-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IIil80gmHIrm5Evu+OLll/mc+68auElTpKucndXq4JEI2vcxyqGpWUUJxjNn5OTx wSVNpB5KOcqPW8EnvjZ8uQ== 0000898432-03-000732.txt : 20030811 0000898432-03-000732.hdr.sgml : 20030811 20030811173038 ACCESSION NUMBER: 0000898432-03-000732 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030629 FILED AS OF DATE: 20030811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACEUTICAL RESOURCES INC CENTRAL INDEX KEY: 0000878088 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 223122182 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10827 FILM NUMBER: 03835374 BUSINESS ADDRESS: STREET 1: ONE RAM RIDGE RD CITY: SPRING VALLEY STATE: NY ZIP: 10977 BUSINESS PHONE: 9144257100 MAIL ADDRESS: STREET 1: ONE RAM RIDGE RD CITY: SPRING VALLEY STATE: NY ZIP: 10977 10-Q 1 form10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 29, 2003 Commission File Number 1-10827 PHARMACEUTICAL RESOURCES, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-3122182 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Ram Ridge Road, Spring Valley, New York 10977 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (845) 425-7100 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ----- ----- Number of shares of Common Stock outstanding as of August 7, 2003: 33,807,186 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) (Unaudited)
ASSETS JUNE 29, DECEMBER 31, ------ 2003 2002 ----------- ------------ Current assets: Cash and cash equivalents $107,123 $65,121 Accounts receivable, net of allowances of $31,765 and $36,257 99,140 55,310 Inventories, net 57,576 51,591 Prepaid expenses and other current assets 5,874 6,089 Deferred income tax assets 30,210 32,873 ------ ------ Total current assets 299,923 210,984 Property, plant and equipment, at cost less accumulated depreciation and amortization 37,326 27,055 Unexpended industrial revenue bond proceeds 2,000 2,000 Intangible assets, net 34,838 35,692 Goodwill 24,662 24,662 Other assets 697 1,064 --- ----- Total assets $399,446 $301,457 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $504 $596 Accounts payable 22,654 14,637 Payables due to distribution agreement partners 20,441 18,163 Accrued salaries and employee benefits 7,286 5,175 Accrued expenses and other current liabilities 11,427 10,034 Income taxes payable 46,122 26,074 ------ ------ Total current liabilities 108,434 74,679 ------- ------ Long-term debt, less current portion 1,445 2,426 ----- ----- Deferred income tax liabilities, net 3,085 3,562 ----- ----- Commitments and contingencies Shareholders' equity: Preferred Stock, par value $.0001 per share; authorized 6,000,000 shares; none issued and outstanding Common Stock, par value $.01 per share; authorized 90,000,000 shares; issued and outstanding 33,454,343 and 32,804,480 shares 334 328 Additional paid-in capital 138,622 118,515 Retained earnings 147,526 101,947 ------- ------- Total shareholders' equity 286,482 220,790 ------- ------- Total liabilities and shareholders' equity $399,446 $301,457 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. -2-
PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (In Thousands, Except Per Share Amounts) (Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2003 2002 2003 2002 ---- ---- ---- ---- Revenues: Net product sales $209,485 $182,263 $108,801 $101,755 Other revenues 12,788 - 7,060 - -------- -------- -------- -------- Total revenues 222,273 182,263 115,861 101,755 Cost of goods sold 106,000 96,573 54,891 55,340 -------- -------- -------- -------- Gross margin 116,273 85,690 60,970 46,415 Operating expenses (income): Research and development 11,120 6,937 4,651 4,063 Selling, general and administrative 30,105 16,363 18,215 8,847 Settlements - (9,051) - - Acquisition termination charges - 4,278 - 10 -------- -------- -------- -------- Total operating expenses 41,225 18,527 22,866 12,920 -------- -------- -------- -------- Operating income 75,048 67,163 38,104 33,495 Other expense, net (44) (102) (10) (213) Interest income, net 333 381 164 127 -------- -------- -------- -------- Income before provision for income taxes 75,337 67,442 38,258 33,409 Provision for income taxes 29,758 26,302 15,112 13,029 -------- -------- -------- -------- Net income 45,579 41,140 23,146 20,380 Retained earnings, beginning of period 101,947 22,493 124,380 43,253 -------- -------- -------- -------- Retained earnings, end of period $147,526 $63,633 $147,526 $63,633 ======== ======== ======== ======== Net income per share of common stock: Basic $1.38 $1.28 $.70 $.64 ======== ======== ======== ======== Diluted $1.34 $1.25 $.68 $.62 ======== ======== ======== ======== Weighted average number of common shares outstanding: Basic 33,021 32,069 33,153 32,089 ======== ======== ======== ======== Diluted 33,953 32,869 34,197 32,898 ======== ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
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PHARMACEUTICAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) SIX MONTHS ENDED ---------------- JUNE 29, JUNE 30, 2003 2002 ---- ---- Cash flows from operating activities: Net income $45,579 $41,140 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deferred income taxes 2,186 (8,867) Depreciation and amortization 3,916 2,358 Inventory reserves 602 1,403 Allowances against accounts receivable (4,492) (17,381) Settlements - (9,051) Stock option activity 8,901 (2,254) Other - (23) Changes in assets and liabilities: Increase in accounts receivable (39,338) (1,331) Increase in inventories (6,587) (15,894) Increase in prepaid expenses and other assets (1,024) (7,898) Increase in accounts payable 8,017 6,105 Increase (decrease) in payables due to distribution agreement partners 2,278 (16,651) Increase in accrued expenses and other liabilities 3,504 1,250 Increase in income taxes payable 20,048 19,328 --------- --------- Net cash provided by (used in) operating activities 43,590 (7,766) --------- --------- Cash flows from investing activities: Capital expenditures (11,727) (3,551) Acquisition of FineTech - (32,581) Proceeds from sale of fixed assets - 28 --------- --------- Net cash used in investing activities (11,727) (36,104) --------- --------- Cash flows from financing activities: Proceeds from issuances of Common Stock 11,212 698 Principal payments under long-term debt and other borrowings (1,073) (123) --------- --------- Net cash provided by financing activities 10,139 575 --------- --------- Net increase (decrease) in cash and cash equivalents 42,002 (43,295) Cash and cash equivalents at beginning of period 65,121 67,742 --------- --------- Cash and cash equivalents at end of period $107,123 $24,447 ========= ========= Supplemental disclosure of cash flow information Cash paid during the six months for: Taxes $1,583 $18,095 ========= ========= Interest $58 $76 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. -4-
PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 29, 2003 (In Thousands, Except Per Share Amounts) (Unaudited) Pharmaceutical Resources, Inc. (the "Company" or "PRX") operates, primarily through its wholly-owned subsidiary, Par Pharmaceutical, Inc. ("Par"), in one business segment, the manufacture and distribution of generic pharmaceuticals principally in the United States. In addition, the Company develops and manufactures, in small quantities, complex synthetic active pharmaceutical ingredients through its wholly-owned subsidiary, FineTech Laboratories Ltd. ("FineTech"), based in Haifa, Israel, and sells a limited number of mature brand name drugs through an agreement with Bristol Myers Squibb ("BMS"). Marketed products are principally in the solid oral dosage form (tablet, caplet and two-piece hard-shell capsule). The Company also distributes one product in the semi-solid form of a cream and one oral suspension. As of June 24, 2003, the Company changed its state of incorporation from New Jersey to Delaware. The reincorporation was approved by the holders of a majority of the Company's outstanding shares of common stock, voting in person or by proxy, at its Annual Meeting of Shareholders held on June 19, 2003. The reincorporation was effected by merging the Company with and into Pharmaceutical Resources, Inc., a Delaware corporation and then a wholly-owned subsidiary of the Company, with the Delaware corporation surviving (the "Merger"). The reincorporation was effected primarily because the Company's board of directors believed that governance under Delaware law would permit the Company to manage its corporate affairs more effectively and efficiently than under New Jersey law. The reincorporation did not result in any change in the Company's business, management, assets, liabilities, board of directors, or location of its principal facilities or headquarters. Pursuant to the Merger, each share of common stock of the New Jersey corporation was automatically converted into one share of common stock, $.01 par value, of the Delaware corporation. It was not necessary for shareholders to exchange their existing stock certificates in the New Jersey corporation for stock certificates of the Delaware corporation. As a result of the reincorporation, the Company became the successor issuer to the New Jersey corporation under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and succeeded to the New Jersey corporation's reporting obligations thereunder. Pursuant to Rule 12g-3(a) under the Exchange Act, the Company's common stock is deemed registered under Section 12(b) of the Exchange Act. On May 23, 2003, Par also changed its state of incorporation from New Jersey to Delaware. The Par reincorporation was effected by merging Par with and into Par Pharmaceutical, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, with the Delaware corporation surviving. The Par reincorporation was approved by the Company as the sole shareholder of each of the merging entities. The Par reincorporation was effected primarily because Par's board of directors believed that governance under Delaware law would permit Par to manage its corporate affairs more effectively and efficiently than under New Jersey law. The Par reincorporation was not submitted for a vote to the Company's shareholders because such approval was not required under applicable law. In connection with and prior to Par's reincorporation, Par contributed its New Jersey operations to Par, Inc., a newly-formed Delaware corporation and a wholly-owned subsidiary of Par. Par, Inc. provides certain managerial and administrative services to Par on a fee basis. NOTE 1 - BASIS OF PREPARATION: The accompanying consolidated financial statements at June 29, 2003 and for the six-month and three-month periods ended June 29, 2003 and June 30, 2002, respectively, are unaudited; however, in the opinion of the Company's management, such statements include all adjustments (consisting of normal recurring accruals) necessary to provide a fair statement of the information presented therein. The consolidated balance sheet at December 31, 2002 was derived from the Company's audited consolidated financial statements at such date. Pursuant to accounting requirements of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the accompanying consolidated financial statements and these notes do not include all disclosures required by accounting principles generally accepted in the United States for audited financial statements. Accordingly, these statements should be read in conjunction with the Company's most recent annual consolidated financial statements. -5- PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years. Certain items on the consolidated financial statements for the prior period have been reclassified to conform to the current period's financial statement presentation. NOTE 2 - STOCK-BASED COMPENSATION: The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion 25") and complies with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under APB Opinion 25, compensation expense is based on any difference as of the date of a stock option grant, between the fair value of the Company's common stock and the option's per share exercise price. In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123" ("SFAS 148") to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Standard amends the disclosure requirements of SFAS 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effects of the method used on reported results. The following table illustrates the effects on net income and net income per share of common stock if the Company had applied the fair value recognition provisions of SFAS 123 to its stock-based employee compensation:
