<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13D-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13D-2(a)
(Amendment No. ___)*
Pharmaceutical Resources, Inc.
(Name of Issuer)
Common Stock, par value $.01 per share
(Title of Class of Securities)
717125 9 10 8
(CUSIP Number)
Pamela Marrs
Dey, Inc.
2751 Napa Valley Corp. Drive
Napa, CA 94558
(707) 224-3200
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 30, 1998
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d- 1(g), check the
following box |_|.
Note. Schedules filed in paper format shall include a signed
original and five copies of the schedule, including all exhibits. See Rule
13d-7(b) for other parties to whom copies are to be sent.
(Continued on following pages)
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter disclosure
provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 (the "Act") or otherwise subject to the liabilities of that section of the
Act but shall be subject to all other provisions of the Act (however, see the
Notes).
Exhibit Index: Page 13
Page 1
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SCHEDULE 13D
CUSIP No. 717125 9 10 8
--------------
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person (entities only)
Merck KGaA
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |_|
3 SEC Use Only
4 Source of Funds*
OO
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e)
|_|
6 Citizenship or Place of Organization
Germany
7 Sole Voting Power
Number of
Shares
Beneficially 8 Shared Voting Power
Owned By 12,213,272
Each
Reporting 9 Sole Dispositive Power
Person 12,213,272
With
10 Shared Dispositive Power
11 Aggregate Amount Beneficially Owned by Each Reporting Person
12,213,272
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* |_|
13 Percent of Class Represented By Amount in Row (11) 41.7%
14 Type of Reporting Person*
CO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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SCHEDULE 13D
Item 1. Security and Issuer.
This Statement is being filed by Merck KGaA, a
Kommanditgesellschaft auf Aktien organized under the laws of Germany ("KGaA" or
the "Acquiror") and relates to the purchase by Lipha Americas, Inc. ("Lipha") of
12,213,272 shares (the "Shares") of Common Stock, par value $.01 per share (the
"Common Stock") of Pharmaceutical Resources, Inc., a New Jersey corporation (the
"Issuer" or the "Company"). Lipha is a substantially wholly-owned subsidiary of
KGaA and KGaA may be deemed to be the beneficial owner of the Shares held by
Lipha. KGaA is controlled by E. Merck, a German partnership, which holds
approximately 74% of the shares of KGaA.
The class of securities to which this statement on Schedule
13D relates is the Common Stock of the Issuer. The address of the principal
executive offices of the Issuer is One Ram Ridge Road, Spring Valley, New York
10977.
Item 2. Identity and Background.
The principal offices of the Acquiror and the name, business
address, present principal occupation or employment (and the name, principal
business and address of any corporation or other organization in which such
employment is conducted) and citizenship of each of the directors and executive
officers of the Acquiror is set forth in Schedule A attached hereto and
incorporated herein by this reference. During the last five years, neither the
Acquiror nor, to the best of the Acquiror's knowledge, any of the persons
identified in Schedule A hereto has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or has been a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
Clal Agreement
The Issuer, KGaA and Clal Pharmaceutical Industries Ltd.
("Clal"), a corporation organized under the laws of Israel, executed and
delivered to each other a letter agreement, dated March 25, 1998 (the "Clal
Agreement"), whereby KGaA agreed, itself or through an affiliate, to purchase
(concurrently with and subject to the closing of the Lipha Agreement, as
hereinafter defined) from Clal 1,813,272 shares of Common Stock of the Issuer
that Clal owned at the greater of $2.00 per share or the price per share paid
under the Lipha Agreement (the "Clal Purchase Price").
Page 3
<PAGE>
Pursuant to the Clal Agreement, KGaA or its affiliate must
additionally pay Clal, on June 30, 2000, (x) the excess, if any, of the weighted
per share average price of all trades in the Common Stock on the New York Stock
Exchange during the thirty trading days immediately preceding June 30, 2000 over
the Clal Purchase Price times (y) 500,000. Beginning five U.S. business days
after June 30, 2001, Clal has the option under the Clal Agreement for five U.S.
business days to require KGaA (or the Issuer, if KGaA and the Issuer agree) to
purchase an additional 500,000 shares of Common Stock from Clal at a price of
$2.50 per share. During the period beginning June 30, 1998 and ending five U.S.
business days after June 30, 2001 (the "Post-Closing Period"), Clal may not,
directly or indirectly: (i) sell or in any way encumber such 500,000 shares,
(ii) exercise certain registration rights with respect to such 500,000 shares,
(iii) acquire, directly or through any person under its control, any additional
shares of Common Stock or other securities of the Issuer, (iv) enter into any
agreement with any person other than the Issuer concerning the voting or
transfer of any shares of Common Stock, (v) initiate or propose any transaction
involving the Issuer, or (vi) recommend that any person engage in the activities
specified in (iii) - (v) above. Further, Clal agreed, pursuant to the Clal
Agreement, to vote its Common Stock in favor of the Lipha Agreement if the Lipha
Agreement was approved by the Issuer's Board of Directors.
If Clal does not exercise the aforesaid option, Clal, KGaA or
the Issuer have the option to require Clal to sell such 500,000 shares of Common
Stock on the New York Stock Exchange and KGaA or the Issuer must, within five
U.S. business days after ninety trading days beginning on the third trading day
following the exercise of such option, purchase from Clal any such shares not so
sold after ninety days at a price equal to the excess, if any, of (x) the
weighted per share average price of all trades in the Common Stock on the New
York Stock Exchange during the thirty trading days immediately preceding the
last day of the Post-Closing period over (y) the aggregate proceeds realized by
Clal from sales of such 500,000 shares of Common Stock during such ninety day
period.
Lipha Agreement
On June 30, 1998 Lipha purchased from the Issuer 10,400,000
shares of Common Stock for $20,400,000 cash. On June 30, 1998 Genpharm, Inc., a
corporation organized under the laws of Ontario, Canada ("Genpharm") and a
wholly-owned subsidiary of KGaA, entered into a service agreement in
consideration of an option (issued in the name of Genpharm) to purchase 351,040
shares of Common Stock for $2.00 per share at any time between July 10, 2001 and
April 30, 2003. Also on June 30, 1998 KGaA entered into a service agreement in
consideration of an option (issued in the name of KGaA) to purchase 820,000
shares of Common Stock for $2.00 per share at any time between July 10, 2001 and
April 30, 2003. Pursuant to such service agreements (the "Service Agreements"),
KGaA and Genpharm have each agreed to provide certain research and testing and
management and promotional services to the Issuer. The Issuer has granted
certain registration rights to Lipha, KGaA and Genpharm with respect to the
shares of Common Stock held by them or subject to options held by them. Any of
Lipha, KGaA or Genpharm may require Lipha to register such shares under the
Securities Act of 1933 (the "Securities Act") up to five times beginning after
March 31, 1999 (but not more than once
Page 4
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in any twelve-month period) and may require the Company to include their shares
of Common Stock in any registration under the Securities Act that the Company
prepares.
On March 25, 1998 the Issuer and Genpharm entered into a
distribution agreement (the "Distribution Agreement") pursuant to which the
Issuer will distribute in the United States certain products of Genpharm.
The shareholders of the Issuer approved the Lipha Agreement
and the transactions contemplated thereby at the Annual Meeting of Shareholders
on June 26, 1998 (the "Shareholder Meeting").
Certain additional terms of the Lipha Agreement are set forth
below:
Board of Directors and Management
Pursuant to the Lipha Agreement, Lipha nominated two members
of the Issuer's board of directors to serve until 1999 and two members to serve
until 2000, while three directors were nominated by the Issuer to serve until
2001 (the "Company Designees"). All such nominees were elected at the
Shareholder Meeting. For three years Lipha may not cause, and must use its best
efforts not to permit: (i) the removal, except for cause (as such term is
defined and used under New Jersey corporate law), of any of the Company
Designees serving as directors of the Company prior to the scheduled expiration
of their terms or (ii) the shortening of any of such designees' terms as
directors. In the event that any Company Designee resigns or cannot otherwise
continue to serve as a director, the remaining Company Designee(s) will
designate a replacement and, unless such replacement designee is not be
reasonably satisfactory to Lipha, the Company and Lipha must use their
reasonable best efforts to cause the appointment and/or election of such
designated replacement to the Company's Board of Directors.
Lipha and the Company Designees jointly designate a two-member
audit committee of the board, each of whom must qualify as independent outside
directors in accordance with the rules and regulations of the New York Stock
Exchange. Additionally, until July 1, 2001, the Company is required to maintain
an executive committee of its board of directors and to appoint the Chairman of
the Company, Kenneth I. Sawyer, as a member.
The Issuer is required to appoint Lipha's designee as the
President and Chief Operating Officer of the Issuer and each of its
subsidiaries. In connection with the closing of the Lipha Agreement, Mr. Sawyer
(i) agreed to serve as the Chairman and Chief Executive Officer of the Issuer
and each of its subsidiaries; (ii) acknowledged that neither such arrangement
constituted a breach or a violation of the terms of his employment agreement
with the Issuer; and (iii) agreed to vote his Common Stock at the Shareholder
Meeting in favor of the Lipha Agreement.
Page 5
<PAGE>
Rights Agreement
Pursuant to the Lipha Agreement, the Issuer amended its rights
agreement to exempt the Lipha Agreement and associated transactions from the
application thereof.
Standstill, Securities Issues, Right of First Refusal
Pursuant to the Lipha Agreement, the Company obtained the
agreement of directors, officers and most employees of the Company not to
exercise any options, warrants or other stock rights to purchase Common Stock
except as specified in the Lipha Agreement. Further, the Company agreed to issue
options and warrants, or other stock rights, under the Company's existing stock
option or stock purchase plans only if the exercise date was no earlier than
three years from the closing of the Lipha Agreement and on certain other
conditions.
Pursuant to the Lipha Agreement, the Company granted Lipha a
right of first refusal on any shares of Common Stock sold for cash only or other
than pursuant to a registration under the Securities Act within six years of
June 30, 1998.
Business Combinations and Related Party Transactions; Certain
Amendments
The Lipha Agreement restricts Lipha's ability to cause or
permit the Company to enter into, certain types of transactions for three years
from June 30, 1998.
First, neither Lipha nor any of its affiliates or associates
may, without the prior written consent of a majority of the Company Designees
and the prior receipt from an independent nationally recognized investment bank
of a written fairness opinion to the effect that the proposed transaction is
fair (from a financial point of view) to all shareholders of the Company, (i)
propose that the Company, or cause or permit the Company to, merge, consolidate
or enter into any other business combination with or into another entity, (ii)
propose that the Company, or cause or permit the Company to, sell, lease, pledge
or otherwise dispose of all or any material portion of the assets of the
Company, (iii) propose or make, or cause or permit the Company to propose or
make, any exchange offer or tender offer for, or repurchase of, any securities
of the Company or (iv) propose that the Company, or cause or permit the Company
to, recapitalize, liquidate, dissolve or, to the extent it would cause the
Company not to be publicly-held, reorganize.
Second, Lipha may not cause, and must use its reasonable best
efforts not to permit, the Company to agree to any amendment, modification or
waiver of or take any action in respect of the Lipha Agreement, the Distribution
Agreement or the Service Agreements, including in respect of any agreement or
settlement relating to a dispute or claim for indemnification, without the prior
written consent of at least a majority of the Company Designees.
Page 6
<PAGE>
Third, Lipha may not cause or permit the Company or its
subsidiaries, directly or indirectly, to engage in or enter into any, or to
amend or terminate any then validly existing, transaction, arrangement or
agreement with, or to make any distribution or dividend of property or monies
to, Lipha or any of its affiliates or associates, without the prior written
consent of a majority of the Company Designees.
Item 3. Source and Amount of Funds or Other Consideration.
The full $24,426,544 purchase price of the Common Stock to
which this Statement relates was paid out of the working capital of Lipha.
Item 4. Purpose of Transaction.
The Acquiror views the purchase of the Shares primarily as an
investment. The Acquiror currently owns, as a result of the purchase of the
Shares, an approximately 41.7% interest in the Issuer, and the Acquiror
continues to review the possibility of amalgamating with one or more other
companies in order to create a more widely-held North American manufacturer.
However, the Acquiror and the Issuer are not currently discussing any proposal
with respect to an amalgamation involving the Issuer, although it reserves the
right to do so in the future. The Acquiror does not have any present intention
to increase its investment in the Issuer or to dispose of its shares of Common
Stock, although it reserves the right to acquire additional securities of the
Issuer and to dispose of its shares of the Common Stock, in light of market
conditions, its strategic business goals, or other factors.
Item 5. Interest in Securities of the Issuer.
As of June 30, 1998, Lipha owned of record and beneficially
12,213,272 shares of Common Stock of the Issuer and has the sole power to vote
and dispose of such shares. Because KGaA is controlled by E. Merck and because
Lipha is a substantially wholly-owned subsidiary of KGaA, E. Merck and KGaA may
be deemed to be the beneficial owners of the Shares held by Lipha.
The Shares constitute 41.7% of the issued and outstanding
shares of Common Stock of the Issuer, based on 29,290,153 shares of Common Stock
outstanding as of June 30, 1998.
Except as set forth herein, there have been no transactions in
the Common Stock of the Issuer by the Acquiror or any of the executive officers
or directors identified in Schedule A hereto during the 60 days preceding the
filing of this Statement.
Page 7
<PAGE>
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
Except as set forth herein, the Acquiror (and the executive
officers and directors identified in Schedule A hereto) do not have any
arrangements, contracts, understandings or relationships (legal or otherwise)
with respect to each other or with any other person with respect to the
securities of the Issuer.
Item 7. Material to Be Filed as Exhibits.
1. Letter Agreement, dated March 25, 1998, among the Issuer, KGaA and
Clal.
2. Stock Purchase Agreement, dated March 25, 1998, by and between Lipha
and the Issuer.
3. Stock Option Agreement, dated June 30, 1998, between the Issuer and
KGaA.
4. Merck Services Agreement, dated as of June 30, 1998, between the
Issuer and KGaA.
5. Stock Option Agreement, dated June 30, 1998, between the Issuer and
Genpharm.
6. Genpharm Services Agreement, dated June 30, 1998, between the Issuer
and Genpharm.
7. Registration Rights Agreement, dated June 30, 1998 between the
Issuer, Lipha, KGaA and Genpharm.
Page 8
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: July 10, 1998
MERCK KGaA
By: /s/ K. - P. Brandis
--------------------------------
Klaus Peter Brandis
Head of Legal Department
<PAGE>
SCHEDULE A
MERCK KGAA
DIRECTORS AND EXECUTIVE OFFICERS
The address of each of the directors and executive officers
listed below is c/o Merck KGaA at its principal offices located at Frankfurter
Str. 250, D-64293 Darmstadt, Germany.
<TABLE>
<CAPTION>
Name Position and Principal Occupation Citizenship
- ---- --------------------------------- -----------
<S> <C> <C>
Dr. Heinrich Hornef Chairman, Supervisory Board Germany
(Aufsichtsrat)
Manfred Bendel Vice Chairman, Supervisory Board Germany
(Aufsichtsrat)
Flavio Battisti Supervisory Board Member Germany
(Aufsichtsrat)
Jon Baumhauer Supervisory Board Member Germany
(Aufsichtsrat)
Klaus Brauer Supervisory Board Member Germany
(Aufsichtsrat)
Prof. Dr. Christoph Clemm Supervisory Board Member Germany
(Aufsichtsrat)
Dr. Michael Kasper Supervisory Board Member Germany
(Aufsichtsrat)
Brigitte Niems Supervisory Board Member Germany
(Aufsichtsrat)
Dr. Arend Oetker Supervisory Board Member Germany
(Aufsichtsrat)
Hans Schonhals Supervisory Board Member Germany
(Aufsichtsrat)
Dr. Gerhard Ziener Supervisory Board Member Germany
(Aufsichtsrat)
Peter Zuhlsdorff Supervisory Board Member Germany
(Aufsichtsrat)
Prof. Dr. Hans Joachim Executive Board Member Germany
Langmann (Geschaftsleitung)
</TABLE>
Page 10
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<TABLE>
<S> <C> <C>
Wolfgang Hohn Executive Board Member Germany
(Geschaftsleitung)
Edward R. Roberts Executive Board Member United
(Geschaftsleitung) Kingdom
Dr. Michael Romer Executive Board Member Germany
(Geschaftsleitung)
Prof. Dr. Bernhard Scheuble Executive Board Member Germany
(Geschaftsleitung)
Prof. Dr. Thomas Executive Board Member Germany
Schreckenbach (Geschaftsleitung)
Dr. Harald J. Schroder Executive Board Member Germany
(Geschaftsleitung)
Dr. Johannes Sombroek Executive Board Member Germany
(Geschaftsleitung)
Dr. Walter Bardorff Director (Direktor) Germany
Rolf Peter Deutsch Director (Direktor) Germany
Dr. Manfred Engelhardt Director (Direktor) Germany
Prof. Dr. Christian Flamig Director (Direktor) Germany
Walter Galinat Director (Direktor) Germany
Dr. Hartmut Hartner Director (Direktor) Germany
Dr. Ullrich Hanstein Director (Direktor) Germany
Dr. Ingeborg Lues Director (Direktor) Germany
Prof. Dr. Hans-Eckart Radunz Director (Direktor) Germany
Dr. Klaus Reckmann Director (Direktor) Germany
Prof. Dr. Erhard Schnurr Director (Direktor) Germany
Joachim Schebel Director (Direktor) Germany
Jurgen Schupp Director (Direktor) Germany
Gerardo Uflerbaumer Director (Direktor) Germany
Dr. Gregor Wehner Director (Direktor) Germany
Ernst-Jorg Zehelein Director (Direktor) Germany
Dr. Heinz-Jochen Zwirner Director (Direktor) Germany
Walter Zywoftek Director (Direktor) Germany
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
York Bernau Departmental Director Germany
(Abteilungsdirektor)
Dr. Klaus Bofinger Departmental Director Germany
(Abteilungsdirektor)
Rudolf Bracher Departmental Director Germany
(Abteilungsdirektor)
Klaus-Peter Brandis Departmental Director Germany
(Abteilungsdirektor)
Dr. Rolf Fohring Departmental Director Germany
(Abteilungsdirektor)
Dr. Jurgen Gehlhaus Departmental Director Germany
(Abteilungsdirektor)
Winfried Muller Departmental Director Germany
(Abteilungsdirektor)
Gerd Reinhardt Departmental Director Germany
(Abteilungsdirektor)
Friedrich Schmitt Departmental Director Germany
(Abteilungsdirektor)
Gerhard Weber Departmental Director Germany
(Abteilungsdirektor)
</TABLE>
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Exhibit Index
Exhibit Description Page No.
- ------- ----------- --------
1. Letter Agreement, dated March 25, 1998, among the
Issuer, KGaA and Clal.
2. Stock Purchase Agreement, dated March 25, 1998, by and
between Lipha and the Issuer.
3. Stock Option Agreement, dated June 30, 1998, between
the Issuer and KGaA.
4. Merck Services Agreement, dated as of June 30, 1998,
between the Issuer and KGaA.
5. Stock Option Agreement, dated June 30, 1998, between
the Issuer and Genpharm.
6. Genpharm Services Agreement, dated June 30, 1998,
between the Issuer and Genpharm.
7. Registration Rights Agreement, dated June 30, 1998
between the Issuer, Lipha, KGaA and Genpharm.
Page 13
EXHIBIT 1
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
One Ram Ridge
Spring Valley, New York 10977
CONFIDENTIAL
March 25, 1998
Clal Pharmaceutical Industries Ltd. Merck KGaA
Clal House Frankfurter Strasse 250
5, Druyanov Street 64271 Darmstadt Germany
Tel Aviv 63143
ISRAEL
Gentlemen:
This letter agreement sets forth our agreement regarding a possible
transaction involving the purchase of shares of common stock, par value $.01 per
share (the "Common Stock"), of Pharmaceutical Resources, Inc. (the "Company")
owned by Clal Pharmaceutical Industries Ltd. ("Clal"). The Company is in
confidential negotiations regarding a possible investment in the Company by
Merck KGaA or one of its affiliates (collectively, "Merck"). No agreement
between the Company and Merck has been reached. with respect to such transaction
(the "Merck Transaction").
In connection with the possible investment in the Company by Merck, the
Company, Merck and Clal agree as follows:
1. Concurrently with, and subject to, the closing (the "Closing") of the
transactions contemplated by a definitive stock purchase agreement presently
being discussed to be entered into between the Company and Merck regarding an
investment by Merck in the Company (the "Purchase Agreement"):
(a) Clal shall sell to Merck, and Merck shall purchase from Clal, 1,313,272
shares of Common Stock (the "Tranche A Shares"). The per share purchase
price for the Tranche A Shares, which shall be payable at the Closing,
shall be the greater of (i) $2.00 and (ii) the per share purchase price to
be paid by Merck to the Company for the shares of Common Stock to be
acquired by Merck at the Closing (such greater price being the "Merck
Purchase Price").
<PAGE>
(b) Clal shall sell to Merck, and Merck shall purchase from Clal, at the
Closing, 500,000 additional shares of Common Stock (the "Tranche B
Shares"). The per share purchase price for the Tranche B Shares, which
shall be payable at the Closing, shall be the Merck Purchase Price. On the
second anniversary of the Closing, Merck shall pay to Clal an amount in
respect of each Tranche B Share equal to the excess, if any, of (i) the
weighted average price of all trades in the shares of Common Stock on The
New York Stock Exchange ("Fair Market Value") during the thirty (30)
trading days immediately preceding the second anniversary of the date of
the Closing over (ii) the Merck Purchase Price.
(c) All payments to Clal pursuant to Paragraphs 1 and 2 hereof shall be by
wire transfer of immediately available funds or by certified or official
bank check.
(d) Merck hereby acknowledges that (i) all shares of Common Stock purchased
by Merck from Clal will be purchased for investment purposes only without a
view to the resale or distribution thereof and may not be resold or
transferred other than in compliance with all applicable securities laws
and (ii) in connection with such purchase, Clal is, subject to Paragraph
2(a) hereof, making no representations or warranties of any nature
whatsoever other than that Clal is conveying to Merck good and marketable
title to such shares which shall be duly authorized, validly issued, fully
paid and nonassessable, free and clear of any liens, claims or other
encumbrances, and that such conveyance will not conflict with any
agreement, law or obligation applicable to Clal.
2. (a) Subject to Paragraph 7 below, during the period commencing on the
Closing and ending three years and five U.S. business days thereafter (the
"Post-Closing Period"), Clal shall not, directly or indirectly, sell, assign,
pledge, transfer, create or purchase any option or warrant on or with respect
to, enter into any transaction shifting a substantial portion of the benefits
and burdens of ownership of, or otherwise dispose of (collectively, "Transfer"),
or enter into a contract or agreement (whether or not contingent) to Transfer,
any of the remaining shares of Common Stock beneficially owned by Clal (the
"Tranche C Shares"). Clal further represents and warrants that immediately
following the Closing, Clal will beneficially own 500,000 shares of Common
Stock, all of which shares are subject to the put and call options described in
Paragraphs 2(b)(i) and (ii) below. These 500,000 shares of Common Stock will
represent Clal's then entire remaining equity interest in the Company, including
the 186,000 shares of Common Stock delivered to Clal pursuant to the Third
Amendment to the Stock Purchase Agreement, dated July 28, 1997, between the
Company, Clal and PRI-Research, Inc., and Clal represents that it holds no
unexercised options, warrants or other rights with respect to any Common Stock
as of the date hereof.
