreement in Israel with a third party,
SANO shall communicate to PPI in writing a reasonably detailed description of
the provisions of such agreement (a "Proposed Israeli Distribution Agreement").
Within 30 days of its receipt of a Proposed Israeli Distribution Agreement (the
"Acceptance Period"), PPI shall notify SANO whether it wishes to enter into an
agreement with SANO on such terms. If PPI notifies SANO within the Acceptance
Period that it wishes to do so, PPI and SANO will enter into a distribution
agreement on such terms. If PPI fails to notify SANO of its election to enter
into such an agreement within the Acceptance Period, SANO may enter into a
license or distribution agreement with respect to such Licensed Product with a
third party on substantially the same terms as set forth in the Proposed Israeli
Distribution Agreement and PPI's rights under this Article XII will terminate.
SANO may not enter into such an agreement with a third party on terms
substantially different from those set forth in the relevant Proposed Israeli
Distribution Agreement without first offering such terms to PPI for a period of
thirty days. If SANO shall not enter into the Proposed Israeli Distribution
Agreement within 30 days following the expiration of the Acceptance Period or
any extension thereof as set forth in the preceding sentence, SANO's execution
of any such Agreement or any other Proposed Israeli Distribution Agreement shall
again be subject to PPI's rights under this Article XII. Each Proposed Israeli
Distribution Agreement for each Licensed Product shall be subject to PPI's
rights of first refusal in accordance with the procedures set forth in this
Section 12.2.
ARTICLE XIII
TERMS AND TERMINATION
---------------------
13.1 This Agreement shall become effective on the date hereof and shall
remain in effect for a period of ten years per Licensed Product starting on the
date such Licensed Product becomes available for sale in commercial quantities,
unless earlier terminated in accordance with the provisions of this Agreement.
Thereafter, this Agreement shall automatically be renewed as to each Licensed
Product from year to year unless either party gives notice of termination to the
other party at least one hundred and twenty days prior to the expiry of the
initial term or of any renewal term.
13.2 Either party may, by notice in writing to the other party, terminate
this Agreement if such other party shall have breached any of its material
duties or obligations under this Agreement (other than the obligations of PPI to
pay to SANO any amount due to SANO hereunder [whether on account of Additional
Consideration, the price for the Licensed Products or otherwise] or to provide
SANO with the reports or information contemplated in Section 11.2 or 11.3
hereof) and such breach shall remain uncured for at least sixty days after the
aggrieved party shall have given notice of the breach to the other party.
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13.3 SANO may, by notice in writing to PPI, terminate this Agreement if PPI
fails to pay to SANO any amount payable by PPI to SANO hereunder, whether on
account of the Additional Consideration, the purchase price for the Licensed
Products, interest or otherwise, as and when the same shall have become due and
payable or PPI shall have failed to deliver (or caused to be delivered, as the
case may be), in timely fashion, the reports or information contemplated in
Section 11.2 or 11.3 hereof, and in either case, such breach shall have
continued unremedied for a period of twelve business days after written notice
of such breach has been given by SANO to PPI; provided that PPI shall not have
the right to such twelve-day grace period within which to cure such default and
SANO shall have the immediate right to terminate the Agreement for such breach
if PPI shall have previously breached Section 11.2 or 11.3, or failed to remit
any sums of at least $10,000.00 to SANO, when due, in the aggregate, one time in
the twelve month period immediately preceding the default in question.
13.4 Either party may terminate this Agreement on thirty days prior written
notice to the other party if such party or the other party is legally prohibited
from performing its obligations hereunder (other than by reason of a breach of
its obligations hereunder) or becomes (or, in the case of PPI, its Affiliate
becomes) an Ineligible Person (and, where the party purporting to terminate the
Agreement is also the party prohibited from performing or it or its Affiliate is
the Ineligible Person, it [or its Affiliate, as the case may be] has made
diligent good faith best efforts to remove the prohibition or its status as an
Ineligible Person) and such prohibition or status as an Ineligible Person shall
have continued uninterrupted for a period of 120 days.
13.5 Either party may terminate this Agreement in respect of a particular
Licensed Product (the "Specific Product"), but this Agreement shall continue in
respect of any other Licensed Product, on thirty (30) days prior written notice
to the other party (which notice must be delivered within 90 days of the
expiration of the applicable contract year) if the aggregate Net Sales of the
Specific Product made by PRI and its Affiliates for any complete contract year
after the second anniversary of the date on which such Specified Product became
available for sale shall be less than the amounts stated in or determined
pursuant to Section 13.8; provided, however, SANO may not terminate with respect
to any Specific Product pursuant to this Section 13.5 without the consent of PPI
in the event that SANO shall have previously terminated the exclusive nature of
the Right pursuant to Section 13.8 and shall be selling, directly or indirectly,
such Licensed Product in the United States.
13.6 Either party may terminate this Agreement in accordance with the
provisions of Section 15.1 hereof.
13.7 PPI or SANO shall have the right to terminate this Agreement upon
written notice to the other in the event that any one or more of the following
events shall become applicable to such other party (herein referred to as the
"Party"):
(a) an order is made or a resolution or other action of such Party is
taken for the dissolution, liquidation, winding up or other termination of its
corporate existence;
(b) the Party commits a voluntary act of bankruptcy, becomes insolvent,
makes an assignment for the benefit of its creditors or proposes to its
creditors a reorganization, arrangement, composition or readjustment of its
debts or obligations or otherwise proposes to
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take advantage of or shelter under any statute in force in the United States for
the protection of debtors;
(c) if any proceeding is taken with respect to a compromise or
arrangement, or to have such Party declared bankrupt or to have a receiver
appointed in respect of such Party or a substantial portion of its property and
such proceeding is instituted by such Party or is not opposed by such Party or
if such proceeding is instituted by a Person other than such Party, such Party
does not proceed diligently and in good faith to have such proceeding withdrawn
forthwith;
(d) a receiver or a receiver and manager of any of the assets of such
Party is appointed and such receiver or receiver and manager is not removed
within ninety days of such appointment;
(e) such Party ceases or takes steps to cease to carry on its business.
SANO shall similarly have the right to terminate this Agreement upon written
notice to PRI if any of the foregoing events becomes applicable to any Affiliate
of PRI that has been expressly assigned obligations under this Agreement.
13.8 (a) If
(i) in the twenty-four (24) month period (such period being herein
referred to as the "A Period") beginning on the date (the "A Commencement
Date") the first of any shipments of Licensed Product "A" is made available
to PPI hereunder, the aggregate Net Sales of Licensed Product "A" for such A
Period is less than the Product Sales Threshold (as hereinafter defined);
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
(ii) in the twenty-four (24) month period (such period being herein
referred to as the "B Period") beginning on the date (the "B Commencement
Date") the first of any shipments of Licensed Product "B" is made available
to PPI hereunder, the aggregate Net Sales of Licensed Product "B" for such B
Period is less than the Product Sales Threshold; or
(iii) in any twenty-four (24) month period (such period being
herein referred to as the "C Period") beginning on the date (the "C
Commencement Date") the first of any shipments of Licensed Product "C" is
made available to PPI hereunder, the aggregate Net Sales of Licensed Product
"C" for such Period is less than [*****];
(iv) in any twelve month period commencing on the second and each
subsequent anniversary of the A Commencement Date or the B Commencement Date
the Net Sales of the relevant Licensed Product sold by PPI and its
Affiliates in such period is less than the Product Sales Threshold; or
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(v) in any twelve month period commencing on the second and each
subsequent anniversary of the C Commencement Date, the Net Sales of Licensed
Product "C" sold by PPI and its Affiliates in such period is less than
[*****];
and the shortfall in sales cannot be attributable primarily to the fault of
SANO, SANO shall have the right to convert PPI's Right hereunder from an
exclusive to a non-exclusive right to distribute such Licensed Product upon
ninety days prior written notice to PPI. As used herein, as to any Licensed
Product, the Product Sales Threshold shall mean an amount reasonably agreed upon
by PPI and SANO after consideration of relevant market factors and conditions,
provided that if PPI and SANO shall fail or be unable to agree as to any
Licensed Product for any period in question, the Product Sales Threshold for
such period and Licensed Product shall be [*****].
(b) Notwithstanding the exercise by SANO of its right pursuant to
Section 13.8(a) hereof, and the resultant conversion of PPI to a non-exclusive
distributor hereunder, PPI shall have the right to sell the Licensed Products on
a non-exclusive basis on the terms and conditions as set forth herein, except as
provided otherwise in this Paragraph 13.8, during the balance of the term of the
Agreement (subject to earlier termination as herein provided) and SANO shall
continue to supply the Licensed Products to PPI in accordance with the
provisions hereof, provided that the obligation of SANO to use its reasonable
best efforts to supply PPI with its requirements of the Licensed Products shall
take into account PPI's requirements as well as the requirements of SANO and any
other third party distributor or distributors appointed by SANO to sell the
Licensed Products in the United States.
(c) In the event that SANO exercises its rights under Section 13.8(a)
and contemporaneously therewith or subsequent thereto enters into an agreement
with any Person (herein referred to as a "Third Party Licensee"), authorizing or
licensing such Third Party Licensee to sell any of the Licensed Products in the
United States on royalty, payment or other cash equivalent or otherwise readily
economically measured terms more favorable to the Third Party Licensee (such
more favorable terms being herein referred to as the "MFP") then:
(i) SANO shall promptly notify PPI of such agreement and shall
describe in the notice both the MFP and any obligations, duties,
undertakings or other consideration to be provided by the Third Party
Licensee; and
(ii) PPI shall have thirty days from the date of receipt of such
notice to notify SANO whether PPI desires to have the benefit of the MFP,
which can be accepted only if PPI shall agree (to the extent not already
assumed in this Agreement) to any additional obligations, duties, or
undertakings, and to provide any consideration to be provided by the Third
Party Licensee.
PPI's entitlement to seek the benefit of the MFP shall be conditioned upon and
subject to PPI assuming and being capable of fully performing all the non-cash
obligations assumed by the Third Party Licensee in a manner substantially as
valuable to SANO. If PPI shall dispute such assessment, PPI shall so notify
SANO, whereupon the issue shall be deemed to be a dispute between the parties
and subject to resolution pursuant to Section 15.2 hereof.
13.9 Notwithstanding the termination or expiration of this Agreement
pursuant to this Article XIII or any other provision of this Agreement, all
rights and obligations which were
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incurred or which matured prior to the effective date of termination or
expiration, including accrued Additional Consideration and any cause of action
for breach of contract, shall survive termination and be subject to enforcement
under the terms of this Agreement. Termination of this Agreement shall not
affect any duty of PPI or SANO existing prior to the effective date of
termination or expiration and which is, whether or not by expressed terms,
intended to survive termination. Without limiting the generality of the
foregoing, termination shall not affect any duty to keep confidential any
Confidential Information (within the meaning of Section 14.4 hereof) disclosed
by one party to the other (or its Affiliate) as contemplated in Section 14.4
hereof, but rather such Confidential Information shall be held by the receiving
party subject to such restrictions on use and disclosure as provided in the said
Section.
13.10 Upon termination of this Agreement by PPI pursuant to Section 13.2
or 13.7 or pursuant to Section 13.4 as a result of SANO's inability to perform
its obligations hereunder or becoming an Ineligible Person or the termination of
this Agreement by SANO pursuant to Section 13.5 hereof, SANO shall, at the
request of PPI, repurchase all Licensed Products then in the possession, custody
or control of PPI and available for sale (and which have not been adulterated
since they were made available for pick up by PPI) and all packaging material in
the possession, custody or control of PPI which were specifically acquired by
PPI for these Licensed Products and which cannot be used by PPI or its
Affiliates for any other products sold by any of them, at the price originally
paid by PPI therefor plus all transportation costs previously incurred (even if
not yet paid) by PPI payable in cash on delivery by PPI to SANO. SANO shall pay
all transportation costs associated with shipping the repurchased Licensed
Product to SANO or to such other places SANO may require.
13.11 In the event that this Agreement is terminated pursuant to the
provisions of Section 13.4 hereof as a result of a party (herein referred to as
the "Prohibited Party") being unable to
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
perform its obligations hereunder as therein contemplated or having become (or
its Affiliate having become) an Ineligible Person and within twelve (12) months
of the effective date of termination of this Agreement the Prohibited Party is
again able to perform its obligations hereunder or has ceased (or its Affiliate
has ceased) to be an Ineligible Person, then the Prohibited Party shall, by
notice in writing, advise the other party (herein referred to as the "Receiving
Party") that it is no longer legally prohibited from performing its duties and
obligations hereunder or that it has ceased (or that its Affiliate has ceased)
to be an Ineligible Person and the Receiving Party shall have the right, to be
exercised by notice in writing given to the Prohibited Party within thirty (30)
days of receipt of the aforesaid notice from Prohibited Party, to reinstate this
Agreement; provided, however, that if the Prohibited Party is PPI then SANO
shall have the right to reinstate this Agreement as if a proper notice had been
given pursuant to Section 13.8 of this Agreement and PPI shall be reinstated on
a non-exclusive basis, but only to the extent that such reinstatement will not
violate the provisions of any agreement SANO shall have entered into during the
period PPI was a Prohibited Party.
13.12 If SANO terminates this Agreement pursuant to Section 13.2, 13.3 and
13.7 hereof then PPI shall not and shall cause its Affiliates not to, for a
period of twelve (12) months following the effective date of termination, sell
in the United States any Competitive Product.
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13.13 In the event that SANO terminates this Agreement in respect of a
Specific Product pursuant to Section 13.5 hereof, SANO shall, at the request of
PPI, make available to PPI within a reasonable period of time of such
termination, such number of units of such Specific Product as shall be equal to
the net number of units of such Specific Product sold by PPI during the entire
contract year immediately preceding the year in which this Agreement is so
terminated or such lesser number of units of each such Specific Product as PPI
shall advise SANO in writing within ten business days of such termination. Such
Specific Product shall be made available to PPI in accordance with the
provisions of this Agreement and the provisions of this Agreement shall apply to
all such Specific Product as if such Specific Product had been supplied by SANO
during the term of this Agreement.
13.14 (a) If SANO has not received an approval of an ANDA for
Licensed Product A prior to the later of [*****] PPI may terminate this
Agreement with respect to Licensed Product A by providing SANO with written
notice of such termination and neither party shall have any obligation hereunder
with respect to Licensed Product A other than applicable confidentiality
provisions and the payment by SANO described in the following sentence. In the
event of such termination, SANO shall pay PPI the sum of (i) [*****] and (ii)
the amount paid by PPI in respect of Licensed Product A pursuant to Section 7.1
and Section 7.4 hereof, with half of such sum payable three (3) months after
SANO's receipt of notice of such termination and half of such sum payable
fifteen (15) months after SANO's receipt of notice of such termination.
(b) If SANO has not received an approval of an ANDA for Licensed
Product B prior to the later of [*****] PPI may terminate this Agreement with
respect to Licensed Product B by providing SANO with written notice of such
termination and neither party shall have any
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
obligation hereunder with respect to Licensed Product B other than applicable
confidentiality provisions and the payment by SANO described in the following
sentence. In the event of such termination, SANO shall pay PPI the sum of (i)
[*****] and (ii) the amount paid by PPI in respect of Licensed Product B
pursuant to Section 7.4 hereof, with half of such sum payable three (3) months
after SANO's receipt of notice of such termination and half of such sum payable
fifteen (15) months after SANO's receipt of notice of such termination.
(c) If SANO has not received an approval of an ANDA for Licensed
Product C prior to the later of [*****] PPI may terminate this Agreement with
respect to Licensed Product C by providing SANO with written notice of such
termination and neither party shall have any obligation hereunder with respect
to Licensed Product C other than applicable confidentiality provisions and the
payment by SANO described in the following sentence. In the event of such
termination, SANO shall pay PPI the sum of (i) [*****] and (ii) the amount paid
by PPI in respect of Licensed Product C pursuant to Section 7.1 and Section 7.4
hereof, with half of such sum payable three (3) months after SANO's receipt of
such termination and half of such sum payable fifteen (15) months after SANO's
receipt of notice of such termination.
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(d) For the purposes of this Section 13.14, the dates on which ANDAs
were filed for the respective Licensed Products shall be as set forth on Exhibit
E attached hereto.