SIX MONTHS ENDED THREE MONTHS ENDED ---------------- ------------------ JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2003 2002 2003 2002 ---- ---- ---- ---- Net income as reported $45,579 $41,140 $23,146 $20,380 Add: Total stock-based employee compensation expense included in reported net income, net of related tax effects 1,263 - 1,263 - Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (5,311) (3,440) (2,672) (1,843) -------- ------- -------- ------- Pro forma net income $41,531 $37,700 $21,737 $18,537 ======== ======== ======== ======== As reported -Basic $1.38 $1.28 $.70 $.64 ======== ======== ======== ======== As reported -Diluted $1.34 $1.25 $.68 $.62 ======== ======== ======== ======== Pro forma -Basic $1.26 $1.18 $.66 $.58 ======== ======== ======== ======== Pro forma -Diluted $1.22 $1.15 $.64 $.56 ======== ======== ======== ========
As permitted under SFAS 123, the Company elected to follow APB Opinion 25 and related interpretations in accounting for stock-based compensation to its employees. Pro forma information regarding net income is required by SFAS 123, as amended by SFAS 148. This required information is to be determined as if the Company had accounted for its stock-based compensation to employees under the fair value method of that Standard. The fair value of options granted during each of the six and three-month periods ended June 29, 2003 and June 30, 2002, respectively, has been estimated at the date of grant using the Black-Scholes stock option pricing model, based on the following assumptions: -6- PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) SIX MONTHS ENDED THREE MONTHS ENDED JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2003 2002 2003 2002 ---- ---- ---- ---- Risk free interest rate 4.0% 4.3% 4.0% 4.3% Expected term 4.8 years 5.8 years 3.5 years 5.8 years Expected volatility 63.6% 69.0% 64.0% 69.0% It is also assumed that no dividends will be paid during the entire term of the options. The weighted average fair values of options granted in the six-month periods ended June 29, 2003 and June 30, 2002 were $18.42 and $14.55, respectively. The weighted average fair values of options granted in the three-month periods ended June 29, 2003 and June 30, 2002 were $23.51 and $14.55, respectively. NOTE 3 - ACCOUNTS RECEIVABLE: JUNE 29, DECEMBER 31, 2003 2002 ---- ---- (IN THOUSANDS) Trade accounts receivable, net of rebates and chargebacks $123,846 $90,812 Other accounts receivable 7,059 755 -------- ------- Allowances: Doubtful accounts 1,456 1,156 Returns and allowances 13,750 18,868 Price adjustments 16,559 16,233 -------- ------- 31,765 36,257 Accounts receivable, net of allowances $99,140 $55,310 ======== ======= The trade accounts receivable amounts presented above at June 29, 2003 and December 31, 2002 are net of provisions for customer rebates of $25,161 and $13,610, and for chargebacks of $67,667 and $63,141, respectively. Customer rebates are price reductions generally given to customers as an incentive to increase sales volume. Rebates are generally based on a customer's volume of purchases made during an applicable monthly, quarterly or annual period. Chargebacks are price adjustments provided to wholesale customers for product it resells to specific healthcare providers on the basis of prices negotiated between the Company and the provider. The accounts receivable allowances include provisions for doubtful accounts, returns and price adjustments. Price adjustments include cash discounts, sales promotions and shelf-stock adjustments. Cash or terms discounts are given to customers that pay within a specified period of time. Sales or trade show promotions may be conducted by the Company where additional discounts may be given on a new product or certain existing products as an added incentive for the customer to purchase the Company's products. Shelf-stock adjustments are typically provided to a customer when the Company lowers its invoice pricing and provides a credit for the difference between the old and new invoice prices for the inventory the customer has on hand at the time of the price reduction. The Company will generally offer price protection for sales of new generic drugs for which it has a market exclusivity period. Such price protection accounts for the fact that the prices of such drugs typically will decline, sometimes substantially, when additional generic manufacturers introduce and market a comparable generic product following the expiration of an exclusivity period. Such price protection plans, which are common in the Company's industry, generally provide for a shelf-stock adjustment to customers with respect to the customer's remaining inventory at the expiration of the exclusivity period for the difference between the Company's new price and the price at which the Company originally sold the product. In addition, the Company may also offer price protection with respect to existing products for which it anticipates significant price erosion through an increase in competition. The Company's exclusivity period for megestrol acetate oral suspension, the generic version of BMS's Megace(R) Oral Suspension, expired in mid-January 2002. One generic competitor was granted United States Food and Drug Administration ("FDA") approval to market another generic version of megestrol acetate oral suspension and began shipping the product to a limited number of customers in -7- PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) the second quarter of 2002, but, as of June 29, 2003, had not captured significant market share. In addition, a second potential generic competitor was granted FDA approval for megestrol acetate oral suspension in May 2003 and has announced it expects to launch the product at some time in the third quarter of 2003. At this time, the Company cannot predict the effect of another generic competitor in the market. Under its accounting policies, the Company did not record a price protection reserve for such product as of June 29, 2003. The Company will continue to evaluate the effects of the competition and will record a price protection reserve when, and as it deems necessary. The Company recorded other revenues of $12,788 and $7,060 in the six and three-month periods ended June 29, 2003 related to its share of Genpharm, Inc.'s ("Genpharm"), a Canadian subsidiary