(b)(i) During the five U.S. business day period commencing on the last day
of the Post-Closing Period, Clal shall have the right to cause Merck (or the
Company, if Merck and the Company shall agree) to purchase, and, if Clal so
elects, Merck and/or the Company shall purchase, the Tranche C Shares at a price
of $2.50 per share.
(ii) In the event that Clal shall not have exercised the right provided in
Paragraph 2(b)(i) hereof, Clal, Merck and/or the Company shall have the
right to exercise the option provided in this Paragraph 2(b)(ii), in each
case by providing written notice of such exercise to each of the other
parties hereto within five U.S. business days following the expiration of
the five U.S. business day period referred to in Paragraph 2(b) (i). Upon
the exercise of such option:
(A) Clal shall seek to sell any or all of the Tranche C Shares on The New
York Stock Exchange for a period of ninety trading days beginning on the
third trading day following exercise of the option; provided, however, that
Clal shall not effect any such sale without the prior consent of Merck and
the Company, and Clal shall use its best efforts to effect each sale which
Merck and the Company shall direct Clal to effect; and
(B) within five U.S. business days following the expiration of the 90
trading day period referred to above, Merck and/or the Company shall
purchase from Clal all of the Tranche C Shares not sold by Clal during such
90 trading day period (if any), and shall pay to Clal an amount equal to
the amount, if any, by which (I) the product of 500,000 multiplied by the
Fair Market Value during the 30 trading days immediately preceding the last
day of the Post-Closing Period exceeds (II) the aggregate proceeds realized
by Clal from sales of Tranche C Shares during the 90 trading day period
referred to herein.
3. All shares of Common Stock sold by Clal pursuant to this agreement shall be
duly authorized, validly issued, fully paid and nonassessable and shall be free
and clear from all liens, pledges, claims and other agreements, including
warrants, options and voting agreements.
4. Except as otherwise contemplated in Paragraph 1 hereof, and in addition to
the restrictions set forth in Paragraph 2(a) hereof, from the date hereof
through the occurrence of the first to occur of (i) the termination of this
agreement in accordance with Paragraph 7 hereof and (ii) the end of the
Post-Closing Period, neither Clal nor
<PAGE>
any person under Clal's control, shall (w) purchase or otherwise acquire
any additional shares of Common Stock, options, warrants or other securities of
the Company, (x) Transfer any shares of Common Stock beneficially owned,
directly or indirectly, by Clal, (y) enter into any agreement or arrangement
with any person or entity (other than the Company) concerning the voting,
holding or transferring of any shares of the Company, or initiate, propose or
participate in any transaction involving the Company or (z) recommend any person
to engage in the activities in (w), (x) or (y) above.
5. Effective upon the Closing: (i) the Stock Purchase Agreement, between the
Company and Clal, dated March 25, 1995, as amended (the "Clal Agreement"), shall
be terminated in its entirety with no further obligations, liabilities or rights
on the part of the parties thereunder, and (ii) the Registration Rights
Agreement, between the Company and Clal, dated May 1, 1995, shall be amended
hereby and shall provide that Clal shall not be entitled to exercise any of its
rights thereunder during the Post-Closing Period. Clal hereby agrees to,
notwithstanding any other agreement that it may have with the Company or others,
vote all shares of Common Stock which it owns (beneficially and/or of record) in
favor of the Merck Transaction (and all related matters) if such Transaction is
approved by the Company's Board of Directors. In the event of any conflict
between the terms of this agreement and the Clal Agreement, the terms of this
agreement shall govern.
6. The execution and delivery of this agreement and the consummation of the
transactions contemplated hereby shall in no way affect or modify the
obligations of (i) P.R.I. Research, Inc. ("PRI Research") under the Non-Recourse
Promissory Note, dated July 28, 1997, (ii) the Company, PRI Research, Clal,
C.T.P. Research and Development (1995) Ltd., Clal Pharmaceutical Resources
(1995) Ltd. or Clal Pharmaceutical Resources L.P. under the letter agreement,
dated July 28, 1997, with respect to the purchase of interests by PRI Research
in the joint venture of the Company and Clal and any and all documents executed
in connection therewith, or (iii) the transactions contemplated thereby.
7. Each of Clal, the Company and Merck shall have the right to terminate this
agreement without further obligation to any of the parties hereto (except for
Paragraphs 8, 9, 10 and 11 below) by written notice to the other parties hereto
(i) after March 27, 1998, unless a definitive Purchase Agreement with respect to
the Merck Transaction has theretofore been executed by each party thereto, (ii)
after July 15, 1998, unless the Closing has theretofore occurred and (iii) after
April 3, 1998, unless the board of directors of Merck has theretofore approved
the Purchase Agreement.
8. The Company, Merck and Clal agree to keep strictly confidential the contents
of this agreement, the fact that discussions between the Company and Merck have
occurred, the terms of such discussions and all of the other matters discussed
herein,
<PAGE>
until after such time as the Company has disclosed such matters under
applicable securities laws or the rules of the stock exchanges on which the
Common Stock is traded; provided, however, that, notwithstanding the foregoing,
Clal may disclose such matters at such time, and to such extent, as required
under applicable securities laws.
9. All notices hereunder shall be in writing and shall be given:
(a) if to the Company,
One Ram Ridge Road
Spring Valley, New York 10977
Attention: Kenneth I. Sawyer, President
Fax number: (914) 425-7922
with a copy to,
Hertzog, Calamari & Gleason
100 Park Avenue
New York, New York 10017
Attention: Stephen Ollendorff, Esq.
and Stephen R. Connoni, Esq.
Fax number: (212) 213-1199
(b) if to Merck,
Frankfurter Strasse 250
64271 Darmstadt Germany
Attention: Dr. Rudi Neirinckx
Fax number: (011 49) 6151 72 3435
with a copy to,
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036-7703
Attention: Edwin S. Matthews, Jr.
Fax number: (212) 626-4120
<PAGE>
(c) if to Clal,
Clal Pharmaceutical Industries Ltd.
Clal House
5 Druyanov Street
Tel Aviv 63143 Israel
Attention: Ken Lalo, General Counsel
Fax number: 011 972 3629 3633
With a copy to,
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: David P. Stone, Esq.
Fax number: (212) 310 - 8007
Any notice shall be deemed to have been given, if personally delivered or sent
by express commercial courier or delivery service or by telegram, telefax,
telefax or facsimile transmission. Any notice given in any other manner shall be
deemed given when actually received.
10. This agreement shall be governed in accordance with the laws of the State of
New York, without regard to its conflicts of laws principles. For the purpose of
this letter agreement, "U.S. Business Day" shall mean any day except Saturday,
Sunday and any other day on which commercial banks in New York City are
authorized by law to close.
11. This agreement shall not be amended or (subject to Paragraph 7 above)
terminated, and no provision hereof may be waived, except pursuant to a written
instrument executed by each of the parties hereto.
Sincerely,
PHARMACEUTICAL RESOURCES, INC.
By:
----------------------------
Name:
Title:
<PAGE>
ACCEPTED AND AGREED TO:
CLAL PHARMACEUTICAL INDUSTRIES LTD.
By:
-------------------------------
Name: Ken Lalo
Title: General Counsel
DATED: March 25, 1998
ACCEPTED AND AGREED TO:
MERCK KGaA
By:
-------------------------------
Name:
Title:
DATED: March 25, 1998
<PAGE>
EXHIBIT 2
STOCK PURCHASE AGREEMENT
BETWEEN
PHARMACEUTICAL RESOURCES, INC.
AND
LIPHA AMERICAS, INC.
DATED MARCH 25, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Closing Transactions............................................................................2
1.1 Purchase and Sale of Shares.....................................................................2
1.2 The Closing.....................................................................................2
1.3 Closing Deliveries..............................................................................2
SECTION 2. Representations and Warranties of the Company...................................................3
2.1 Organization....................................................................................3
2.2 Authorization...................................................................................3
2.3 Non-contravention...............................................................................4
2.4 Authorization of the Shares.....................................................................4
2.5 Capitalization..................................................................................4
2.6 Reports Under the Exchange Act..................................................................5
2.7 No Brokers or Finders...........................................................................5
2.8 Governmental Authorizations; Third-Party Consents...............................................5
2.9 Financial Statements............................................................................5
2.10 Absence of Material Adverse Effect..............................................................5
2.11 Subsidiaries; Other Equity Interests............................................................6
2.12 No Third-Party Options..........................................................................6
2.13 Employee Matters................................................................................6
2.14 Permits.........................................................................................8
2.15 Intellectual Property...........................................................................8
2.16 No Pending Litigation or Proceedings............................................................8
2.17 Insurance Coverage..............................................................................9
2.18 Compliance with Laws............................................................................9
2.19 Environmental Matters...........................................................................9
2.20 Tax Returns and Taxes..........................................................................10
2.21 Outstanding Registration Rights................................................................11
2.22 Certain Beneficial Owners......................................................................12
2.23 FDA Compliance.................................................................................12
2.24 Reliance.......................................................................................12
SECTION 3. Representations and Warranties of the Purchaser................................................13
3.1 Organization...................................................................................13
3.2 Authorization..................................................................................13
3.3 Non-contravention..............................................................................13
3.4 No Brokers or Finders..........................................................................13
3.5 Governmental Authorizations; Third-Party Consents..............................................13
3.6 Investment Representations.....................................................................14
SECTION 4. Conditions to the Company's Obligation........................................................14
4.1 Representations and Warranties.................................................................14
<PAGE>
4.2 Performance of Obligations.....................................................................15
4.3 Opinion of Counsel.............................................................................15
4.4 No Litigation or Legislation...................................................................15
4.5 Clal Sale of Shares............................................................................15
4.6 HSR Act........................................................................................15
4.7 Distribution Agreement in Effect...............................................................15
4.8 Shareholders' Approval.........................................................................15
4.9 Fairness Opinion...............................................................................15
4.10 Purchase Price and Other Closing Deliveries....................................................15
4.11 Consents and Waivers...........................................................................16
4.12 Services Agreements............................................................................16
4.13 Purchaser Board Approval.......................................................................16
SECTION 5. Conditions to the Purchaser's Obligation.......................................................16
5.1 Representations and Warranties................................................................16
5.2 Performance of Obligations.....................................................................16
5.3 Opinion of Counsel.............................................................................16
5.4 No Litigation or Legislation...................................................................16
5.5 HSR Act........................................................................................16
5.6 Board Resignations.............................................................................17
5.7 No Material Adverse Effect.....................................................................17
5.8 ISRA...........................................................................................17
5.9 Shareholders' Approval.........................................................................17
5.10 Closing Deliveries.............................................................................17
5.11 Distribution Agreement.........................................................................17
5.12 Services Agreements; Options...................................................................17
5.13 Board Approval.................................................................................17
5.14 Option Standstill Agreements...................................................................17
5.15 Section 7.10 Agreement.........................................................................17
5.16 Clal Share Purchase............................................................................18
SECTION 6. Covenants of the Parties.......................................................................18
6.1 Hart-Scott-Rodino Notification.................................................................18
6.2 Publicity......................................................................................18
6.3 Confidentiality................................................................................18
6.4 Further Assurances.............................................................................19
SECTION 7. Covenants of the Company.......................................................................19
7.1 Exchange Act Filings...........................................................................19
7.2 Proxy Statement; Meeting; Listing Applications.................................................19
7.3 Board Representation...........................................................................19
7.4 Environmental Matters..........................................................................21
<PAGE>
7.5 Conduct of Business Prior to Closing...........................................................21
7.6 Options, Warrants or Other Stock Rights........................................................22
7.7 Other Agreements...............................................................................22
7.8 Right of First Refusal.........................................................................22
7.9 Appointment of COO.............................................................................22
7.10 Agreement of the Chairman of the Company.......................................................22
7.11 Rights Agreement...............................................................................23
7.12 U.S. Real Property Holding Corporation.........................................................23
SECTION 8. Covenants of the Purchaser.....................................................................23
8.1 Company Designees..............................................................................23
8.2 No Modification................................................................................23
8.3 Other Agreements...............................................................................24
8.4 Related Party Transactions.....................................................................24
8.5 Business Combinations..........................................................................24
8.6 Executive Committee............................................................................24
SECTION 9. Transfer of Securities.........................................................................24
9.1 Transfer Restrictions..........................................................................24
9.2 Legends........................................................................................25
SECTION 10. Exchanges; Lost, Stolen or Mutilated Certificates..............................................25
SECTION 11. Survival of Representations, Warranties and Agreements.........................................25
SECTION 12. Indemnification................................................................................25
12.1 Indemnitors; Indemnified Persons...............................................................25
12.2 Company Indemnity..............................................................................26
12.3 Purchaser Indemnity............................................................................26
12.4 Defense........................................................................................27
12.5 Purchaser Claims...............................................................................27
12.6 Exclusive Remedy...............................................................................27
SECTION 13. Miscellaneous..................................................................................28
13.1 Expenses.......................................................................................28
13.2 Assignment; Binding Effect.....................................................................28
13.3 Entire Agreement...............................................................................28
13.4 Notices........................................................................................29
13.5 Amendments; Waiver.............................................................................29
13.6 Counterparts...................................................................................29
13.7 Headings.......................................................................................29
13.8 Governing Law..................................................................................29
<PAGE>
13.9 Severability...................................................................................29
13.10 Consent to Jurisdiction........................................................................30
13.11 Termination....................................................................................30
13.12 Injunctive Relief..............................................................................31
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT, dated March 25, 1998, between Pharmaceutical
Resources, Inc., a New Jersey corporation (the "Company"), whose principal
offices are located at One Ram Ridge Road, Spring Valley, New York 10977, and
Lipha Americas, Inc., a Delaware corporation (the "Purchaser"), whose principal
offices are located at 1209 Orange Street, Wilmington, Delaware 19801.
WHEREAS, the Company desires to issue and sell to the Purchaser, and
the Purchaser desires to purchase from the Company, 10,400,000 restricted shares
(the "Shares") of the Company's common stock, par value $.01 per share ("Common
Stock");
WHEREAS, concurrently with the execution and delivery of this
Agreement, Merck KGaA, an affiliate of the Purchaser ("Merck"), and Clal
Pharmaceutical Industries, Ltd. ("Clal") are entering into a stock purchase
agreement pursuant to which Merck (or its designees) will, subject to the terms
and conditions thereof, purchase from Clal certain shares of Common Stock
beneficially owned by Clal (the "Clal Stock Purchase Agreement"), the
consummation of which transaction shall occur at the time of the consummation of
the transactions contemplated by this Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement
and as an inducement to the Company to enter into this Agreement, the Company
and Genpharm, Inc. ("Genpharm"), an affiliate of the Purchaser, are entering
into a distribution agreement pursuant to which, and subject to the conditions
contained therein, the Company shall distribute certain products of Genpharm,
substantially in the form of Exhibit A hereto (the "Distribution Agreement");
WHEREAS, at the Closing (as defined in Section 1.2 hereof), the Company
and Genpharm and Merck shall enter into services agreements substantially in the
form of Exhibit B hereto (collectively, the "Services Agreements"; each
individually referred to herein as a "Services Agreement") pursuant to which
Merck and Genpharm shall render certain significant services to the Company, in
consideration of, among other things, the issuance by the Company to Merck and
Genpharm of certain five-year stock options exercisable commencing in the year
2001 to acquire up to an aggregate of 1,171,040 additional shares of Common
Stock (the "Option Shares"), substantially in the form of Exhibit C hereto
(collectively, the "Options"; each individually referred to herein as an
"Option");
WHEREAS, the Company has received a fairness opinion from Gruntal &
Co., L.L.C. ("Gruntal") to the effect that the Purchase Price (as defined in
Section 1.1 hereof) and the transactions contemplated by this Agreement, the
Distribution Agreement, the Services Agreements and the Options are, taken as a
whole, from a financial point of view, fair to the holders of Common Stock;
WHEREAS, the Company's Board of Directors has approved the execution
and performance of this Agreement, the Distribution Agreement, the Services
Agreements and the Options, and has determined that the transactions
contemplated hereby and thereby are in the best interests of the Company and its
shareholders; and
<PAGE>
WHEREAS, the Company and the Purchaser desire to set forth their mutual
agreements with respect to the sale and purchase of the Shares and as to the
other matters set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
SECTION 1. Closing Transactions.
1.1 Purchase and Sale of Shares. At the Closing, the Company shall sell
to the Purchaser, and the Purchaser shall, or shall cause its designee to,
purchase from the Company, upon the terms and subject to the conditions
hereinafter set forth, the Shares for an aggregate cash purchase price of
$20,800,000 (the "Purchase Price"), or $2.00 per Share.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hertzog, Calamari &
Gleason, 100 Park Avenue, 23rd Floor, New York, New York, at 10:00 A.M., on the
second business day following the date on which all of the conditions set forth
in Sections 4 and 5 hereof shall have been satisfied or, to the extent
permitted, waived, or at such other place, time and/or date as the parties may
agree (the "Closing Date"); provided, that the Closing Date shall not occur
before June 1, 1998.
1.3 Closing Deliveries. (a) At the Closing, the Company shall deliver
to the Purchaser, Merck and Genpharm, as applicable:
(i) a stock certificate or certificates representing the Shares,
registered in the name of the Purchaser or, subject to Section 13.2
hereof, its designee on the Company's books and containing no legends
other than as set forth in Section 9.2 hereof and as required under
the Rights Agreement (as defined in Section 7.11 hereof);
(ii) a registration rights agreement, duly executed by the
Company, substantially in the form of Exhibit D hereto (the
"Registration Rights Agreement");
(iii) the certificates of officers of the Company referred to in
Sections 5.1 and 5.2 hereof;
(iv) the agreements covering the Options, duly executed by the
Company;
(v) the opinion of counsel referred to in Section 5.3 hereof;
(vi) the Services Agreements, duly executed by the Company;
ii
<PAGE>
(vii) the agreement of the Chairman of the Company referred to in
Section 7.10 hereof; and
(viii) the agreement of Kenneth Sawyer referred to in Section
7.3(e) hereof.
(b) At the Closing, the Purchaser, Merck and Genpharm, as applicable,
shall deliver to the Company:
(i) the Purchase Price, in the form of a wire transfer of
immediately available funds to an account designated by the Company;
(ii) the Registration Rights Agreement, duly executed by the
Purchaser, Merck and Genpharm;
(iii) the certificates of officers of the Purchaser referred to
in Sections 4.1 and 4.2 hereof;
(iv) the opinion of counsel referred to in Section 4.3 hereof;
(v) the Services Agreements, duly executed by Merck or Genpharm,
as applicable;
(vi) the agreements covering the Options, duly executed by Merck
or Genpharm, as applicable; and
(vii) the agreement of the Purchaser (and its Affiliates)
referred to in Section 7.3(e) hereof.
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
2.1 Organization. Each of the Company, and any corporation with respect
to which the Company owns a majority of the common stock, or has the power to
vote or direct the voting of sufficient securities to elect a majority of the
directors, or has the power to control or direct the actions of such
corporation, all of which are set forth on Schedule 2.11 hereto (collectively,
the "Subsidiaries", each individually referred to herein as a "Subsidiary"), is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, as set forth on Schedule 2.11.
Each of the Company and its Subsidiaries has all necessary corporate power and
authority to own or lease its properties and to conduct its business as now
being conducted. Each of the Company and its Subsidiaries is
iii
<PAGE>
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the property owned, leased or operated by it, or
the nature of the business conducted by it, requires such qualification under
applicable law, except where the failure to be so qualified would not result in
a Material Adverse Effect (as defined in Section 2.10 hereof).
2.2 Authorization. The execution, delivery and, subject to obtaining
the approval (the "Shareholders' Approval") of the holders of (i) a majority of
the outstanding shares of Common Stock for the issuance of the Shares, the
delivery of the Options and the issuance of the Option Shares, (ii) a majority
of the outstanding shares of Common Stock for the amendment of the Company's
certificate of incorporation in order to increase the number of authorized
shares of Common Stock and (iii) a plurality of the shares of Common Stock voted
at a meeting for the election of the Nominees (as defined in Section 7.3 hereof)
(the preceding clauses (i), (ii) and (iii) to be individually referred to herein
as a "Proposal" and collectively as the "Proposals"), the performance by the
Company of this Agreement, the other agreements referred to herein and the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action by the Company. This Agreement constitutes, and each
other agreement referred to herein, upon due execution and delivery, will
constitute, the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law.
2.3 Non-contravention. Neither the execution, delivery or performance
of this Agreement and the other agreements referred to herein nor the
consummation of the transactions contemplated hereby or thereby will, subject to
obtaining the Shareholders' Approval, violate or be in conflict with any
provision of the certificate of incorporation or by-laws of any of the Company
and its Subsidiaries; subject to obtaining the Shareholders' Approval, and
except as set forth on Schedule 2.3 hereto, violate or be in conflict with any
material note, bond, lease, mortgage, indenture, license, contract, commitment,
franchise, permit, instrument or other material agreement or obligation to which
any of the Company and its Subsidiaries is a party or by which it is bound;
violate or be in conflict with any law, judgment, decree, order, regulation or
ordinance by which any of the Company and its Subsidiaries is bound or affected;
or result in the creation or imposition of any liens, charges, pledges or other
encumbrances ("Liens") in favor of any third party upon any property or assets
of the Company and its Subsidiaries.
2.4 Authorization of the Shares. Subject to obtaining the Shareholders'
Approval, all corporate action necessary for the issuance, sale and delivery of
the Shares has been taken by the Company and, when issued and delivered upon
payment in full of the Purchase Price, the Shares will be validly issued, fully
paid and nonassessable, free and clear of any and all Liens. Subject to
obtaining the Shareholders' Approval, the Option Shares will be validly
authorized
iv
<PAGE>
for issuance and, when and if issued upon payment in full of the exercise price
for the Option Shares in accordance with the terms of the Options, the Option
Shares will be validly issued, fully-paid and nonassessable, free and clear of
any and all Liens.
2.5 Capitalization. The authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock, of which no more than 18,923,000
shares are issued and outstanding as of the date hereof, and 6,000,000 shares of
preferred stock, par value $.0001 per share, of which no shares are issued and
outstanding as of the date hereof. The Company holds no treasury shares. All
outstanding shares of Common Stock have been duly and validly issued and are
fully-paid and nonassessable. There are no outstanding securities exchangeable
or convertible into, or options, warrants, or rights to subscribe for, or to
purchase, or commitments to issue, any unissued shares of capital stock of any
of the Company and its Subsidiaries, except as set forth on Schedule 2.5 hereto.
2.6 Reports Under the Exchange Act. Since October 1, 1994, except as
set forth on Schedule 2.6 hereto, the Company has filed with the Securities and
Exchange Commission (the "SEC") in timely fashion all reports required to be
filed by the Company pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (as such reports may have been amended or supplemented, the
"SEC Reports"). The Common Stock is registered under Section 12(b) of the
Exchange Act. As of their respective filing dates with the SEC, the SEC Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances in which they were made,
not misleading.
2.7 No Brokers or Finders. No person, firm or corporation has or will
have, as a result of any act or omission by any of the Company and its
Subsidiaries, any right, interest or valid claim against the Purchaser or any of
the Company and its Subsidiaries for any commission, fee or other compensation
as a finder or broker, or in any similar capacity, other than with respect to
the opinion referred to in Section 4.9 hereof (the costs of which will be borne
by the Company), in connection with the transactions contemplated by this
Agreement.