ARTICLE XIV
RECALLS, ADMINISTRATIVE MATTERS AND CONFIDENTIALITY
---------------------------------------------------
14.1 Recalls. In the event that it becomes necessary to conduct a recall,
-------
market withdrawal or field correction (hereafter collectively referred to as
"recall") of any Licensed Product manufactured by SANO and sold by PPI or its
Affiliates the following provisions shall govern such a recall:
(a) After consulting with SANO, and on terms and conditions reasonably
satisfactory to SANO, PPI shall conduct (and shall cause its Affiliate to
conduct) the recall and shall have primary responsibility therefore and SANO and
PPI shall each cooperate with the other in recalling any affected Licensed
Product(s). PPI covenants and agrees to maintain and to cause its Affiliates to
maintain such records of all sales of the Licensed Products made by PPI or its
Affiliates as are required by the FDA or as are reasonably appropriate for a
distributor of pharmaceutical products to maintain so as to enable a recall to
be properly completed.
(b) Irrespective of whether the recall is initiated by PPI or by SANO:
(i) If it is later demonstrated that the reason for the recall was
due primarily to acts or omissions of SANO (or the safety or efficacy of the
Licensed Product other than as a result of acts or omissions of PPI or its
Affiliates), then SANO shall pay or reimburse, as the case may be, all
reasonable direct out-of-pocket expenses, including but not limited to
reasonable attorney's fees and expenses and credits and recall expenses
claimed by and paid to customers, incurred by PPI or SANO in connection with
performing any such recall, provided that expenses incurred by PPI shall be
in accordance with the terms and conditions of the recall approved by SANO;
or
(ii) If it is later determined that the reason for the recall was due
primarily to the acts or omissions of PPI or its Affiliates, then PPI shall
pay or reimburse, as the case may be, all direct out-of-pocket expenses,
including but not limited to reasonable attorney's fees and expenses and
credits and recall expenses claimed by and paid to customers, incurred by
PPI or SANO in connection with performing any such recall; or
(iii) If the parties are unable to agree that the cause of the
recall was due primarily to the act or omission of one of the parties (or
its Affiliates, as the case may be) within sixty days of the initiation of
the recall and have not commenced arbitration proceedings to resolve such
dispute within such sixty day period then all direct out- of-pocket costs
incurred by PPI and SANO, including but not limited to reasonable attorney's
fees and expenses and credits and recall expenses claimed by and paid to
customers, shall be shared by the parties in proportion to their sharing of
Gross Profits in respect of the Licensed Products recalled.
Each of the parties shall use its reasonable best efforts to minimize the
expenses of recall which it incurs. It is understood and agreed that the direct
out-of-pocket costs and expenses of the recall
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contemplated in Paragraphs (i), (ii) and (iii) above shall not include the
invoice price charged by PRI or its Affiliates to the customers for the Products
recalled, which amount shall be dealt with in accordance with the provisions of
Section 9 hereof and shall also not include any excess re-procurement costs
(within the meaning of Paragraph 14.3 hereof) and related penalties and
assessments, which costs, penalties and assessments shall be an expense of PPI
except to the extent that it is an expense of SANO pursuant to Section 14.3
hereof (provided that where the provisions of Paragraph (iii) above apply, the
excess reprocurement costs and related penalties and assessments incurred
pursuant to Approved Contracts [as that term is defined in Section 14.3 hereof]
shall be shared by the parties in the proportion in which Gross Profits are
shared in respect of the recalled Products sold pursuant to such Approved
Contracts).
(c) All Licensed Products recalled pursuant to this Section 14.1 shall
be treated as Licensed Products returned to PPI by its customers and the
provisions of Section 9 shall apply thereto.
(d) The party initiating the recall shall inform FDA of the proposed
recall; however, nothing contained herein shall preclude either party from
informing FDA of any proposed or actual recall by either party should the
recalling party fail to inform FDA of that recall within ten (10) days of a
written request by the non-recalling party to so inform FDA.
(e) For greater certainty, in the event of a recall, neither party or
its Affiliates shall profit from any out-of-pocket expenses incurred by it in
connection with the recall and for which it is reimbursed by the other party
and, except where the recall relates directly to an intentional breach of a
representation or warranty contained in this Agreement or arises directly out of
a willful material breach by a party of any of its duties or obligations
hereunder (in each case, as contemplated in Section 10.1 hereof), neither party
shall have a claim against the other party for any damages, losses or expenses
which it suffers or incurs as a result thereof except to the extent permitted or
contemplated in this Section 14.
(f) Each party shall provide reasonable evidence to the other of the
out-of-pocket expenses being claimed by it and the rights of SANO pursuant to
Section 11.4 and the rights of PPI pursuant to Section 11.8 shall apply thereto.
14.2 ANDA-Related FDA Correspondence. Each of the parties shall provide the
-------------------------------
other with a copy of any correspondence or notices received by such party from
FDA relating or referring to the Licensed Product(s) within ten (10) days of
receipt. Each party shall also provide the other with copies of any responses
to any such correspondence or notices within ten (10) days of making the
response.
14.3 Excess Re-procurement Costs.
---------------------------
(a) In the event that a recall occurs which recall was necessitated
primarily by any act or omission of SANO and SANO does not supply PPI with
replacement Licensed Product on a timely basis or if SANO, in breach of its
obligations under this Agreement, fails to make Licensed Product(s) available to
PPI, SANO shall, in addition to any reimbursement required under Section 14.1,
pay any excess re-procurement costs and/or related penalties or assessments
incurred by, or assessed on, PPI by a customer of PPI pursuant to an Approved
Contract (as that
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term is defined below) due to PPI's inability to supply Licensed Product(s) to
such customer due to the aforesaid acts, omissions or breaches of SANO.
(b) SANO shall cooperate with PPI with respect to any legal or
administrative proceedings that arise pursuant to the Approved Contracts as a
result of PPI's inability to supply Licensed Product(s) to such customer due to
the aforesaid acts, omissions or breaches by SANO. The foregoing shall be
without prejudice to any other damages, expense or costs that PPI may have
suffered in connection with SANO's inability to supply the Licensed Product as
aforesaid, subject to the limitations and other provisions set forth in this
Agreement.
(c) For purposes hereof the term "Approved Contract" shall mean a
contract entered into by PPI on or after the Execution Date with one of its
customers:
(i) pursuant to which PPI agrees to supply such customer with
pharmaceutical products which include the Licensed Products (or any of
them), and which provides that if PPI fails to supply such customer with the
Licensed Product in accordance with specified terms and conditions therein
set forth then such customer shall have the right to procure a comparable
replacement product for the Licensed Product in substitution for the
Licensed Products that PPI has failed to supply to such customer in
accordance with the provisions of its agreement and to charge back to PPI
any costs and expenses incurred by such customer to acquire such comparable
replacement product in excess of the price which was to have been charged by
PPI to the customer for the Licensed Products which it failed to provide
(such excess costs and expenses being the excess re-procurement costs
contemplated in Section 14.1 and in this Section 14.3);
(ii) which has a term of twelve (12) months or less; and
(iii) which provides for the supply of the relevant Licensed Product
in an amount not greater than the amount forecast by PPI pursuant to Section
6.2 hereof, taking into account all other sales of the Licensed Product in
the relevant period; or
(iv) where the contract has a term of more than 12 months, or
provides for an amount greater than that contemplated by Paragraph (iii)
above, SANO has approved or has been deemed to have approved such contract
in accordance with the provisions of Section 14.3(v) hereof; or
(v) if the approval of SANO as contemplated in Paragraph (iv) above
is requested, PPI shall have provided to SANO, in accordance with the
provisions of this paragraph, a complete copy of the proposed final
agreement between PPI and its customer prior to entering into such contract.
A copy of any contract to be provided to SANO as contemplated in this
Paragraph (v) shall be forwarded to SANO in the manner contemplated in
Section 15.4 hereof. SANO shall have a period of ten business days from the
date upon which copies of such contract are actually received by it as
aforesaid to notify PPI in writing that it does not approve of the contract
and failing such notice from SANO within such ten business day period SANO
shall be deemed to have approved of such contract.
30
<PAGE>
14.4 Confidentiality.
---------------
(a) The parties agree that, without the prior written consent of the
other party (such consent not to be unreasonably withheld) or except as may be
required under law or court order, the provisions of the Agreement shall remain
confidential and shall not be disclosed to any Person not affiliated with any of
the parties.
(b) PPI and SANO hereby agree not to reveal or disclose any
Confidential Information (as defined below) to any Person without first
obtaining the written consent of the disclosing party, except as may be
necessary in regulatory proceedings or litigation. For purposes hereof
Confidential Information shall mean all information, in whatever form, which is
or was disclosed by one party to another or to an Affiliate of the other prior
to or during the term of this Agreement and which relates in any way to the
Products or to the business of the disclosing party, including, without
limitation information relating to customers and pricing. Confidential
Information shall not include information that a party can demonstrate by
written evidence:
(i) is in the public domain (provided that information in the public
domain has not and does not come into the public domain as a result of the
disclosure by the receiving party or any of its Affiliates);
(ii) is known to the receiving party or any of its Affiliates prior
to the disclosure by the other party: or
(iii) becomes available to the party on a non-confidential basis
from a source other than an Affiliate of that party or the disclosing party
and PPI covenants and agrees to cause its Affiliates to comply with the
provisions of this Section 14.4.
31
<PAGE>
ARTICLE XV
GENERAL TERMS AND CONDITIONS
----------------------------
15.1 Force Majeure Clauses. Neither party shall be considered to be in
---------------------
default in respect of any obligation hereunder, other than the obligation of a
party to make payment of amounts due to the other party under or pursuant to
this Agreement, if failure of performance shall be due to Force Majeure. If
either party is affected by a Force Majeure event, such party shall, within 20
days of its occurrence, give notice to the other party stating the nature of the
event, its anticipated duration and any action being taken to avoid or minimize
its effect. The suspension of performance shall be of no greater scope and not
longer duration than is required and the non-performing party shall use its
reasonable best efforts to remedy its inability to perform. The obligation to
pay money in a timely manner is absolute and shall not be subject to the Force
Majeure provisions, except to the extent prohibited by governmental rule or
regulations other than rules or regulations incident to bankruptcy or insolvency
proceedings of a party. Force Majeure shall mean an unforeseeable or
unavoidable cause beyond the control and without the fault or negligence of a
party (and, where the party is PPI, beyond the control and without the fault or
negligence of any of its Affiliates) including, but not limited to, explosion,
flood, war (whether declared or otherwise), accident, labor strike, or other
labor disturbance, sabotage, acts of God, newly enacted legislation, newly
issued orders or decrees of any Court or of any governmental agency.
Notwithstanding anything in this Section to the contrary, the party to whom
performance is owed but to whom it is not rendered because of any event of Force
Majeure as contemplated in this Section 15.1 shall, after the passage of one
hundred and twenty days, have the option to terminate this Agreement on thirty
days prior written notice to the other party hereto. For greater certainty, the
inability or failure of PPI to cause any of its respective Affiliates to comply
with any of the provisions of this Agreement expressed o be applicable to its
Affiliates or which require such party to cause the Affiliate to do or not to do
something shall not be considered Force Majeure unless the Affiliate in question
is unable to comply by reason of unforeseeable or unavoidable causes beyond the
control and without the fault or negligence of such Affiliate.
15.2 Arbitration. All disputes arising out of, or in relation to, this
-----------
Agreement (other than disputes arising out of any claim by a third party in an
action commenced against a party), shall be referred for decision forthwith to a
senior executive of each party not involved in the dispute. If no agreement can
be reached through this process within thirty days of request by one party to
the other to nominate a senior executive for dispute resolution, then either
party hereto shall be entitled to refer such dispute to a single arbitrator for
arbitration under Florida law, such arbitration to be held in Miami, Florida on
an expedited basis in accordance with the rules and regulations of the American
Arbitration Association. Any party demanding arbitration shall with service of
its demand for arbitration propose a neutral arbitrator selected by it. In the
event that the parties cannot agree upon a neutral arbitrator within thirty (30)
days after the demand for arbitration, an arbitrator shall be appointed by the
American Arbitration Association who shall be a partner in a Miami, Florida law
firm having at least ten (10) partners.
15.3 Assignment. This Agreement may not be assigned nor can the performance
----------
of any duties hereunder be delegated by PPI or by SANO without the prior written
consent of the other parties, which consent shall not be unreasonably withheld;
provided that any such assignment shall not relieve the assignor from any of its
obligations hereunder or under any other document or agreement delivered by such
party pursuant to, or delivered (or acknowledged to have been
32
<PAGE>
delivered) contemporaneously with or in connection with the execution of, this
Agreement, which shall continue to be binding upon such party notwithstanding
such assignment. Notwithstanding the foregoing, PPI may delegate from time to
time some of its duties hereunder to any of its Affiliates provided that, prior
to any such delegation, it gives written notice thereof to SANO (indicating the
duties being so delegated and the duration of such delegation); provided that no
such delegation shall relieve PPI from any of its obligations hereunder in
respect of the duties being delegated or otherwise.
15.4 Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficiently given if in writing and delivered by registered
or certified mail (return receipt requested), facsimile (with confirmation of
transmittal), overnight courier (with confirmation of delivery), or hand
delivery to the appropriate party at the address set forth below, or to such
other address as such party may from time to time specify for that purpose in a
notice similarly given:
If to SANO:
SANO Corporation
3250 Commerce Parkway
Miramar, Florida 33025
Attn: President
Fax: (954) 430-3390
with a copy to (other than regularly prepared notices,
reports, etc. required to be delivered hereunder):
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attn: Gary Epstein, Esq.
Fax: 305-579-0717
If to PRI
c/o PRI Distributors, Ltd.
One Ram Ridge Road
Spring Valley, NY 10977
Attn: President
Fax: 914-425-7922
with a copy to (other than regularly prepared notices,
reports, etc. required to be delivered hereunder):
Hertzog, Calamari & Gleason
100 Park Avenue
New York, New York 10017
Attn: Stephen A. Ollendorff, Esq.
Fax: (212) 213-1199
33
<PAGE>
Any such notice shall be effective (i) if sent by mail, as aforesaid, five
business days after mailing, (ii) if sent by facsimile, as aforesaid, when sent,
and (iii) if sent by courier or hand delivered, as aforesaid, when received.
Provided that if any such notice shall have been sent by mail and if on the date
of mailing thereof or during the period prior to the expiry of the third
business day following the date of mailing there shall be a general postal
disruption (whether as a result of rotating strikes or otherwise) in the United
States then such notice shall not become effective until the fifth business day
following the date of resumption of normal mail service.
15.5 Governing Law and Consent to Jurisdiction.
-----------------------------------------
(a) Except as otherwise provided herein, this Agreement shall be
deemed to have been made under, and shall be governed by, the laws of the State
of Florida in all respects including matters of construction, validity and
performance, but without giving effect to Florida's choice of law provisions.
(b) In connection with any action commenced hereunder, each of the
undersigned consent to the exclusive jurisdiction of the state and federal
courts located in Miami, Florida. Notwithstanding the foregoing, each party
also agrees to the jurisdiction of any court which a third party claim has been
brought.
15.6 Binding Agreement. This Agreement shall be binding upon the parties
-----------------
hereto, and their respective successors and permitted assigns.
15.7 Entire Agreement. This Agreement and all other documents and
----------------
instruments delivered by any of the parties or their Affiliates pursuant hereto
or in connection with the execution and delivery of this Agreement contain the
entire agreement and understanding of the parties with respect to the subject
matter hereof and thereof and supersedes all negotiations, prior discussions and
agreements relating to the Licensed Products or the Right. This Agreement may
not be amended or modified except by a written instrument signed by all of the
parties hereto.
15.8 Headings. The headings to the various articles and paragraphs of this
--------
Agreement have been inserted for convenience only and shall not affect the
meaning of the language contained in this Agreement.
15.9 Waiver. The waiver by any party of any breach by another party of any
------
term or condition of this Agreement shall not constitute a waiver of any
subsequent breach or nullify the effectiveness of that term or condition.
15.10 Counterparts. This Agreement may be executed in identical
------------
duplicate copies. The parties agree to execute at least two identical original
copies of the Agreement. Each identical counterpart shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
15.11 Severability of Provisions. If, for any reason whatsoever, any
--------------------------
term, covenant or condition of this Agreement or of any other document or
instrument executed and delivered by either PPI or SANO pursuant hereto or in
connection with the completion of the transaction
34
<PAGE>
contemplated herein, or the application thereof to any party or circumstance is
to any extent held or rendered invalid, unenforceable or illegal, then such
term, covenant or condition:
(i) is deemed to be independent of the remainder of such document
and to be severable and divisible therefrom and its validity,
unenforceability or illegality does not affect, impair or invalidate the
remainder of such document or any part thereof; and
(ii) continue to be applicable and enforceable to the fullest
extent permitted by law against any party and circumstances other than
those as to which it has been held or rendered invalid, unenforceable or
illegal.