of Merck KGaA, omeprazole gross profits. In January 1999, the Company and Genpharm, entered into a profit sharing agreement (the "Genpharm Profit Sharing Agreement") pursuant to which the Company receives a portion of the profits, as such term is defined in the agreement, generated from the sale of omeprazole, the generic version of Astra Zeneca's ("Astra") Prilosec(R). Under the terms of an agreement with Kremers Urban Development Co. ("KUDCo"), a subsidiary of Schwarz Pharma AG of Germany, Genpharm received an initial 15% share of KUDCo's profits, as such term is defined in the agreement, through early May 2003 with a subsequent reduction over time based on a number of factors. In fiscal year 2002, the Company had agreed to reduce its share of Genpharm's profit derived from omeprazole pursuant to the Genpharm Profit Sharing Agreement from 30% to 25%. In December 2002, KUDCo launched omeprazole following a district court decision in which it prevailed, but before any decision was reached on appeal. Astra has appealed the district court's patent infringement decision. The impact of KUDCo's omeprazole sales on the Company's future revenues is presently unclear to the Company since, among other things, Astra has introduced a new drug, Nexium(R), in an apparent attempt to switch consumers using Prilosec(R) and Astra's decision to market a non-prescription form of Prilosec(R) along with Proctor & Gamble, all of which may reduce overall generic sales of omeprazole. In August 2003, a generic competitor also began selling a form of omeprazole that competes with the prescription form of Prilosec(r). The Company understands that this generic competitor has initiated litigation against KUDCo alleging patent infringement. The Company expects that the impact of this competition will reduce its revenues from omeprazole in future periods. NOTE 4 - INVENTORIES, NET: JUNE 29, DECEMBER 31, 2003 2002 ---- ---- Raw materials and supplies $18,274 $17,400 Work in process and finished goods 39,302 34,191 ------- ------- $57,576 $51,591 ======= ======= Included in selling, general and administrative expenses are shipping costs of $1,349 and $1,337, respectively, for the six-month periods, and $742 and $745, respectively, for the three-month periods, ended June 29, 2003 and June 30, 2002. NOTE 5 - INTANGIBLE ASSETS, NET: JUNE 29, DECEMBER 31, 2003 2002 ---- ---- BMS Asset Purchase Agreement, net of accumulated amortization of $2,229 and $1,393 $9,471 $10,307 Product License fees, net of accumulated amortization of $422 and $0 10,380 9,199 Genpharm Distribution Agreement, net of accumulated amortization of $3,611 and $3,250 7,222 7,583 Intellectual property, net of accumulated amortization of $841 and $451 5,739 6,129 Genpharm Profit Sharing Agreement, net of accumulated amortization of $474 and $26 2,026 2,474 ------- ------- $34,838 $35,692 ======= ======= The Company recorded amortization expense related to intangible assets of $2,457 and $1,031, respectively, for the six-month periods, and $1,448 and $711, respectively, for the three-month periods, ended June 29, 2003 and June 30, -8- PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 2002. Annual amortization expense in each of the next five years related to the intangible assets currently being amortized is expected to be approximately $5,412 in 2003, $5,955 in 2004, $3,758 in 2005, $3,115 in 2006, $3,115 in 2007 and $8,445 thereafter. NOTE 6 - SHORT-TERM DEBT: In December 1996, Par entered into a Loan and Security Agreement (the "Loan Agreement") with General Electric Capital Corporation ("GECC"). The Loan Agreement, as amended in December 2002, provides Par with a revolving line of credit expiring in March 2005. Pursuant to the Loan Agreement, Par is permitted to borrow up to the lesser of (i) the borrowing base established under the Loan Agreement or (ii) $30,000. The borrowing base is limited to 85% of the eligible accounts receivable plus 50% of the eligible inventory of Par, each as determined from time to time by GECC. As of June 29, 2003, the borrowing base was approximately $27,000. The interest rate charged on any borrowings under the line of credit is based upon a per annum rate of 2.25% above the 30-day commercial paper rate for high-grade unsecured notes adjusted monthly. The line of credit with GECC is collateralized by the assets of the Company, other than its real property, and is guaranteed by the Company. In connection with such credit facility, the Company has established a cash management system pursuant to which all cash and cash equivalents received by any of such entities are deposited into a lockbox account over which GECC has sole operating control if there are amounts outstanding under the line of credit. The deposits would then be applied on a daily basis to reduce the amounts outstanding under the line of credit. The revolving credit facility contains covenants based on various financial benchmarks. As of June 29, 2003, no debt was outstanding under the Loan Agreement. NOTE 7 - INCOME TAXES: The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes", which requires the Company to recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. At June 29, 2003 and December 31, 2002, the Company had current deferred income tax assets of $30,210 and $32,873, respectively, consisting of temporary differences, primarily related to accounts receivable reserves, and net deferred income tax liabilities of $3,085 and $3,562, respectively, primarily related to a distribution agreement with Genpharm. NOTE 8 - CHANGES IN SHAREHOLDERS' EQUITY: Changes in the Company's Common Stock and Additional Paid-in Capital accounts during the six-month period ended June 29, 2003 were as follows: ADDITIONAL COMMON STOCK PAID-IN SHARES AMOUNT CAPITAL ------ ------ ---------- Balance, December 31, 2002 32,804 $328 $118,515 Exercise of stock options 647 6 11,093 Compensatory arrangements 3 - 9,014 Balance, June 29, 2003 33,454 $334 $138,622 ====== ==== ======== Compensatory arrangements include the tax treatment related to the exercise of stock options. NOTE 9 - DISTRIBUTION AND SUPPLY AGREEMENTS: SMITHKLINE BEECHAM CORPORATION. In connection with the legal settlement referred to in Note 12-Commitments, Contingencies and Other Matters - Legal Proceedings, the Company entered into a license