2.8 Governmental Authorizations; Third-Party Consents. No approval,
consent, authorization or other action by, or notice to or filing with, any
governmental authority or any other person or entity, and no lapse of a waiting
period, is necessary or required in connection with the execution, delivery or
performance by the Company of this Agreement, the other agreements referred to
herein or the transactions contemplated hereby or thereby, except for (i) such
filings or approvals required pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations promulgated thereunder
(the "HSR Act"), (ii) such filings or approvals as may be required to be
obtained in connection with the manufacture and sale of products pursuant to the
Distribution Agreement, (iii) the Shareholders' Approval of the
v
<PAGE>
Proposals by the requisite votes, (iv) such filings or approvals required to
list the Shares and the Option Shares on the New York Stock Exchange and the
Pacific Stock Exchange and (v) the matters set forth on Schedule 2.8 hereto.
2.9 Financial Statements. The audited financial statements of the
Company included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 (the "Audited Statements") and the unaudited financial
statements of the Company included in the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 1997 (the "Unaudited Statements")
complied as to form with the requirements of the Exchange Act and except as
disclosed therein or in the footnotes thereto and, except for the absence of
notes and subject to year-end adjustments in the case of the Unaudited
Statements, were prepared in accordance with United States generally accepted
accounting principles. The Audited Statements and the Unaudited Statements
fairly present, in all material respects, the consolidated financial condition
and the consolidated results of operations of the Company as of the dates and
for the periods indicated therein.
2.10 Absence of Material Adverse Effect. Except as disclosed in the SEC
Reports, since January 1, 1998, the business of the Company and its Subsidiaries
has been operated in the ordinary course and substantially consistent with past
practice. Since January 1, 1998, there has been no event or circumstance
resulting in a material adverse effect on the properties, business and assets,
liabilities, condition (financial or otherwise) or operations of the Company and
its Subsidiaries, considered as a whole (a "Material Adverse Effect"). There has
been no event or circumstance, since January 1, 1998, which would materially
adversely affect the ability of the Company to perform its obligations under
this Agreement, or any of the other agreements to be entered into in connection
with this Agreement, or to consummate the transactions contemplated hereby and
thereby.
2.11 Subsidiaries; Other Equity Interests. Each Subsidiary of the
Company and each other person in which the Company or any of its Subsidiaries
has an equity interest is set forth on Schedule 2.11 hereto. Each Subsidiary is
wholly (100%) owned by the Company. The authorized, issued and outstanding
shares of the capital stock of each Subsidiary, and the record and beneficial
ownership of the outstanding shares thereof, is as set forth on Schedule 2.11.
There are no agreements or arrangements to which any Subsidiary is a party or by
which it is bound for the redemption, repurchase or issuance of, and there are
no options, warrants, puts, calls or other rights to subscribe for or purchase,
shares of such Subsidiary's capital stock.
2.12 No Third-Party Options. Except as contemplated hereby, as set
forth on Schedule 2.12 hereto, or as disclosed in the SEC Reports, there are no
existing agreements, contracts, commitments, options, warrants or rights with,
of or to any person which are binding on the Company or its Subsidiaries to
acquire any of the Company's and its Subsidiaries' assets,
vi
<PAGE>
properties, or rights or any interest therein (whether real, personal or mixed,
tangible or intangible, wherever located and whether in the possession of the
Company and its Subsidiaries or any other person), except for those entered into
in the ordinary course of business consistent with past practice for the sale of
inventory and/or which could not reasonably be expected to result in a Material
Adverse Effect.
2.13 Employee Matters.
(a) The Company has delivered to the Purchaser a list of its
and its Subsidiaries' current employees (the "Employees"). This list, attached
hereto as Schedule 2.13(a), sets forth the current compensation, commissions or
hourly rate of pay, date of birth, date and location of employment and job title
for each Employee. Schedule 2.13(a) lists all agreements between the Company and
its Subsidiaries and any Employee(s) with respect to the employment of any
Employee(s). Except as set forth on Schedule 2.13(a), there are no outstanding
loans with outstanding principal amounts in excess of $50,000 from the Company
or any of its Subsidiaries to any Employees. Except as set forth on Schedule
2.13(a), no Employee is on disability or other leave of absence and the Company
is not aware of the intent of any officer, executive employee or head of a
department of any of the Company and its Subsidiaries to terminate his/her
employment.
(b) Schedule 2.13(b) hereto lists each "employee benefit
plan", as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), whether or not covered by ERISA, that any of the
Company and its Subsidiaries sponsors or has sponsored to which the Company or
any of its Subsidiaries is or has been in the past three years required to make
contributions, including without limitation any pension, profit-sharing,
retirement or deferred compensation plan, each other benefit plan, policy,
arrangement or practice, whether covering one or more employees, which provides
deferred compensation, bonus, stock purchase, stock option, vacation, severance,
disability, hospitalization, medical insurance or life insurance payments or
benefits and any other material employee benefit plans, agreements, arrangements
or understandings maintained for the benefit of the Employees or former
employees of any of the Company and its Subsidiaries ("Former Employees")
(collectively, together with any related trusts, the "Employee Benefit Plans").
Except as set forth on Schedule 2.13(b), no Employee Benefit Plan constitutes a
multi-employer plan (as defined under Section 400(a)(3) of ERISA). Except as set
forth on Schedule 2.13(b), all participants in the Employee Benefit Plans are
Employees or Former Employees (or their dependents or beneficiaries). The
Company has previously delivered or made available to the Purchaser true and
complete copies of all documents or instruments establishing or constituting
each such Employee Benefit Plan and all summary plan descriptions or other
descriptive materials relating thereto distributed by the Company and its
Subsidiaries to Employees. Except as set forth on Schedule 2.13(b), all Employee
Benefit Plans are currently in compliance with
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all applicable funding requirements under law. Schedule 2.13(b) also sets forth
a list of those Former Employees (or their dependents or beneficiaries) who are
receiving continuation coverage under the Company's or any of its Subsidiaries'
medical plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the dates upon which those individuals commenced receiving
such continuation coverage. Except as set forth on Schedule 2.13(b), none of the
Company, its Subsidiaries or the Purchaser will incur any liability under any
Employee Benefit Plan or agreement with an Employee solely as a result of the
transactions contemplated by this Agreement.
(c) Except as set forth on Schedule 2.13 (c) hereto, (i) each
Employee Benefit Plan which is an "employee pension benefit plan", as defined in
Section 3(2) of ERISA, meets the requirements of Section 401(a) of the Code and
any related trust is exempt from U.S. federal income tax under Section 501(a) of
the Code and (ii) the Company and its Subsidiaries are in compliance in all
material respects with the terms of such Employee Benefit Plans and with the
requirements of the Internal Revenue Code of 1986, as amended (the "Code"), and
ERISA in respect thereto. None of the Company or its Subsidiaries has any
obligation under any Employee Benefit Plan or otherwise to provide
post-retirement health benefits (exclusive of obligations under COBRA) with
respect to any of the Employees or Former Employees.
(d) The Employees are not and have not in the past three years
been covered by any labor or collective bargaining agreement. No strike, work
stoppage, picketing, slowdown, lockout or material labor dispute involving the
Company's or its Subsidiaries' operations has occurred during the past three
years or, to the Company's knowledge, is threatened. To the Company's knowledge,
no attempt at the organization of a union involving the Company or its
Subsidiaries has occurred during the past three years or is threatened.
(e) None of the Company or its Subsidiaries has incurred any
material liability under, and has complied in all material respects with, the
Worker Adjustment Retraining and Notification Act and the regulations
promulgated thereunder and any similar state laws and does not reasonably expect
to incur any such liability as a result of actions taken or not taken prior to
the date hereof.
(f) Except as set forth on Schedule 2.13(f) hereto or as
disclosed in the SEC Reports, the Company and its Subsidiaries have complied in
all material respects with all applicable laws, rules, regulations and executive
orders governing the terms and conditions of employment, discriminatory
practices with respect to employment, hiring and discharge, the employment of
aliens, the payment of minimum wages and overtime, workplace health and safety
or otherwise relating to the conduct of employers with respect to employees and
potential employees, and except as set forth on Schedule 2.13, there have been
no claims made or, to the
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Company's knowledge, threatened against the Company or its Subsidiaries arising
out of, relating to or alleging any material violation of the foregoing.
2.14 Permits. The Company and its Subsidiaries have all licenses,
permits, orders, certificates, authorizations, consents and approvals of all
governmental and regulatory authorities and bodies, whether federal, state or
local, domestic or foreign, which are necessary for the operation of its
business as currently conducted ("Permits"), except for the failure to have such
Permits that could not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect. Except as could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect,
the Permits are in full force and effect and no suspension or cancellation of
any of them is pending or, to the Company's knowledge, threatened.
2.15 Intellectual Property. Schedule 2.15 hereto sets forth all of the
patents, registered copyrights and registered trademarks of the Company and its
Subsidiaries , all of which are owned by the Company or its Subsidiaries free
and clear of any Liens. None of the Company or its Subsidiaries has infringed
upon or unlawfully used, in any material respect, any patent, trademark, service
mark, tradename, copyright, or trade secret ("Intellectual Property") owned by
another person. None of the Company or its Subsidiaries has received any written
notice of any claim of infringement or other material claim relating to any of
its Intellectual Property. No shareholder of the Company or its Subsidiaries or
member of any such shareholder's family or any entity controlled by them, or any
Employee or Former Employee owns or has any proprietary, financial or other
material interest, directly or indirectly, in any Intellectual Property which
the Company or its Subsidiaries owns, possesses or materially uses in its
operations. Schedule 2.15 sets forth all confidentiality or non-disclosure
agreements to which either the Company or its Subsidiaries or any of its
Employees or Former Employees is a party and which relate to the Company's or
its Subsidiaries' business and were executed in the past seven years.
2.16 No Pending Litigation or Proceedings. Except as set forth on
Schedule 2.16 hereto or as disclosed in the SEC Reports, there are no material
actions, suits, proceedings (including arbitral proceedings) or investigations
pending or, to the Company's knowledge, threatened against the Company or its
Subsidiaries or directly relating to or otherwise directly affecting the
business, assets or properties of the Company and its Subsidiaries. Except as
set forth on Schedule 2.16 or as disclosed in the SEC Reports, there is no
outstanding judgment, writ, injunction, decree, award or order of any court or
any governmental or regulatory authority or body against or directly affecting
the business, assets or properties of the Company and its Subsidiaries.
2.17 Insurance Coverage. Each of the Company and its Subsidiaries has
during the past three years maintained liability, casualty, property loss and
other insurance policies with
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respect to the conduct of its business in such amounts, of such kinds and with
such insurance carriers as the Company and it Subsidiaries, as applicable, has
deemed appropriate and sufficient for companies of a similar size engaged in
similar types of businesses and operations. Schedule 2.17 hereto sets forth a
summary description of each such insurance policy, listing for each policy the
risks insured against, coverage limits, any deductible amounts, any pending
claims thereunder and the term of each such policy. Each such policy is in full
force and effect, and no written notice of cancellation has been received with
respect to any such policy, nor will the consummation of the transactions
contemplated by this Agreement cause the cancellation of, or the right to
cancel, any such policy pursuant to the terms of such policy. The Company and
its Subsidiaries have filed all notices or reports required under such policies,
except such filings the failure of which to make could not reasonably be
expected to result in a Material Adverse Effect.
2.18 Compliance with Laws. Except as set forth on Schedule 2.18 hereto
or as disclosed in the SEC Reports, each of the Company's and its Subsidiaries'
business and operations are being conducted in compliance with all applicable
laws, statutes, rules, regulations, ordinances, codes, orders, franchises and
Permits of all governmental entities, including without limitation, those
relating to occupational safety and health and equal employment practices,
except for such instances of noncompliance that could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect. No
notice, citation, summons or order has been assessed and no investigation or
review is pending or, to the Company's knowledge, threatened by any governmental
or other entity with respect to any alleged material violation by any of the
Company and its Subsidiaries of any of the foregoing.
2.19 Environmental Matters. Except as set forth on Schedule 2.19 hereto
or as disclosed in the SEC Reports, and except for such matters that could not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect, (a) there are no investigations, inquiries or other proceedings
pending or, to the Company's knowledge, threatened with regard to the current or
prior conduct of the business and operations of the Company and its
Subsidiaries, or relating to (x) any properties owned or previously owned by the
Company and its Subsidiaries, (y) any properties at which any of the Company and
its Subsidiaries has conducted operations or (z) any sites at which any of the
Company and its Subsidiaries has disposed of, or arranged for the disposal of,
waste materials, and arising out of or relating to any actual or alleged failure
to comply with any requirement of any law, statute, rule, regulation, code or
ordinance relating to air or water quality, waste management, hazardous or toxic
substances, or the protection of health or the environment ("Environmental
Laws"); (b) the Company and its Subsidiaries are in compliance with the
requirements of all Environmental Laws in connection with its business,
operations and otherwise; and (c) none of the properties or sites referred to in
clauses (x), (y) or (z) above is contaminated with any hazardous waste or
substance as a result of any act or omission of the Company and any of its
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Subsidiaries, or, to the Company's knowledge, any agent, servant or bailee of
the Company and any of its Subsidiaries, to a degree that poses a risk to health
or the environment or could impose a liability on the Company. With regard to
compliance with Environmental Laws, the representations and warranties set forth
in this Section 2.19 shall supersede the provisions of Section 2.18 hereof.
2.20 Tax Returns and Taxes.
(a) The Company and its Subsidiaries have filed all Tax
Returns (as hereinafter defined) required to be filed by it. Except with respect
to any contested liability for Taxes (as hereinafter defined), as set forth on
Schedule 2.20 hereto, all such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Company and any of its Subsidiaries
(whether or not shown on any Tax Return) have been paid except for (i) Taxes
accrued but not yet payable, (ii) Taxes which are being contested in good faith,
and (iii) Taxes, the non-payment of which could not reasonably be expected to
result in a Material Adverse Effect. Except as set forth on Schedule 2.20, none
of the Company and its Subsidiaries has received any notice of assessment of
additional Taxes that is currently pending. Except as set forth on Schedule
2.20, none of the Company and its Subsidiaries has waived any statute of
limitations in respect of Taxes or executed or filed with any Tax authority any
agreement or document extending the period of assessment of any Taxes, and the
Company and its Subsidiaries are not currently the beneficiary of any extension
of time within which to file any Tax Return. Except as set forth on Schedule
2.20, there are no claims, examinations, audits, proceedings or proposed
deficiencies for or in respect of Taxes pending or, to the Company's knowledge,
threatened against the Company or its Subsidiaries. No claim has been made in
writing to the Company or its Subsidiaries in the past three years by an
authority in a jurisdiction where the Company and its Subsidiaries do not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. There
are no recorded Tax Liens on any of the assets of the Company and its
Subsidiaries, nor are there any security interests on any of the assets of the
Company and its Subsidiaries that arose in connection with any failure (or
alleged failure) of the Company or any of its Subsidiaries to pay any Tax (other
than Liens and security interests for Taxes not yet due and payable or for Taxes
that the Company (or any of its Subsidiaries, as applicable) is contesting in
good faith).
(b) The Company (and each of its Subsidiaries, as applicable)
has withheld and paid all Taxes required by applicable law to have been withheld
and paid in connection with amounts paid or owing to any Employee or Former
Employee, independent contractor, creditor, stockholder or other third party,
except where the failure to do so could not reasonably be expected to result in
a Material Adverse Effect.
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(c) Except as set forth on Schedule 2.20, there is no dispute
or claim concerning any Tax liability of the Company (or any of its
Subsidiaries, as applicable) either (i) claimed or raised by any governmental
authority in writing or (ii) as to which the Company or any of its executive
officers (or employees principally responsible for Tax matters) has knowledge
based upon personal contact with any agent of such authority. Schedule 2.20
lists those federal, state, local, and foreign income Tax Returns filed with
respect to the Company (or any of its Subsidiaries, as applicable) that have
been audited in the past three years, and indicates those Tax Returns that
currently are the subject of audit.
(d) The Company (or any of its Subsidiaries, as applicable)
has not filed a consent under Section 341(f) of the Code concerning collapsible
corporations. Except as set forth on Schedule 2.20(f) hereto, the Company (or
any of its Subsidiaries, as applicable) has not made any payments, nor is it
obligated to make any payments, nor is it a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code. The Company has disclosed on its
federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Section
6662 of the Code. The Company (or any of its Subsidiaries, as applicable) is not
a party to any Tax allocation or sharing agreement. The Company has not been a
member of an Affiliated Group filing a consolidated federal income tax return
(other than a group the common parent of which is the Company).
(e) The Company (or any of its Subsidiaries, as applicable)
does not have (i) income reportable for a period ending after the Closing Date
but attributable to a transaction (e.g., an installment sale) occurring in or a
change in accounting method made for a period ending on or prior to the Closing
Date which resulted in a deferred reporting of income from such transaction or
from such change in accounting method (other than a deferred intercompany
transaction); or (ii) deferred gain or loss arising out of any deferred
intercompany transaction. No "ownership change" (within the meaning of Section
382(g) of the Code) has, to the Company's knowledge, occurred prior to the date
hereof which currently limits the Company's ability to utilize any net operating
loss carryovers under Section 382 of the Code.
For purposes of this Agreement, "Tax" or "Taxes" means any
federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, deficiency
or addition thereto, whether disputed or not, and "Tax Return" means any return,
declaration, report, claim for refund, or information return or
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statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
2.21 Outstanding Registration Rights. Except as set forth on Schedule
2.21 hereto or as disclosed in the SEC Reports, the Company has not in the past
three years granted (or incurred any obligations or commitments to grant) to any
holder or holders of any capital stock (or rights to acquire any capital stock)
of the Company (i) any rights to request or demand registration of, or the
filing of an offering circular with respect to, outstanding shares of capital
stock of the Company under any securities laws or rules, (ii) any rights to
include any outstanding shares of capital stock of the Company in any
registration or filing effected by the Company pursuant to any securities laws
or rules, or (iii) any rights to require the Company to take action under any
securities laws or rules in order to permit or otherwise facilitate disposition
of any outstanding shares of the Company's capital stock.
2.22 Certain Beneficial Owners.
(a) Schedule 2.22(a) hereto sets forth an analysis prepared
by the Company's auditors stating the stock ownership of 5-percent shareholders
(as such term is defined in Section 382 of the Code) in the Company as of the
dates indicated therein. To the Company's knowledge, such Schedule correctly
sets forth in all material respects the stock ownership of such shareholders and
the changes in such stock ownership as of each fiscal year-end indicated
therein.
(b) Schedule 2.22(b) lists all options, warrants, or other
stock rights issued by the Company and outstanding as of the date hereof to any
person, whether or not a 5-Percent Shareholder, that have not yet been exercised
as of the date hereof, together with the exercise dates, exercise prices, any
consideration paid therefor and expiration dates.
2.23 FDA Compliance. The products manufactured, sold, distributed or
supplied by each of the Company and its Subsidiaries, as applicable, are not
adulterated or misbranded within the meaning of the United States Federal Food,
Drug and Cosmetic Act, as amended ("USFFDCA"), and comply with any monograph or
other requirements of the United States Food and Drug Administration ("FDA")
applicable to the products or their manufacture, except for instances of
noncompliance that could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. Such products have been and
continue to be manufactured in compliance with all applicable statutes,
ordinances and regulations, including but not limited to, the USFFDCA and the
regulations thereunder, including the current Good Manufacturing Practices which
have been adopted by the FDA, except for instances of noncompliance that could
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. Current Good Manufacturing Practice means current good
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manufacturing practice regulations established in 21 C.F.R. Parts 210 and 211,
as amended and in effect from time to time, and other applicable FDA policies
relating thereto. Except as set forth on Schedule 2.23 hereto or as disclosed in
the SEC Reports, none of the Company and its Subsidiaries has in the past three
years received any notice or summons in respect of a material violation or
alleged material violation of any statute or regulation from the FDA or other
similar authorities.
2.24 Reliance. The representations, warranties, covenants and
agreements of the Company contained herein and in the certificates and schedules
required to be delivered in accordance with the terms of this Agreement shall,
subject to Section 11 hereof, survive any investigation made by the Purchaser
and are made by the Company with the expectation that the Purchaser is relying
thereon in entering this Agreement and the same shall not be deemed waived by
any investigation conducted by the Purchaser or its employees, advisors,
consultants or representatives, whether before or after the consummation of the
transactions contemplated hereby.
SECTION 3. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows:
3.1 Organization. The Purchaser is a corporation duly organized and
validly existing and in good standing under the laws of Delaware and is a
wholly-owned subsidiary of Merck. The Purchaser has all necessary corporate
power and authority to own or lease its properties and to conduct its business
as now being conducted.
3.2 Authorization. The execution, delivery and performance by the
Purchaser of this Agreement, the other agreements referred to herein and the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action by the Purchaser and, in the case of the Distribution
Agreement and the Services Agreement to which it is a party, by Merck and
Genpharm, as the case may be. This Agreement constitutes, and each of the other
agreements referred to herein, upon execution and delivery, will constitute, a
valid and binding obligation of the Purchaser and, in the case of the
Distribution Agreement and the Services Agreement to which it is a party, of
Merck and Genpharm, enforceable against the Purchaser, Merck or Genpharm, as the
case may be, in accordance with its terms, except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law.
3.3 Non-contravention. Neither the execution, delivery and performance
of this Agreement and the other agreements referred to herein nor the
consummation of the transactions
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contemplated hereby or thereby will violate or be in conflict with any provision
of the articles of organization of the Purchaser or, in the case of the
Distribution Agreement and the Services Agreement to which it is a party, of
Merck or Genpharm, as the case may be; violate or be in conflict with any
material note, bond, lease, mortgage, indenture, license, contract, commitment,
franchise, permit, instrument or other material agreement or obligation to which
the Purchaser, Merck or Genpharm is a party or by which either of them is bound;
violate or be in conflict with any law, judgment, decree, order, regulation or
ordinance by which the Purchaser, Merck or Genpharm is bound or affected; or
result in the creation or imposition of any Liens in favor of any third party
upon any property or assets of the Purchaser, Merck or Genpharm.
3.4 No Brokers or Finders. No person, firm or corporation has or will
have, as a result of any act or omission by the Purchaser, Merck or Genpharm,
any right, interest or valid claim against the Company for any commission, fee
or other compensation as a finder or broker, or in any similar capacity, in
connection with the transactions contemplated by this Agreement.
3.5 Governmental Authorizations; Third-Party Consents. No approval,
consent, authorization or other action by, or notice to or filing with, any
governmental authority or any other person or entity, and no lapse of a waiting
period, is necessary or required in connection with the execution, delivery or
performance by the Purchaser or, in the case of the Distribution Agreement and
the Services Agreement to which it is a party, by Merck or Genpharm, as the case
may be, of this Agreement, the other agreements referred to herein or the
transactions contemplated hereby or thereby, except for such filings or
approvals (a) required pursuant to the HSR Act and (b) as may be required (by
the FDA or other governmental authorities) to be obtained in connection with the
Distribution Agreement.
3.6 Investment Representations. (a) The Purchaser and its Affiliates
(as defined in Rule 405 of the Securities Act of 1933, as amended (the
"Securities Act")) are acquiring the Shares and the Options and, upon exercise
of the Options, will be acquiring the Option Shares solely for their own
accounts and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act. Each of the
Purchaser, Merck and Genpharm is an "accredited investor" (as defined in Rule
501(a) of Regulation D promulgated under the Securities Act).
(b) The Purchaser, on behalf of itself and its Affiliates, understands
that (i) the Shares and the Option have not been registered, and the Option
Shares, when issued, will not be registered under the Securities Act or any
applicable state securities laws, by reason of their issuance by the Company in
a transaction exempt from the registration requirements of the Securities Act
and applicable state securities laws and (ii) the Shares, the Options and the
Option Shares must be held by the Purchaser (or Merck or Genpharm, as
applicable) indefinitely unless
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a subsequent disposition thereof is registered under the Securities Act and
applicable state securities laws or is exempt from such registrations.