15.12 Publicity. Neither party shall issue any press release or other
---------
public statement regarding, or disclosing the existence of, this Agreement
without the prior written consent of the other party; provided, however, that
neither party shall be prevented from complying with any disclosure obligation
it may have under applicable law. The parties shall use their best efforts to
agree on the form and content of any such public statement.
ARTICLE XVI
GUARANTEE OF PRI
16.1 Guarantee. PRI does hereby unconditionally guarantee to SANO the full
---------
and prompt payment and performance by PPI of all of the obligations of every
nature whatsoever to be performed by PPI under this Agreement (the "Guaranteed
Obligations") as and when required to be paid or performed under this Agreement.
The guarantee set forth in the preceding sentence (this "Guarantee") is an
absolute, unconditional and continuing guarantee of the full and punctual
payment and performance of the Guaranteed Obligations and is in no way
conditioned upon any requirement that SANO first attempt to enforce any of the
Guaranteed Obligations against PPI, any other guarantor of the Guaranteed
Obligations or any other Person or resort to any other means of obtaining
performance of any of the Guaranteed Obligations. This Guarantee shall continue
in full force and effect until PPI shall have satisfactorily performed or fully
discharged all of the Guaranteed Obligations. No performance or payment made by
PPI, PRI, any other guarantor or any other Person, or received or collected by
SANO from PPI, PRI, any other guarantor or any other Person in performance of or
in payment of the Guaranteed Obligations shall be deemed to modify, reduce
(except to the extent that any such performance or payment shall reduce the
Guaranteed Obligations), release or otherwise affect the liability of PRI under
this Guarantee which shall, notwithstanding any such payment or performance
other than those made by PRI in respect of the Guaranteed Obligations or those
received or collected from PRI in respect of the Guaranteed Obligations, remain
liable for the amount of the Guaranteed Obligations, until the Guaranteed
Obligations are paid and performed in full.
16.2 No Subrogation. Notwithstanding any payment or performance by PRI,
--------------
PRI shall not be entitled to be subrogated to any of the rights of SANO or any
other guarantor or any collateral security held by SANO against PPI or any other
guarantor or any collateral security for the payment of the Guaranteed
Obligations, nor shall PRI seek or be entitled to seek any contribution or
reimbursement from PPI or any other guarantor in respect of payments made by PRI
under this Guarantee. PRI HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS AND CLAIMS WHICH PRI MAY NOW HAVE OR
35
<PAGE>
HEREAFTER ACQUIRE TO BE SUBROGATED TO ANY SUCH RIGHTS OF SANO AND TO SEEK OR BE
ENTITLED TO SEEK ANY SUCH CONTRIBUTION OR REIMBURSEMENT FROM PPI OR ANY OTHER
GUARANTOR. THE OBLIGATIONS OF AND WAIVERS BY PRI SET FORTH IN THIS SECTION 16.2
SHALL SURVIVE THE TERMINATION OF THIS GUARANTEE AND THE PAYMENT, PERFORMANCE AND
SATISFACTION IN FULL OF ALL OF THE GUARANTEED OBLIGATIONS.
16.3 Amendments, etc. with Respect to Guaranteed Obligations; Waiver of
------------------------------------------------------------------
Rights. PRI shall remain obligated under this Guarantee notwithstanding that,
- ------
without any reservation of rights against PRI and without notice to or further
assent by PRI, any demand for payment or performance of any of the Guaranteed
Obligations made by SANO may be rescinded by SANO and any of the Guaranteed
Obligations continued, and the Guaranteed Obligations, or the liability of any
other Person upon or for any part thereof, or any collateral security (or
guarantee therefor may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by SANO and this Agreement, any collateral security document or other
guarantee or document in connection herewith may be amended, modified,
supplemented or terminated, in whole or in part, as SANO may deem advisable from
time to time, and any collateral security or guarantee at any time held by SANO
for the payment or performance of the Guaranteed Obligations may be sold,
exchanged, waived, surrendered or released. SANO shall not have any obligation
to protect, secure, perfect or insure any lien at any time held by it as
security for the Guaranteed Obligations or for this Guarantee or any property
subject thereto. When making any demand hereunder against PRI, SANO may, but
shall be under no obligation to, make a similar demand on PPI or any other
guarantor, and any failure by SANO to make any such demand or to collect any
payments from PPI or any such other guarantor or any release of PPI or such
other guarantor shall not relieve PRI of its obligations or liabilities under
this Guarantee, and shall not impair or affect the rights and remedies, express
or implied, or as a matter of law, of SANO against PRI.
16.4 Extent of Liability and Waivers. PRI understands and agrees that the
-------------------------------
obligation of guarantee of PRI pursuant to Section 16.1 are intended to render
PRI liable hereunder in each instance where PPI would be liable under this
Agreement, and no more, and except that the obligations of PRI hereunder shall
not be discharged by any bankruptcy or similar proceeding which may discharge
PPI herefrom. Accordingly, PRI acknowledges that it will not assert, and hereby
waives to the fullest extent permitted by law, any rights to avoid performance
hereunder available to it as guarantor which are not also available to PPI. PRI
waives any and all notice of the creation, renewal, extension or accrual of any
of the Guaranteed Obligations and notice of or proof of reliance by SANO upon
this Guarantee or acceptance of this Guarantee; the Guaranteed Obligations, and
any of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between PPI or PRI, on the one hand, and SANO on the
other, pursuant to this Agreement shall likewise be conclusively presumed to
have been had or consummated in reliance upon this Guarantee. PRI waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment or nonperformance to or upon PPI or any other guarantors with respect
to the Guaranteed Obligations. When pursuing its rights and remedies hereunder
against PRI, SANO may, but shall be under no obligation to, pursue such rights
and remedies as it may have against PPI or any other Person or against any
collateral security or guarantee for the Guaranteed Obligations, and any failure
by PRI to pursue such other rights or remedies or to collect any
36
<PAGE>
payments from PPI or any such other Person or to realize upon any such
collateral security or guarantee, or any release of PPI or any such other Person
or any such collateral security or guarantee, shall not relieve PRI of any
liability hereunder and shall not impair or affect the rights and remedes,
whether express, implied or available as a matter of law, of SANO against PRI.
This Guarantee shall remain in full force and effect and be binding upon PRI and
its successors and assigns and shall inure to the benefit of SANO and its
successors and assigns, until all the Guaranteed Obligations shall have been
satisfied by payment and performance in full.
16.5 Reinstatement. This Guarantee shall continue to be effective, or be
-------------
reinstated, as the case may be, if at any time payment or performance, or any
part thereof, of any of the Guaranteed Obligations is rescinded or must
otherwise be restored or returned by SANO upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of PPI or PRI, or upon or as a result
of the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, PPI or PRI, or any substantial part of its or their
property, or otherwise, all as though such payments had not been made.
16.6 No Waiver; Cumulative Remedies. SANO shall not by any act (except by
------------------------------
a written instrument pursuant to Section 15.7), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any breach of any of the terms and conditions of this Agreement.
No failure to exercise, nor any delay in exercising, on the part of SANO, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by SANO of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the SANO would otherwise have on any future occasion. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any rights or remedies provided by law.
16.7 Affiliates. To the extent that PPI or PRI is obligated hereunder to
----------
cause its Affiliates to do or refrain from doing anything, PRI will do all
things that it may lawfully and reasonably do to cause such Affiliate to comply.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
Execution Date.
SANO CORPORATION
By:/s/ Reginald Hardy
------------------------------------------
(Signature)
Name: Reginald Hardy
----------------------------------------
Title: President
---------------------------------------
PHARMACEUTICAL RESOURCES,
INC.
By:/s/Kenneth I. Sawyer
------------------------------------------
(Signature)
37
<PAGE>
Name: Kenneth I. Sawyer
----------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
PAR PHARMACEUTICAL, INC.
By:/s/Kenneth I. Sawyer
------------------------------------------
(Signature)
Name: Kenneth I. Sawyer
----------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
38
<PAGE>
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
EXHIBIT A
LICENSED PRODUCTS
PRODUCT "A"
- ------------------------------------------------------------------------------
DRUG NAME ANDA# SANO FILING DATE FDA ACCEPTED DATE
Nitroglycerin Transdermal System
[*****]* [ ***** ]
Nitroglycerin Transdermal System
[*****]* [ ***** ]
Nitroglycerin Transdermal System
[*****]* [ ***** ]
Nitroglycerin Transdermal System
[*****]* [ ***** ]
Nitroglycerin Transdermal System
[*****]* [ ***** ]
Nitroglycerin Transdermal System
[*****]* [ ***** ]
*Generically equivalent to such strengths in Nitro Dur(R).
PRODUCT "B"
- ------------------------------------------------------------------------------
DRUG NAME ANDA# SANO FILING DATE FDA ACCEPTED DATE
Nicotine Transdermal System
[*****]* [ ***** ]
Nicotine Transdermal System
[*****]* [ ***** ]
Nicotine Transdermal System
[*****]* [ ***** ]
*Generically equivalent to such strengths in Habitrol(R).
PRODUCT "C"
- -----------------------------------------------------------------------------
DRUG NAME ANDA# SANO FILING DATE FDA ACCEPTED DATE
Nitroglycerin Transdermal System
[*****]* [ ***** ]
Nitroglycerin Transdermal System
[*****]* [ ***** ]
Nitroglycerin Transdermal System
[*****]* [ ***** ]
Nitroglycerin Transdermal System
[*****]* [ ***** ]
*Generically equivalent to such strengths in Transderm-Nitro(R).
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
39
<PAGE>
ASTERISKS DENOTE SUCH OMISSION
EXHIBIT B
As used herein, the term "Net Sales" shall mean the gross amount invoiced
for sales of Licensed Product(s) made by PRI or its Affiliates to independent
third parties, reduced by the following to the extent that they are properly
allocable to the quantity of Licensed Product(s) so sold: all trade, quantity
and cash discounts allowed; credits or allowances actually granted on account of
rejections; returns, billing errors and retroactive price reductions (including,
without limitation, shelf stock adjustments); credits, rebates, chargeback
rebates, fees, reimbursements or similar payments granted or given to
wholesalers and other distributors, buying groups, health care insurance
carriers, governmental agencies and other institutions in respect of the
purchase price; freight, transportation, insurance or other delivery charges;
and all taxes (except income taxes), tariffs, duties and other similar
governmental charges paid by the seller on sales of the Licensed Product(s) and
not reimbursed by the purchaser. "Gross Profit" shall mean the difference
between Net Sales for any amount of Licensed Product(s) and the price paid to
SANO pursuant to Section 7.2 hereof in respect of such Licensed Product(s).
Product A. During the term of the Agreement, the Additional Consideration
payable to SANO with respect to Product A shall be [*****] of Gross Profit,
until aggregate Gross Profit with respect to that Licensed Product shall have
reached [*****], and [*****] of all Gross Profit thereafter. Payment of
Additional Consideration is to be made in respect of the third preceding month,
as set forth in Section 11.1.
The following illustrates payments to SANO under the foregoing formula,
assuming that sales of Product A commenced in January 1998:
<TABLE>
<CAPTION>
JAN. FEB., MARCH APRIL MAY JUNE JULY AUGUST SEPT. OCT. NOV. DEC.
1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES [***** ***** ***** ***** ***** ***** ***** ***** *****]
PRICE TO PRI [***** ***** ***** ***** ***** ***** ***** ***** *****]
GROSS PROFIT [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ******
PAYMENT TO SANO [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
RETAINED BY PPI [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
15% INCREMENT [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
</TABLE>
____________________________
* [*****] of [*****]; [*****] of [*****]. (total increment--[*****])
40
<PAGE>
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
Product B. During the term of the Agreement, the Additional Consideration
payable to SANO with respect to Product B shall be [*****] of all Gross Profit.
Payment of Additional Consideration is to be made in respect of the third
preceding month, as set forth in Section 11.1. The following illustrates
payments to SANO under the foregoing formula, assuming that sales of Product B
commenced in January 1998:
<TABLE>
<CAPTION>
JAN. FEB., MARCH APRIL MAY JUNE JULY AUGUST SEPT. OCT. NOV.
1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES [***** ***** ***** ***** ***** ***** ***** *****]
PRICE TO PRI [***** ***** ***** ***** ***** ***** ***** *****]
GROSS PROFIT [***** ***** ***** ***** ***** ***** ***** *****]
PAYMENT TO SANO [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
RETAINED BY PPI [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
15% INCREMENT [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
</TABLE>
Product C. During the term of the Agreement, the Additional Consideration
payable to SANO with respect to Product C shall be [*****] of Gross Profit,
until aggregate Gross Profit with respect to that Licensed Product shall have
reached [*****], and [*****] of all Gross Profit thereafter. Payment of
Additional Consideration is to be made in respect of the third preceding month,
as set forth in Section 11.1.
The following illustrates payments to SANO under the foregoing formula,
assuming that sales of Product C commenced in January 1998:
<TABLE>
<CAPTION>
JAN. FEB., MARCH APRIL MAY JUNE JULY AUGUST SEPT. OCT. NOV. DEC.
1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES [***** ***** ***** ***** ***** ***** ***** ***** *****]
PRICE TO PRI [***** ***** ***** ***** ***** ***** ***** ***** *****]
GROSS PROFIT [***** ***** ***** ***** ***** ***** ***** ***** *****]
PAYMENT TO SANO [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
RETAINED BY PPI [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
15% INCREMENT [***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** *****]
</TABLE>
____________________________
* [*****] of [*****]; [*****] of [*****]. (total increment--[*****])
41
<PAGE>
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
EXHIBIT C
PROMISSORY NOTE
---------------
[*****] July 28 , 1997
--------------
FOR VALUE RECEIVED, SANO CORPORATION, a Florida corporation (the "Maker"),
hereby unconditionally promises to pay to Par Pharmaceutical, Inc., a New Jersey
corporation (the "Payee"), at its offices located at One Ram Ridge Road, Spring
Valley, New York 10977 or at such other address as the Payee may from time to
time designate in writing to the Maker, the principal amount of [*****],
together with interest on the principal amount outstanding from time to time at
the rate per annum announced from time to time by Citibank N.A. as its "Prime
Rate." The principal amount of this Note, together with interest accrued
thereon, shall be due and payable on September 30, 1998.
This Promissory Note is delivered pursuant to that certain Amended and
Restated Distribution Agreement dated the 28th day of July , 1997 by and
---- ---------
among Maker, Payee and Pharmaceutical Resources, Inc., (the "Agreement").
This Promissory Note may be prepaid in whole or in part at any time and
from time to time prior to maturity without premium or penalty and shall be
prepaid as and to the extent set forth in the Agreement.
If any of the following events of default shall occur, the outstanding
principal amount of this Note, together with interest accrued and unpaid
thereon, shall become immediately due and payable:
(1) Maker shall default in the payment of principal of or interest on this
Note when and as due and payable; and
(2) Maker (a) generally shall not pay its debts as they become due, shall
become insolvent, shall suspend its usual business or shall cease to exist; (b)
shall enter into an agreement with its creditors to reduce its obligations to
them or to defer their fulfillment, make a general assignment for the benefit of
its creditors, commence any proceeding relating to it under any Chapter of Title
11 of the United States Code or seek discharge or reduction of its debts, an
arrangement, composition, reorganization or any other form of relief from its
creditors or from a court or governmental agency pursuant to any bankruptcy,
reorganization, arrangement, readjustment of debt, receivership, dissolution, or
liquidation law, statute or procedure of any jurisdiction (federal, state or
foreign) for the relief of financially distressed debtors (each of the foregoing
a "Debtor Relief Procedure"): (c) shall have instituted, initiated or commenced
against it a Debtor Relief Procedure and, if under Title 11 of the United States
Code, an order for relief is entered or the petition is controverted but is not
dismissed within 30 days after the commencement of the case or, if under another
Debtor Relief Procedure, the substantial equivalent occurs or the Debtor Relief
Procedure is not dismissed or otherwise
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terminated within 30 days of its commencement; or (d) shall take any action to
effect any event described in clauses (a), (b) or (c) above.