and supply agreement (the "GSK Supply Agreement") with Smithkline Beecham Corporation ("GSK") and certain of its affiliates, dated April 16, 2003, pursuant to which Par is marketing a substitutable generic paroxetine hydrochloride immediate release tablet supplied and licensed from GSK in the Commonwealth of Puerto Rico. Under the GSK Supply Agreement, GSK has agreed to manufacture the product and Par agreed to pay GSK a -9- PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) royalty based on Par's net sales of the product. Par will also be entitled to distribute the same product in the U.S. market once another generic paroxetine hydrochloride immediate release tablet fully substitutable for Paxil(R) becomes available there (see "Commitments, Contingencies and Other Matters-Legal Proceedings"). NOTE 10 - EARNINGS PER SHARE: The Company had outstanding stock options of 4,353 and 1,859 at the end of the six-month periods and 4,262 and 2,058 at the end of the three-month periods ended June 29, 2003 and June 30, 2002, respectively, that were included in the computation of diluted earnings per share because the exercise prices were lower than the average market price of the Common Stock in the respective periods. Outstanding options and warrants of 6 and 2,362 at the end of the six-month periods ended June 29, 2003 and June 30, 2002 and 9 and 2,164 at the end of the three-month periods ended June 29, 2003 and June 30, 2002, respectively, were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the Common Stock in the respective periods. The following is a reconciliation of the amounts used to calculate basic and diluted earnings per share:
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2003 2002 2003 2002 ---- ---- ---- ---- Net income $45,579 $41,140 $23,146 $20,380 BASIC: Weighted average number of common shares outstanding 33,021 32,069 33,153 32,089 Net income per share of common stock $1.38 $1.28 $.70 $.64 ======= ======= ======= ======= ASSUMING DILUTION: Weighted average number of common shares outstanding 33,021 32,069 33,153 32,089 Effect of dilutive options 932 800 1,044 809 ------- ------- ------- ------- Weighted average number of common and common equivalent shares outstanding 33,953 32,869 34,197 32,898 Net income per share of common stock $1.34 $1.25 $.68 $.62 ======= ======= ======= =======
NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS: In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends Statement 133 for decisions made (1) as part of the Derivatives Implementation Group process that effectively required amendments to Statement 133, (2) in connection with other Board projects dealing with financial instruments and (3) in connection with implementation issues raised in relation to the application of the definition of a derivative, in particular, the meaning of an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors, the meaning of underlying, and the characteristics of a derivative that contains financing components. This Statement is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of this Statement should be applied prospectively. The provisions of this Statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions, which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The adoption of this standard is not expected to have a material impact on the Company's financial position or results of operations. In January 2003 the FASB issued Financial Interpretation Number ("FIN") No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No. 46 addresses whether certain types of entities, referred to as variable interest entities ("VIEs"), should be consolidated in a company's financial statements. A VIE is an entity that either (1) has equity investors that lack certain essential characteristics of a controlling financial interest (including the ability to control the entity, the obligation to absorb the entity's expected losses and the right to receive the entity's expected residual returns), or (2) lacks sufficient equity to finance its own activities without financial support provided by other entity's, which in turn would be expected to absorb at least some of the expected losses of the VIE. An entity should consolidate a VIE if it stands to absorb a majority of the VIE's expected losses or to receive a majority of the VIE's expected residual returns. The Company has evaluated the impact of the adoption of FIN No. 46, and does not believe it will have a material impact on its consolidated financial position or consolidated results of operations. In November 2002 the FASB issued FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others" ("FIN No. 45"), an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34. FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. The initial recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of this interpretation did not have a material impact on the Company's consolidated financial position or results of operations. -10- PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: LEGAL PROCEEDINGS: On May 28, 2003, Asahi Glass Company ("Asahi Glass") filed a complaint in the United States District Court for the Northern District of Illinois against GlaxoSmithKline P.L.C. and affiliated entities, Pentech Pharmaceuticals and Par alleging, among other things, violations of state and federal anti-trust laws arising out of the Supply and Distribution Agreement between GlaxoSmithKline and Par. Par denies any wrongdoing in connection with this action and expects to file a motion to dismiss the complaint in August 2003. In the event the action continues following the court's determination of the motion to dismiss, Par intends to defend vigorously this action and may assert counterclaims against Asahi Glass and others. On April 18, 2003, GSK and PRX, through its principal subsidiary Par, announced that Pentech Pharmaceuticals, Inc. ("Pentech") and GSK had reached a settlement of their patent litigation over Pentech's proposed generic capsule version of GSK's anti-depressant Paxil(R) (paroxetine hydrochloride). Pentech granted Par rights under Pentech's Abbreviated New Drug Application ("ANDA") for paroxetine hydrochloride capsules. The settlement allows Par to distribute in Puerto Rico substitutable generic paroxetine hydrochloride immediate release