(c) The Purchaser, on behalf of itself and its Affiliates, acknowledges
that no representations or warranties have been made or furnished to, or relied
on by, the Purchaser or any of its representatives in connection with its
purchase of the Shares except as expressly provided herein. The Purchaser has
such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of this investment.
(d) The Purchaser, on behalf of itself and its Affiliates, acknowledges
that, following its acquisition of the Shares, the Purchaser will be an
Affiliate of the Company and will be subject to all requirements and
restrictions applicable to Affiliates under the Securities Act and the Exchange
Act (including the rules and regulations promulgated thereunder).
SECTION 4. Conditions to the Company's Obligation.
The obligation of the Company to consummate the transactions
contemplated hereby shall be subject to the satisfaction or waiver (other than
in respect of Sections 4.4, 4.6 and 4.8 hereof) by the Company, at or prior to
the Closing, of all the following conditions:
4.1 Representations and Warranties. The representations and warranties
of the Purchaser set forth in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
(with the same effect as though such representations and warranties had been
made on and as of such Closing Date), and officers of the Purchaser shall have
certified to such effect to the Company in writing.
4.2 Performance of Obligations. The Purchaser shall have performed,
satisfied and complied with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by it on or before
the Closing Date, and officers of the Purchaser shall have certified to such
effect to the Company in writing.
4.3 Opinion of Counsel. The Company shall have received from Coudert
Brothers, counsel for the Purchaser, an opinion addressed to the Company, dated
the Closing Date, in form and substance reasonably satisfactory to the Company,
it being understood that Coudert Brothers may rely upon the opinion of
Klaus-Peter Brandis, Head of the Legal Department of Merck, for all matters of
German law, if applicable.
4.4 No Litigation or Legislation. No federal, state, local or foreign
statute, rule or regulation shall have been enacted after the date hereof, and
no litigation, proceeding, governmental inquiry or investigation shall be
pending, which prohibits or seeks to prohibit or
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materially restricts the consummation of the transactions contemplated by this
Agreement or the other agreements provided for herein.
4.5 Clal Sale of Shares. Merck (or its designee) shall have purchased
those certain shares of Common Stock beneficially owned by Clal in accordance
with the terms of the Clal Stock Purchase Agreement, and all agreements between
Clal and the Company relating to or arising out of Clal's acquisitions of Common
Stock shall be terminated by the parties thereto and be of no further force and
effect.
4.6 HSR Act. All applicable waiting periods under the HSR Act shall
have expired or been terminated with respect to the transactions contemplated by
this Agreement.
4.7 Distribution Agreement in Effect. The Distribution Agreement shall
be in full force and effect and there shall exist no facts or circumstances
which, with the giving of notice or the passage of time or both, would
constitute a material default thereunder by Genpharm.
4.8 Shareholders' Approval. The Shareholders' Approval of each of the
Proposals shall have been obtained and all of the Nominees (as defined in
Section 7.3 hereof) shall have been elected.
4.9 Fairness Opinion. The fairness opinion of Gruntal, the Company's
financial advisor, rendered with regard to this Agreement and the other
agreements to be entered into in connection herewith and the transactions
contemplated hereby and thereby shall have been reconfirmed by Gruntal as of the
date of mailing to the Company's shareholders of the definitive proxy statement
(the "Proxy Statement") in respect of the Company's meeting of its shareholders
to be held in connection with the Proposals (the "Meeting").
4.10 Purchase Price and Other Closing Deliveries. The Purchaser shall
have paid the Purchase Price and delivered, or cause to be delivered, the
agreements, instruments and certificates specified in Section 1.3(b) hereof.
4.11 Consents and Waivers. The Company shall have obtained all material
consents and waivers necessary or appropriate for its consummation of the
transactions contemplated by this Agreement, as specified in Section 2.8 hereof
and Schedule 2.8 hereto, and the other agreements referred to herein after using
its reasonable best efforts to obtain them.
4.12 Services Agreements. Merck and Genpharm shall have duly executed
and delivered to the Company the Services Agreements.
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4.13 Purchaser Board Approval. The Board of Directors of Merck shall
have approved this Agreement and the transactions contemplated hereby prior to
April 3, 1998.
SECTION 5. Conditions to the Purchaser's Obligation.
The obligation of the Purchaser to consummate the transactions
contemplated hereby shall be subject to the satisfaction or waiver (other than
in respect of Sections 5.4, 5.5 and 5.9 hereof) by the Purchaser, at or prior to
the Closing, of all the following conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
(with the same effect as though such representations and warranties had been
made on and as of such Closing Date), and officers of the Company shall have
certified to such effect to the Purchaser in writing.
5.2 Performance of Obligations. The Company shall have performed,
satisfied and complied with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by it on or before
the Closing Date, and officers of the Company shall have certified to such
effect to the Purchaser in writing.
5.3 Opinion of Counsel. The Purchaser shall have received from Hertzog,
Calamari & Gleason, counsel for the Company, an opinion addressed to the
Purchaser, dated the Closing Date, in form and substance reasonably satisfactory
to the Purchaser.
5.4 No Litigation or Legislation. No federal, state, local or foreign
statute, rule or regulation shall have been enacted after the date hereof, and
no litigation, proceeding, governmental inquiry or investigation shall be
pending, which prohibits or seeks to prohibit or materially restricts the
consummation of the transactions contemplated by this Agreement or the other
agreements provided for herein, or materially restricts or impairs the ability
of the Purchaser to own an equity interest in the Company.
5.5 HSR Act. All applicable waiting periods under the HSR Act shall
have expired or been terminated with respect to the transactions contemplated by
this Agreement.
5.6 Board Resignations. The Purchaser shall have received the
resignations of the current members of the Board of Directors of the Company,
subject to their re-election in accordance with Section 7.3 hereof.
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5.7 No Material Adverse Effect. Since the date hereof, there shall not
have occurred a condition or event constituting a Material Adverse Effect (other
than in respect of the matter set forth on Schedule 2.10 hereto).
5.8 ISRA. The Company shall have delivered to the Purchaser evidence of
the Company's having obtained an ISRA Clearance (as defined in Section 7.4
hereof).
5.9 Shareholders' Approval. The Shareholders' Approval of each of the
Proposals shall have been obtained and all of the Nominees shall have been
elected.
5.10 Closing Deliveries. The Company shall have delivered the Shares,
the Options and the agreements, instruments and certificates specified in
Section 1.3(a) hereof.
5.11 Distribution Agreement. There shall exist no facts or
circumstances which, with the giving of notice or the passage of time or both,
would constitute a material default by the Company under the Distribution
Agreement.
5.12 Services Agreements; Options. The Company shall have duly executed
and delivered to Merck and Genpharm the Services Agreements and the Options.
5.13 Board Approval. The Board of Directors of Merck shall have
approved this Agreement and the transactions contemplated hereby prior to April
3, 1998.
5.14 Option Standstill Agreements. At least fifteen (15) days prior to
Closing, the Company shall have duly executed and delivered to the Purchaser
agreements in writing, in form reasonably satisfactory to the Purchaser, from
(i) the four persons listed on Schedule 5.14(a) hereto that, notwithstanding the
terms of any stock option plan or any option heretofore granted, not to exercise
or seek to exercise such options until three (3) years and ten (10) U.S.
business days from the Closing Date and (ii) substantially all other persons who
then hold unexercised options, warrants or other stock rights to purchase Common
Stock, other than those persons set forth on Schedule 5.14(b) hereto, not,
notwithstanding the terms of any stock option plan or any option theretofore
granted, to exercise or seek to exercise such options, warrants or other stock
rights, except to the extent indicated on Schedule 5.14(b).
5.15 Section 7.10 Agreement. The Company shall have delivered the
agreement of the Chairman of the Company referred to in Section 7.10 hereof.
5.16 Clal Share Purchase. The Purchaser shall have purchased, after
using its reasonable best efforts to do so, those certain shares of Common Stock
beneficially owned by Clal in accordance with the terms of the Clal Stock
Purchase Agreement.
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5.17 Consent. The Company shall have obtained the approvals set forth
on Schedule 2.3, Item 1, hereto.
SECTION 6. Covenants of the Parties.
The Company and the Purchaser hereby covenant as follows:
6.1 Hart-Scott-Rodino Notification. As soon as practicable after the
execution of this Agreement, the Company and the Purchaser shall each file, or
cause to be filed, with the Federal Trade Commission and the Antitrust Division
of the United States Department of Justice, pursuant to the HSR Act, the
notifications and documentary materials required in connection with the
transactions contemplated by this Agreement. Thereafter, the Company and the
Purchaser will file any additional information requested as soon as practicable
after any receipt of a request for additional information and shall use
reasonable best efforts to obtain early termination of the applicable waiting
period under the HSR Act. The Company and the Purchaser shall coordinate and
cooperate with each other in exchanging such information and providing such
reasonable assistance as may be requested in connection with such filings. All
filing fees in connection with the HSR Act shall be paid by the Purchaser.
6.2 Publicity. The Company and the Purchaser shall consult with each
other, to the extent reasonably practicable, as to the form and substance of any
press releases and other third-party communications or disclosures relating to
the negotiation, execution, delivery and consummation of this Agreement, the
other agreements referred to herein, and the transactions contemplated hereby or
thereby. No party shall be prohibited from issuing or filing any press release
or other third-party communication or disclosure which, upon advice of its legal
counsel, shall be deemed necessary or appropriate under applicable law or the
applicable rules of any stock exchange; provided, however, that such party shall
have first consulted with the other party as to the form and content of such
disclosure. This covenant shall survive the Closing or any termination of this
Agreement.
6.3 Confidentiality. All information to which access is given or
furnished by one party to the other in connection with the negotiation,
execution, delivery and consummation of this Agreement, the other agreements
referred to herein, and the transactions contemplated hereby or thereby shall be
kept confidential by each party and shall be used only in connection with this
Agreement, such other agreements and the transactions contemplated hereby and
thereby; provided, however, that the foregoing shall not apply to any
information that (a) shall be publicly available as of the date hereof, (b)
shall become publicly available other than as a result of prohibited disclosure
by such party, (c) shall be disclosed to such party by any person
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or entity that is not known to such party to be subject to any confidentiality
restrictions imposed by the other party or (d) shall be required to be disclosed
by law, the applicable rules of any stock exchange or by order of any court of
competent jurisdiction. Without limiting the foregoing, the Purchaser shall not
disclose, and shall use its reasonable best efforts to cause its Affiliates not
to disclose, any such confidential information to any person or entity that is
not an Affiliate or a director or officer of such Affiliate or any advisor
thereto. This covenant shall survive the Closing or any termination of this
Agreement.
6.4 Further Assurances. Upon reasonable request of a party and without
further consideration, the other party, whether prior to or after the Closing,
shall execute, acknowledge and deliver all such other instruments and documents,
and shall take all such other actions for the purpose of effecting and
evidencing the consummation of the transactions contemplated by this Agreement
and the other agreements referred to herein. Without limiting the generality of
the foregoing, the Company shall, and shall cause its Subsidiaries to, from the
date hereof until the earlier of the Closing Date or the termination of this
Agreement pursuant to Section 13.11 hereof, provide all information and
documents reasonably requested by the Purchaser relating to a determination of
the Company's status as a United States real property holding corporation, as
defined under the Code.
SECTION 7. Covenants of the Company.
The Company (and the Purchaser, to the extent expressly provided in
this Section 7) hereby covenants as follows:
7.1 Exchange Act Filings. From and after the date hereof to the Closing
Date or the earlier termination of this Agreement pursuant to Section 13.11
hereof, the Company shall use its best efforts to file in a timely manner all
reports required to be filed by it with the SEC under the Exchange Act and
shall, promptly upon filing, deliver copies of such reports to the Purchaser.
7.2 Proxy Statement; Meeting; Listing Applications. (a) The Company
shall prepare, review with the Purchaser and its counsel, and file with the SEC
the Proxy Statement as soon as reasonably practicable after the date hereof.
Each party shall furnish all information concerning itself and related persons
which is required or customary for inclusion in the Proxy Statement. The Company
shall, as soon as reasonably practicable after the date hereof, (i) take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of securing the Shareholders' Approval to the
Proposals (such meeting is presently contemplated by the parties to be held in
June 1998); (ii) distribute to its shareholders the Proxy Statement in
accordance with applicable Federal and state laws and with its Certificate of
Incorporation and By-Laws; and (iii) recommend (in the Proxy Statement and, if
deemed
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appropriate by the Company, otherwise) to its shareholders approval of the
Proposals. Notwithstanding anything to the contrary contained herein, if the
Agreement shall be terminated (or is subject to termination) pursuant to Section
13.11 hereof, the Company may postpone, adjourn or cancel the Meeting, withdraw
or change its recommendation to its shareholders and/or withdraw or delay
distribution of the Proxy Statement.
(b) The Company shall use its commercial best efforts to have the
Shares and the Option Shares listed on The New York Stock Exchange and The
Pacific Stock Exchange.
7.3 Board Representation. (a) Subject to the conditions set forth
herein, the Company shall nominate, and the Company and the Purchaser shall use
their best efforts to cause the election at the Meeting of, certain persons to
be designated by each of the Purchaser and the Company (collectively, the
"Nominees"), as provided herein, to serve as directors on the Board of Directors
of the Company such that:
(i) a majority of the members of such Board shall be comprised of
the Purchaser's designated representatives; and
(ii) three of the members of such Board shall be comprised of the
Company's designated representatives consisting of Kenneth I. Sawyer
("Sawyer") and two additional representatives designated by the
current Board of Directors of the Company (collectively, the "Company
Designees").
Notwithstanding anything to the contrary contained herein, each representative
designated by the Purchaser in accordance with Section 7.3(f) hereof shall be
nominated for election to serve on the Board of Directors unless such
representative shall not be satisfactory to the Company's current Board of
Directors for good faith reasons and each Company Designee shall be nominated to
serve on the Board of Directors unless such Designee (other than Sawyer) shall
not be satisfactory to the Purchaser for good faith reasons. All current members
of the Company's Board of Directors not nominated as set forth above shall
resign effective upon the Closing. Any current members of such Board nominated
as set forth above shall resign effective upon the Closing, subject to their
re-nomination and re-election as set forth herein. All Nominees shall take
office if, and only if, the Closing shall occur.
(b) Any director designated hereunder shall serve subject to the terms
of the Company's Certificate of Incorporation and By-laws, each as in effect on
the Closing Date, and the provisions of applicable law.
(c) The Company Designees and the Purchaser shall jointly designate two
of the Company's directors to comprise the audit committee of the Company. Each
of such directors
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must qualify as independent, outside directors in accordance with the rules and
regulations of The New York Stock Exchange.
(d) The directors designated by the Purchaser shall serve as Class I
and Class III directors of the Company (as allocated by the Purchaser) whose
terms shall expire in the years 2000 and 1999, respectively. The Company
Designees shall serve as Class II directors of the Company whose terms shall
expire in the year 2001. There shall be no Class II directors other than the
Company Designees (and their respective successors selected in accordance with
Section 8.1 hereof) through May 31, 2001.
(e) The Company shall include in the Proxy Statement distributed in
respect of the Meeting the Proposals and shall recommend its approval of each
Proposal (including approval of all Nominees) by the shareholders of the
Company. Sawyer and the Purchaser (and its Affiliates) agree to vote any shares
of Common Stock which they own or otherwise have the power to vote in favor of
each of the Proposals (including approval of all Nominees).
(f) The Company shall give the Purchaser written notice not less than
10 days prior to the filing with the SEC of the preliminary Proxy Statement in
respect of the Meeting to allow the Purchaser to designate its nominees for
director for inclusion in such Proxy Statement. The Company shall have no
obligation to include such nominees in the Proxy Statement unless the Company
receives written notice from the Purchaser setting forth its designated nominees
(along with all biographical and other information necessary for inclusion in
the Proxy Statement) not later than five days after the Company's notice to the
Purchaser.
7.4 Environmental Matters. For each parcel of real property which is
owned, operated, leased or used by the Company and any of its Subsidiaries in
the State of New Jersey, the Company shall, and shall cause each of its
Subsidiaries to, as applicable, comply with the obligations imposed by the New
Jersey Industrial Site Recovery Act and any regulations promulgated thereunder,
at or prior to the Closing, by either (a) securing any of the following: (i) a
letter of nonapplicability from the New Jersey Department of Environmental
Protection ("NJDEP"); (ii) approval by NJDEP of a negative declaration submitted
by the Company; (iii) a no further action letter from NJDEP; (iv) a letter of
authorization for the transfer of ownership from NJDEP without any material
conditions thereto; or (v) approval from NJDEP of a remediation agreement
reasonably acceptable to the Purchaser; or (b) filing a De Minimis Quantity
Exemption Affidavit with NJDEP (any of the items listed in clauses (a) and (b)
above being an "ISRA Clearance").
7.5 Conduct of Business Prior to Closing. From and after the date
hereof to the Closing Date or the earlier termination of this Agreement pursuant
to Section 13.11 hereof, except as set forth on Schedule 7.5 hereto, neither the
Company nor its Subsidiaries shall (a)
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conduct their respective businesses other than in the ordinary course, except as
contemplated by this Agreement; (b) amend its charter or by-laws; (c) sell,
lease or otherwise dispose of any material assets or properties owned or used in
the operation of their respective businesses, except for the sale of inventory
and disposition of obsolete equipment in the ordinary course of business; (d)
dissolve, or agree to dissolve, or merge or consolidate with, or agree to merge
or consolidate with, or purchase or agree to purchase all or substantially all
of the assets of, or otherwise acquire, any other business entity; (e) authorize
for issuance, issue or sell any additional shares of its capital stock or any
securities or obligations convertible into shares of its capital stock or issue
or grant any option, warrant or other right to purchase any shares of its
capital stock, except for (i) the granting of options, warrants or rights under
the Company's existing stock or other plans (as such are set forth on Schedule
2.13 hereto) and (ii) the issuance or sale of capital stock pursuant to the
exercise of any options, warrants, or rights granted prior to the date hereof to
any of the Company's employees, directors, independent contractors or other
agents and listed on Schedule 2.12 hereto; (f) redeem, buy back, or cancel any
shares, securities, options, warrants or other stock rights in the Company; or
(g) other than in the ordinary course of business, enter into any material
contract or agreement, or incur any material capital expenditure, which has not
been approved by the Purchaser.
7.6 Options, Warrants or Other Stock Rights. From and after the date
hereof to the Closing Date or the earlier termination of this Agreement pursuant
to Section 13.11 hereof, the Company shall issue options and warrants, or other
stock rights under the Company's existing stock option or stock purchase plans
only if the exercise date is no earlier than three years from the Closing Date
and the options, warrants or other stock rights are issued in connection with
the performance of services for the Company and qualify as "compensatory
options" within the meaning of Treas. Reg. Sec. 1.382-4(d)(8)(iii).
7.7 Other Agreements. At the Closing, upon satisfaction or permitted
waiver of the conditions set forth in Section 4 hereof, the Company shall
execute and deliver the agreements, instruments and certificates specified in
Section 1.3(a) hereof.
7.8 Right of First Refusal. (a) Subject to the conditions and other
provisions set forth in this Section 7.8 and in Section 8.4 hereof, the Company,
for a period of six years following the Closing, shall give the Purchaser
written notice (the "Transaction Notice") of the Company's intention to sell
equity securities of the Company in any offering not subject to registration
under the Securities Act (or, if subject to registration under the Securities
Act, in any offering for cash only) specifying the terms and conditions of such
offering, including the type and amount of consideration to be received by the
Company. Subject to the conditions and other provisions set forth in this
Section 7.8 and in Section 8.4 hereof, the Purchaser shall have the right,
exercisable by giving written notice to the Company within 30 days after receipt
of the Transaction Notice, to purchase all, but not less than all, of the equity
securities described
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in the Transaction Notice on substantially the same terms and conditions as
specified in such Transaction Notice. In the event that the Purchaser shall not
provide notice of its election to consummate such transaction within such 30-day
period, the Company may sell the equity securities to any third party or parties
(a "Third-Party Transaction") on substantially the same terms and conditions as
specified in the Transaction Notice at any time within 90 days after the
expiration of such 30-day period. If the Company shall not consummate a
Third-Party Transaction within such 90-day period, the consummation of such
Transaction or any other Third- Party Transaction shall again be subject to the
Purchaser's rights under this Section 7.8(a).
(b) The closing of any transaction to be consummated with the Purchaser
pursuant to this Section 7.8 shall take place at the offices of the Company or
its counsel on a date designated by the Company and reasonably acceptable to the
Purchaser not later than 60 days after the Purchaser's receipt of the
Transaction Notice.
7.9 Appointment of COO. As soon as practicable following the Closing,
the Board of Directors of the Company shall duly elect a designee of the
Purchaser as the President and Chief Operating Officer (COO) of the Company and
each of its Subsidiaries.
7.10 Agreement of the Chairman of the Company. At the Closing, the
Company shall deliver a fully executed agreement to the Purchaser reasonably
satisfactory to the Purchaser whereby the Chairman of the Company, Kenneth I.
Sawyer, shall expressly (i) agree to the appointment referred to in Section 7.9
above; (ii) agree that he shall serve as the Chairman and Chief Executive
Officer of the Company and each of its Subsidiaries; and (iii) acknowledge that
Section 7.9 hereof and this Section 7.10 hereof do not constitute a breach or a
violation by the Employer (as such term is used in the below mentioned
Employment Agreement) of the terms of his employment pursuant to the Employment
Agreement between the Company and Sawyer, dated as of October 4, 1992, as
amended.
7.11 Rights Agreement. Each of the Company and First City Transfer
Company (as successor rights agent) shall, prior to the Closing, execute and
deliver an amendment to the Rights Agreement, dated August 6, 1991, as amended
(the "Rights Agreement"), exempting from operation under the Rights Agreement
the acquisitions of shares of Common Stock pursuant to this Agreement and the
Options. Such amendment shall be in full force and effect and constitute a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms.
7.12 U.S. Real Property Holding Corporation. From and after the date
hereof to the Closing Date or the earlier termination of this Agreement pursuant
to Section 13.11 hereof, the Company shall (a) use reasonable efforts to avoid
making any changes in the composition of its assets which would cause the
Company to be classified as a United States real property holding
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corporation within the meaning of Section 897(c)(2) of the Code and (b) obtain
the consent of the Purchaser prior to the acquisition of any United States Real
Property Interest (as defined in Section 897 of the Code).
SECTION 8. Covenants of the Purchaser.
The Purchaser (and the Company following the Closing, to the extent
expressly provided in this Section 8) hereby covenants as follows:
8.1 Company Designees. For a period of three years following the
Closing, the Purchaser shall not cause, and shall use its best efforts not to
permit, (i) the removal, except for cause (as such term is defined and used
under New Jersey corporate law), of any of the Company Designees serving as
directors of the Company prior to the scheduled expiration of their terms or
(ii) the shortening of any of such Designees' terms as directors. In the event
that any Company Designee shall resign or cannot otherwise continue to serve as
a director, the remaining Company Designee(s) shall designate a replacement
therefor and, upon such designation, unless such designee shall not be
reasonably satisfactory to the Purchaser, the Company and the Purchaser shall
use their reasonable best efforts to cause the appointment and/or election of
such designated replacement to the Company's Board of Directors. Such
replacement directors shall be deemed to be Company Designees for the purpose of
this Agreement.