In the event that the Maker shall default in payment of this Promissory
Note when due, simple interest shall accrue on the then unpaid principal amount
hereof, from the date of any such default until the date the unpaid principal
amount hereof is paid in full, at the rate of ten percent (10%) per annum and
the Maker shall pay all reasonable costs of collection, paid or incurred by the
Payee, whether paid or incurred in connection with collection by suit or
otherwise.
The Maker of this Promissory Note hereby waives demand, protest, notice of
dishonor and notice of maturity, non-payment or protest and any and all
requirements necessary to hold it liable as a maker of this Promissory Note.
All payments of principal, interest and any other amounts due hereunder
shall be made in the amounts required hereby without any reduction or set off of
any kind whatsoever, including, without limitation, any reduction or set off
with respect to any claim, counterclaim, defense or other right which Maker may
have against the Payee.
The waiver by the Payee of the Maker's prompt and complete performance of,
or default under, any provision of this Promissory Note shall not operate nor be
construed as a waiver of any subsequent breach or default, and the failure by
the Payee to exercise any right or remedy which it may possess hereunder shall
not operate nor be construed as a bar to the exercise of any such right or
remedy upon the occurrence of any subsequent breach or default.
This Promissory Note shall be governed by and construed in accordance with
the laws of the State of Florida.
This Promissory Note may not be modified, amended or terminated, except in
a writing executed by the Maker and the Payee.
IN WITNESS WHEREOF, the Maker, by and through its undersigned office
thereunto duly authorized, has executed and delivered this Promissory Note the
28th day of July , 1997.
- ---- ------
Attested By: Sano Corporation
By:
- --------------------------- --------------------------------
Asst. Secretary Reginald L. Hardy, President
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EXHIBIT D
[SALES SUMMARY FORM]
44
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Schedule 2.1.3
On March 6, 1996, Key filed a complaint in the United States District
Court of Florida alleging that one of the Company's transdermal nitroglycerin
patches, for which the Company has filed an ANDA with the FDA, infringed certain
patents owned by Key. The Company had previously obtained non-infringement
opinions with regard to its product and believes that there is no merit to the
allegations in the complaint. The Company has filed an answer and counterclaim
to the complaint and intends to vigorously defend this lawsuit. However, patent
litigation is extremely costly, protracted and burdensome, and there can be no
assurance that the outcome of the lawsuit will be favorable to the Company. If
the Company is found in violation of Key's patents, it may not be able to market
its generic version of Nitro-Dur(R) on a commercially acceptable basis or at
all.
45
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EXHIBIT 10.20
NON-RECOURSE SECURED PROMISSORY NOTE
July 28, 1997
US$1,500,000.00
===============
FOR VALUE RECEIVED, PRI RESEARCH, INC. a Delaware corporation ("Maker"), hereby
promises to pay to the order of C.T.P. RESEARCH AND DEVELOPMENT (1995) LTD., an
Israeli company or its permitted assignee ("Holder"), the principal sum of ONE
MILLION FIVE HUNDRED THOUSAND United States Dollars (US$1,500,000), together
with interest accrued at the rate of 7% per annum on the unpaid principal
balance hereof from the date hereof. Payments shall be made in lawful money of
the United States of America in immediately available funds and shall be made at
such place as may be designated in writing from time to time by Holder. Payments
of principal and interest shall be made as follows:
(a) The principal amount hereof shall be paid in eight equal installments
of US$187,500. The first installment shall become due and payable on July 5,
1999, with the remaining seven installments being due and payable on each
January 5 and July 5 thereafter through and including January 5, 2003 (the
"Maturity Date").
(b) Accrued interest shall become due and payable on January 5, 1998 and
shall be due and payable on each July 5 and January 5 through and including the
Maturity Date.
Notwithstanding the foregoing, payments of interest on or any installment
of the principal amount of this Note shall be made only on days in which banks
in New York City are not permitted by applicable law to be closed ("Business
Days"). If any interest on or any installment of the principal amount of this
Note becomes due and payable on a day that is not a Business Day, then the
relevant payment obligation shall be extended to the next succeeding Business
Day and interest shall be payable during such extension.
This Note may, at the option of Maker, be prepaid, in whole or in part (but
only in amounts of at least $100,000), at any time and any such prepayment shall
be applied to the installments of principal in reverse order of maturity. Any
such prepayment shall be without premium or penalty but shall include the
payment of accrued interest on the amount prepaid to and including the date of
prepayment.
This Note is the Note referred to in and is being issued in connection with
the purchase by Maker of Holder's limited partnership interest in Clal
Pharmaceutical Resources Limited Partnership ("CPR") and shares of Clal
Pharmaceutical Resources (1995) Ltd. ("CPRC"). This Maker in fulfillment of its
undertaking shall enter into the Mortgage Documents annexed hereto ("Mortgage")
and shall cause CPR and CPRC to pledge their assets to the benefit of the Holder
in accordance with the terms of the Mortgage.
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This note shall be non-recourse as against Maker. Holder shall look solely
to the collateral subject to the Mortgage as Holder's exclusive remedy in the
event of any default in payment or performance hereof. Holder shall not make
claim or institute any action or proceeding against Maker in respect hereof, and
expressly waives any right to a deficiency judgment in the event of foreclosure
or sale of such collateral. Nothing herein shall prevent the Holder from
instituting an action to enforce its rights to the collateral subject to the
Mortgage.
The unpaid principal sum of this Note, together with all accrued interest
thereon, shall, at the option of Holder, by written demand to Maker, become
immediately due and payable, (without presentment for payment, demand, protest
and notice of protest or any further notice or demand of any kind, all of which
are hereby expressly waived), 15 days after written notice of any of the
following events has been given by Holder to Maker, provided however that after
said 15 day cure period Maker shall have additional 5 days in which to pay off
in full all amounts due under this Note, including all accrued interest and
costs, if any of the following events shall occur (15 days written notice shall
apply only to Sections (1), (2); 10 days to pay off shall apply to all
sections).
(1) Maker's failure to pay, when due, any installments of principal or
interest on this Note.
(2) The breach by Maker of any term or provision of this Note.
(3) Any of Maker, CPRC or CPR makes an assignment for the benefit of
creditors or admits in writing its or its inability to pay its debts
generally as they become due;
(4) Any of Maker, CPRC or CPR applies to any tribunal for the
appointment of a custodian of any substantial part of its assets, or
commences any proceedings relating to it under any bankruptcy, insolvency,
reorganization or moratorium law or any other law for the relief of debtors
of any jurisdiction (any of the foregoing being a "Bankruptcy Proceeding");
(5) Any application is filed in respect of a Bankruptcy Proceeding, or
any Bankruptcy Proceeding is commenced, against any of Maker, CPRC or CPR
by one or more persons other than Maker, CPRC or CPR, and Maker, CPRC or
CPR, as the case may be, indicates its consent, approval, acquiescence
thereto or the Bankruptcy Proceeding is not dismissed within 60 days of its
institution;
(6) A court of competent jurisdiction enters an order, judgment or
decree appointing a custodian for the whole or to a substantial portion of
the property of Maker, CPRC or CPR, or approving a petition filed against
any of them seeking reorganization or arrangement in any Bankruptcy
Proceeding, and such order, judgment or decree shall not be vacated or set
aside or stayed within 90 days from the date of entry thereof;
(7) Any of Maker, CPRC or CPR shall wind up its affairs, dissolve or
liquidate, or take corporate or partnership action to effect any of the
foregoing;
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(8) Any of Maker, CPRC or CPR shall enter into or be a party to any
merger, consolidation or reorganization with any other entity which may
impair in any respect the rights of Holder under this Note, provided that
Maker, CPRC or CPR may enter into any merger, consolidation or
reorganization with any subsidiary or affiliate of Pharmaceutical
Resources, Inc. which does not impair the rights of the Holder under this
Note and its rights to Collateral under the Mortgage.
(9) If one or more judgments, decrees or orders is entered against
Maker, CPRC or CPR which, together with judgments, decrees or orders
against any one or more of them, total US$50,000 or more, which judgments
or decrees are not vacated, discharged, stayed or bonded pending appeal
within 45 days from the later of date of entry or the date upon which Maker
receives notice of same.
(10) If Maker, directly or indirectly, declares, makes or agrees to
make (or sets apart any assets for) any distribution, dividend or other
payment of any kind to any of its stockholders, affiliates, officers or
directors of Maker including, without limitation, any distribution or
application of Maker's assets through the purchase, redemption or
retirement of any loans or advances, principal or interest payments, other
than loan and interest payment as hereinafter permitted, or unreasonable
management consulting or like fees or compensation.
(11) If any preliminary attachment, lien or additional security
interest which is superior as a matter of law to the security for this Note
is placed upon any of the property which is security for this Note and not
set aside within the earlier of (i) a period of 60 days or (ii) the date on
which a judgment is entered.
(11) If, at any time or from time to time, title to or any interest in
the whole or any part of the property which is security for this Note is
acquired by any person, partnership, corporation, trust, joint venture or
other entity other than the Maker ("Other Entity") unless said Other Entity
assumes the terms of this Note, provided that this shall not prohibit the
Sale of assets which do not constitute a material portion of such entity's
assets, in the ordinary course of such entity's business and for fair
consideration;
(12) If any loss, theft, damage or destruction of any material part of
the property which is security for this Note, as set forth in the Mortgage,
occurs which is not covered by insurance;
(13) If CPR or CPRC fail to make any rent or other undisputed payments
to its landlord under the lease agreements when due against Maker, CPR or
CPRC and if in dispute upon conversion to an unstayed judgment.
(14) If CPR or CPRC fail to make any material Israeli tax payments
(withholding tax, social security tax, VAT or any other tax) when due or as
otherwise advised by its outside auditors.
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(15) If CPR or CPRC extends the lease agreements with its Landlord at
a time it is in breach of this Note and the Holder has commenced an action
for its enforcement.
Upon default under this Note, Holder may exercise any and all rights and
remedies available under the lien documents to which this Note is attached.
Time is of the essence with respect to each of Maker's obligations and
agreements evidenced by this Note. If Maker fails to make any payment of
principal or interest as and when due under this Note, then the entire
outstanding principal balance shall accrue interest from the date of such
default until the date of payment at 9% per annum.
The nonexercise or delay in exercise by Holder of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.
Maker shall satisfy and perform each of the following agreements and
covenants for so long as any amounts of principal or interest due under this
Note remain outstanding:
(a) Furnish to Holder within 45 days after the end of each fiscal
quarter of CPR (other than the fourth fiscal quarter), commencing with the
quarter ending June 30, 1997, financial statements of CPR ("Interim
Statements"), prepared by CPR in a form substantially the same as that of
the previous quarter and thereafter United States Dollar denominated
Financial Statements consisting of statements of income and balance sheets
of CPR, from the beginning of the then current fiscal year and from the
beginning of such quarter to the end of such period, and balance sheets of
CPR as of the end of such quarter, certified by the President or Chief
Financial Officer of Maker to be true and correct, and accompanied by a
certificate of said officer in such form as Holder may reasonably require
stating whether any event has occurred which constitutes an event of
default or which, with the giving of notice or the lapse of time, or both,
would constitute such an event of default and, if so, stating the facts
with respect thereto.
(b) Furnish to Holder within 90 days after the close of CPR's fiscal
year, commencing with the year ending December 31, 1997, United States
Dollar-denominated audited (reflecting CPR's business) financial statements
of CPR ("Annual Statements") prepared by CPR, consisting of a balance sheet
of CPR as of the end of such fiscal year and statements of income, retained
earnings, paid-in capital and surplus and changes in financial position of
CPR for such fiscal year, certified by the President or Chief Financial
Officer of Maker to be true and correct, and accompanied by a certificate
stating whether any event has occurred which constitutes an event of
default or which, with the giving of notice or the lapse of time, or both,
would constitute such an event of default and, if so, stating the facts
with respect thereto.
(c) Furnish to Holder such other information as Holder may reasonably
request regarding the non-confidential business, or the assets, financial
condition or income of Maker, CPRC and/or CPR;
49
<PAGE>
(d) Permit Holder and any of its representatives or agents, upon
reasonable notice and during normal business hours, to examine the books,
records and tangible assets of Maker, CPRC and/ CPR, to make copies and
notes therefrom, and to speak with the officers and management of each of
them for the purposes of ascertaining compliance with the terms hereof or
obtaining enforcement;
(e) Maintain CPR's equipment and leasehold improvements in operating
condition and in a good state of repair, wear and tear excepted, and make
any and all replacements, additions and improvements thereto as are
necessary for the operation of CPR's business; and maintain and cause CPR
to comply at all times with all franchises, licenses, permits and leases
held by CPR or to which it is a party and not remove the equipment outside
the jurisdiction of the State of Israel except subject to sufficient notice
to Holder and execution of the required documents to allow a security
interest on the equipment in the jurisdiction to which it is removed;
(f) Maintain insurance coverage for Maker, CPRC and CPR from
financially sound and reputable insurers approved by Holder, naming Holder
as an additional insured, in at least such amounts, with no more than such
deductibles and relating to at least such losses and liabilities, including
without limitation, business interruption, property damage from theft,
fraud, fire and explosions, and liability arising from "errors and
omissions", as are currently in effect, and, in addition, maintain the
insurance coverage required under the lease agreements;
(g) Invest, either by cash, contribution or by reinvestment of CPR's
net profits, after tax at least US$1,500,000 during each calendar year for
use by CPR as working capital;
In addition, for so long as any amounts of principal or interest due under
this Note remain outstanding, Maker shall not, and shall not permit CPRC or
CPR to:
(a) Transfer, sell, pledge or encumber in any way any material
tangible assets without prior notice to Holder and Holder's consent or
transfer, sell, pledge or encumber in any way any intangible assets
(including know-how) other than in the ordinary course and provided that
such transfer, sale or encumbrance shall not be fraudulent as to the Holder
in any way;
(b) Enter into any material agreements which shall constitute an
obligation having financial consequences or incurring any liability (other
than under (c) below) other than in the ordinary course (it is herein
stipulated that development agreements for reasonable duration and under
reasonable terms shall be deemed to be in the ordinary course unless shown
otherwise) and provided such agreements are not fraudulently made as to the
Holder.
(c) Borrow any funds from banks or other third parties (other than
Permitted Subordinated Debt as defined below, which shall be subordinate to
the obligations to Holder under the Note, provided that payments of
principal of and interest on such loans may be made as and when due
thereunder so long as no event of default under
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this Note shall have occurred and be continuing, and canceled in the event
Holder exercise on the interests in CPR and CPRC provided as collateral)
other than with prior notice to Holder and Holder's written consent (if
such loans do not materially affect the "asset base"/"equity" of CPR they
shall have Holder's consent and be deemed to be reasonable unless Holder
shall demonstrate otherwise) or provide any security or guaranty for any
obligation of any other person, firm or entity; or
(d) Place liens, pledges or security interests ("Encumbrances") on any
of its assets, or permit or suffer any Encumbrances to be placed on any
assets of CPRC or CPR, except: (i) Encumbrances created under the
Mortgage; (ii) Encumbrances on assets acquired or leased subject to
purchase money security interests, title retention or conditional sales
agreements, financial or other leases or similar financing arrangements;
(iii) material men's liens, mechanics' liens and other similar liens
arising by operation of law in respect of amounts owed to persons or
entities that are not Affiliates.
The term "Permitted Subordinated Debt" means loans made to (i) CPR by any
partner thereof, (ii) CPRC by any shareholder thereof and (iii) Maker by any
shareholder thereof, in each case pursuant to written agreements which shall
provide that such loans are expressly subordinated in right of payment to
Maker's obligations and Holder's rights hereunder, provided that the intent of
such Note is not to violate any of the terms of this Note including Clause (g)
herein.
This Note and the rights and obligations of the parties hereunder shall be
construed and interpreted in accordance with the internal laws of the State of
Israel without any suit, action or proceeding in connection with, or enforcement
of, this Note, Maker submits to the non-exclusive jurisdiction of the courts of
the State of Israel, expressly waives all objections it may have as to venue in
any of such courts or any claim of inconvenient forum and agrees that nothing
herein shall affect the right of Holder to effect service of process in any
other manner permitted by law. In the event of any action to enforce this Note
Holder may collect costs and attorney's fees against the collateral subject to
this Note or the Mortgage.
The obligations of Maker hereunder shall not be subject to any defense,
setoff, counterclaim, recoupment or termination whatsoever based upon the
invalidity, illegality or unenforceability of any other agreements between Maker
and Holder.