tablets supplied and licensed from GSK for a royalty to be paid to GSK. Under the settlement, Pentech and Par acknowledge that the GSK patent covering the hemihydrate form of paroxetine hydrochloride is valid and enforceable and would be infringed by Pentech's proposed capsule product, for which Pentech has applied for FDA approval. The same GSK patent was found valid and enforceable in a separate patent infringement case in the U.S. District Court for the Northern District of Illinois (Chicago) against Apotex Inc. ("Apotex"). Apotex was found not to infringe, and, the Company believes, GSK is appealing that ruling. The litigation and the settlement do not involve Paxil CR(TM). Breath Ltd. of the Arrow Group filed an ANDA (currently pending with the FDA) for latanoprost (Xalatan(R)), which was developed by Breath Ltd. pursuant to a joint manufacturing and marketing agreement with the Company, seeking approval to engage in the commercial manufacture, sale and use of one latanoprost drug product in the United States. Par subsequently acquired ownership of the ANDA, which includes a Paragraph IV certification that the patents in connection with Xalatan(R) that are identified in "Approved Drug Products with Therapeutic Equivalence Evaluations" are invalid, unenforceable and/or will not be infringed by Par's generic product. Par believes that its ANDA is the first to be filed for this drug with a Paragraph IV certification. As a result of the filing of the ANDA, Pharmacia Corporation, Pharmacia AB, Pharmacia Enterprises, S.A., Pharmacia and Upjohn Company and the Trustees of Columbia University in the City of New York filed lawsuits against Par on December 14, 2001 in the United States District Court for the District of Delaware and on December 21, 2001 in the United States District Court for the District of New Jersey alleging patent infringement. Pharmacia and Columbia are seeking an injunction to prevent the Company from marketing its generic product prior to the expiration of their patents. On February 8, 2002, Par answered the complaint brought in the District of New Jersey and filed a counterclaim, which seeks a declaration that the patents-in-suit are invalid, unenforceable and/or not infringed by Par's products. Par is also seeking a declaratory judgment that the extension of the term of one of the patents is invalid. All parties are seeking to recover their respective attorneys' fees. On February 25, 2002, the lawsuit brought in the District of Delaware was dismissed pursuant to a stipulation of the parties. The case in the District of New Jersey is currently in the expert discovery stage. Par intends to vigorously defend the lawsuit and pursue its counterclaim and the declaratory judgment sought by it. At this time, it is not possible for the Company to predict the outcome of the plaintiffs' claim for injunctive relief, Par's counterclaim or the claims for attorneys' fees. Par, among others, was a defendant in three lawsuits filed in the United States District Court for the Eastern District of North Carolina (filed on August 1, 2001, October 30, 2001 and November 16, 2001, respectively) by aaiPharma Inc., involving patent infringement allegations connected to three patents related to polymorphic forms of fluoxetine (Prozac(R)). In March 2003, Par settled its lawsuits with aaiPharma Inc. The settlement has not had a material adverse effect on the Company's financial position or results of operation. -11- PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) The Company and/or Par is a party in certain other litigation matters, including product liability and patent actions, and the Company believes these actions are incidental to the conduct of its business and that the ultimate resolution will not have a material adverse effect on its financial condition, results of operations or liquidity. The Company intends to vigorously defend or, in cases where the Company is plaintiff, prosecute these actions. OTHER MATTERS: The Company announced on June 19, 2003 that Kenneth I. Sawyer, its chairman, president and chief executive officer, would retire, effective as of July 1, 2003. Mr. Sawyer did retire on July 1, 2003 and the board of directors is conducting a search for a new chairman and chief executive officer of PRX. In the interim, Scott Tarriff, president and chief executive officer of Par, and Arie L. Gutman, Ph.D., president and chief executive officer of PRX's FineTech subsidiary, will both report to the Company's lead outside director. During this transition period, Mr. Sawyer will remain a director and be available to consult with the Company. The Company recorded a charge of $3,635, included in selling, general and administrative expenses on the consolidated statements of operations, in the second quarter of 2003 for Mr. Sawyer's retirement package, consisting of expenses for accelerated stock options, a severance payment, the remainder of his 2003 salary and benefits. In December 2001, the Company made its first payment of a potential equity investment of up to $2,438 to be made over a period of time in HighRapids, Inc. ("HighRapids"), a Delaware corporation. High Rapids is a software developer and the owner of patented rights to an artificial intelligence generator. Pursuant to an agreement between the Company and HighRapids, effective December 1, 2001, the Company, subject to its ongoing evaluation of HighRapids' operations, has agreed to purchase units, consisting of secured debt, evidenced by 7% secured promissory notes, up to an aggregate principal amount of $2,425 and up to an aggregate of 1,330 shares of the common stock of HighRapids. HighRapids is the surviving corporation of a merger with Authorgenics, Inc., a Florida corporation. HighRapids is to utilize the Company's cash infusion for working capital and operating expenses. Through June 29, 2003, the Company had invested $1,008. Due to HighRapids current operating losses and the Company's evaluation of its short-term prospects for profitability, the investment is expensed as incurred and included in other expense on the consolidated statements of operations. As of June 29, 2003, the Company held approximately 36% of the outstanding common stock of HighRapids, and has the exclusive right to market to the pharmaceutical industry certain regulatory compliance