8.2 No Modification. For a period of three years following the Closing,
the Purchaser shall not cause, and shall use its reasonable best efforts not to
permit, the Company to agree to any amendment, modification or waiver of or take
any action in respect of this Agreement, the Distribution Agreement or the other
agreements referred to herein, including, without limitation, in respect of any
agreement or settlement relating to a dispute or claim for indemnification
hereunder or thereunder, without the prior written consent of at least a
majority of the Company Designees (including any replacements therefor as
provided in Section 8.1 hereof).
8.3 Other Agreements. At the Closing, upon satisfaction or permitted
waiver of the conditions set forth in Section 5 hereof, the Purchaser shall pay
the Purchase Price and execute and deliver the agreements, instruments and
certificates specified in Section 1.3(b) hereof.
8.4 Related Party Transactions. For a period of three years following
the Closing, except as expressly permitted by this Agreement or any other
agreements referred to herein, the Purchaser shall not cause or permit the
Company or its Subsidiaries existing on the date of the Agreement, directly or
indirectly, to engage in or enter into any, or to amend or terminate any then
validly existing, transaction, arrangement or agreement with, or to make any
distribution
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or dividend of property or monies to, the Purchaser or any Affiliate or
associate (as defined in Rule 405 of the Securities Act ("Associate") of the
Purchaser, without the prior written consent of a majority of the Company
Designees (including any replacements therefor as provided in Section 8.1
hereof).
8.5 Business Combinations. For a period of three years following the
Closing, neither the Purchaser nor any of its Affiliates or Associates shall,
without the prior written consent of a majority of the Company Designees
(including any replacements therefor as provided in Section 8.1 hereof) and the
prior receipt from an independent nationally recognized investment bank of a
written fairness opinion to the effect that the proposed transaction is fair
(from a financial point of view) to all shareholders of the Company, (i) propose
that the Company, or cause or permit the Company to, merge, consolidate or enter
into any other business combination with or into another entity (including,
without limitation, any "short-form" merger), (ii) propose that the Company, or
cause or permit the Company to, sell, lease, pledge or otherwise dispose of all
or any material portion of the assets of the Company, (iii) propose or make, or
cause or permit the Company to propose or make, any exchange offer or tender
offer for, or repurchase of, any securities of the Company or (iv) propose that
the Company, or cause or permit the Company to, recapitalize, liquidate,
dissolve or, to the extent it would cause the Company not to be publicly-held,
reorganize.
8.6 Executive Committee. For a period of three years following the
Closing, the Purchaser shall cause the Company to, and the Company shall,
constitute and maintain an executive committee of the Company's Board of
Directors to manage the fundamental matters concerning the Company in the
intervals between Board meetings, and each shall use its reasonable best efforts
to cause Sawyer (or his designee who shall be a member of the Company's Board of
Directors) to be, and remain for such period, a duly appointed, full member of
such committee.
SECTION 9. Transfer of Securities. The Purchaser, for itself and each
of its Affiliates, agrees as follows:
9.1 Transfer Restrictions. The Purchaser and its Affiliates shall not
transfer any of the Shares or the Option Shares unless such transfer shall be in
full compliance with all applicable provisions of the Securities Act and all
applicable provisions of state securities laws.
9.2 Legends. Each certificate for the Shares and the Option Shares
shall be endorsed with the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
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LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM
REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS."
SECTION 10. Exchanges; Lost, Stolen or Mutilated Certificates. Upon
surrender by the Purchaser (or Merck or Genpharm, as applicable) to the Company
of any certificates representing the Shares or the Option Shares, the Company,
at its expense, shall issue in exchange therefor, and deliver to the Purchaser
(or Merck or Genpharm, as applicable), a new certificate or certificates
representing such Shares or Option Shares, in such denominations as may be
requested in writing by the Purchaser (or Merck or Genpharm, as applicable).
Every surrendered certificate representing the Shares or the Option Shares shall
be duly endorsed or be accompanied by a written instrument of the Purchaser's
(or Merck's or Genpharm's, as applicable) attorney duly authorized in writing.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificate representing any Shares or Option
Shares, and in case of any such loss, theft or destruction, upon delivery of an
indemnity agreement satisfactory to the Company, or in case of any such
mutilation, upon surrender and cancellation of such certificate, the Company
shall issue and deliver to the Purchaser (or Merck or Genpharm, as applicable) a
new certificate for such Shares or Option Shares of like tenor and in the same
amount and name in lieu of such lost, stolen or mutilated certificate.
SECTION 11. Survival of Representations, Warranties and Agreements. The
representations and warranties (including the Schedules hereto) of the parties
contained herein and the agreements and covenants contained in Section 7 hereof
(excluding Sections 7.3, 7.8 and 7.9 hereof) shall survive the date hereof for a
period of 12 months following the Closing Date (the "Survival Period");
provided, that (i) a party shall not be liable to the other party hereto for any
claim for indemnification under Section 12 hereof in respect of a breach of a
representation or warranty unless written notice thereof describing such claim
with reasonable specificity shall be delivered to the Indemnitor (as defined in
Section 12.1 hereof) prior to the expiration of the Survival Period and (ii) the
representations and warranties relating to Taxes contained in Section 2.20
hereof shall survive until the expiration of the appropriate statute of
limitation.
SECTION 12. Indemnification.
12.1 Indemnitors; Indemnified Persons. For purposes of this Section 12,
each party which, pursuant to this Section 12, agrees to indemnify any other
person or entity shall be referred to as the "Indemnitor" with respect to such
person or entity, and each such person or
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entity who is indemnified shall be referred to as the "Indemnified Person" with
respect to such Indemnitor.
12.2 Company Indemnity. The Company hereby agrees to indemnify and hold
harmless each of the Purchaser and it Affiliates, and its directors, officers,
employees, agents and controlling persons (within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act), from and against any
and all claims, liabilities, losses, damages and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) asserted against or
incurred by any such Indemnified Person which are caused by or are related to or
arise out of (a) subject to Section 11 hereof, the Company's material breach of
any of its representations, warranties, covenants or agreements contained in
this Agreement, (b) any untrue statement or alleged untrue statement of a
material fact contained in the Proxy Statement or the omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (a "Violation") or (c) (i) any
material violation by the Company or any Subsidiary thereof of any Environmental
Laws, or the disposal, discharge or release of solid wastes, pollutants or
hazardous substances, whether in compliance with Environmental Laws or not,
other than in respect of those matters set forth on Schedule 12.2 hereto (ii)
the ownership, operation or use of any landfill, wastewater treatment plant, air
pollution control equipment, storage lagoon or other waste management or
pollution control facility, whether in compliance with Environmental Laws or
not, other than in respect of those matters set forth on Schedule 12.2 hereto,
or (iii) exposure of any person to any chemical substances, noises or vibrations
generated by the Company, any of its Subsidiaries, or any of their respective
predecessors, whether in compliance with Environmental Laws or not, other than
in respect of those matters set forth on Schedule 12.2 hereto; provided,
however, that no indemnification shall be provided hereunder for any decrease in
the market price of the shares of Common Stock purchased or owned by the
Purchaser or any of its Affiliates; and provided, further, that no
indemnification shall be provided hereunder with respect to the preceding clause
12.2(b) to the extent an untrue or alleged untrue statement or omission or
alleged omission was made by the Company in reliance upon and in conformity with
information furnished by or on behalf of the Purchaser for use in the Proxy
Statement. The Company shall reimburse any such Indemnified Person for all costs
and expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs of investigation) incurred in connection with preparing
for, bringing or defending any action, claim, investigation, suit or other
proceeding, whether or not in connection with pending or threatened litigation,
which shall be caused by or related to or arise out of the foregoing, whether or
not such Indemnified Person shall be named as a party thereto.
12.3 Purchaser Indemnity. The Purchaser hereby agrees to indemnify and
hold harmless each of the Company, and its directors, officers, employees and
agents, from and against any and all claims, liabilities, losses, damages and
expenses (including, without
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limitation, reasonable attorneys' fees and disbursements and costs of
investigation) asserted against or incurred by any such Indemnified Person which
are caused by or are related to or arise out of (a) subject to Section 11
hereof, the Purchaser's material breach of any representation, warranty,
covenant or agreement of the Purchaser contained in this Agreement or (b) a
Violation to the extent that such Violation shall occur in respect of
information furnished to the Company by or on behalf of the Purchaser for use in
the Proxy Statement. The Purchaser shall reimburse any such Indemnified Person
for all costs and expenses (including, without limitation, reasonable attorneys'
fees and disbursements and costs of investigation) incurred in connection with
preparing for, bringing or defending any action, claim, investigation, suit or
other proceeding, whether or not in connection with pending or threatened
litigation, which shall be caused by or related to or arise out of the
foregoing, whether or not such Indemnified Person shall be named as a party
thereto.
12.4 Defense. Promptly after receipt by an Indemnified Person of notice
of any claim or demand or the commencement of any suit, action or proceeding by
any third party with respect to which indemnification may be sought hereunder,
such Indemnified Person shall notify in writing the Indemnitor of such claim or
demand or the commencement of such suit, action or proceeding, but failure so to
notify the Indemnitor shall not relieve the Indemnitor from any liability which
the Indemnitor may have hereunder or otherwise, unless the Indemnitor shall be
actually prejudiced by such failure. If the Indemnitor shall so elect, the
Indemnitor shall assume the defense of such claim, demand, action, suit or
proceeding, including the employment of counsel reasonably satisfactory to such
Indemnified Person, and shall pay the fees and disbursements of such counsel. In
the event, however, that such Indemnified Person shall reasonably determine that
having common counsel would present such counsel with a conflict of interest or
alternative defenses shall be available to an Indemnified Person or if the
Indemnitor shall fail to assume the defense of the claim, demand, action, suit
or proceeding in a timely manner, then such Indemnified Person may employ
separate counsel to represent or defend such Person against any such claim,
demand, action, suit or proceeding and the Indemnitor shall pay the reasonable
fees and disbursements of such counsel; provided, however, that the Indemnitor
shall not be required to pay the fees and disbursements of more than one
separate counsel for all Indemnified Persons in any jurisdiction in any single
action, suit or proceeding. For any claim, demand, action, suit or proceeding
the defense of which the Indemnitor shall assume, the Indemnified Person shall
have the right to participate therein and to retain its own counsel at such
Indemnified Person's own expense (except as otherwise specifically provided in
this Section 12.4), so long as such participation does not interfere with the
Indemnitor's control of such claim, demand, action, suit or proceeding. The
Indemnitor shall not, without the prior written consent of the Indemnified
Person, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder unless such settlement, compromise or
consent shall include an unconditional release of such Indemnified Person from
all liability arising out of such
xxx
<PAGE>
claim, demand, action, suit or proceeding and would not prohibit, restrict or
impair the Indemnified Person from engaging in any business.
12.5 Purchaser Claims. If there shall be any claim for indemnification
by the Purchaser under this Section 12 or under the Distribution Agreement, all
determinations by the Company relating thereto, including, without limitation,
the choice and engagement of counsel, the defense and/or prosecution of any
action and the terms and conditions of any settlement or compromise thereof,
shall be made solely by the Company Designees (by majority vote thereof).
12.6 Exclusive Remedy. The parties hereto agree that the sole and
exclusive remedy and recourse with respect to any and all claims, suits,
actions, demands, liabilities, losses, expenses and damages relating to or
arising out of the subject matter of this Agreement (excluding the Distribution
Agreement and the Services Agreements) shall be pursuant, and subject, to the
indemnification provisions set forth in this Section 12, subject to the
provisions of Section 13.11 hereof and except for the remedy of injunctive
relief set forth in Section 13.12 hereof.
SECTION 13. Miscellaneous.
13.1 Expenses. The parties shall bear their own respective expenses
(including, but not limited to, all fees and expenses of counsel, financial
advisers and independent accountants) incurred in connection with the
preparation, negotiation and execution of this Agreement and the other
agreements referred to herein and the consummation of the transactions
contemplated hereby and thereby. To the extent that a Company Designee shall be
required to make any determination or take any action hereunder (including,
without limitation, with respect to indemnification under Section 12 hereof or
reviewing the compliance of the Purchaser with its covenants and agreements
contained herein) in his/her capacity as a Company Designee, the Purchaser shall
cause the Company to, and the Company shall, promptly reimburse and/or pay any
reasonable out-of-pocket expenses incurred by the Company Designee in acting in
such capacity. The Company Designees are intended third-party beneficiaries of
this provision.
13.2 Assignment; Binding Effect. 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 or delegated by any party hereto without the prior written consent of
the other party; provided, that the Purchaser shall have the right to designate
an Affiliate of the Purchaser to purchase and take delivery of the Shares at the
Closing pursuant to Section 1.1 hereof. The obligations and agreements of the
Purchaser hereunder shall succeed to and bind any purchaser or transferee,
whether or not such purchaser or transferee shall be an Affiliate of the
Purchaser, of the Shares and/or the Option Shares, but shall also remain binding
on the
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Purchaser if the transferee is an Affiliate thereof. Notwithstanding the
foregoing, the Options shall be at all times nontransferable and nonassignable
by the Purchaser or Genpharm.
13.3 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the other agreements referred to herein or delivered
pursuant hereto contain the entire agreement between the parties with respect to
the subject matter hereof and thereof and supersede all prior arrangements or
understandings, written or oral, with respect thereto, including, without
limitation, the Confidentiality Agreement, dated December 16, 1997, by and
between the parties. The parties hereto agree that the only representations and
warranties made in connection with the transactions contemplated hereby and
thereby are those expressly made in writing in this Agreement. The Purchaser
expressly disclaims reliance upon any representations or warranties other than
those expressly made in writing by the Company in this Agreement. The Purchaser
acknowledges and agrees that it is sophisticated in matters concerning the
subject matter of this Agreement and the business of the Company, that the
Purchaser and the Company have an ordinary business relationship of
seller-purchaser and that no special relationship of trust exists between the
Purchaser and the Company which could give rise to a special duty of care.
13.4 Notices. All notices hereunder shall be in writing and shall be
given: (a) if to the Company, at One Ram Ridge Road, Spring Valley, New York
10977 (attention: Kenneth I. Sawyer, President), fax number: (914) 425-5097, or
such other address or fax number as the Company shall have designated in writing
to the Purchaser in accordance with this Section 13.4, with a copy to Hertzog,
Calamari & Gleason, 100 Park Avenue, New York, New York 10017 (attention:
Stephen Ollendorff, Esq. and Stephen R. Connoni, Esq.), fax number: (212) 213-
1199, or (b) if to the Purchaser, at c/o Merck KGaA, Frankfurter Strasse 250,
64271 Darmstadt Germany (attention: Dr. Rudi Neirinckx), fax number 011 49 6151
72 3435, or such other address or fax number as the Purchaser shall have
designated in writing to the Company in accordance with this Section 13.4, with
a copy to Coudert Brothers, 1114 Avenue of the Americas, New York, New York
10036-7703 (attention: Edwin S. Matthews, Jr., Esq.), fax number: (212)
626-4120. Any notice shall be deemed to have been given if personally delivered
or sent by express commercial courier or delivery service or by telegram,
telefax, telex or facsimile transmission. Any notice given in any other manner
shall be deemed given when actually received.
13.5 Amendments; Waiver. Prior to the Closing, this Agreement may not
be amended or, subject to Section 13.11 hereof, terminated, and no provision
hereof may be waived, except pursuant to a written instrument executed by the
Company and the Purchaser. For a period of three years following the Closing,
neither this Agreement nor the Distribution Agreement may be amended, and no
provision hereof or thereof may be waived, without the prior written
xxxii
<PAGE>
consent of at least a majority of the Company Designees (on behalf of the
Company) and except pursuant to a written instrument executed by both parties.
13.6 Counterparts. This Agreement may be executed in counterparts, and
each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
13.7 Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement. As used herein, the phrase "to the Company's knowledge" shall
mean the actual knowledge of any of the executive officers of the Company only.
13.8 Governing Law. This Agreement 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.
13.9 Severability. If any term or provision hereof shall be invalid or
unenforceable, (i) the remaining terms and provisions hereof shall be
unimpaired, (ii) any such invalidity or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such term or provision in any other
jurisdiction and (iii) 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, to the fullest extent legally permissible, the
intention of the parties with respect to the invalid or unenforceable term or
provision.
13.10 Consent to Jurisdiction. In connection with any dispute which may
arise under this Agreement or under any other agreement referred to herein
(except for the Distribution Agreement), each of the parties hereby irrevocably
submits to, consents to, and waives any objection to the exclusive jurisdiction
of the courts of the State of New York located in the County of New York and 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 Coudert
Brothers 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.
xxxiii
<PAGE>
13.11 Termination.
(a) This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing: (i) by
the mutual written consent of the Purchaser and the Company, (ii) by either
party to this Agreement, if the Shareholders' Approval shall not have been
obtained with respect to each of the Proposals at the Meeting, including any
adjournments thereof, (iii) by either party to this Agreement, if there shall
have been a material breach of a representation or warranty contained in this
Agreement by the other party, or a material breach by the other party of any
covenant or agreement set forth herein and such breach shall not have been cured
within ten (10) days following the occurrence thereof, and such shall not have
been waived by the other party hereto, (iv) by either party to this Agreement,
if the Closing shall not have occurred by July 15, 1998 or (v) by the Company,
if the Board of Directors of the Company determines in good faith, after
consultation with outside counsel, that failure to terminate this Agreement
would create a substantial risk of liability for breach of its fiduciary duties
to the Company's shareholders under applicable law.
Upon any such termination, all further obligations of the
parties shall become null and void and no party shall have any liability to the
other party, except that the obligations of the parties hereto pursuant to
Sections 6.2, 6.3 and 13, including Section 13.11(b), hereof shall survive such
termination indefinitely.
(b) Notwithstanding anything to the contrary contained herein,
if this Agreement (i) is terminated by either party pursuant to Section 13.11(a)
(iii) hereof, then the breaching party shall promptly pay to the non-breaching
party in cash an amount equal to $750,000, or (ii) is terminated by the Company
pursuant to Section 13.11(a) (v) hereof, then the Company shall promptly pay to
the Purchaser in cash an amount equal to $1,000,000. The parties acknowledge and
agree that the provisions of this Section 13.11(b) provide for liquidated
damages (and not a penalty) and shall be the sole and exclusive remedy and
recourse of the parties hereto in respect of a termination of this Agreement
pursuant to Sections 13.11(a)(iii) or (v) hereof.
13.12 Injunctive Relief.
(a) The Purchaser hereby acknowledges and agrees that a breach by it of
its covenants or agreements hereunder will cause irreparable harm to the
Company. Accordingly, the Purchaser acknowledges and agrees that a remedy at law
for a breach of its obligations hereunder (including, but not limited to, its
obligations under Sections 6.3, 7.3 and 8 hereof) will be inadequate and agrees,
in the event of a breach or threatened breach by the Purchaser of the provisions
of this Agreement (including, but not limited to, its obligations pursuant to
Sections 6.3, 7.3 and 8 hereof), that the Company and, in the case of Sections
7.3, 8.1, 8.5 and
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<PAGE>
8.6 hereof, the shareholders of the Company (other than the Purchaser) and the
Company Designees, shall be entitled, in addition to all other available
remedies, to an injunction restraining any actual or threatened breach and/or
the remedy of specific performance.
(b) The Company hereby acknowledges and agrees that a breach by it of
its covenants or agreements hereunder will cause irreparable harm to the
Purchaser. Accordingly, the Company acknowledges and agrees that a remedy at law
for a breach of its obligations hereunder (including, but not limited to, its
obligations under Sections 6.3 and 7 hereof) will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Agreement (including, but not limited to, its obligations pursuant to
Sections 6.3, 7.3 and 7.8 hereof), that the Purchaser shall be entitled, in
addition to all other available remedies, to an injunction restraining any
actual or threatened breach and/or the remedy of specific performance.
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be executed as of the date first written above.
PHARMACEUTICAL RESOURCES, INC.
By: /s/ Kenneth I. Sawyer
--------------------------
Name: Kenneth I. Sawyer
Title: President
LIPHA AMERICAS, INC.
By: /s/ Neirinckx Rudi
------------------------------
Name: Neirinckx Rudi
Title: Head New Business, Merck
KGaA
xxxv
<PAGE>
Exhibit A
Distribution Agreement
<PAGE>
Exhibit B
Services Agreements
<PAGE>
Exhibit C
Options
<PAGE>
Exhibit D
Registration Rights Agreement
<PAGE>
Schedules
Schedule 2.3
Schedule 2.5
Schedule 2.6
Schedule 2.8
Schedule 2.10
Schedule 2.11
Schedule 2.12
Schedule 2.13
Schedule 2.15
Schedule 2.16
Schedule 2.17
Schedule 2.18
Schedule 2.19
Schedule 2.20
Schedule 2.21
Schedule 2.22
Schedule 2.23
Schedule 5.14(a)
Schedule 5.14(b)
Schedule 7.5
Schedule 12.2
<PAGE>
Exhibit A....................................Distribution Agreement
Exhibit B.......................................Services Agreements
Exhibit C..................................................Options
Exhibit D.............................Registration Rights Agreement
v
<PAGE>
EXHIBIT 3
EXECUTION COPY
PHARMACEUTICAL RESOURCES, INC.
Stock Option Agreement
----------------------
PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the "Company"),
hereby grants Merck KGaA, a Kommanditgesellschaft auf Aktien organized under the
laws of Germany(the "Optionee"), a non-statutory stock option (the "Option") to
purchase from the Company up to 820,000 shares of common stock, par value $.01
per share, of the Company ("Option Shares") at a price and on the terms set
forth in this Option Agreement. The Option is granted by the Company to the
Optionee in consideration for Services (as such term is defined in the Services
Agreement) to be provided by the Optionee to the Company pursuant to the
Services Agreement, dated June 30, 1998, between the Company and the Optionee
(the "Services Agreement").
SECTION 1. Term of Option. The Option is granted as of the
date hereof (the "Grant Date") and shall be exercisable at any time beginning
three years and ten days after the date hereof; provided that, to the extent not
exercised, this Option shall terminate on April 30, 2003.
SECTION 2. Vesting. The Option shall vest on the following schedule:
Cumulative vested
Measured from Grant Date portion of Option Shares
- ------------------------ ------------------------
First anniversary one-third
Second anniversary two-thirds
Third anniversary entire amount
SECTION 3. Exercise of Option. Subject to the provisions hereof, this
Option may be exercised in whole or in part at any time, or from time to time,
to the extent vested, during its term, as set forth in Section 1 herein, by
presentation to the Company at its principal office of the Option Exercise Form
attached hereto, duly executed and accompanied by payment (either in cash or by
United States certified or official bank check payable to the order of the
Company) of the Exercise Price for the number of Option Shares specified in such
Form. Upon receipt of the Option Exercise Form and such payment, the Company
shall, within five (5) business days, cause to be delivered to the Optionee one
or more certificates representing the aggregate number of fully-paid and
nonassessable Option Shares issuable upon exercise as specified in the Form.
<PAGE>
SECTION 4. Exercise Price. The exercise price ("Exercise Price") shall be
US $2.00 per share.
SECTION 5. Reservation of Shares. The Company will reserve for issuance and
delivery upon exercise of this Option all authorized but unissued Common Shares
or other shares of capital stock of the Company (and other securities and
property) from time to time receivable upon exercise of this Option.
SECTION 6. Restrictions on Transfer, Exercise and Registration.
6.1 Transferability. This Option may not be sold, transferred, pledged,
assigned or otherwise disposed of (collectively, "Transferred") by the Optionee.
6.2 Compliance with Securities Legislation. No Option Shares may be
transferred except in full compliance with all applicable provisions of the
Securities Act of 1933 and of applicable state securities laws.