This Note shall be binding upon Maker and its successors or assigns
provided that Maker shall not assign its obligations under this Note without the
express written consent of Holder, which may be withheld or denied in its sole
discretion.
The invalidity or unenforceability of any provision of this Note shall not
affect the other provisions hereof and the remaining provisions of this Note
shall remain operative and in full force and effect.
This Note may not be assigned by the Holder to any entity or person other
to an affiliate of Clal Industries, Ltd.
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IN WITNESS WHEREOF, the undersigned has cause this Note to be executed and
delivered as of the date and year first above written.
PRI RESEARCH, INC.
By: /s/Kenneth I. Sawyer
------------------------------
, President
Attest: /s/Dennis S. O'Connor (SEAL)
------------------------
, Secretary
52
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EXHIBIT 10.21
THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT
THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment"), dated July 28,
1997, between PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the
"Company"), and CLAL PHARMACEUTICAL INDUSTRIAL LTD., a corporation formed under
the laws of the State of Israel, (the "Purchaser").
WHEREAS, the Company and the Purchaser entered into a Stock Purchase Agreement,
dated March 25, 1995, as amended pursuant to Amendment No. 1 to Stock Purchase
Agreement, dated May 1, 1995, and Amendment No. 2 to Stock Purchase Agreement
(as amended, the "SPA"); and
WHEREAS, a subsidiary of the Company is acquiring all of the interests in the
Joint Venture (as defined in the SPA) held by a subsidiary of the Purchaser;
WHEREAS, incident to such acquisition, the Company and the Purchaser desire to
amend certain terms of the SPA and the Registration Rights Agreement between the
Company and the Purchaser, dated May 1, 1995, and desire to set forth their
mutual agreements with respect thereto.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants set
forth herein, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
------------
herein shall have the same meanings as in the SPA.
2. New Shares.
-----------
2.1 The Company shall execute and deliver to the Purchaser a certificate
representing 186,000 shares of Common Stock (the "New Shares") promptly
following approval for listing of the New Shares by The New York Stock
Exchange, provided that, in the event that the Company shall not deliver
the New Shares by the 42nd day following the execution and delivery of this
Amendment, (i) PRI Research, Inc. hereby agrees that principal amount of
the Non-Recourse Secured Promissory Note, dated the date hereof, of PRI
Research, Inc. shall be increased by an amount equal to the product of the
closing price of a share of Common Stock on the trading day prior to the
execution and delivery of this Amendment multiplied by 186,000 and (ii) the
Company's obligation to deliver the New Shares hereunder shall terminate.
The Company shall file an application for the listing of the New Shares
with The New York Stock Exchange promptly following the execution and
deliver of this Amendment. The Purchaser shall pay to the Company the sum
of $1,860 (representing the par value of the New Shares) upon the delivery
of the New Shares to the Purchaser. If the New Shares shall not be
delivered, the other
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agreements executed and delivered by the Company, the Purchaser and their
respective affiliates on the date hereof or contemplated thereby shall
remain in full force and effect, except for the Non-Recourse Secured
Promissory Note which shall be modified as stated herein.
2.2 Simultaneous with the execution and delivery of this Amendment, the
Purchaser shall deliver to the Company the original Warrant and Additional
Warrant (or an affidavit of lost security and indemnification agreement in
the event the original security is misplaced or destroyed). The New Shares
shall be issued, or the principal amount of the Non-Recourse Secured
Promissory Note, dated the date hereof, of PRI Research, Inc. shall be
increased, in exchange for the surrender and cancellation of the Warrant
and the Additional Warrant.
2.3 The Company and the Purchaser hereby agree that references to
"Securities" in the SPA shall also include and refer to the New Shares.
3. Third party transactions.
-------------------------
3.1 In Section 10 of the SPA the terms "60 days" and "60-day period"
wherever they appear shall be amended to read "30 days" and "30 day
period", respectively.
3.2 It is hereby clarified that a bona fide offer made for more than 10%
of PRI's securities, but which could result by its express terms in the
acquisition of more than 50% of PRI's outstanding voting securities, shall
be deemed a Third Party Transaction for the purposes of Section 10 of the
SPA.
4. Acquisitions and Dispositions of Securities.
--------------------------------------------
4.1 The first sentence of Section 11.1(a) of the SPA shall be amended in
its entirety as follows:
(a) During the period ("Consent Period") commencing on May 1, 1995 and
terminating six months after the date on which the Purchasers' rights shall
terminate under Section 10.1 hereof, the Purchaser shall not sell, assign,
pledge, transfer or otherwise dispose of (collectively, a "Transfer") any
Securities (as hereinafter defined) without the written consent of the
Company (which may be granted or withheld in its sole discretion) unless
such Securities (i) shall be registered under the Securities Act and
applicable state securities laws, (ii) shall be sold in brokers'
transactions pursuant to Rule 144 promulgated under the Securities Act,
(iii) shall be sold or transferred in connection with a Third Party
Transaction or any other transaction that has been approved by a majority
of the members of the Board (exclusive of those members appointed by the
Purchaser pursuant to Section 7.2 hereof), (iv) shall be sold or
transferred in any transaction which shall comply with the Securities Act
and applicable state securities laws, in accordance with Section 11.1(b)
hereof or, (v) a Transfer of all Securities owned at the time of Transfer
by the Purchaser if the Board has written notice of such Transfer and the
Company's Board of Directors does not reject the transferee, it being
agreed that the company's Board of Directors may
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only reject such transferee (but subject to Section 11.1(c) hereof) if such
entity is asserted in good faith and then demonstrated by the Board (acting
in good faith) to be a competitor or a party with a demonstrated adverse
interest to the Company (the Board to act within 7 U.S. business days of
the Company's receipt of a notice regarding such contemplated Transfer).
4.2 The following shall be inserted as Section 11.1(e) of the SPA:
(e) Notwithstanding the provisions of Section 11.1 hereof, the
Purchaser may Transfer 90% or more of the Common Stock then beneficially
owned by the Purchaser to a bona fide purchaser if the Company's Board of
Directors does not reject the transferee as provided below (a "Permitted
Transfer"); provided, however, that the Purchaser shall not be entitled to
request or consummate a Permitted Transfer if, at the time of the
Purchaser's request to the Company for its consent to the Permitted
Transfer, the Purchaser shall have Transferred more than 290,000 shares of
Common Stock in any 365-day period or shall have Transferred an aggregate
of more than 586,000 shares of Common Stock since May 1, 1995. The
Purchaser will advise the Company of the beneficial owner of the proposed
transferee. The Company's Board of Directors may reject the tranferee if
such entity is asserted in good faith and then demonstrated by the Board
(acting in good faith) to be a competitor or a party with a demonstrated
adverse interest to the Company (the Board to act within 7 U.S. business
days of the Company's receipt of a notice regarding such contemplated
sale).
5. Assignment.
----------
(a) Section 16.2 of the SPA shall be amended in its entirety as follows:
16.2 Assignment. All terms and provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder may be assigned by
any party hereto without the prior written consent of the other party;
provided, that, (a) the Purchaser may assign its rights under this
Agreement, in whole or in part, to any subsidiary or related entity "Hevra
Kshura" of the Purchaser, within the meaning of the Israel Securities Act
5728-1968, as amended, so long as such (i) subsidiary or related party
shall assume and agree to be bound by all of the Purchaser's obligations
hereunder and (ii) the Purchaser shall not be relieved of its primary
liability to the Company for all of the Purchaser's obligations set forth
herein and (b) the Purchaser may assign all, but not less than all, of its
rights under this Agreement to any person or entity pursuant to a Permitted
Transfer so long as the transferee thereof shall assume and agree to be
bound by all of the Purchaser's obligations hereunder (a "Permitted
Assignment").
(b) The Company and the Purcahser hereby acknowledge and agree that, for
the purposes of the Rights Agreement, between the Company and Midlantic
Bank, N.A., dated August 6, 1991, as amended, only transferees and
assignees of Purchaser pursuant to Sections 16.2(a) or (b) of the
Agreement, as amended,
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shall constitute "permitted assigns" of Clal Pharmaceutical Industries Ltd.
under Section 1(a)(v) of such Rights Agreement. Purchaser shall inform all
transferees of Securities of this provision.
6. Registration Rights Agreement. Section 8.1 of the Registration Rights
-----------------------------
Agreement shall be amended in its entirety as follows:
8.1 Assignment. All terms and provisions of this Agreement shall be
-----------
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder may be assigned by
any party hereto without the prior written consent of the other party;
provided, that, (a) the Holder may assign this Agreement to any permitted
assignee under Section 16.2(a) of the Stock Purchase Agreement without the
Company's written consent so long as (i) such assignee shall agree to
assume and agree to be bound by all of the Holder's obligations hereunder
and (ii) the Holder shall not be relieved of its primary liability to the
Company for all of the Holder's obligations set forth herein and (b) the
Holder may assign all, but not less than all, of the rights under this
Agreement to a person or entity pursuant to a Permitted Transfer as defined
in the Stock Purchase Agreement so long as such assignee shall agree to
assume and agree to be bound by all of the Holder's obligations hereunder.
The Registration Rights Agreement shall also apply to the New Shares.
This provision shall constitute an amendment of the Registration Rights
Agreement pursuant to Section 8.4 thereof.
7. Representations and Indemnification.
------------------------------------
7.1 Representations. The Company and the Purchaser each hereby represent
----------------
and warrant to the other as follows:
(a) It is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its formation. It has all
requisite corporate power and authority to conduct its business and to
enter into and perform its obligations under this Amendment in accordance
with the terms hereof.
(b) It has taken all required corporate actions to approve and adopt this
Amendment. This Amendment constitutes a duly authorized, valid and binding
agreement on it and enforceable against it in accordance with its terms.
Each person executing this Amendment on its behalf is duly authorized and
empowered to do so.
(c) The execution and delivery of this Amendment and the consummation of
the transactions as contemplated hereunder (i) do not, and will not,
violate or conflict with any statute, regulation, judgment, order, writ,
decree or injunction currently applicable to it or any of its property or
assets; and (ii) do not, and will not, violate or conflict with its charter
or By-laws and/or Memorandum and
56
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Articles of Association, or any existing mortgage, indenture, contract,
licensing agreement, financing statement or other agreement binding on it.
(d) All required consents and approvals, as well as any approvals or
consents of any governmental authorities or any other third parties in
connection with the execution and delivery of this Amendment or the
performance of the transactions contemplated hereunder, have been obtained
by it, except for such approvals required under New York Stock Exchange
rules. No contract or agreement binding upon it restricts its ability to
fulfill its obligations and responsibilities under this Amendment or to
carry out the activities contemplated herein.
(e) It is not a party to or, to the best of its knowledge, threatened with
any litigation or judicial or administrative proceeding that, if decided
adversely to it, would delay or preclude the consummation of the
transactions contemplated in this Amendment or have a material adverse
effect upon the transactions contemplated hereby.
7.2 Indemnification. The Company and the Purchaser each agree to
----------------
indemnify and hold harmless the other and their respective employees, agents and
affiliates against all losses, liabilities, claims, damages, and expenses
(including, but not limited to, reasonable counsel fees) resulting from or
arising out of any actual or alleged misrepresentation or breach by it of any
representation or warranty set forth in Section 8.1 hereof or otherwise set
forth in this Amendment.
8. Miscellaneous
-------------
8.1 No Further Amendment. Except as amended herein, the terms and
--------------------
provisions of the SPA and the Registration Rights Agreement are hereby ratified,
confirmed and approved in all respects.
8.2 Assignment. All terms and provisions of this Amendment shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Amendment nor any of the
rights, interest or obligations hereunder may be assigned by any party hereto
without the prior written consent of the other party, other than pursuant to a
Permitted Assignment.
8.3 Entire Agreement. This Amendment and the other agreements referred to
----------------
herein or delivered pursuant hereto contain the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior and
contemporaneous arrangements or understandings with respect thereto.
8.4 Amendments; Waiver. This Amendment may not be amended or terminated,
------------------
and no provision hereof may be waived, except pursuant to a written instrument
executed by each of the parties hereto.
57
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8.5 Counterparts. This Amendment may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.6 Headings. The headings of the Sections of this Amendment have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Amendment.
8.7 Governing Law. This Amendment shall be governed by and construed in
--------------
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein.
8.8 Severability. If any term or provision hereof shall be invalid or
------------
unenforceable, (a) the remaining terms and provisions hereof shall be
unimpaired, (b) any such invalidity or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction and (c) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision as determined by a court to be valid and
enforceable and to express the intention of the parties with respect to the
invalid or unenforceable term or provision.
8.9 Consent to Jurisdiction. In connection with any dispute which may
------------------------
arise under this Amendment or under any other agreement referred to herein, each
of the parties hereby irrevocably submits to, consents to, and waives any
objection to, the jurisdiction of the courts of the State of New York located in
the County of New York or of the United States District Court for the Southern
District of New York, and waives any objection to the laying of venue in such
courts. Each such party admits that any such dispute may be resolved at least as
conveniently in such a court as in any other court, and shall not seek dismissal
or a change of venue on the ground that resolution of such a dispute in any such
court shall not be convenient or in the interests of justice. The Purchaser
hereby appoints Proskauer Rose LLP as its agent upon whom service of process may
be made with the same force and effect as if such service shall have been made
personally upon the Purchaser. The Company hereby appoints Hertzog, Calamari &
Gleason as its agent upon; whom service of process may be made with the same
force and effect as if such service shall have been made personally upon the
Company.
IN WITNESS WHEREOF, each of the undersigned has caused this Third Amendment to
Stock Purchase Agreement to be executed as of the date first written above.
PHARMACEUTICAL RESOURCES, INC.
By:/s/Kenneth I. Sawyer, President
--------------------------------
CLAL PHARMACEUTICAL INDUSTRIES LTD.
By: /s/
--------------------------------
By: /s/
--------------------------------
58
<PAGE>
AGREED AND ACCEPTED AS TO SECTION 2.1 ONLY
PRI - RESEARCH, INC.
By:/s/Kenneth I. Sawyer, President
--------------------------------
59
<PAGE>
EXHIBIT 10.20
NON-RECOURSE SECURED PROMISSORY NOTE
July 28, 1997
US$1,500,000.00
===============
FOR VALUE RECEIVED, PRI RESEARCH, INC. a Delaware corporation ("Maker"), hereby
promises to pay to the order of C.T.P. RESEARCH AND DEVELOPMENT (1995) LTD., an
Israeli company or its permitted assignee ("Holder"), the principal sum of ONE
MILLION FIVE HUNDRED THOUSAND United States Dollars (US$1,500,000), together
with interest accrued at the rate of 7% per annum on the unpaid principal
balance hereof from the date hereof. Payments shall be made in lawful money of
the United States of America in immediately available funds and shall be made at
such place as may be designated in writing from time to time by Holder. Payments
of principal and interest shall be made as follows:
(a) The principal amount hereof shall be paid in eight equal installments of
US$187,500. The first installment shall become due and payable on July 5, 1999,
with the remaining seven installments being due and payable on each January 5
and July 5 thereafter through and including January 5, 2003 (the "Maturity
Date").
(b) Accrued interest shall become due and payable on January 5, 1998 and
shall be due and payable on each July 5 and January 5 through and including the
Maturity Date.
Notwithstanding the foregoing, payments of interest on or any installment of
the principal amount of this Note shall be made only on days in which banks in
New York City are not permitted by applicable law to be closed ("Business
Days"). If any interest on or any installment of the principal amount of this
Note becomes due and payable on a day that is not a Business Day, then the
relevant payment obligation shall be extended to the next succeeding Business
Day and interest shall be payable during such extension.
This Note may, at the option of Maker, be prepaid, in whole or in part (but
only in amounts of at least $100,000), at any time and any such prepayment shall
be applied to the installments of principal in reverse order of maturity. Any
such prepayment shall be without premium or penalty but shall include the
payment of accrued interest on the amount prepaid to and including the date of
prepayment.
This Note is the Note referred to in and is being issued in connection with
the purchase by Maker of Holder's limited partnership interest in Clal
Pharmaceutical Resources Limited Partnership ("CPR") and shares of Clal
Pharmaceutical Resources (1995) Ltd. ("CPRC"). This Maker in fulfillment of its
undertaking shall enter into the Mortgage Documents annexed hereto ("Mortgage")
and shall cause CPR and CPRC to pledge their assets to the benefit of the Holder
in accordance with the terms of the Mortgage.