and laboratory software currently in development. HighRapids has provided and is currently providing certain software services to the Company. Mr. Sawyer is the President, Chief Executive Officer and a director of HighRapids, for which he receives no compensation. Another director of the Company owns shares of HighRapids' common stock (less than 1%) that he acquired prior to the commitment of the Company discussed above. The Company and Three Rivers Pharmaceuticals, LLC ("Three Rivers") entered into a license and distribution agreement under which the Company has agreed to market and distribute ribavirin 200 mg capsules, the generic version of Schering-Plough's ("Schering's") Rebetol(R), which is indicated for the treatment of chronic hepatitis, following approval by the FDA. In February 2003, Three Rivers reached a settlement with Schering in a patent litigation case involving Rebetol(R) brand ribavirin. Under the terms of the settlement, Schering provided a non-exclusive license to Three Rivers for all its U.S. patents relating to this product. In return for this license, Three Rivers has agreed to pay Schering a reasonable royalty based upon net sales of Three Rivers' and Par's generic ribavirin product. The parties were in litigation in the U.S. District Court for the Western District of Pennsylvania. Three Rivers was also in litigation with ICN Pharmaceuticals Inc. ("ICN") regarding certain patents that ICN asserts relate to ribavirin. On July 16, 2003, the United States District Court for the Central District of California granted summary judgment of non-infringement regarding ribavirin to Three Rivers (see "-Subsequent Events"). NOTE 13 - SUBSEQUENT EVENTS: On July 15, 2003, the Company announced that two additional patents relating to megestrol acetate oral suspension have been issued to it by the U.S. Patent Office. The Patent Office issued U.S. Patent Nos. 6,593,318 and 6,593,320 to the Company. The Company presently holds four patents relating to megestrol oral suspension. The first two patents, U.S. Patent No. 6,028,065 and U.S. -12- PHARMACEUTICAL RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Patent No. 6,268,356, were issued on February 22, 2000 and July 31, 2001, respectively. On July 16, 2003, the Company announced that the United States District Court for the Central District of California had granted summary judgment of non-infringement regarding ribavirin to Three Rivers. The district court determined that the Three Rivers' product does not infringe any of three patents asserted by ICN in the litigation. Par has exclusive marketing rights for the Three Rivers' ribavirin product. Three Rivers had earlier reached a settlement of its patent litigation with Schering Plough Pharmaceuticals, so this decision appears to resolve the remaining ongoing patent barriers to FDA approval of the ANDA filed by Three Rivers. The timing of Par's launch of this product is uncertain at this time. Three Rivers has not obtained FDA approval, and the FDA has not made a determination of whether a generic 180-day exclusivity period will be awarded solely to a generic competitor involved in the lawsuit or Three Rivers jointly with one or both of the other two generic competitors involved in the lawsuit. The patent holder, ICN, may appeal the court decision. -13- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN STATEMENTS IN THIS DOCUMENT MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, INCLUDING THOSE CONCERNING MANAGEMENT'S EXPECTATIONS WITH RESPECT TO FUTURE FINANCIAL PERFORMANCE AND FUTURE EVENTS, PARTICULARLY RELATING TO SALES OF CURRENT PRODUCTS AND THE INTRODUCTION OF NEW MANUFACTURED AND DISTRIBUTED PRODUCTS. SUCH STATEMENTS INVOLVE RISKS, UNCERTAINTIES, TRENDS AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY, WHICH COULD CAUSE ACTUAL RESULTS AND PERFORMANCE TO DIFFER MATERIALLY FROM THOSE EXPRESSED HEREIN. THESE STATEMENTS ARE OFTEN, BUT NOT ALWAYS, MADE TYPICALLY BY USE OF WORDS OR PHRASES SUCH AS "ESTIMATE," "PLANS," "PROJECTS," "ANTICIPATES," "CONTINUING," "ONGOING," "EXPECTS," "BELIEVES" OR SIMILAR WORDS AND PHRASES. FACTORS THAT MIGHT AFFECT SUCH FORWARD-LOOKING STATEMENTS SET FORTH IN THIS DOCUMENT INCLUDE (i) INCREASED COMPETITION FROM NEW AND EXISTING COMPETITORS AND PRICING PRACTICES FROM SUCH COMPETITORS (ESPECIALLY UPON COMPLETION OF EXCLUSIVITY PERIODS), (ii) PRICING PRESSURES RESULTING FROM THE CONTINUED CONSOLIDATION BY THE COMPANY'S DISTRIBUTION CHANNELS, (iii) THE AMOUNT OF FUNDS AVAILABLE FOR INTERNAL RESEARCH AND DEVELOPMENT AND RESEARCH AND DEVELOPMENT JOINT VENTURES, (iv) RESEARCH AND DEVELOPMENT PROJECT DELAYS OR DELAYS AND UNANTICIPATED COSTS IN OBTAINING REGULATORY APPROVALS, (v) CONTINUATION OF DISTRIBUTION RIGHTS UNDER SIGNIFICANT AGREEMENTS, (vi) THE CONTINUED ABILITY OF DISTRIBUTED PRODUCT SUPPLIERS TO MEET FUTURE DEMAND, (vii) THE COSTS AND OUTCOME OF ANY THREATENED OR PENDING LITIGATIONS, INCLUDING PATENT AND INFRINGEMENT CLAIMS, (viii) UNANTICIPATED COSTS IN ABSORBING ACQUISITIONS, (ix) OBTAINING OR LOSING 180-DAY MARKETING EXCLUSIVITY ON PRODUCTS AND (x) GENERAL INDUSTRY AND ECONOMIC CONDITIONS. ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE MADE ONLY AS OF THE DATE HEREOF, BASED ON INFORMATION AVAILABLE TO THE COMPANY AS OF THE DATE HEREOF, AND, SUBJECT TO APPLICABLE LAW TO THE CONTRARY, THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS. THE FINANCIAL DATA CONTAINED IN THIS SECTION IS IN THOUSANDS. RESULTS OF OPERATIONS GENERAL The Company's net income of $45,579 for the six-month period ended June 29, 2003 increased $4,439 from $41,140 for the six-month period ended June 30, 2002. Total revenues of $222,273 in the first six months of fiscal year 2003 increased $40,010 from $182,263 in the corresponding period of fiscal year 2002, primarily due to additional net sales of new products introduced following the end of the second quarter 2002 and other revenues from a profit sharing agreement with Genpharm related to omeprazole (Prilosec(R)). The revenue growth helped produce higher gross margins, which increased to $116,273, or 52% of total revenues, in the most recent six months, from $85,690, or 47% of total revenues, in the corresponding six-month period of 2002. In addition, the Company continued to invest in research and development activities. Six-month