6.3 Legend. Each certificate for the Option Shares shall be endorsed with
the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS UNDER APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND
STATE SECURITIES LAWS."
6.4 Registration. The Option Shares shall have the benefit of the
Registration Rights Agreement, dated March 25, 1998, between the Company, Lipha
Americas, Inc., Genpharm Inc. and the Optionee.
6.5 Restrictions on Exercise. The Option may not be exercised if the
issuance of the Option Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of the Option,
2
<PAGE>
the Company may require the Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
SECTION 7. Rights of the Optionee. The Optionee shall not be entitled to
any rights of a shareholder of the Company with respect to the Option Shares
solely as a result of the grant of the Option. Such rights shall exist only
after issuance of a stock certificate in accordance with Section 3 above
following the Optionee's exercise of the Option (or a portion thereof)
hereunder. The rights of the Optionee are limited to those expressly provided in
this Option.
SECTION 8. Termination of Services Agreement
(a) If the Services Agreement terminates other than as a result of the
Optionee's Breach and the Optionee thereby ceases to provide Services to the
Company, this Option may be exercised in full during the remaining balance of
the term of the Option (but not in any event before three years and ten days
have elapsed from the date hereof or beyond the expiration of the term of this
Option), notwithstanding anything to the contrary in this Option Agreement.
(b) If the Services Agreement terminates as a result of the Optionee's
Breach and the Optionee thereby ceases to provide Services to the Company, the
Optionee may exercise the Option, to the extent vested as of the date of such
termination, during the remaining balance of the term of the Option (but not in
any event before three years and ten days have elapsed from the date hereof or
beyond the expiration of the term of the Option).
(c) For purposes of this section, "Breach" means willful refusal of the
Optionee to provide Services to the Company in accordance with the Services
Agreement.
SECTION 9. Anti-Dilution Provisions.
9.1. Adjustments for Stock Dividends; Combinations, Etc. In case the
Company shall do any of the following (each, an "Event"):
(a) declare a dividend or other distribution on its common shares
payable in common shares of the Company;
(b) effect a subdivision of its outstanding common shares into a
greater number of common shares (by reclassification, stock split or
otherwise by payment of a dividend in common shares);
3
<PAGE>
(c) effect a combination of its outstanding common shares into a
lesser number of common shares (by reclassification, reverse split or
otherwise);
(d) issue by reclassification, exchange or substitution of its common
shares any shares of capital stock of the Company; or
(e) effect any other transaction having a similar effect, then the
Exercise Price in effect at the time of the record date for such Event
shall be adjusted to a price determined by multiplying such Exercise Price
by a fraction, the numerator of which shall be the number of shares of
common stock outstanding immediately prior to such Event and the
denominator of which shall be the number of Common Shares outstanding
immediately after such Event. Each such adjustment of the Exercise Price
shall be calculated to the nearest cent. No such adjustment shall be made
in an amount less than One Cent ($.01), but any such amount shall be
carried forward and shall be given effect in connection with the next
subsequent adjustment. Such adjustment shall be made successively whenever
any Event shall occur.
9.2 Adjustment in the Number of Option Shares. Whenever the Exercise Price
shall be adjusted pursuant to Section 9.1 hereof, the number of Option Shares
which the Optionee may purchase upon exercise of the Service Option shall be
adjusted, to the nearest full share, by multiplying such number of Option Shares
immediately prior to such adjustment by a fraction, the numerator of which shall
be the Exercise Price immediately prior to such adjustment and the denominator
of which shall be the Exercise Price immediately thereafter.
9.3 Adjustment for Consolidation or Merger. In case of any consolidation or
merger to which the Company shall be a party, other than a consolidation or
merger in which the Company shall be the surviving or continuing corporation, or
in case of any sale or conveyance to another entity of all or substantially all
of the property of the Company, or in the case of any statutory exchange of
securities with another entity (including any exchange effected in connection
with a merger of any other corporation with the Company), the Optionee shall
have the right thereafter to receive from the Company upon exercise of the
Option the kind and amount of securities, cash or other property which it would
have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had this Option
been exercised immediately prior to the effective
4
<PAGE>
date of such transaction and, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section 9 with
respect to the rights and interests thereafter of the Optionee to the end that
the provisions set forth in this Section 9 shall thereafter correspondingly be
made applicable, as nearly as then may reasonably be, in relation to any shares
of stock or other securities or property thereafter deliverable upon the
exercise of this Option. Notice of any such consolidation, merger, statutory
exchange, sale or conveyance, and of the provisions proposed to be adjusted,
shall, to the extent reasonably practicable, be mailed to the Optionee not less
than thirty (30) days prior to such event.
SECTION 10. Fully Paid Shares; Taxes. The Company agrees that the common
shares of the Company represented by each and every certificate for the Option
Shares delivered on the exercise of this Option in accordance with the terms
hereof shall, at the time of such delivery, be validly issued, fully-paid and
nonassessable, free and clear of all liens, pledges, options, claims or other
encumbrances. The Company further covenants and agrees that it will pay, when
due and payable, any and all Federal and state stamp, original issue or similar
taxes (but specifically not including any income taxes) which may be payable in
respect of the issue of any Option Shares or certificates therefor.
SECTION 11. Notices. All notices hereunder shall be in writing and shall be
given: (a) if to the Company, at One Ram Ridge Road, Spring Valley, New York
10977 (attention: Kenneth I. Sawyer), fax number: (914) 425-5097, with a copy to
Hertzog, Calamari & Gleason, at 100 Park Avenue, New York, New York 10017
(attention: Stephen Ollendorff, Esq., and Stephen R. Connoni, Esq.), fax number:
(212) 213-1199, or (b) if to the Optionee, at Merck KGaA, Frankfurter Strasse
250, 64271 Darmstadt, Germany, (attention: Professor Dr. Bernhard Scheuble), fax
number: 011 49-6151-72-5962, with a copy to Coudert Brothers, at 1114 Avenue of
the Americas, New York, New York 10036 (attention: Edwin S. Matthews, Jr.), fax
number: (212) 626-4120. Any notice shall be deemed to have been given if
personally delivered or sent by express commercial courier or delivery service
or by telegram, telefax, telex or facsimile transmission. Any notice given in
any other manner shall be deemed given when actually received.
SECTION 12. Amendments; Waiver. This Option may not be amended, and no
provision hereof may be waived, without the prior written consent of at least a
majority of the Company Designees (as defined in the Stock Purchase
5
<PAGE>
Agreement, dated March 25, 1998, between the Company and Alpha Americas,
Inc.) on behalf of the Company and except pursuant to a written instrument
executed by the Company and the Optionee.
SECTION 13. Headings. The headings of the Sections of this Option have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Option.
SECTION 14. Governing Law. This Option is issued under, and 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 within such State.
IN WITNESS WHEREOF, the Company has caused this Option to be signed on its
behalf, in its corporate name, by its duly authorized officer, on June 30, 1998.
PHARMACEUTICAL RESOURCES, INC.
By: /s/ Kenneth I. Sawyer
---------------------------
Kenneth I. Sawyer
President
Attest:
/s/ Dennis J. O'Connor
- --------------------------
Dennis J. O'Connor
Secretary
MERCK KGaA
By: /s/ Scheuble
--------------------------
Name: Prof. Dr. Bernhard
Scheuble
Title: Member of the Executive
Board
By: /s/ Klaus-Peter Brandis
Name: Klaus-Peter Brandis
Title: Head of Legal
Department
6
<PAGE>
PHARMACEUTICAL RESOURCES, INC.
STOCK OPTION EXERCISE FORM
--------------------------
For services performed, the undersigned hereby irrevocably elects to
exercise the attached Option to purchase ______ shares of common stock of
Pharmaceutical Resources, Inc. at the Exercise Price of $2.00 per share, in
accordance with the Option Agreement.
Attached hereto is cash or a U.S. certified or official bank check payable
to the order of the Company in the amount of the total Exercise Price set forth
above.
--------------------------------
Name of Optionee
--------------------------------
Signature of Optionee
or Authorized Representative
--------------------------------
Name and Title of Authorized
Representative
--------------------------------
Address of Optionee
--------------------------------
Date
7
<PAGE>
EXHIBIT 4
EXECUTION COPY
MERCK SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is dated as of June 30,
1998, between Pharmaceutical Resources, Inc., a New Jersey corporation, whose
principal offices are located at One Ram Ridge Road, Spring Valley, New York
10977 (the "Company"), and Merck KGaA, a Kommanditgesellschaft auf Aktien
organized under the laws of Germany, whose principal offices are located at
Frankfurter Strasse 250, 64271 Darmstadt, Germany (the "Service Provider"), each
of which may be referred to individually as a "Party" or collectively as the
"Parties." This Agreement and the Annex contemplated hereby are collectively
referred to as the "Agreement" unless indicated otherwise.
WHEREAS, the Service Provider possesses, inter alia, substantial and
long acquired technical expertise and know-how in the areas of product
development, clinical studies and trials, marketing, distribution, financial and
administrative support, and other areas related to the development of ethical
and generic drugs; and
WHEREAS, the Company wishes to engage certain services of the Service
Provider, and the Service Provider is willing to perform the Services defined
herein, on the terms and conditions set forth herein, in consideration of the
issuance by the Company to the Service Provider of a stock option to acquire
820,000 shares of common stock of the Company (the "Option Shares"), in the form
of the Annex hereto (the "Option").
NOW, THEREFORE, in consideration of the mutual obligations and
benefits set forth in this Agreement, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Service Provider agree to the following
terms and conditions:
1. Services
1.1 At the request of the Company and subject to the provisions of this
Agreement, the Service Provider will perform some or all of the
following services (the "Services") with respect to certain products
as agreed to between the parties from time to time (the "Products"):
a. providing assistance to conduct, monitor and analyze preclinical
investigations.
b. rendering advice to the Company's research and development department
on the design and development of protocols.
<PAGE>
c. providing assistance and advice to develop and prepare Product
formulations and dosage forms for preclinical, clinical trials and
commercial purposes and develop methods for establishing Product
stability (including expiration dating).
d. providing assistance to develop and transfer to the Company
manufacturing methods and procedures for the synthesis, scale-up and
process validation for the manufacture of Products and their active
ingredients for clinical and commercial purposes.
e. assisting in developing methods and procedures for the testing,
analysis and quality control of finished dosage forms of Products and
their ingredients.
f. assisting the Company in the preparation of ANDAs.
g. providing periodic status reports on the Services being performed.
h. providing assistance, if required, to prepare and file Federal, State
and local tax returns.
i. advising on the investment of funds and rendering assistance and
advice with respect to real property owned or leased by the Company.
j. providing various legal support services when required, including
advice with respect to product liability claims and actions filed
against the Company.
k. providing technical support and/or consulting services for the Company
to optimize the Company's production capacity. To effectuate such an
optimization, the Service Provider may from time to time, transfer
industry demand, capacity utilization data to the Company to assist in
the production planning process.
l. providing assistance in financial planning, budgeting, sales
forecasting for the Products, subject to the Service Provider's
internal operational constraints.
m. providing additional administrative and technical support for new
product launches.
n. providing computer and/or management information system support for
the Company.
o. providing quality control and quality assurance services, as needed,
including Product testing.
p. advising in business planning and analysis.
q. providing assistance in certain data processing functions in support
of other management services provided pursuant hereto.
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1.2 The Service Provider shall use its reasonable efforts to ensure that
the Services provided hereunder are consistent with accepted industry
standards and in a professionally competent manner.
1.3 The Service Provider shall use its reasonable efforts to render
Services in material compliance with all applicable legal
requirements.
1.4 In order for the Service Provider to provide the Services hereunder,
the Company shall disclose to the Service Provider such information
and data which is reasonably requested by the Service Provider. The
Service Provider shall use such information and data exclusively in
the performance of its obligations hereunder, and such disclosure
shall be subject to the terms and conditions of this Agreement,
including Section 7, if such disclosure is of Confidential Information
as defined herein.
2. Payment Terms
In consideration of the Services to be rendered by the Service
Provider hereunder and of its undertaking to perform such Services for the
benefit of the Company during the term of this Agreement, the Company shall make
full payment of its obligations hereunder in the form of the Option. Such Option
shall entitle the Service Provider to acquire, beginning three years and ten
days after the date hereof, 820,000 shares of the Company's common stock at the
Exercise Price (as specified in the Option) for the Services provided. Such
Option shall expire at 5:00 P.M., New York City time, on June 30, 2003 if it
shall not have been fully exercised. The Company shall also reimburse the
Service Provider for all reasonable out-of-pocket costs and expenses (which
shall not include any direct or indirect labor costs) incurred in connection
with the performance of such Services, including, without limitation, travel
expenses, meals and lodging, cost for supplies directly consumed in rendering
such Services, storage and warehousing costs, printing and duplicating costs,
and transport and similar costs; provided, any such reimbursement in excess of
$10,000 in any calendar quarter, shall require the Company's prior written
approval. The Company shall be under no obligation to make any other payments
for the Services contemplated herein pursuant to this Agreement.
3. Schedule of Performance
During the term of this Agreement, the Service Provider shall perform
the Services from time to time, as reasonably required by the Company and as
agreed upon between the Company and the Service Provider, upon the Company's
advance written notice which shall be received by the Service Provider not less
than ten business days before the proposed service date. Upon receipt of such
notice, the Service Provider shall have five business days to accept or, in
consultation with the Company, reschedule the service date. The Company hereby
acknowledges that the Service Provider must take into consideration its own
labor constraints and existing commitments of its own business to other parties
in determining the service date of such Services. In any event, the Services
requested by the Company shall not be more than a total of 200 man hours per
calendar quarter unless the Service Provider expressly agrees otherwise.
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4. Term
This Agreement shall be effective from the date of execution of this
Agreement and shall remain in effect for thirty-six (36) months.
5. Representations and Warranties
5.1 Each Party hereby represents and warrants to the other Party as
follows:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of
incorporation;
(b) It has the corporate power and authority to own its assets,
carry on its business and execute and deliver this Agreement
and to perform its obligations hereunder;
(c) It has taken all appropriate and necessary action to
authorize the execution, delivery and performance of this
Agreement;
(d) All consents, approvals, licenses and authorizations of, and
all filings and registrations with, any governmental
authority necessary for the due execution, delivery,
performance and enforceability of this Agreement, have been
obtained and are in full force and effect; and
(e) This Agreement constitutes a legal, valid and binding
obligation, enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement will
not violate any provision of any applicable laws or
regulations.
6. Independent Contractor
This Agreement does not constitute or create (and the Parties do not
intend to create hereby) a joint venture, pooling arrangement,
partnership, or formal business organization of any kind between and
among any of the Parties, and the rights and obligations of the
Parties shall be only those expressly set forth herein. The Service
Provider will perform the Services as an independent contractor and
shall not be considered, for any purpose, to be an agent of the
Company or its affiliated companies. Each Party shall be responsible
for providing its own personnel and workers' compensation, medical
coverage or similar benefits, any life, disability or other insurance
protection. Each Party shall be solely responsible for the payment of
social security benefits, unemployment insurance, pension benefits,
withholding any required amounts for income and other
employment-related taxes and benefits of its own employees, and shall
make its own arrangements for injury, illness or other insurance
coverage to protect itself, its affiliated companies, its
subcontractors and personnel from any costs, expenses, damages, loss
and/or liability arising out of performance of the Services, or any
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transportation associated therewith. The Service Provider has no power
or authority to act for, represent, or bind the Company or its
affiliated companies in any manner.
7. Confidentiality
7.1 (a) The Parties recognize that in the course of performance of
the Agreement, either of them may disclose to the other
information about the disclosing Party's business or
activities which such Party considers proprietary and
confidential including, without limitation, trade secrets,
marketing and business plans, customer lists, and
information concerning the operations of the Parties (all of
such proprietary and confidential information is hereinafter
referred to as the "Confidential Information"). The Party
who receives any Confidential Information (the "Receiving
Party") agrees to maintain a confidential status for such
Confidential Information, not to use any such Confidential
Information for any purpose other than the purpose for which
it was originally disclosed to the Receiving Party, and not
to disclose any of such Confidential Information to any
third party, unless such information:
(i) is or has become available to the public from a
source other than the Receiving Party;
(ii) was already known to the Receiving Party from
sources other than the other Party at the time it
was disclosed to the Receiving Party and was not
obtained by the Receiving Party from such other
party in violation of a confidentiality or similar
agreement with such other party;
(iii) is disclosed to the Receiving Party by a third
party who is not under any legal obligation
prohibiting such disclosure;
(iv) is required to be disclosed by law;
(v) is developed independently by the Receiving Party;
or
(vi) is disclosed to the Receiving Party by a third
party pursuant to an obligation of such third
party or the exercise of a right by the Receiving
Party in circumstances where no obligation of
confidentiality applies to the Receiving Party
with respect to the information so disclosed.
(b) The Parties acknowledge that they may be required to
disclose Confidential Information to governmental agencies
or authorities by law or in connection with the obtaining of
approvals for the Company, and each shall endeavor to limit
disclosure to that purpose. If either Party is required to
disclose Confidential Information pursuant to this
paragraph, such Party will immediately give the other Party
written notice of any such disclosure, which notice shall
specify the
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substance of the disclosure. The Party making such a
disclosure shall take all reasonable steps to prevent
further disclosure of such Confidential Information.
7.2 Survival of Confidentiality: The provisions of this Section 7 shall
survive the termination of this Agreement for any reason whatsoever.
Upon such termination, the Parties shall return any Confidential
Information which may have been transmitted by the other Party, as
well as any copy or other reproduction, including, without limitation,
electronic data reproductions or representations.
8. Dispute Resolution
8.1 In the event of any controversy or claim between the Parties arising
out of or in connection with this Agreement or the breach hereof, the
Parties shall, in the first instance, make a good faith effort to
settle such dispute amicably.
8.2 If such controversy or claim is not settled within thirty (30) days
following written notice by one Party to the other Party of the
existence thereof, such controversy or claim shall be settled by
arbitration in New York, NY, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and judgment
upon the award may be entered in any court having jurisdiction
thereof.
9. Notices
All notices and other communications required or permitted hereunder
shall be given in writing by hand delivery, by facsimile, or by
registered or certified mail, return receipt requested, postage
prepaid, addressed to the Party to receive the same at its respective
address set forth below, or at such other address as may from time to
time be designated by either Party to the other Party hereunder in
accordance with this Section 9:
To the Service Provider:
Merck KGaA
Frankfurter Strasse 250
64271 Darmstadt, Germany
Attn: Professor Dr. Bernhard Scheuble
Facsimile: 011 49-6151-72-5962
With a copy to:
Coudert Brothers
1114 Avenue of the America
New York, New York 10036-7703
Attn: Edwin S. Matthews Jr., Esq.
Facsimile: 212-626-4120
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To the Company:
Pharmaceutical Resources, Inc.
One Ram Ridge Road
Spring Valley, New York 10977
Attn: Kenneth I. Sawyer
Facsimile: 914-425-5097
With a copy to:
Hertzog, Calamari & Gleason
100 Park Avenue
New York, New York 10017
Attn: Stephen Ollendorff, Esq. & Stephen R. Connoni, Esq.
Facsimile: 212-213-1199
All notices shall be effective when received. A notice is considered
received if a written confirmation of receipt appears thereon or there
exists a written fax confirmation. Either Party may by notice to the
other Party designate a new address for notices, such new address to
be effective ten (10) days after receipt of designation.
10. Indemnity
10.1 Each Party hereby agrees to indemnify and hold harmless the other
Party and its respective shareholders, directors, officers and
employees from and against any and all costs, losses, claims, actions,
demands, damages and liabilities (including attorneys' fees and
disbursements) incurred by such other party arising out of or in
respect of (i) any act, failure to act, or any assumption of any
obligation or responsibility by the indemnifying Party, or by any of
its directors, officers or employees, which is in contravention or
violation of or in conflict with any of the terms or provisions of
this Agreement, or (ii) any material breach of any of the
representations or warranties made by the indemnifying Party under
this Agreement; provided, however, that an indemnified Party shall not
be entitled to indemnification with respect to any costs, losses,
claims, actions, demands, damages and liabilities which was caused by
its own gross negligence, willful misconduct or reckless disregard of
its duties hereunder.
10.2 THE SERVICE PROVIDER MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AGREEMENT OR THE PERFORMANCE OF THE SERVICES PROVIDED
HEREUNDER OR THE WORK FURNISHED HEREUNDER, WHETHER ARISING AT LAW OR
IN EQUITY, EXCEPT AS SET FORTH HEREIN.
10.3 IN NO EVENT, OTHER THAN BREACH OF THE EXPRESS PROVISIONS OF THIS
AGREEMENT, SHALL EITHER PARTY OR A PARTY'S AFFILIATES AND ITS OR THEIR
SUBCONTRACTORS AND ITS OR THEIR OFFICERS, EMPLOYEES AND
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AGENTS, BE LIABLE, IN CONTRACT, IN TORT, OR OTHERWISE FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE ARISING AT ANY TIME
UNDER THIS AGREEMENT, INCLUDING SPECIFICALLY, BUT WITHOUT LIMITATION,
LOSS OF PROFITS OR REVENUE, LOSS OF FULL OR PARTIAL USE OF ANY
EQUIPMENT, DELAYS, COST OF REPLACEMENTS, COST OF CAPITAL, LOSS OF
GOODWILL, CLAIMS OF CUSTOMERS, OR OTHER SUCH DAMAGES.
11. Miscellaneous
11.1 Entire Agreement. This Agreement, together with the Annex hereto,
constitute the entire agreement of the Parties hereto with respect to
the performance of Services by the Service Provider for the Company
and supersedes and terminates all prior arrangements and agreements,
if any, between the Service Provider and the Company or any of its
affiliates with respect to the subject matter hereof.
11.2 No Waiver. No failure by either Party hereto to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any right hereunder by
either Party preclude any other or future exercise of that right or
any other right hereunder by that Party.
11.3 Severability. In case any one or more of the provisions of this
Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
11.4 Assignment. Neither Party may assign or transfer, in whole or in part,
its rights or interests in this Agreement.
11.5 Amendment. This Agreement may not be amended, terminated or superseded
except by (i) an agreement in writing between the Company and the
Service Provider and (ii) the prior written approval of a majority of
the Company Designees (as such term is defined in the Stock Purchase
Agreement, dated March 25, 1998, between the Company and Lipha
Americas, Inc.).
11.6 Survival: Any provision of this Agreement which can reasonably be
construed as surviving the expiration or termination of the Agreement,
including but not necessarily limited to the indemnification and
confidentiality provisions, shall so survive.
11.7 Governing Law: This Agreement, including the Annex, shall be governed
by, and construed in accordance with, the laws of the State of New
York without giving effect to the conflict of law provisions thereof.
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11.8 Agreement to Execute Documents: The Parties agree in good faith to
execute any and all documents required for the performance of this
Agreement.
11.9 Counterparts: This Agreement may be executed in any number of separate
counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed
to constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties,
effective as of the date above indicated.
PHARMACEUTICAL RESOURCES INC. MERCK, KGaA
By: /s/ Kenneth I. Sawyer By: /s/ Scheuble
-------------------- --------------------------
Name: Name: Prof. Dr. Bernhard Scheuble
Title: Title: Member of the Executive Board
By: /s/ Klaus-Peter Brandis
--------------------------
Name: Klaus-Peter Brandis
Title: Head of Legal Department
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EXHIBIT 5
EXECUTION COPY
PHARMACEUTICAL RESOURCES, INC.