1
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This note shall be non-recourse as against Maker. Holder shall look solely to
the collateral subject to the Mortgage as Holder's exclusive remedy in the event
of any default in payment or performance hereof. Holder shall not make claim or
institute any action or proceeding against Maker in respect hereof, and
expressly waives any right to a deficiency judgment in the event of foreclosure
or sale of such collateral. Nothing herein shall prevent the Holder from
instituting an action to enforce its rights to the collateral subject to the
Mortgage.
The unpaid principal sum of this Note, together with all accrued interest
thereon, shall, at the option of Holder, by written demand to Maker, become
immediately due and payable, (without presentment for payment, demand, protest
and notice of protest or any further notice or demand of any kind, all of which
are hereby expressly waived), 15 days after written notice of any of the
following events has been given by Holder to Maker, provided however that after
said 15 day cure period Maker shall have additional 5 days in which to pay off
in full all amounts due under this Note, including all accrued interest and
costs, if any of the following events shall occur (15 days written notice shall
apply only to Sections (1), (2); 10 days to pay off shall apply to all
sections).
(1) Maker's failure to pay, when due, any installments of principal or
interest on this Note.
(2) The breach by Maker of any term or provision of this Note.
(3) Any of Maker, CPRC or CPR makes an assignment for the benefit of
creditors or admits in writing its or its inability to pay its debts generally
as they become due;
(4) Any of Maker, CPRC or CPR applies to any tribunal for the appointment
of a custodian of any substantial part of its assets, or commences any
proceedings relating to it under any bankruptcy, insolvency, reorganization or
moratorium law or any other law for the relief of debtors of any jurisdiction
(any of the foregoing being a "Bankruptcy Proceeding");
(5) Any application is filed in respect of a Bankruptcy Proceeding, or any
Bankruptcy Proceeding is commenced, against any of Maker, CPRC or CPR by one or
more persons other than Maker, CPRC or CPR, and Maker, CPRC or CPR, as the case
may be, indicates its consent, approval, acquiescence thereto or the Bankruptcy
Proceeding is not dismissed within 60 days of its institution;
(6) A court of competent jurisdiction enters an order, judgment or decree
appointing a custodian for the whole or to a substantial portion of the property
of Maker, CPRC or CPR, or approving a petition filed against any of them seeking
reorganization or arrangement in any Bankruptcy Proceeding, and such order,
judgment or decree shall not be vacated or set aside or stayed within 90 days
from the date of entry thereof;
(7) Any of Maker, CPRC or CPR shall wind up its affairs, dissolve or
liquidate, or take corporate or partnership action to effect any of the
foregoing;
2
<PAGE>
(8) Any of Maker, CPRC or CPR shall enter into or be a party to any merger,
consolidation or reorganization with any other entity which may impair in any
respect the rights of Holder under this Note, provided that Maker, CPRC or CPR
may enter into any merger, consolidation or reorganization with any subsidiary
or affiliate of Pharmaceutical Resources, Inc. which does not impair the rights
of the Holder under this Note and its rights to Collateral under the Mortgage.
(9) If one or more judgments, decrees or orders is entered against Maker,
CPRC or CPR which, together with judgments, decrees or orders against any one or
more of them, total US$50,000 or more, which judgments or decrees are not
vacated, discharged, stayed or bonded pending appeal within 45 days from the
later of date of entry or the date upon which Maker receives notice of same.
(10) If Maker, directly or indirectly, declares, makes or agrees to make
(or sets apart any assets for) any distribution, dividend or other payment of
any kind to any of its stockholders, affiliates, officers or directors of Maker
including, without limitation, any distribution or application of Maker's assets
through the purchase, redemption or retirement of any loans or advances,
principal or interest payments, other than loan and interest payment as
hereinafter permitted, or unreasonable management consulting or like fees or
compensation.
(11) If any preliminary attachment, lien or additional security interest
which is superior as a matter of law to the security for this Note is placed
upon any of the property which is security for this Note and not set aside
within the earlier of (i) a period of 60 days or (ii) the date on which a
judgment is entered.
(11) If, at any time or from time to time, title to or any interest in the
whole or any part of the property which is security for this Note is acquired by
any person, partnership, corporation, trust, joint venture or other entity other
than the Maker ("Other Entity") unless said Other Entity assumes the terms of
this Note, provided that this shall not prohibit the Sale of assets which do not
constitute a material portion of such entity's assets, in the ordinary course of
such entity's business and for fair consideration;
(12) If any loss, theft, damage or destruction of any material part of the
property which is security for this Note, as set forth in the Mortgage, occurs
which is not covered by insurance;
(13) If CPR or CPRC fail to make any rent or other undisputed payments to
its landlord under the lease agreements when due against Maker, CPR or CPRC and
if in dispute upon conversion to an unstayed judgment.
(14) If CPR or CPRC fail to make any material Israeli tax payments
(withholding tax, social security tax, VAT or any other tax) when due or as
otherwise advised by its outside auditors.
3
<PAGE>
(15) If CPR or CPRC extends the lease agreements with its Landlord at a
time it is in breach of this Note and the Holder has commenced an action for its
enforcement.
Upon default under this Note, Holder may exercise any and all rights and
remedies available under the lien documents to which this Note is attached.
Time is of the essence with respect to each of Maker's obligations and
agreements evidenced by this Note. If Maker fails to make any payment of
principal or interest as and when due under this Note, then the entire
outstanding principal balance shall accrue interest from the date of such
default until the date of payment at 9% per annum.
The nonexercise or delay in exercise by Holder of any of its rights hereunder
in any particular instance shall not constitute a waiver thereof in that or any
subsequent instance.
Maker shall satisfy and perform each of the following agreements and covenants
for so long as any amounts of principal or interest due under this Note remain
outstanding:
(a) Furnish to Holder within 45 days after the end of each fiscal quarter
of CPR (other than the fourth fiscal quarter), commencing with the quarter
ending June 30, 1997, financial statements of CPR ("Interim Statements"),
prepared by CPR in a form substantially the same as that of the previous quarter
and thereafter United States Dollar denominated Financial Statements consisting
of statements of income and balance sheets of CPR, from the beginning of the
then current fiscal year and from the beginning of such quarter to the end of
such period, and balance sheets of CPR as of the end of such quarter, certified
by the President or Chief Financial Officer of Maker to be true and correct, and
accompanied by a certificate of said officer in such form as Holder may
reasonably require stating whether any event has occurred which constitutes an
event of default or which, with the giving of notice or the lapse of time, or
both, would constitute such an event of default and, if so, stating the facts
with respect thereto.
(b) Furnish to Holder within 90 days after the close of CPR's fiscal year,
commencing with the year ending December 31, 1997, United States Dollar-
denominated audited (reflecting CPR's business) financial statements of CPR
("Annual Statements") prepared by CPR, consisting of a balance sheet of CPR as
of the end of such fiscal year and statements of income, retained earnings,
paid-in capital and surplus and changes in financial position of CPR for such
fiscal year, certified by the President or Chief Financial Officer of Maker to
be true and correct, and accompanied by a certificate stating whether any event
has occurred which constitutes an event of default or which, with the giving of
notice or the lapse of time, or both, would constitute such an event of default
and, if so, stating the facts with respect thereto.
(c) Furnish to Holder such other information as Holder may reasonably
request regarding the non-confidential business, or the assets, financial
condition or income of Maker, CPRC and/or CPR;
4
<PAGE>
(d) Permit Holder and any of its representatives or agents, upon reasonable
notice and during normal business hours, to examine the books, records and
tangible assets of Maker, CPRC and/ CPR, to make copies and notes therefrom, and
to speak with the officers and management of each of them for the purposes of
ascertaining compliance with the terms hereof or obtaining enforcement;
(e) Maintain CPR's equipment and leasehold improvements in operating
condition and in a good state of repair, wear and tear excepted, and make any
and all replacements, additions and improvements thereto as are necessary for
the operation of CPR's business; and maintain and cause CPR to comply at all
times with all franchises, licenses, permits and leases held by CPR or to which
it is a party and not remove the equipment outside the jurisdiction of the State
of Israel except subject to sufficient notice to Holder and execution of the
required documents to allow a security interest on the equipment in the
jurisdiction to which it is removed;
(f) Maintain insurance coverage for Maker, CPRC and CPR from financially
sound and reputable insurers approved by Holder, naming Holder as an additional
insured, in at least such amounts, with no more than such deductibles and
relating to at least such losses and liabilities, including without limitation,
business interruption, property damage from theft, fraud, fire and explosions,
and liability arising from "errors and omissions", as are currently in effect,
and, in addition, maintain the insurance coverage required under the lease
agreements;
(g) Invest, either by cash, contribution or by reinvestment of CPR's net
profits, after tax at least US$1,500,000 during each calendar year for use by
CPR as working capital;
In addition, for so long as any amounts of principal or interest due under this
Note remain outstanding, Maker shall not, and shall not permit CPRC or CPR to:
(a) Transfer, sell, pledge or encumber in any way any material tangible
assets without prior notice to Holder and Holder's consent or transfer, sell,
pledge or encumber in any way any intangible assets (including know-how) other
than in the ordinary course and provided that such transfer, sale or encumbrance
shall not be fraudulent as to the Holder in any way;
(b) Enter into any material agreements which shall constitute an obligation
having financial consequences or incurring any liability (other than under (c)
below) other than in the ordinary course (it is herein stipulated that
development agreements for reasonable duration and under reasonable terms shall
be deemed to be in the ordinary course unless shown otherwise) and provided such
agreements are not fraudulently made as to the Holder.
(c) Borrow any funds from banks or other third parties (other than
Permitted Subordinated Debt as defined below, which shall be subordinate to the
obligations to Holder under the Note, provided that payments of principal of and
interest on such loans may be made as and when due thereunder so long as no
event of default under
5
<PAGE>
this Note shall have occurred and be continuing, and canceled in the event
Holder exercise on the interests in CPR and CPRC provided as collateral) other
than with prior notice to Holder and Holder's written consent (if such loans do
not materially affect the "asset base"/"equity" of CPR they shall have Holder's
consent and be deemed to be reasonable unless Holder shall demonstrate
otherwise) or provide any security or guaranty for any obligation of any other
person, firm or entity; or
(d) Place liens, pledges or security interests ("Encumbrances") on any of
its assets, or permit or suffer any Encumbrances to be placed on any assets of
CPRC or CPR, except: (i) Encumbrances created under the Mortgage; (ii)
Encumbrances on assets acquired or leased subject to purchase money security
interests, title retention or conditional sales agreements, financial or other
leases or similar financing arrangements; (iii) material men's liens, mechanics'
liens and other similar liens arising by operation of law in respect of amounts
owed to persons or entities that are not Affiliates.
The term "Permitted Subordinated Debt" means loans made to (i) CPR by any
partner thereof, (ii) CPRC by any shareholder thereof and (iii) Maker by any
shareholder thereof, in each case pursuant to written agreements which shall
provide that such loans are expressly subordinated in right of payment to
Maker's obligations and Holder's rights hereunder, provided that the intent of
such Note is not to violate any of the terms of this Note including Clause (g)
herein.
This Note and the rights and obligations of the parties hereunder shall be
construed and interpreted in accordance with the internal laws of the State of
Israel without any suit, action or proceeding in connection with, or enforcement
of, this Note, Maker submits to the non-exclusive jurisdiction of the courts of
the State of Israel, expressly waives all objections it may have as to venue in
any of such courts or any claim of inconvenient forum and agrees that nothing
herein shall affect the right of Holder to effect service of process in any
other manner permitted by law. In the event of any action to enforce this Note
Holder may collect costs and attorney's fees against the collateral subject to
this Note or the Mortgage.
The obligations of Maker hereunder shall not be subject to any defense,
setoff, counterclaim, recoupment or termination whatsoever based upon the
invalidity, illegality or unenforceability of any other agreements between Maker
and Holder.
This Note shall be binding upon Maker and its successors or assigns provided
that Maker shall not assign its obligations under this Note without the express
written consent of Holder, which may be withheld or denied in its sole
discretion.
The invalidity or unenforceability of any provision of this Note shall not
affect the other provisions hereof and the remaining provisions of this Note
shall remain operative and in full force and effect.
This Note may not be assigned by the Holder to any entity or person other to
an affiliate of Clal Industries, Ltd.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned has cause this Note to be executed and
delivered as of the date and year first above written.
PRI RESEARCH, INC.
By: /s/Kenneth I. Sawyer
------------------------------
, President
Attest: /s/Dennis S. O'Connor (SEAL)
-----------------------------
, Secretary
7
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EXHIBIT 10.21
THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT
THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment"), dated July 28,
1997, between PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the
"Company"), and CLAL PHARMACEUTICAL INDUSTRIAL LTD., a corporation formed under
the laws of the State of Israel, (the "Purchaser").
WHEREAS, the Company and the Purchaser entered into a Stock Purchase Agreement,
dated March 25, 1995, as amended pursuant to Amendment No. 1 to Stock Purchase
Agreement, dated May 1, 1995, and Amendment No. 2 to Stock Purchase Agreement
(as amended, the "SPA"); and
WHEREAS, a subsidiary of the Company is acquiring all of the interests in the
Joint Venture (as defined in the SPA) held by a subsidiary of the Purchaser;
WHEREAS, incident to such acquisition, the Company and the Purchaser desire to
amend certain terms of the SPA and the Registration Rights Agreement between the
Company and the Purchaser, dated May 1, 1995, and desire to set forth their
mutual agreements with respect thereto.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants set
forth herein, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
------------
herein shall have the same meanings as in the SPA.
2. New Shares.
-----------
2.1 The Company shall execute and deliver to the Purchaser a certificate
representing 186,000 shares of Common Stock (the "New Shares") promptly
following approval for listing of the New Shares by The New York Stock
Exchange, provided that, in the event that the Company shall not deliver
the New Shares by the 42nd day following the execution and delivery of this
Amendment, (i) PRI Research, Inc. hereby agrees that principal amount of
the Non-Recourse Secured Promissory Note, dated the date hereof, of PRI
Research, Inc. shall be increased by an amount equal to the product of the
closing price of a share of Common Stock on the trading day prior to the
execution and delivery of this Amendment multiplied by 186,000 and (ii) the
Company's obligation to deliver the New Shares hereunder shall terminate.
The Company shall file an application for the listing of the New Shares
with The New York Stock Exchange promptly following the execution and
deliver of this Amendment. The Purchaser shall pay to the Company the sum
of $1,860 (representing the par value of the New Shares) upon the delivery
of the New Shares to the Purchaser. If the New Shares shall not be
delivered, the other
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<PAGE>
agreements executed and delivered by the Company, the Purchaser and their
respective affiliates on the date hereof or contemplated thereby shall
remain in full force and effect, except for the Non-Recourse Secured
Promissory Note which shall be modified as stated herein.
2.2 Simultaneous with the execution and delivery of this Amendment, the
Purchaser shall deliver to the Company the original Warrant and Additional
Warrant (or an affidavit of lost security and indemnification agreement in
the event the original security is misplaced or destroyed). The New Shares
shall be issued, or the principal amount of the Non-Recourse Secured
Promissory Note, dated the date hereof, of PRI Research, Inc. shall be
increased, in exchange for the surrender and cancellation of the Warrant
and the Additional Warrant.
2.3 The Company and the Purchaser hereby agree that references to
"Securities" in the SPA shall also include and refer to the New Shares.
3. Third party transactions.
-------------------------
3.1 In Section 10 of the SPA the terms "60 days" and "60-day period"
wherever they appear shall be amended to read "30 days" and "30 day
period", respectively.
3.2 It is hereby clarified that a bona fide offer made for more than 10%
of PRI's securities, but which could result by its express terms in the
acquisition of more than 50% of PRI's outstanding voting securities, shall
be deemed a Third Party Transaction for the purposes of Section 10 of the
SPA.