Stock Option Agreement
PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the
"Company"), hereby grants Genpharm Inc., a corporation organized and existing
under the laws of the Province of Ontario, Canada (the "Optionee"), a
non-statutory stock option (the "Option") to purchase from the Company up to
351,040 shares of common stock, par value $.01 per share, of the Company
("Option Shares") at a price and on the terms set forth in this Option
Agreement. The Option is granted by the Company to the Optionee in consideration
for Services (as such term is defined in the Services Agreement) to be provided
by the Optionee to the Company pursuant to the Services Agreement, dated June
30, 1998, between the Company and the Optionee (the "Services Agreement").
SECTION 1. Term of Option. The Option is granted as of the
date hereof (the "Grant Date") and shall be exercisable at any time beginning
three years and ten days after the date hereof; provided that, to the extent not
exercised, this Option shall terminate on April 30, 2003.
SECTION 2. Vesting. The Option shall vest on the
following schedule:
Cumulative vested
Measured from Grant Date portion of Option Shares
First anniversary one-third
Second anniversary two-thirds
Third anniversary entire amount
SECTION 3. Exercise of Option. Subject to the provisions
hereof, this Option may be exercised in whole or in part at any time, or from
time to time, to the extent vested, during its term, as set forth in Section 1
herein, by presentation to the Company at its principal office of the Option
Exercise Form attached hereto, duly executed and accompanied by payment (either
in cash or by United States certified or official bank check payable to the
order of the Company) of the Exercise Price for the number of Option
<PAGE>
Shares specified in such Form. Upon receipt of the Option Exercise Form and such
payment, the Company shall, within five (5) business days, cause to be delivered
to the Optionee one or more certificates representing the aggregate number of
fully-paid and nonassessable Option Shares issuable upon exercise as specified
in the Form.
SECTION 4. Exercise Price. The exercise price ("Exercise
Price") shall be US $2.00 per share.
SECTION 5. Reservation of Shares. The Company will reserve for
issuance and delivery upon exercise of this Option all authorized but unissued
Common Shares or other shares of capital stock of the Company (and other
securities and property) from time to time receivable upon exercise of this
Option.
SECTION 6. Restrictions on Transfer, Exercise and
Registration.
6.1 Transferability. This Option may not be sold, transferred,
pledged, assigned or otherwise disposed of (collectively, "Transferred") by the
Optionee.
6.2 Compliance with Securities Legislation. No Option Shares
may be transferred except in full compliance with all applicable provisions of
the Securities Act of 1933 and of applicable state securities laws.
6.3 Legend. Each certificate for the Option Shares shall be
endorsed with the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT
BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS UNDER APPLICABLE FEDERAL
AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE
FEDERAL AND STATE SECURITIES LAWS."
6.4 Registration. The Option Shares shall have the benefit of
the Registration Rights Agreement, dated March 25, 1998, between the Company,
Lipha Americas, Inc., Merck KGaA and the Optionee.
6.5 Restrictions on Exercise. The Option may not be exercised
if the issuance of the Option Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of the Option,
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<PAGE>
the Company may require the Optionee to make any representation and warranty to
the Company as may be required by any applicable law or regulation.
SECTION 7. Rights of the Optionee. The Optionee shall not be
entitled to any rights of a shareholder of the Company with respect to the
Option Shares solely as a result of the grant of the Option. Such rights shall
exist only after issuance of a stock certificate in accordance with Section 3
above following the Optionee's exercise of the Option (or a portion thereof)
hereunder. The rights of the Optionee are limited to those expressly provided in
this Option.
SECTION 8. Termination of Services Agreement
(a) If the Services Agreement terminates other than as a result of the
Optionee's Breach and the Optionee thereby ceases to provide Services to the
Company, this Option may be exercised in full during the remaining balance of
the term of the Option (but not in any event before three years and ten days
have elapsed from the date hereof or beyond the expiration of the term of this
Option), notwithstanding anything to the contrary in this Option Agreement.
(b) If the Services Agreement terminates as a result of the Optionee's
Breach and the Optionee thereby ceases to provide Services to the Company, the
Optionee may exercise the Option, to the extent vested as of the date of such
termination, during the remaining balance of the term of the Option (but not in
any event before three years and ten days have elapsed from the date hereof or
beyond the expiration of the term of the Option).
(c) For purposes of this section, "Breach" means willful refusal of the
Optionee to provide Services to the Company in accordance with the Services
Agreement.
SECTION 9. Anti-Dilution Provisions.
9.1. Adjustments for Stock Dividends; Combinations, Etc. In
case the Company shall do any of the following (each, an "Event"):
(a) declare a dividend or other distribution on its common
shares payable in common shares of the Company;
(b) effect a subdivision of its outstanding common shares
into a greater number of common shares (by reclassification,
stock split or otherwise by payment of a dividend in common
shares);
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(c) effect a combination of its outstanding common shares
into a lesser number of common shares (by reclassification,
reverse split or otherwise);
(d) issue by reclassification, exchange or substitution of
its common shares any shares of capital stock of the Company; or
(e) effect any other transaction having a similar effect,
then the Exercise Price in effect at the time of the record date for such Event
shall be adjusted to a price determined by multiplying such Exercise Price by a
fraction, the numerator of which shall be the number of shares of common stock
outstanding immediately prior to such Event and the denominator of which shall
be the number of Common Shares outstanding immediately after such Event. Each
such adjustment of the Exercise Price shall be calculated to the nearest cent.
No such adjustment shall be made in an amount less than One Cent ($.01), but any
such amount shall be carried forward and shall be given effect in connection
with the next subsequent adjustment. Such adjustment shall be made successively
whenever any Event shall occur.
9.2 Adjustment in the Number of Option Shares. Whenever the
Exercise Price shall be adjusted pursuant to Section 9.1 hereof, the number of
Option Shares which the Optionee may purchase upon exercise of the Service
Option shall be adjusted, to the nearest full share, by multiplying such number
of Option Shares immediately prior to such adjustment by a fraction, the
numerator of which shall be the Exercise Price immediately prior to such
adjustment and the denominator of which shall be the Exercise Price immediately
thereafter.
9.3 Adjustment for Consolidation or Merger. In case of any
consolidation or merger to which the Company shall be a party, other than a
consolidation or merger in which the Company shall be the surviving or
continuing corporation, or in case of any sale or conveyance to another entity
of all or substantially all of the property of the Company, or in the case of
any statutory exchange of securities with another entity (including any exchange
effected in connection with a merger of any other corporation with the Company),
the Optionee shall have the right thereafter to receive from the Company upon
exercise of the Option the kind and amount of securities, cash or other property
which it would have owned or have been entitled to receive immediately after
such consolidation, merger, statutory exchange, sale or conveyance had this
Option been exercised immediately prior to the effective
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<PAGE>
date of such transaction and, if necessary, appropriate adjustment shall be made
in the application of the provisions set forth in this Section 9 with respect to
the rights and interests thereafter of the Optionee to the end that the
provisions set forth in this Section 9 shall thereafter correspondingly be made
applicable, as nearly as then may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Option. Notice of any such consolidation, merger, statutory exchange,
sale or conveyance, and of the provisions proposed to be adjusted, shall, to the
extent reasonably practicable, be mailed to the Optionee not less than thirty
(30) days prior to such event.
SECTION 10. Fully Paid Shares; Taxes. The Company agrees that
the common shares of the Company represented by each and every certificate for
the Option Shares delivered on the exercise of this Option in accordance with
the terms hereof shall, at the time of such delivery, be validly issued,
fully-paid and nonassessable, free and clear of all liens, pledges, options,
claims or other encumbrances. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes (but specifically not including any income taxes) which
may be payable in respect of the issue of any Option Shares or certificates
therefor.
SECTION 11. Notices. All notices hereunder shall be in writing
and shall be given: (a) if to the Company, at One Ram Ridge Road, Spring Valley,
New York 10977 (attention: Kenneth I. Sawyer), fax number: (914) 425-5097, with
a copy to Hertzog, Calamari & Gleason, at 100 Park Avenue, New York, New York
10017 (attention: Stephen Ollendorff, Esq., and Stephen R. Connoni, Esq.), fax
number: (212) 213-1199, or (b) if to the Optionee, at Genpharm Inc., 85 Advance
Road, Etobicoke, Ontario M8Z 2S9, Canada (attention: [Chief Financial Officer]),
fax number: (416) 236-2940, with a copy to Coudert Brothers, at 1114 Avenue of
the Americas, New York, New York 10036 (attention: Edwin S. Matthews, Jr.), fax
number: (212) 626-4120. Any notice shall be deemed to have been given if
personally delivered or sent by express commercial courier or delivery service
or by telegram, telefax, telex or facsimile transmission. Any notice given in
any other manner shall be deemed given when actually received.
SECTION 12. Amendments; Waiver. This Option may not be
amended, and no provision hereof may be waived, without the prior written
consent of at least a majority of the Company Designees (as defined in the Stock
Purchase
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Agreement, dated March 25, 1998, between the Company and Lipha Americas, Inc.)
on behalf of the Company and except pursuant to a written instrument executed by
the Company and the Optionee.
SECTION 13. Headings. The headings of the Sections of this
Option have been inserted for convenience of reference only and shall not be
deemed to be a part of this Option.
SECTION 14. Governing Law. This Option is issued under, and
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 within such
State.
IN WITNESS WHEREOF, the Company has caused this Option to be
signed on its behalf, in its corporate name, by its duly authorized officer, on
June 30, 1998.
PHARMACEUTICAL RESOURCES, INC.
By: /s/Kenneth I Sawyer
--------------------------
Kenneth I. Sawyer
President
Attest:
/s/ Dennis J. O'Connor
- -------------------------
Dennis J. O'Connor
Secretary
GENPHARM, INC.
By: /s/ J.N. Tabatznik
--------------------
Name: J.N. Tabatznik
Title CEO
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PHARMACEUTICAL RESOURCES, INC.
STOCK OPTION EXERCISE FORM
For services performed, the undersigned hereby irrevocably elects to
exercise the attached Option to purchase ______ shares of common stock of
Pharmaceutical Resources, Inc. at the Exercise Price of $2.00 per share, in
accordance with the Option Agreement.
Attached hereto is cash or a U.S. certified or official bank check
payable to the order of the Company in the amount of the total Exercise Price
set forth above.
Name of Optionee
Signature of Optionee
or Authorized Representative
Name and Title of Authorized
Representative
Address of Optionee
Date
<PAGE>
EXHIBIT 6
EXECUTION COPY
GENPHARM SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is dated as of June 30,
1998, between Pharmaceutical Resources, Inc., a New Jersey corporation, whose
principal offices are located at One Ram Ridge Road, Spring Valley, New York
10977 (the "Company"), and Genpharm Inc., a corporation organized and existing
under the laws of the Province of Ontario, Canada, whose principal offices are
located at 85 Advance Road, Etobicoke, Ontario, M8Z 2S6, Canada (the "Service
Provider"), each of which may be referred to individually as a "Party" or
collectively as the "Parties." This Agreement and the Annex contemplated hereby
are collectively referred to as the "Agreement" unless indicated otherwise.
WHEREAS, the Service Provider possesses, inter alia, substantial and
long acquired technical expertise and know-how in the areas of product
development, clinical studies and trials, marketing, distribution, financial and
administrative support, and other areas related to the development of generic
drugs; and
WHEREAS, the Company wishes to engage certain services of the Service
Provider, and the Service Provider is willing to perform the Services defined
herein, on the terms and conditions set forth herein, in consideration of the
issuance by the Company to the Service Provider of a stock option to acquire
351,040 shares of common stock of the Company (the "Option Shares"), in the form
of the Annex hereto (the "Option").
NOW, THEREFORE, in consideration of the mutual obligations and
benefits set forth in this Agreement, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Service Provider agree to the following
terms and conditions:
1. Services
1.1 At the request of the Company and subject to the provisions of this
Agreement, the Service Provider will perform some or all of the
following services (the "Services") with respect to certain products
as agreed to between the parties from time to time (the "Products"):
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a. providing assistance and advice in the promotion, marketing, and/or
distribution of a patented computer software in Electronic
Documentation Management System on which the Company has obtained
exclusive marketing rights.
b. assisting and advising the planning, developing and producing of
advertising and promotional programs for the Products, including
selection of advertising agencies, advertising media and the type and
scope of programs offered.
c. assisting the distributing of samples, literature and other direct
promotional materials through the mail, sales representatives or other
customary methods.
d. advising the training and maintaining of sales representatives to make
personal presentations of the Products to health care professionals
and potential purchasers of the Products in the Territory (as defined
in the Distribution Agreement, dated March 25, 1998, between the
Company and the Services Provider).
e. providing assistance in the development and dissemination of
professional education programs and materials.
f. providing consulting services for the Company in developing marketing
plans for the Products, which will include market research analyses,
objectives and strategies, sales forecasts, proposed pricing and
promotional programs.
g. providing assistance and advice in public relations services,
including responses to inquiries, preparation of press releases and
announcements regarding the Products.
h. advising the Company as to the state of the Product market in the
Territory, if such information shall be available from the Service
Provider, and important market developments and trends in order to
facilitate the Company's production scheduling. Such information shall
be provided in periodic reports when available, with important market
developments promptly communicated.
1.2 The Service Provider shall use its reasonable efforts to ensure that
the Services provided hereunder are consistent with accepted industry
standards and in a professionally competent manner.
1.3 The Service Provider shall use its reasonable efforts to render
Services in material compliance with all applicable legal
requirements.
1.4 In order for the Service Provider to provide the Services hereunder,
the Company shall disclose to the Service Provider such information
and data which is reasonably requested by the Service Provider. The
Service Provider shall use such information and data exclusively in
the performance of its obligations hereunder, and such disclosure
shall be
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subject to the terms and conditions of this Agreement, including
Section 7, if such disclosure is of Confidential Information as
defined herein.
2. Payment Terms
In consideration of the Services to be rendered by the Service
Provider hereunder and of its undertaking to perform such Services for the
benefit of the Company during the term of this Agreement, the Company shall make
full payment of its obligations hereunder in the form of the Option. Such Option
shall entitle the Service Provider to acquire, beginning three years and ten
days after the date hereof, 351,040 shares of the Company's common stock at the
Exercise Price (as specified in the Option) for the Services provided. Such
Option shall expire at 5:00 P.M., New York City time, on June 30, 2003 if it
shall not have been fully exercised. The Company shall also reimburse the
Service Provider for all reasonable out-of-pocket costs and expenses (which
shall not include any direct or indirect labor costs) incurred in connection
with the performance of such Services, including, without limitation, travel
expenses, meals and lodging, cost for supplies directly consumed in rendering
such Services, storage and warehousing costs, printing and duplicating costs,
and transport and similar costs; provided, any such reimbursement in excess of
$10,000 in any calendar quarter, shall require the Company's prior written
approval. The Company shall be under no obligation to make any other payments
for the Services contemplated herein pursuant to this Agreement.
3. Schedule of Performance
During the term of this Agreement, the Service Provider shall perform
the Services from time to time, as reasonably required by the Company and as
agreed upon between the Company and the Service Provider upon, advance written
notice which shall be not less than ten business days before the proposed
service date. Upon receipt of such notice, the Service Provider shall have five
business days to accept or, in consultation with the Company, reschedule the
service date. The Company hereby acknowledges that the Service Provider must
take into consideration its own labor constraints and existing commitments of
its own business and to other parties in determining the service date of such
Services. In any event, the Services requested by the Company shall not be more
than a total of 100 man hours per calendar quarter unless the Service Provider
expressly agrees otherwise.
4. Term
This Agreement shall be effective from the date of execution of this
Agreement and shall remain in effect for thirty-six (36) months.
5. Representations and Warranties
5.1 Each Party hereby represents and warrants to the other Party as
follows:
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(a) It is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of
incorporation;
(b) It has the corporate power and authority to own its assets,
carry on its business and execute and deliver this Agreement
and to perform its obligations hereunder;
(c) It has taken all appropriate and necessary action to
authorize the execution, delivery and performance of this
Agreement;
(d) All consents, approvals, licenses and authorizations of, and
all filings and registrations with, any governmental
authority necessary for the due execution, delivery,
performance and enforceability of this Agreement, have been
obtained and are in full force and effect; and
(e) This Agreement constitutes a legal, valid and binding
obligation, enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement will
not violate any provision of any applicable laws or
regulations.
6. Independent Contractor
This Agreement does not constitute or create (and the Parties do not
intend to create hereby) a joint venture, pooling arrangement,
partnership, or formal business organization of any kind between and
among any of the Parties, and the rights and obligations of the
Parties shall be only those expressly set forth herein. The Service
Provider will perform the Services as an independent contractor and
shall not be considered, for any purpose, to be an agent of the
Company or its affiliated companies. Each Party shall be responsible
for providing its own personnel and workers' compensation, medical
coverage or similar benefits, any life, disability or other insurance
protection. Each Party shall be solely responsible for the payment of
social security benefits, unemployment insurance, pension benefits,
withholding any required amounts for income and other
employment-related taxes and benefits of its own employees, and shall
make its own arrangements for injury, illness or other insurance
coverage to protect itself, its affiliated companies, its
subcontractors and personnel from any costs, expenses, damages, loss
and/or liability arising out of performance of the Services, or any
transportation associated therewith. The Service Provider has no power
or authority to act for, represent, or bind the Company or its
affiliated companies in any manner.
7. Confidentiality
7.1 (a) The Parties recognize that in the course of performance of
the Agreement, either of them may disclose to the other
information about the disclosing Party's business or
activities which such Party considers proprietary and
confidential including, without limitation, trade secrets,
marketing and business plans, customer lists, and
information concerning the operations of the Parties (all of
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such proprietary and confidential information is hereinafter
referred to as the "Confidential Information"). The Party
who receives any Confidential Information (the "Receiving
Party") agrees to maintain a confidential status for such
Confidential Information, not to use any such Confidential
Information for any purpose other than the purpose for which
it was originally disclosed to the Receiving Party, and not
to disclose any of such Confidential Information to any
third party, unless such information:
(i) is or has become available to the public from a
source other than the Receiving Party;
(ii) was already known to the Receiving Party from
sources other than the other Party at the time it
was disclosed to the Receiving Party and was not
obtained by the Receiving Party from such other
party in violation of a confidentiality or similar
agreement with such other party;
(iii) is disclosed to the Receiving Party by a third
party who is not under any legal obligation
prohibiting such disclosure;
(iv) is required to be disclosed by law;
(v) is developed independently by the Receiving Party;
or
(vi) is disclosed to the Receiving Party by a third
party pursuant to an obligation of such third
party or the exercise of a right by the Receiving
Party in circumstances where no obligation of
confidentiality applies to the Receiving Party
with respect to the information so disclosed.
(b) The Parties acknowledge that they may be required
to disclose Confidential Information to
governmental agencies or authorities by law or in
connection with the obtaining of approvals for the
Company, and each shall endeavor to limit
disclosure to that purpose. If either Party is
required to disclose Confidential Information
pursuant to this paragraph, such Party will
immediately give the other Party written notice of
any such disclosure, which notice shall specify
the substance of the disclosure. The Party making
such a disclosure shall take all reasonable steps
to prevent further disclosure of such Confidential
Information.
7.2 Survival of Confidentiality: The provisions of this Section 7 shall
survive the termination of this Agreement for any reason whatsoever.
Upon such termination, the Parties shall return any Confidential
Information which may have been transmitted by the other Party, as
well as any copy or other reproduction, including, without limitation,
electronic data reproductions or representations.
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8. Dispute Resolution
8.1 In the event of any controversy or claim between the Parties arising
out of or in connection with this Agreement or the breach hereof, the
Parties shall, in the first instance, make a good faith effort to
settle such dispute amicably.
8.2 If such controversy or claim is not settled within thirty (30) days
following written notice by one Party to the other Party of the
existence thereof, such controversy or claim shall be settled by
arbitration in New York, NY, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and judgment
upon the award may be entered in any court having jurisdiction
thereof.
9. Notices
All notices and other communications required or permitted hereunder
shall be given in writing by hand delivery, by facsimile, or by
registered or certified mail, return receipt requested, postage
prepaid, addressed to the Party to receive the same at its respective
address set forth below, or at such other address as may from time to
time be designated by either Party to the other Party hereunder in
accordance with this Section 9:
To the Service Provider:
Genpahrm Inc.
85 Advance Road
Etobicoke, Ontario, M8Z 2S9
Attn: [Chief Financial Officer]
Facsimile: (416) 236-2940
With a copy to:
Coudert Brothers
1114 Avenue of the America
New York, New York 10036-7703
Attn: Edwin S. Matthews Jr., Esq.
Facsimile: 212-626-4120
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To the Company:
Pharmaceutical Resources, Inc.
One Ram Ridge Road
Spring Valley, New York 10977
Attn: Kenneth I. Sawyer
Facsimile: 914-425-5097
With a copy to:
Hertzog, Calamari & Gleason
100 Park Avenue
New York, New York 10017
Attn: Stephen Ollendorff, Esq. & Stephen R. Connoni, Esq.
Facsimile: 212-213-1199
All notices shall be effective when received. A notice is considered
received if a written confirmation of receipt appears thereon or there
exists a written fax confirmation. Either Party may by notice to the
other Party designate a new address for notices, such new address to
be effective ten (10) days after receipt of designation.
10. Indemnity
10.1 Each Party hereby agrees to indemnify and hold harmless the other
Party and its respective shareholders, directors, officers and
employees from and against any and all costs, losses, claims, actions,
demands, damages and liabilities (including attorneys' fees and
disbursements) incurred by such other party arising out of or in
respect of (i) any act, failure to act, or any assumption of any
obligation or responsibility by the indemnifying Party, or by any of
its directors, officers or employees, which is in contravention or
violation of or in conflict with any of the terms or provisions of
this Agreement, or (ii) any material breach of any of the
representations or warranties made by the indemnifying Party under
this Agreement; provided, however, that an indemnified Party shall not
be entitled to indemnification with respect to any costs, losses,
claims, actions, demands, damages and liabilities which was caused by
its own gross negligence, willful misconduct or reckless disregard of
its duties hereunder.
10.2 THE SERVICE PROVIDER MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AGREEMENT OR THE PERFORMANCE OF THE SERVICES PROVIDED
HEREUNDER OR THE WORK FURNISHED HEREUNDER, WHETHER ARISING AT LAW OR
IN EQUITY, EXCEPT AS SET FORTH HEREIN.
10.3 IN NO EVENT, OTHER THAN BREACH OF THE EXPRESS PROVISIONS OF THIS
AGREEMENT, SHALL EITHER PARTY OR A PARTY'S AFFILIATES AND ITS OR THEIR
SUBCONTRACTORS AND ITS OR THEIR OFFICERS, EMPLOYEES AND
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AGENTS, BE LIABLE, IN CONTRACT, IN TORT, OR OTHERWISE FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE ARISING AT ANY TIME
UNDER THIS AGREEMENT, INCLUDING SPECIFICALLY, BUT WITHOUT LIMITATION,
LOSS OF PROFITS OR REVENUE, LOSS OF FULL OR PARTIAL USE OF ANY
EQUIPMENT, DELAYS, COST OF REPLACEMENTS, COST OF CAPITAL, LOSS OF
GOODWILL, CLAIMS OF CUSTOMERS, OR OTHER SUCH DAMAGES.
11. Miscellaneous
11.1 Entire Agreement. This Agreement, together with the Annex hereto,
constitute the entire agreement of the Parties hereto with respect to
the performance of Services by the Service Provider for the Company
and supersedes and terminates all prior arrangements and agreements,
if any, between the Service Provider and the Company or any of its
affiliates with respect to the subject matter hereof.
11.2 No Waiver. No failure by either Party hereto to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any right hereunder by
either Party preclude any other or future exercise of that right or
any other right hereunder by that Party.