4. Acquisitions and Dispositions of Securities.
--------------------------------------------
4.1 The first sentence of Section 11.1(a) of the SPA shall be amended in
its entirety as follows:
(a) During the period ("Consent Period") commencing on May 1, 1995 and
terminating six months after the date on which the Purchasers' rights shall
terminate under Section 10.1 hereof, the Purchaser shall not sell, assign,
pledge, transfer or otherwise dispose of (collectively, a "Transfer") any
Securities (as hereinafter defined) without the written consent of the
Company (which may be granted or withheld in its sole discretion) unless
such Securities (i) shall be registered under the Securities Act and
applicable state securities laws, (ii) shall be sold in brokers'
transactions pursuant to Rule 144 promulgated under the Securities Act,
(iii) shall be sold or transferred in connection with a Third Party
Transaction or any other transaction that has been approved by a majority
of the members of the Board (exclusive of those members appointed by the
Purchaser pursuant to Section 7.2 hereof), (iv) shall be sold or
transferred in any transaction which shall comply with the Securities Act
and applicable state securities laws, in accordance with Section 11.1(b)
hereof or, (v) a Transfer of all Securities owned at the time of Transfer
by the Purchaser if the Board has written notice of such Transfer and the
Company's Board of Directors does not reject the transferee, it being
agreed that the company's Board of Directors may
2
<PAGE>
only reject such transferee (but subject to Section 11.1(c) hereof) if such
entity is asserted in good faith and then demonstrated by the Board (acting
in good faith) to be a competitor or a party with a demonstrated adverse
interest to the Company (the Board to act within 7 U.S. business days of
the Company's receipt of a notice regarding such contemplated Transfer).
4.2 The following shall be inserted as Section 11.1(e) of the SPA:
(e) Notwithstanding the provisions of Section 11.1 hereof, the
Purchaser may Transfer 90% or more of the Common Stock then beneficially
owned by the Purchaser to a bona fide purchaser if the Company's Board of
Directors does not reject the transferee as provided below (a "Permitted
Transfer"); provided, however, that the Purchaser shall not be entitled to
request or consummate a Permitted Transfer if, at the time of the
Purchaser's request to the Company for its consent to the Permitted
Transfer, the Purchaser shall have Transferred more than 290,000 shares of
Common Stock in any 365-day period or shall have Transferred an aggregate
of more than 586,000 shares of Common Stock since May 1, 1995. The
Purchaser will advise the Company of the beneficial owner of the proposed
transferee. The Company's Board of Directors may reject the tranferee if
such entity is asserted in good faith and then demonstrated by the Board
(acting in good faith) to be a competitor or a party with a demonstrated
adverse interest to the Company (the Board to act within 7 U.S. business
days of the Company's receipt of a notice regarding such contemplated
sale).
5. Assignment.
----------
(a) Section 16.2 of the SPA shall be amended in its entirety as follows:
16.2 Assignment. All terms and provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder may be assigned by
any party hereto without the prior written consent of the other party;
provided, that, (a) the Purchaser may assign its rights under this
Agreement, in whole or in part, to any subsidiary or related entity "Hevra
Kshura" of the Purchaser, within the meaning of the Israel Securities Act
5728-1968, as amended, so long as such (i) subsidiary or related party
shall assume and agree to be bound by all of the Purchaser's obligations
hereunder and (ii) the Purchaser shall not be relieved of its primary
liability to the Company for all of the Purchaser's obligations set forth
herein and (b) the Purchaser may assign all, but not less than all, of its
rights under this Agreement to any person or entity pursuant to a Permitted
Transfer so long as the transferee thereof shall assume and agree to be
bound by all of the Purchaser's obligations hereunder (a "Permitted
Assignment").
(b) The Company and the Purcahser hereby acknowledge and agree that, for
the purposes of the Rights Agreement, between the Company and Midlantic
Bank, N.A., dated August 6, 1991, as amended, only transferees and
assignees of Purchaser pursuant to Sections 16.2(a) or (b) of the
Agreement, as amended,
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shall constitute "permitted assigns" of Clal Pharmaceutical Industries Ltd.
under Section 1(a)(v) of such Rights Agreement. Purchaser shall inform all
transferees of Securities of this provision.
6. Registration Rights Agreement. Section 8.1 of the Registration Rights
-----------------------------
Agreement shall be amended in its entirety as follows:
8.1 Assignment. All terms and provisions of this Agreement shall be
-----------
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder may be assigned by
any party hereto without the prior written consent of the other party;
provided, that, (a) the Holder may assign this Agreement to any permitted
assignee under Section 16.2(a) of the Stock Purchase Agreement without the
Company's written consent so long as (i) such assignee shall agree to
assume and agree to be bound by all of the Holder's obligations hereunder
and (ii) the Holder shall not be relieved of its primary liability to the
Company for all of the Holder's obligations set forth herein and (b) the
Holder may assign all, but not less than all, of the rights under this
Agreement to a person or entity pursuant to a Permitted Transfer as defined
in the Stock Purchase Agreement so long as such assignee shall agree to
assume and agree to be bound by all of the Holder's obligations hereunder.
The Registration Rights Agreement shall also apply to the New Shares.
This provision shall constitute an amendment of the Registration Rights
Agreement pursuant to Section 8.4 thereof.
7. Representations and Indemnification.
------------------------------------
7.1 Representations. The Company and the Purchaser each hereby represent
----------------
and warrant to the other as follows:
(a) It is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its formation. It has all
requisite corporate power and authority to conduct its business and to
enter into and perform its obligations under this Amendment in accordance
with the terms hereof.
(b) It has taken all required corporate actions to approve and adopt this
Amendment. This Amendment constitutes a duly authorized, valid and binding
agreement on it and enforceable against it in accordance with its terms.
Each person executing this Amendment on its behalf is duly authorized and
empowered to do so.
(c) The execution and delivery of this Amendment and the consummation of
the transactions as contemplated hereunder (i) do not, and will not,
violate or conflict with any statute, regulation, judgment, order, writ,
decree or injunction currently applicable to it or any of its property or
assets; and (ii) do not, and will not, violate or conflict with its charter
or By-laws and/or Memorandum and
4
<PAGE>
Articles of Association, or any existing mortgage, indenture, contract,
licensing agreement, financing statement or other agreement binding on it.
(d) All required consents and approvals, as well as any approvals or
consents of any governmental authorities or any other third parties in
connection with the execution and delivery of this Amendment or the
performance of the transactions contemplated hereunder, have been obtained
by it, except for such approvals required under New York Stock Exchange
rules. No contract or agreement binding upon it restricts its ability to
fulfill its obligations and responsibilities under this Amendment or to
carry out the activities contemplated herein.
(e) It is not a party to or, to the best of its knowledge, threatened with
any litigation or judicial or administrative proceeding that, if decided
adversely to it, would delay or preclude the consummation of the
transactions contemplated in this Amendment or have a material adverse
effect upon the transactions contemplated hereby.
7.2 Indemnification. The Company and the Purchaser each agree to
----------------
indemnify and hold harmless the other and their respective employees, agents and
affiliates against all losses, liabilities, claims, damages, and expenses
(including, but not limited to, reasonable counsel fees) resulting from or
arising out of any actual or alleged misrepresentation or breach by it of any
representation or warranty set forth in Section 8.1 hereof or otherwise set
forth in this Amendment.
8. Miscellaneous
-------------
8.1 No Further Amendment. Except as amended herein, the terms and
--------------------
provisions of the SPA and the Registration Rights Agreement are hereby ratified,
confirmed and approved in all respects.
8.2 Assignment. All terms and provisions of this Amendment shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Amendment nor any of the
rights, interest or obligations hereunder may be assigned by any party hereto
without the prior written consent of the other party, other than pursuant to a
Permitted Assignment.
8.3 Entire Agreement. This Amendment and the other agreements referred to
----------------
herein or delivered pursuant hereto contain the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior and
contemporaneous arrangements or understandings with respect thereto.
8.4 Amendments; Waiver. This Amendment may not be amended or terminated,
------------------
and no provision hereof may be waived, except pursuant to a written instrument
executed by each of the parties hereto.
5
<PAGE>
8.5 Counterparts. This Amendment may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.6 Headings. The headings of the Sections of this Amendment have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Amendment.
8.7 Governing Law. This Amendment shall be governed by and construed in
--------------
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein.
8.8 Severability. If any term or provision hereof shall be invalid or
------------
unenforceable, (a) the remaining terms and provisions hereof shall be
unimpaired, (b) any such invalidity or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction and (c) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision as determined by a court to be valid and
enforceable and to express the intention of the parties with respect to the
invalid or unenforceable term or provision.
8.9 Consent to Jurisdiction. In connection with any dispute which may
------------------------
arise under this Amendment or under any other agreement referred to herein, each
of the parties hereby irrevocably submits to, consents to, and waives any
objection to, the jurisdiction of the courts of the State of New York located in
the County of New York or of the United States District Court for the Southern
District of New York, and waives any objection to the laying of venue in such
courts. Each such party admits that any such dispute may be resolved at least as
conveniently in such a court as in any other court, and shall not seek dismissal
or a change of venue on the ground that resolution of such a dispute in any such
court shall not be convenient or in the interests of justice. The Purchaser
hereby appoints Proskauer Rose LLP as its agent upon whom service of process may
be made with the same force and effect as if such service shall have been made
personally upon the Purchaser. The Company hereby appoints Hertzog, Calamari &
Gleason as its agent upon; whom service of process may be made with the same
force and effect as if such service shall have been made personally upon the
Company.
IN WITNESS WHEREOF, each of the undersigned has caused this Third Amendment to
Stock Purchase Agreement to be executed as of the date first written above.
PHARMACEUTICAL RESOURCES, INC.
By:/s/Kenneth I. Sawyer, President
--------------------------------
CLAL PHARMACEUTICAL INDUSTRIES LTD.
By: /s/
--------------------------------
By: /s/
--------------------------------
6
<PAGE>
AGREED AND ACCEPTED AS TO SECTION 2.1 ONLY
PRI - RESEARCH, INC.
By:/s/Kenneth I. Sawyer, President
--------------------------------
7
<PAGE>
EXHIBIT 10.27
SECOND AMENDMENT AND WAIVER
TO LOAN AND SECURITY AGREEMENT
------------------------------
SECOND AMENDMENT AND WAIVER, dated as of August 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 prior to the date hereof, 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 and/or consent to 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. Amendments to Loan Agreement.
----------------------------
A. Recital A of the Loan Agreement is hereby amended by (i)
inserting, immediately after the word "loan" in the first line thereof, the
following: "(including a subfacility for letters of credit)", (ii) inserting
under the caption "Revolving Credit Rate" a new caption to read: "Letter of
--------------------- ---------
Credit Subfacility: $2,000,000", and (iii) inserting under the caption "Unused
- ------------------ ------
Line Fee" a new caption to read: "Letter of Credit Fee: 2%".
- -------- --------------------
B. Section 1.1(a) of the Loan Agreement is hereby amended in
its entirety to read as follows:
"Subject to the terms and conditions of this Agreement, from the
Closing Date and until the Commitment Termination Date (i) Lender
agrees (A) to make available advances (each, a "Revolving Credit
Advance") and (B) to incur Letter of Credit Obligations, in an
aggregate outstanding amount not to exceed the Borrowing
Availability, and (ii) Borrower may at its request from time to
time borrow, repay and reborrow, and may cause Lender to incur
Letter of Credit Obligations, under this Section 1.1."
1
<PAGE>
C. Section 1.1 of the Loan Agreement is hereby further amended
by (i) deleting the caption in its entirety and inserting in lieu thereof a new
caption entitled "Loans", and (ii) adding a new Section 1.1(e) at the end
-----
thereof to read as follows:
"(e) Subject to the terms and conditions of this Agreement,
including Schedule G, Borrower shall have the right to request,
----------
and Lender agrees to incur, the Letter of Credit Obligations for
the account of Borrower in accordance with Schedule G."
----------
D. Section 1.2 of the Loan Agreement is hereby amended by
deleting the second sentence in its entirety and inserting in lieu thereof a new
sentence to read as follows:
"Upon the Commitment Maturity Date Borrower shall pay to Lender
in full, in cash: (i) all outstanding Revolving Credit Advances
and all interest earned, but unpaid, thereon; (ii) an amount
sufficient to enable Lender to hold cash collateral as specified
in Schedule G; and (iii) all other non-contingent Obligations due
----------
to or incurred by Lender."
E. Section 1.2(b) of the Loan Agreement is hereby amended by
inserting, immediately following the word "Advances", the phrase "and Letter of
Credit Obligations".
F. Section 1.5(c) of the Loan Agreement is hereby amended by
inserting, immediately after the word "interest" in the first line thereof, the
phrase ", and all calculations of the Letter of Credit Fee,".
G. Section 1.5(d) of the Loan Agreement is hereby amended by
inserting (i) immediately after the word "Rate" in the second line thereof, the
phrase "and the Letter of Credit Fee", and (ii) immediately after the word
"interest" the first place it appears in the third line thereof, the phrase "and
Letter of Credit Fees".
H. Section 2.2 of the Loan Agreement is hereby amended by
inserting, immediately after the word "Advance" in the second line thereof, the
phrase "or the incurrence of any Letter of Credit Obligations".
I. Section 2.2(b) of the Loan Agreement is hereby amended by
inserting, immediately after the word "Advance", the phrase ", or the incurrence
of such Letter of Credit Obligation,".
J. Section 2.2(c) of the Loan Agreement is hereby amended by
inserting, immediately after the word "Advance", the phrase "or the incurrence
of such Letter of Credit Obligation,".
K. Section 2.2 of the Loan Agreement is hereby further amended
by inserting, immediately after the word "Advance" in the last sentence thereof,
the phrase ", and the request by Borrower for the incurrence by Lender of any
Letter of Credit Obligations, as the case may be,".
L. Section 8.2(a) of the Loan Agreement is hereby amended in
its entirety to read as follows:
"(a) If any Default or Event of Default shall have occurred and
be continuing, then Lender may terminate or suspend its
obligation to make further Revolving Credit Advances and to incur
additional Letter of Credit Obligations. In addition, if any
Event of Default shall have occurred and be continuing, Lender
may, without notice, take any one or more of the following
actions: (1) upon notice to Borrower from Lender, increase the
rate of interest applicable to
2
<PAGE>
Revolving Credit Advances and the Letter of Credit Fee, as
provided in Section 1.5(d), effective as of the date of the
initial Default; (2) declare all or any portion of the
Obligations to be forthwith due and payable, including contingent
liabilities with respect to Letter of Credit Obligations,
whereupon such Obligations shall become and be due and payable;
(3) require that all Letter of Credit Obligations be fully cash
collateralized pursuant to Schedule G; or (4) exercise
----------
any rights and remedies provided to Lender under the Loan
Documents or at law or equity, including all remedies provided
under the Code; provided, that upon the occurrence of an Event
--------
of Default specified in Sections 8.1 (e), (f) or (g), the
Obligations shall become immediately due and payable (and any
obligation of Lender to make further Revolving Credit Advances or
incur additional Letter of Credit Obligations, if not previously
terminated, shall immediately be terminated) without declaration,
notice or demand by Lender."
M. Section 8.4 of the Loan Agreement is hereby amended by
inserting, immediately before the phrase "and finally", the phrase "third, to
------- -----
cash collateralize any outstanding Letter of Credit Obligations pursuant to
Schedule G;".
- ----------
N. The Index of Exhibits and Schedules to the Loan Agreement is
hereby amended by inserting under Schedule F a new line to read "Schedule G -
Letters of Credit".
3. Amendments to Schedule A to the Loan Agreement. Schedule A to
----------------------------------------------
the Loan Agreement is hereby amended as follows:
A. The following new definitions are hereby added immediately
following the definition of "Lender":
------
"Letters of Credit" shall mean any and all commercial or standby
-----------------
letters of credit issued at the request and for the account of
Borrower for which Lender has incurred Letter of Credit
Obligations.
"Letter of Credit Fee" shall have the meaning assigned to it in
--------------------
Schedule D.
----------
"Letter of Credit Obligations" shall mean all outstanding
----------------------------
obligations incurred by Lender at the request of Borrower,
contingent or otherwise, due or not due, in connection with the
guarantee by Lender of Letters of Credit, all as further set
forth in Schedule G. The amount of such Letter of Credit
----------
Obligations at any time shall equal the maximum amount which may
be payable by Lender thereupon or pursuant thereto at such time.
B. The definition of "Maximum Amount" is hereby amended by
--------------
inserting, immediately after the word "Advances", the phrase "and Letter of
Credit Obligations".
C. The definition of "Obligations" is hereby amended by
-----------
inserting, immediately after the word "Advances" in the ninth line thereof, the
phrase ", Letter of Credit Obligations".
D. The definition of "Prepayment Fee" is hereby amended by
--------------
inserting, immediately after the word "Advances", the phrase "or to incur Letter
of Credit Obligations".