11.3 Severability. In case any one or more of the provisions of this
Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
11.4 Assignment. Neither Party may assign or transfer, in whole or in part,
its rights or interests in this Agreement.
11.5 Amendment. This Agreement may not be amended, terminated or superseded
except by (i) an agreement in writing between the Company and the
Service Provider and (ii) the prior written approval of a majority of
the Company Designees (as such term is defined in the Stock Purchase
Agreement, dated March 25, 1998, between the Company and Lipha
Americas, Inc.).
11.6 Survival: Any provision of this Agreement which can reasonably be
construed as surviving the expiration or termination of the Agreement,
including but not necessarily limited to the indemnification and
confidentiality provisions, shall so survive.
11.7 Governing Law: This Agreement, including the Annex, shall be governed
by, and construed in accordance with, the laws of the State of New
York without giving effect to the conflict of law provisions thereof.
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11.8 Agreement to Execute Documents: The Parties agree in good faith to
execute any and all documents required for the performance of this
Agreement.
11.9 Counterparts: This Agreement may be executed in any number of separate
counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed
to constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties,
effective as of the date above indicated.
PHARMACEUTICAL RESOURCES INC. GENPHARM INC.
By: /s/ Kenneth I. Sawyer By: /s/ J.N. Tabatznik
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Name: Name: J.N. Tabatznik
Title: Title: Chairman
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EXHIBIT 7
REGISTRATION RIGHTS AGREEMENT, dated June 30, 1998, between
PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the "Company"), Lipha
Americas, Inc., a Delaware corporation ("Lipha") Merck KGaA, a
Kommanditgesellschaft auf Aktien organized under the laws of Germany ("Merck"),
and Genpharm, Inc., a corporation organized and existing under the laws of the
Province of Ontario, Canada ("Genpharm", together with Merck and Lipha, the
"Holders" and each a "Holder").
WHEREAS, Lipha concurrently herewith is purchasing 10,400,000
shares of common stock, par value $.01 per share, of the Company ("Common
Stock") pursuant to a Stock Purchase Agreement, dated March 25, 1998, between
the Company and the Holder (the "Stock Purchase Agreement");
WHEREAS, Lipha concurrently herewith is purchasing 2,313,000
shares of Common Stock owned by Clal Pharmaceutical Industries Ltd., pursuant to
the Clal Stock Purchase Agreement (as such term is defined in the Stock Purchase
Agreement);
WHEREAS, the Holders may purchase an aggregate of up to an
additional 1,171,040 shares of Common Stock upon exercise of the separate
Options (as such term is defined in the Stock Purchase Agreement); and
WHEREAS, the Stock Purchase Agreement provides that the
execution and delivery of this Agreement is a condition precedent to the
respective obligations of the Company and Lipha to consummate the transactions
contemplated by such Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements set forth herein, the parties hereto agree as follows:
SECTION 1. Demand Registrations.
1.1 The Company agrees that, commencing on the date nine (9)
months from the date hereof, upon receiving a written request (the "Request")
from any Holder to register under the Securities Act of 1933, as amended (the
"Securities Act"), and under the securities laws of a reasonable number of
states specified by the Holder in the Request (the "Specified States"), a
specified number of shares of Subject Stock (as hereinafter defined), which
number may be all or a material part of the Subject Stock then owned by the
Holders, the Company shall, as soon thereafter as practicable, file with the
Securities and Exchange Commission (the "Commission") on the appropriate form a
registration statement, together with any requisite registration statements or
applications under the securities laws of the Specified States, covering the
number of shares of Subject Stock specified in the Request. The
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2
Company, under no circumstances, shall be required to make more than three
effective filings of a registration statement under this Section 1; provided,
however, that beginning at such time, if ever, as any Holder shall exercise the
Options, in whole or in material part, the Company shall be obligated to effect
two additional registrations pursuant to this Section 1 following any Holder's
delivery of a Request; provided, further, that the Holders may not deliver more
than one Request in total during any 12-month period. For the purpose of the
preceding sentence, Requests delivered at the same time by the Holders together
shall be counted as one Request. The Company may, in its sole discretion,
include additional issued or unissued shares of Common Stock in such
registration statement; provided, that the inclusion of any such shares shall
not reduce the number of shares of Subject Stock contained in the Request which
are covered by such registration statement.
1.2 The term "Subject Stock", as used herein, shall mean the
number of shares of Common Stock owned by the Holders which shall have been
purchased by any Holder (a) under the Stock Purchase Agreement at the Closing
(as such term is defined therein), (b) under the Clal Stock Purchase Agreement
or (c) upon any exercise of the Options. "Registration statement" means all
registration statements, including all prospectuses contained therein and all
amendments or supplements thereto, or any related applications filed under the
Securities Act or under the securities laws of the applicable states.
1.3 The Company shall use its best efforts to cause a
registration statement including the shares of Subject Stock to become effective
under the Securities Act and, if necessary, under the securities laws of the
Specified States. The Company shall further use its best efforts to maintain the
effectiveness of such registration statement for such period as may be
reasonably necessary to complete the distribution of the Subject Stock covered
thereby, subject to the limitations set forth in Sections 3 and 4 hereof.
1.4 If the method of disposition requested by a Holder
pursuant to this Section 1 shall be an underwritten public offering, such Holder
shall have the right to designate the underwriter of such offering. Any
underwriter selected by such Holder shall be subject to the approval of the
Company, which approval shall not be unreasonably withheld (the "Underwriter").
The Company will join the Holders in entering into an underwriting agreement and
related agreements with the Underwriter, which shall be in form and substance
reasonably satisfactory to the Company and its counsel and shall contain terms
and provisions customarily contained in the underwriting agreements utilized by
such Underwriter in connection with comparable public offerings, including an
indemnification of the Underwriter by the Company and the Holders.
1.5 All expenses, disbursements, fees (filing fees and
others), legal and accounting expenses, and other costs of every kind and nature
incurred or borne
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3
by the Company and the Holders in connection with a registration requested under
this Section 1 (both under the Securities Act and under the securities laws of
the Specified States) shall be paid and/or reimbursed by the Holders; provided,
however, that if the Company shall include any shares of Common Stock in any
such registration, then the Company shall reimburse the Holders, within 10 days
following the Holders' written request, for all such expenses, disbursements,
fees and other costs using the ratio of net cash received by the Company and any
other sellers of shares of Common Stock under such registration statement to the
total amount of net cash received by the Holders unless the Holders shall have
otherwise agreed to bear such expenses, disbursements, fees and other costs on
behalf of any other stockholder of the Holders for whom shares of Common Stock
are being included in such registration.
SECTION 2. Piggyback Registrations.
2.1 The Company agrees that, on each occasion that it shall
propose to file a registration statement covering shares of Common Stock,
whether on its own behalf or at the request of any other stockholder of the
Company (other than a registration statement on Form S-4 or Form S-8 under the
Securities Act), with the Commission or under the laws of any state
jurisdiction, the Company shall give written notice ("Piggyback Notice") of such
proposed filing to the Holders at least 40 days prior to such filing. Upon the
written request of any Holder, given within 10 days after the date of the
Piggyback Notice, the Company shall use its best efforts to include in any such
filing such number of shares of Subject Stock that shall be requested by the
Holders, subject to any limitations as to the number of shares of Subject Stock
that may be imposed by the Company's underwriter (if any); provided, however,
that if such registration statement is being filed at the request of another
stockholder of the Company, then the maximum number of shares of Subject Stock
included in such registration shall be equal to the lesser of (a) the aggregate
number of shares of the Common Stock to be included in such registration
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock owned by the Holders on the date of the Piggyback Notice and the
denominator of which shall be the aggregate number of shares of Common Stock
that are issued and outstanding on such date, or (b) the number of shares of the
Common Stock that the Holders shall have requested to have included in such
registration.
2.2 The Company agrees that it shall use its best efforts to
cause the registration statement including the shares of Subject Stock to become
effective under the Securities Act and under the securities laws of Specified
States. The Company shall further use its best efforts to maintain the
effectiveness of such registration statement for such period as may be
reasonably necessary to complete the distribution of the Subject Stock covered
thereby, subject to the limitations set forth in Section 4 hereof.
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4
2.3 The Holders shall pay all fees and expenses of its counsel
and accountants who shall not also be representing the Company, and shall
reimburse the Company for certain additional expenses incurred by the Company as
set forth in this Section 2.3. The Company shall pay all expenses,
disbursements, fees (filing and others), legal and accounting and other costs of
every kind and nature incurred or borne by the Company in connection with such a
registration requested under this Section 2 (both under the Securities Act and
under the laws of the Specified States in which shares of the Subject Stock are
being sold), except that the Holders shall promptly reimburse the Company for
all such expenses, disbursements, fees and other costs using the ratio of net
cash received by the Holders to the total amount of net cash received by the
Company and any other sellers of shares of Common Stock under such registration
statement unless the Company shall have otherwise agreed to bear such expenses,
disbursements, fees and other costs on behalf of any other stockholder of the
Company for whom shares of Common Stock are being included in such registration.
SECTION 3. Holdback Agreement; Limitation on Resales. If the
Company at any time shall register shares of Common Stock under the Securities
Act for sale to the public, neither Holder shall sell publicly, make any short
sale of, or grant any option for the purchase of, or otherwise dispose publicly
of, any of the shares of Subject Stock (other than Subject Stock included in a
registration statement pursuant to Sections 1 or 2 hereof), without the prior
written consent of the Company, for a period designated by the Company in
writing to the Holders, which period shall begin not more than ten (10) days
prior to the effectiveness of the registration statement pursuant to which such
public offering shall be made and shall terminate at such time as similar
restrictions imposed by law and/or Company policy on directors and executive
officers of the Company generally shall terminate; provided, however, that, in
no event, shall such restrictions last more than 180 days after the effective
date of such registration statement.
SECTION 4. Preparation and Filing. Whenever the Company shall
be under an obligation pursuant to this Agreement to use its best efforts to
effect the registration of the shares of Subject Stock, the Company and the
Holders agree as follows:
(a) The Company shall, in no event, be required to keep such
registration effective for longer than nine months after the effective
date thereof or during any period in which the trading of any shares of
Common Stock shall be suspended for any reason by the Commission.
(b) The Company shall use its best efforts to cause all shares
of Subject Stock registered pursuant to Sections 1 or 2 hereof to be
listed for
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5
trading on each securities exchange or other securities market on which
the Common Stock shall then be listed.
(c) The Company may require each Holder to promptly furnish in
writing to the Company such information regarding such Holder, the
distribution of the shares of Subject Stock as the Company may from
time to time reasonably request and such other information as may be
legally required in connection with such registration.
(d) The Company shall supply the Holders with such number of
copies of registration statements, and amendments and supplements
thereto, and any prospectus relating thereto as may be reasonably
requested by the Holders, and will supply the Holders with copies of
any preliminary and final prospectus filed in connection therewith that
may be reasonably required and, if necessary, with copies of a
prospectus meeting the requirements of Section 10(a)(3) of the
Securities Act; provided, however, that no such prospectus need be
supplied more than nine months after the effective date of any such
registration statement.
(e) The Company shall not be required in connection with any
qualification of the shares of Subject Stock to be sold within any
state jurisdiction to qualify to do business as a foreign corporation
in any state, to execute a general consent to service of process or to
subject itself to taxation, registration as a broker-dealer or to any
unreasonable regulatory requirements or unreasonable expenses, but
shall execute and deliver consents to service of process in the
Specified States as to matters relating to the sale of the shares of
Subject Stock in such States.
(f) The Company shall promptly notify the Holders of any stop
order issued or threatened by the Commission or any state regulatory
authority with respect to any registration statement covering the
shares of Subject Stock and shall take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered.
(g) Each of the Company and each Holder shall promptly notify
the other party of the occurrence of any event which shall require the
filing of an amendment or supplement to any registration statement and
prospectus covering the shares of Subject Stock. Upon receipt of such
notice, each party shall refrain from the sale of any shares of Subject
Stock pursuant to such registration statement and prospectus until the
receipt by such party of copies of the supplemented or amended
registration statement and prospectus.
SECTION 5. Information. Each Holder agrees that, promptly upon
the request of the Company, it shall furnish to the Company such information
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6
regarding itself and its Affiliates, as such term is defined in Rule 12b-2 of
the Securities Exchange Act of 1934 (the "Exchange Act"), and its holdings of
shares of the Subject Stock as the Company shall specify in such request and as
shall be required in connection with any registration statement, proxy or other
reporting requirements of the Company. Each Holder further agrees to cooperate
with the Company in any way reasonably necessary to accomplish any such
registration hereunder and, when participating in any such registration, to
comply with all of the requirements of the Securities Act and the securities
laws of the states in which the shares of Subject Stock are being sold,
including delivery by the Holder to any purchaser of the shares of Subject Stock
of a copy of any required prospectus. Notwithstanding anything herein to the
contrary, each Holder further agrees that it shall indemnify the Company and
hold it harmless from and against, and pay or reimburse it for, any liability,
loss, cost or damage, including attorneys' fees, incurred by the Company as a
result of any failure on such Holder's part to carry out the foregoing
agreement.
SECTION 6. Indemnification.
6.1 Indemnitors; Indemnified Persons. For purposes of this
Section 6, each party which, pursuant to this Section 6, agrees to indemnify any
other person or entity shall be referred to, as applicable, as the "Indemnitor"
with respect to such person or entity, and each such person or entity who is
indemnified shall be referred to as the "Indemnified Person" with respect to
such Indemnitor.
6.2 Company Indemnity. The Company hereby agrees to indemnify
and hold harmless each Holder, and their respective directors, officers,
employees, agents and controlling persons (within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act), from and against any
and all claims, liabilities, losses, damages and expenses (including reasonable
attorneys' fees and disbursements) asserted against or incurred by any such
Indemnified Person which shall be caused by any untrue statement of a material
fact contained in any registration statement or prospectus relating to the
Subject Stock, including any amendment or supplement thereto, or shall be caused
by any omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities and expenses shall be caused by any
untrue statement or omission based upon information furnished in writing to the
Company by such Holder or on such Holder's behalf for use therein.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6.2 shall not inure to the benefit of any
Indemnified Person from whom a person or entity asserting a claim purchased
shares if an untrue statement or omission of material fact in any prospectus
shall have been corrected by the Company on a timely basis, such person or
entity shall have failed to utilize such corrected prospectus and such corrected
prospectus would have cured the defect giving rise to such claim.
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7
6.3 Holder Indemnity. Each Holder hereby agrees to indemnify
and hold harmless each of the Company, and its directors, officers, employees,
agents and controlling persons (within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act), from and against any and
all claims, liabilities, losses, damages and expenses (including reasonable
attorneys' fees and disbursements) asserted against or incurred by any such
Indemnified Person to the same extent as the foregoing indemnity from the
Company to the Holders, but only with respect to information relating to such
Holder furnished in writing by such Holder or on such Holder's behalf for use in
any registration statement or prospectus relating to the Subject Stock or any
amendment or supplement thereto. The total amount payable by such Holder
pursuant to this Section 6.3 shall not exceed an amount equal to the number of
shares proposed to be sold by such Holder in the registered offering that shall
give rise to any such claim for indemnity multiplied by the selling price per
share.
6.4 Defense. Promptly after receipt by an Indemnified Person
of notice of any claim or demand or the commencement of any action or proceeding
with respect to which indemnification may be sought hereunder, such Indemnified
Person shall notify the Indemnitor of such claim or demand or the commencement
of such action or proceeding, but failure so to notify the Indemnitor shall not
relieve the Indemnitor from any liability which the Indemnitor may have
hereunder or otherwise, unless the Indemnitor shall be actually prejudiced by
such failure. If the Indemnitor shall so elect, the Indemnitor shall assume the
defense of such claim, demand, action or proceeding, including the employment of
counsel reasonably satisfactory to such Indemnified Person, and shall pay the
fees and disbursements of such counsel. In the event, however, that such
Indemnified Person shall reasonably determine that having common counsel would
present such counsel with a conflict of interest or alternative defenses shall
be available to an Indemnified Person or if the Indemnitor shall fail to assume
the defense of the claim, demand, action or proceeding in a timely manner, then
such Indemnified Person may employ separate counsel to represent or defend such
Person against any such claim, demand, action or proceeding and the Indemnitor
shall pay the reasonable fees and disbursements of such counsel; provided,
however, that the Indemnitor shall not be required to pay the fees and
disbursements of more than one separate counsel for all Indemnified Persons in
any jurisdiction in any single or related action or proceeding. For any claim,
demand, action or proceeding the defense of which the Indemnitor shall assume,
the Indemnified Person shall have the right to participate therein and to retain
its own counsel at such Indemnified Person's own expense (except as otherwise
specifically provided in this Section 6.4), so long as such participation shall
not interfere with the Indemnitor's control of such claim, demand, action or
proceeding. The Indemnitor shall not, without the prior written consent of the
Indemnified Person, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder unless such settlement,
<PAGE>
8
compromise or consent shall include an unconditional release of such
Indemnified Person from all liability arising out of such claim, demand, action
or proceeding.
6.5 Contribution. If the indemnification in this Section 6
shall be held by a court of competent jurisdiction to be unavailable to an
Indemnified Person with respect to any claim, liability, loss, damage or expense
referred to herein, then the Indemnitor shall contribute to the amounts paid or
payable by such Indemnified Person as a result of such claim, liability, loss,
damage or expense in such proportion as is appropriate to reflect the relative
benefits and also the relative fault of the Indemnitor, on the one hand, and the
Indemnified Party, on the other, in connection with the transactions giving rise
to such claim, liability, loss, damage or expense, as well as any other relevant
equitable considerations. The relative benefits received by the Indemnitor, on
the one hand, and the Indemnified Party, on the other, shall be deemed to be in
the same proportion as the total net proceeds from the sale of Common Stock
under the registration statement or prospectus (before deducting expenses)
received by the Indemnitor shall bear to the total net proceeds from such sale
received by the Indemnified Person. The relative fault of the Indemnitor and of
the Indemnified Person shall be determined by reference to, among other things,
whether the untrue statement of a material fact or the omission to state a
material fact shall relate to information supplied by the Indemnitor or by the
Indemnified Person and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and each Holder agree that it would not be just and equitable if
contribution were determined by any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the foregoing, (a) the total amount payable by a Holder pursuant to this Section
6.5 shall not exceed an amount equal to the number of shares sold by such Holder
in the registered offering that give rise to any such claim for contribution
multiplied by the selling price per share and (b) no person or entity guilty of
or liable for fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of fraudulent misrepresentation.
6.6 Holder-Related Claims. If there shall be any claim for
indemnification by or against any Holder or any of its related persons under
this Section 6, all determinations by the Company relating thereto, including,
without limitation, the choice and engagement of counsel, the prosecution of any
action and the terms and conditions of any settlement or compromise, shall be
made solely by the "Company Designees" (as defined in the Stock Purchase
Agreement) by majority vote thereof.
SECTION 7. Termination. This Agreement shall terminate upon
the sale or disposition of beneficial ownership by the Holders of all shares of
the Subject Stock; provided, however, this Agreement shall continue in effect as
to any indemnification and payment or reimbursement obligations herein.
<PAGE>
9
SECTION 8. Miscellaneous.
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 or delegated
by any party hereto without the prior written consent of the other party.
8.2 Entire Agreement. This Agreement 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 supersede all
prior arrangements or understandings with respect thereto.
8.3 Notices. All notices hereunder shall be in writing and
shall be given: (a) if to the Company, at One Ram Ridge Road, Spring Valley, New
York 10977 (attention: Kenneth I. Sawyer), fax number: (914) 425-5097, or such
other address or fax number as the Company shall have designated in writing to
the Holders in accordance with this Section 8.3, with a copy to Hertzog,
Calamari & Gleason, 100 Park Avenue, New York, New York 10017 (attention:
Stephen A. Ollendorff, Esq. and Stephen R. Connoni, Esq.), fax number: (212)
213-1199, (b) if to Merck, at Frankfurter Strasse 250, 64271 Darmstadt, Germany
(attention: Dr. Rudi Neirinckx), fax number: 011 49 6151 72 3435 with a copy to
Coudert Brothers, 1114 Avenue of the Americas, New York, New York 10036-7703
(attention: Edwin S. Matthews, Jr., Esq.), fax number: (212) 626-4120, (c) if to
Genpharm, at 85 Advance Road, Etobicoke, Ontario M8Z 2S9, Canada (attention:
Chief Financial Officer), fax number: (416) 236-2940, with a copy to Coudert
Brothers, at 1114 Avenue of the Americas, New York, New York 10036 (attention:
Edwin S. Matthews, Jr., Esq.), fax number: (212) 626-4120, or (d) if to Lipha,
at [ ], with a copy to Coudert Brothers, at 1114 Avenue of the Americas,
New York, New York 10036 (attention: Edwin S. Matthews, Jr., Esq.), fax number:
(212) 626-4120 or such other address(es) or fax number(s) as a Holder shall have
designated in writing to the Company in accordance with this Section 8.3. Any
notice shall be deemed to have been given if personally delivered or sent by
express commercial courier or delivery service or by telegram, telefax, telex or
facsimile transmission. Any notice given in any other manner shall be deemed
given when actually received.
8.4 Amendments; Waiver. This Agreement may not be amended or
terminated, and no provision hereof may be waived, without the prior written
consent of at least a majority of the Company Designees (on behalf of the
Company) and except pursuant to a written instrument executed by the Company and
the Holders. Each Holder shall not cause, and shall use its best efforts not to
permit, the Company to agree to any amendment, modification or waiver or take
any action in respect of this Agreement, including, without limitation, in
respect of any agreement or
<PAGE>
10
settlement relating to a dispute or claim for indemnification hereunder, without
the prior written consent of at least a majority of the Company Designees, as
such term is defined in the Stock Purchase Agreement (including any
replacement(s) therefor as provided in Section 8.1 of the Stock Purchase
Agreement).
8.5 Counterparts. This Agreement 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 Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
8.7 Governing Law. This Agreement 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, (i) the remaining terms and provisions hereof shall be
unimpaired, (ii) any such invalidity or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction and (iii) 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, to the fullest extent legally permissible, the
intention of the parties with respect to the invalid or unenforceable term or
provision.
8.9 Expenses. Except as otherwise specifically provided in
this Agreement, the parties shall bear their own respective expenses (including,
but not limited to, all fees and expenses of counsel, financial advisers and
independent accountants) incurred in connection with the preparation,
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. To the extent that a Company Designee shall be
required to make any determination or take any action hereunder (including,
without limitation, with respect to indemnification under Section 6 hereof) in
his/her capacity as a Company Designee, the Holders shall cause the Company to,
and the Company shall, promptly reimburse and/or pay any reasonable expenses
incurred by the Company Designee in acting in such capacity. The Company
Designees are intended third-party beneficiaries of this provision.
<PAGE>
11
IN WITNESS WHEREOF, each of the undersigned has caused this
Registration Rights Agreement to be executed as of the date first written above.
PHARMACEUTICAL RESOURCES, INC.
By: /s/ Kenneth I. Sawyer
---------------------
Name: Kenneth I. Sawyer
Title: CEO & Chairman
LIPHA AMERICAS, INC.
By: /s/ Edwin S. Matthews, Jr.
--------------------------
Name: Edwin S. Matthews, Jr.
Title: Asst. Secretary
MERCK KGaA
By: /s/ Scheuble
----------------------
Name: Bernhard Scheuble
Title: CEO Phama
GENPHARM, INC.
By: /s/ J. Tabatznik
---------------------
Name: J.N. Tabatznik
Title: Chairman