E. The definition of "Revolving Credit Loan" is hereby amended
---------------------
in its entirety to read as follows:
3
<PAGE>
"Revolving Credit Loan" shall mean at any time the sum of (i) the
---------------------
aggregate amount of Revolving Credit Advances then outstanding,
plus (ii) the total Letter of Credit Obligations incurred by
Lender and outstanding at such time, plus the amount of earned
and accrued, but unpaid, interest thereon and Letter of Credit
Fees with respect thereto."
F. The definition of "Termination Date" is hereby amended by
----------------
inserting, immediately after the word "cash", the parenthetical "(other than
amounts in respect of Letter of Credit Obligations if any, then outstanding,
provided that Borrower shall have funded such amounts in cash in full into a
cash collateral account as contemplated by Schedule G)".
----------
4. Amendments to Schedule D to the Loan Agreement. Schedule D to
----------------------------------------------
the Loan Agreement is hereby amended by inserting (i) in each of the first three
paragraphs in Section 4 thereof, immediately following the word "Advances", the
phrase "or Letter of Credit Obligations" and (ii) a new section at the end
thereof which shall read as follows:
"7. Letter of Credit Fee: For each day for which Lender
--------------------
maintains Letter of Credit Obligations outstanding, an amount
equal to the amount of the Letter of Credit Obligations
outstanding on such day, multiplied by 2%, the product of which
is then divided by 360. The Letter of Credit Fee incurred for
each month is payable at the same time each payment of the Unused
Line Fee is due. Notwithstanding the foregoing, any unpaid Letter
of Credit Fee is immediately due and payable on the Commitment
Maturity Date."
5. New Schedule G. The Loan Agreement is hereby amended by
--------------
inserting, immediately following Schedule F thereto, a new Schedule G in the
---------- ----------
form attached hereto as Annex A.
-------
6. Waiver/Consent. Lender hereby (A) waives any Event of Default
--------------
under Section 8.1(b) of the Loan Agreement solely arising out of (i) the sale by
--------------
Parent on June 3, 1997 of 1,666 registered ordinary shares, par value NIS 1.00,
and 1,666 registered voting shares, par value NIS 1.00, in each case of Fine-
Tech Ltd., an Israeli private company limited by shares, (ii) the sale/release
by Borrower of distribution rights concerning certain drug delivery products
(which were previously granted to Borrower by Sano Corporation, a Florida
corporation ("Sano"), pursuant to a certain Distribution Agreement, dated as of
----
February 24, 1994 among, Sano, Borrower and Parent, as amended by a letter
agreement dated May 8, 1995) in accordance with the terms and conditions of that
certain Amended and Restated Distribution Agreement, dated July 28, 1997, among
Sano, Borrower and Parent (it being understood that all of the proceeds from
such sale have been deposited into the Collection Account), and (iii) the
advance of One Million Nine Hundred Fifty-Three Thousand Three Hundred Ninety-
Three Dollars (U.S.$1,953,393) by Borrower to SANO in connection with such sale,
as evidenced by that certain Promissory Note made by SANO in favor of Borrower,
dated July 28, 1997 ("Note"), and (B) consents to (i) the investment by Parent
----
of Two Hundred Fifty Thousand Dollars (U.S.$250,000) in Authorgenics, Inc.
("Authorgenics") on or before August 29, 1997 (it being understood that such
- --------------
investment shall be paid to Authorgenics in exchange for 625 shares of Series A
Preferred Stock, $.01 par value, of Authorgenics), (ii) the establishment by
Parent of a Delaware limited partnership, the general partner of which shall be
a newly-formed Delaware corporation and wholly-owned subsidiary of Parent (it
being understood that (a) such limited partnership and corporation are being
formed to consummate the transactions contemplated under that certain Marketing
and Sales Umbrella Agreement ("Marketing Agreement") to be entered into between
-------------------
Authorgenics and Parent, (b) notwithstanding anything to the contrary contained
in the Loan Agreement, including Section 5(b) thereof, Parent's aggregate
investment in such entities shall not exceed U.S.$1,000, without the prior
written consent of Lender, (c) no Credit Party shall or shall be required to
provide any collateral to support any liabilities, Indebtedness or other
obligations of such entities, (d) no Credit Party shall or shall be required to
indemnify in any manner such entities or other Person in connection with any
obligation or liability of such entities, and (e) without limiting the
foregoing, such investment shall be non-recourse to Borrower and the other
Credit Parties (other than to the extent of
4
<PAGE>
Parent's initial investment of U.S.$1,000)), and (iii) the expenditure by Parent
of no more than One Hundred Fifty Thousand Dollars (U.S.$150,000) on the
development of a plan to market/sell the software developed in connection with
the Marketing Agreement. The parties agree that the foregoing consent shall be
null and void if the Marketing Agreement is not executed and delivered
substantially in the form attached hereto as Exhibit A.
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 both before and
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,
(i) 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 (ii 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 6 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 August 20, 1997 the aggregate
outstanding principal amount of the Revolving Credit Loan is $5,921,548.54 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,
5
<PAGE>
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
-------------
August 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
August 27, 1997:
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 August 27, 1997, this Amendment shall become, upon
written notice by Lender to Borrower, null and void and of no force or effect.
12. Covenants of Borrower. Borrower shall, within ten (10) Business
---------------------
Days of the date hereof, grant to Lender a first priority security interest in
the Note and the collateral securing such Note, if any, pursuant to a pledge
agreement, in form and substance satisfactory to Lender. Notwithstanding
anything to the contrary contained in the Loan Agreement or any other Loan
Document, each of the Credit Parties acknowledges and agrees that failure to so
provide Lender with such a first priority security interest shall constitute an
immediate Event of Default.
13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
14. 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.
6
<PAGE>
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:___________________________
Martin S. Greenberg
Its: Duly Authorized Signatory
Parent:
------
PHARMACEUTICAL RESOURCES,
INC.
By:___________________________
Name:
Title:
(SIGNATURES CONTINUED ON NEXT PAGE)
7
<PAGE>
Subsidiary Guarantors:
---------------------
NUTRICEUTICAL RESOURCES, INC.
By:_________________________
Name:
Title:
PARCARE, LTD.
By:___________________________
Name:
Title:
8
<PAGE>
ANNEX A
TO
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
-----------------------------------------------
SCHEDULE G - LETTERS OF CREDIT
1. Lender agrees, subject to the terms and conditions hereinafter set forth,
to incur Letter of Credit Obligations in respect of the issuance of Letters of
Credit issued on terms acceptable to Lender and supporting obligations of
Borrower incurred in the ordinary course of Borrower's business, in order to
support the payment of Borrower's inventory purchase obligations, insurance
premiums, or utility or other operating expenses and obligations, as Borrower
shall request by written notice to Lender that is received by Lender not less
than five Business Days prior to the requested date of issuance of any such
Letter of Credit; provided, that: (a) the aggregate amount of all Letter of
--------
Credit Obligations at any one time outstanding (whether or not then due and
payable) shall not exceed the lesser of (i) $2,000,000 or (ii) the Net Borrowing
Availability at such time; (b) no Letter of Credit shall have an expiry date
which is later than one year following the date of issuance thereof; and (c)
Lender shall be under no obligation to incur Letter of Credit Obligations in
respect of any Letter of Credit having an expiry date that is later than
December 30, 1999. The maximum amount payable in respect of each Letter of
Credit requested by Borrower will be guaranteed by Lender in favor of the
issuing bank under terms of a separate agreement between Lender and the issuing
bank, [which agreement (other than as provided for herein) shall not affect
Borrower's rights in respect of the issuing bank set forth in the application
and agreement referred to in the next succeeding sentence]. Borrower will enter
into an application and agreement for such Letter of Credit with the issuing
bank selected by Lender. The bank that issues any Letter of Credit pursuant to
the Agreement shall be determined by Lender in its sole discretion.
2. The notice to be provided to Lender requesting that Lender incur Letter of
Credit Obligations shall be in the form of a Letter of Credit application in the
form customarily employed by the issuing bank, together with a written request
by Borrower and the bank that Lender approve Borrower's application. Upon
receipt of such notice Lender shall establish a reserve against the Borrowing
Availability in the amount of 100% of the face amount of the Letter of Credit
requested; provided, that such reserve shall be reversed if the requested Letter
--------
of Credit is not issued and to the extent the amount available under it is
reduced. Approval by Lender in the written form agreed upon between Lender and
the issuing bank (a) will authorize the bank to issue the requested Letter of
Credit, and (b) will conclusively establish for purposes of determining Net
Borrowing Availability the existence of the Letter of Credit Obligation as of
the date of such approval; provided, that otherwise such Letter of Credit
--------
Obligations shall be deemed to be in existence as of the date the applicable
Letter of Credit is issued to its beneficiary.
3. In the event that Lender shall make any payment on or pursuant to any
Letter of Credit Obligation, Borrower shall be unconditionally obligated to
reimburse Lender therefor, and such payment shall then be deemed to constitute a
Revolving Credit Advance. For purposes of computing interest under Section 1.5
of the Agreement, a Revolving Credit Advance made in satisfaction of a Letter of
Credit Obligation shall be deemed to have been made as of the date on which the
issuer or endorser makes the related payment under the underlying Letter of
Credit.
4. In the event that any Letter of Credit Obligations, whether or not then due
or payable, shall for any reason be outstanding on the Commitment Maturity Date,
Borrower will either (a) cause the underlying Letter of Credit to be returned
and canceled and each corresponding Letter of Credit Obligation to be
terminated, or (b) pay to Lender, in immediately available funds, an amount
equal to 105% of the maximum amount then available to be drawn under all Letters
of Credit not so returned and canceled. Such funds shall be held in a cash
collateral account maintained at a bank or financial institution acceptable to
Lender. Such account shall be in the name of Borrower and shall be pledged to,
and subject to the control of, Lender, in a manner satisfactory to Lender.
9
<PAGE>
5. In the event that Lender shall incur any Letter of Credit Obligations,
Borrower agrees to pay the Letter of Credit Fee to Lender as compensation to
Lender for incurring such Letter of Credit Obligations. In addition, Borrower
shall reimburse Lender for all fees and charges paid by Lender on account of any
such Letters of Credit or Letter of Credit Obligations to the issuing bank.
6. Borrower's Obligations to Lender with respect to any Letter of Credit or
Letter of Credit Obligation shall be evidenced by Lender's records and, in the
absence of manifest error, shall be absolute, unconditional and irrevocable and
shall not be affected, modified or impaired by (i) any lack of validity or
enforceability of the transactions contemplated by or related to such Letter of
Credit or Letter of Credit Obligation; (ii) any amendment or waiver of or
consent to depart from all or any of the terms of the transactions contemplated
by or related to such Letter of Credit or Letter of Credit Obligation (other
than an amendment of the agreement between Borrower and the issuing bank
regarding the Letter of Credit or a waiver by the issuing bank of a right under
such agreement which reduces Lender's obligations to the issuing bank); (iii)
the existence of any claim, set-off, defense or other right which Borrower or
any other Credit Party may have against Lender, the issuer or beneficiary of
such Letter of Credit, or any other Person, whether in connection with the
Agreement or the transactions contemplated therein or such Letter of Credit or
the transactions contemplated thereby or any unrelated transactions; or (iv) the
fact that any draft, affidavit, letter, certificate, invoice, bill of lading or
other document presented under or delivered in connection with such Letter of
Credit or any other Letter of Credit proves to have been forged, fraudulent,
invalid or insufficient in any respect or any statement therein proves to have
been untrue or incorrect in any respect.
7. In addition to any other indemnity obligations which Borrower may have to
Lender under the Agreement and without limiting such other indemnification
provisions, Borrower hereby agrees to indemnify Lender from and to hold Lender
harmless against any and all claims, liabilities, losses, costs and expenses
(including, attorneys' fees and expenses) which Lender may (other than as a
result of its own gross negligence or willful misconduct) incur or be subject to
as a consequence, directly or indirectly, of (i) the issuance of or payment of
or failure to pay under any Letter of Credit or Letter of Credit Obligation or
(ii) any suit, investigation or proceeding as to which Lender is or may become a
party as a consequence, directly or indirectly, of the issuance of any Letter of
Credit, the incurring of any Letter of Credit Obligation or any payment of or
failure to pay under any Letter of Credit or Letter of Credit Obligation. The
obligations of Borrower under this paragraph shall survive any termination of
the Agreement.
8. Borrower hereby assumes all risks of the acts, omissions or misuse of each
Letter of Credit by the beneficiary or issuer thereof and, in connection
therewith and absent gross negligence or wilful misconduct on Lender's part,
Lender shall not be responsible (i) for the validity, sufficiency, genuineness
or legal effect of any document submitted in connection with any drawing under
any Letter of Credit even if it should in fact prove in any respect to be
invalid, insufficient, inaccurate, untrue, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or any rights or benefits
thereunder or any proceeds thereof, in whole or in part, even if it should prove
to be invalid or ineffective for any reason; (iii) for the failure of any issuer
or beneficiary of any Letter of Credit to comply fully with the terms thereof,
including the conditions required in order to effect or pay a drawing
thereunder; (iv) for any errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, telecopy, telex or otherwise;
(v) for any loss or delay in the transmission or otherwise of any document or
draft required in order to make a drawing under any Letter of Credit; or (vi)
for any consequences arising from causes beyond the control of Lender.
10
<PAGE>
EXHIBIT A
TO
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
-----------------------------------------------
11
<PAGE>
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-97321.4 Type: AMD
12
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
--------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Income (loss) from continuing operations $(8,901,000) $(11,092,000) $ 612,000
Income from discontinued operations - 2,800,000 -
----------- ------------ -----------
NET INCOME (LOSS) $(8,901,000) $ (8,292,000) $ 612,000
========= ========= ======
Primary:
Weighted average number of common shares outstanding 18,681,017 18,340,248 16,669,827
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 - 127,000 473,554
----------- ------------ -----------
Shares used for computation 18,681,017 18,467,248 17,143,381
=========== ============ ===========
Income (loss) per share of common stock (primary):
Continuing operations $ (.48) $ (.60) $ .04
Discontinued operations - .15 -
----------- ------------ -----------
NET INCOME (LOSS) $ (.48) $ (.45) $ .04
=== === ===
Assuming full dilution:
Weighted average number of common shares outstanding 18,681,017 18,340,248 16,669,827
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 - 127,000 473,554
----------- ------------ -----------
Shares used for computation 18,681,017 18,467,248 17,143,381
=========== ============ ===========
Income (loss) per share of common stock
(assuming full dilution) (a):
Continuing operations $ (.48) $ (.60) $ .04
Discontinued operations
- .15 -
NET INCOME (LOSS) ----------- ------------ -----------
$ (.48) $ (.45) $ .04
=== === ===
(a) Not presented because dilution is less than 3% from primary amounts.
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
State or Other Jurisdiction
Name of Incorporation/Organization
---- -----------------------------
Par Pharmaceutical, Inc. New Jersey
PRX Distributors, Ltd. Delaware
ParCare, Ltd. New York
PRI-Research, Inc. Delaware
Nutriceutical Resources, Inc. New York
Quad Pharmaceuticals, Inc. Indiana
Par Pharma Group, Ltd. Delaware
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements No. 33-35242 and No. 33-74052 on Forms S-3 and
Registration Statements No. 2-99035, No. 33-15640, No. 33-51914, No. 33-45785,
No. 33-29992, No. 33-79954, No. 33-79956 and No. 333-02885 on Forms S-8.
/s/ ARTHUR ANDERSEN LLP
New York, New York
December 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS INCLUDED IN THE ANNUAL REPORT ON FORM 10-K FOR THE TWELVE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 181
<SECURITIES> 15
<RECEIVABLES> 16,523
<ALLOWANCES> (5,109)
<INVENTORY> 13,239
<CURRENT-ASSETS> 28,155
<PP&E> 45,684
<DEPRECIATION> (17,852)
<TOTAL-ASSETS> 72,697
<CURRENT-LIABILITIES> 12,196
<BONDS> 2,651
189
0
<COMMON> 0
<OTHER-SE> 57,079
<TOTAL-LIABILITY-AND-EQUITY> 72,697
<SALES> 53,172
<TOTAL-REVENUES> 60,140
<CGS> 49,740
<TOTAL-COSTS> 18,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 587
<INCOME-PRETAX> (8,491)
<INCOME-TAX> 410
<INCOME-CONTINUING> (8,901)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,901)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)
</TABLE>