spending on research and development of $11,120 in 2003 increased 60% from $6,937 for the corresponding six-month period of 2002. Selling, general and administrative costs of $30,105 in the most recent six-month period increased $13,742 from the corresponding period of the prior year, primarily due to a charge of $3,635 in the second quarter 2003 related to a retirement package for the Company's chairman, president and chief executive officer, higher legal fees, insurance costs and other costs that the Company believes were required to support its growth, including expenses related to reviewing information systems, additional facilities, personnel and strategic analysis. Prior year results included income from settlements of $9,051 related to the Company's termination of its litigation with BMS and acquisition termination charges of $4,278 in connection with its termination of negotiations with International Specialty Products ("ISP") related to the Company's purchase of the combined ISP FineTech fine chemical business based in Haifa, Israel and Columbus, Ohio. The Company's net income for the second quarter of 2003 was $23,146 compared to $20,380 for the second quarter of the prior year, reflecting both revenue and gross margin increases, primarily from new products and other revenues related to omeprazole. Second quarter 2003 revenues and gross margin of $115,861 and $60,970 (53% of total revenues), respectively, improved over the prior year's second quarter revenues and gross margin of $101,755 and $46,415 (46% of total revenues). Research and development expenses of $4,651 for the most recent three-month period were 14% higher than $4,063 incurred in the corresponding quarter of 2002. Selling, general and administrative costs increased $9,368 to $18,215 in the second quarter 2003 from $8,847 in the corresponding quarter of the prior year due primarily to a one-time charge associated with the retirement package described above, higher insurance costs and additional costs required to support the Company's growth. -14- In addition to its own product development program, the Company has several strategic alliances through which it co-develops and distributes products. As a result of its internal program and these strategic alliances, the Company's pipeline of potential products includes 25 ANDAs (seven of which have been tentatively approved), pending with, and awaiting approval from, the FDA. The Company pays a percentage of the gross profits on sales of products covered by its distribution agreements to its strategic partners. Generally, products that the Company develops internally, and therefore without the requirement to share gross profits with any strategic partners, contribute higher gross margins than products covered under its distribution agreements. In July 2001 and August 2001, the FDA granted approvals for three ANDA submissions, one each by Par, Dr. Reddy's Laboratories Ltd. ("Reddy") and Alphapharm Pty Ltd., an Australian subsidiary of Merck KGaA, for megestrol acetate oral suspension, fluoxetine 40 mg capsules and fluoxetine 10 mg and 20 mg tablets, respectively, which, as first-to-file opportunities, entitled the Company to 180-day marketing exclusivity periods for the products. The Company began marketing megestrol acetate oral suspension, which is not subject to any profit sharing agreement, in July 2001. In August 2001, the Company began marketing fluoxetine 40 mg capsules under a distribution agreement with Reddy and fluoxetine 10 mg and 20 mg tablets under a distribution agreement with Genpharm. Generic competitors of the Company received 180-day marketing exclusivity periods for the generic version of fluoxetine 10 mg and 20 mg capsules, which the Company began selling in the first quarter of 2002 following the expiration of such other parties' exclusivity periods. As the Company expected, additional generic competitors, with products comparable to all three strengths of its fluoxetine products, began entering the market in the first quarter of 2002, eroding the pricing that the Company received during the exclusivity periods, particularly on the 10 mg and 20 mg strengths. Despite another FDA approval for a generic megestrol acetate oral suspension in the first quarter of 2002, the Company still maintained a significant share of the market for this product as of June 29, 2003; however, a second generic competitor received FDA approval for megestrol acetate oral suspension in May 2003. The Company expects this second competitor to enter the market at some time during the third quarter 2003. Although megestrol oral suspension and fluoxetine 40 mg capsules are expected to continue to contribute significantly to the Company's overall performance, the growth of the Company's product line through new product introductions and, to a lesser extent, increased sales of certain existing products have somewhat reduced the Company's reliance on these key products. Critical to the continued growth of the Company is its introduction of new manufactured and distributed products at selling prices that generate significant gross margins. The Company, through its internal development program and strategic alliances and relationships, is committed to developing new products that have limited competition and longer product life cycles. In addition to expected new product introductions and relationships, the Company plans to continue to invest in its internal research and development efforts while, at the same time, seeking acquisitions of complimentary products and businesses, additional first-to-file opportunities, vertical integration with raw material suppliers and unique dosage forms and strengths to differentiate its products in the marketplace. The Company is engaged in efforts, subject to FDA approval and other factors, to introduce new products through its research and development efforts and distribution and development agreements with third parties. No assurance can be given that the Company will obtain or develop any additional products for sale or, even if developed, that they will be commercially viable. Execution of these strategies may require additional debt or equity financing and there can be no assurance that the Company will be able to obtain any required financing when needed and on terms exceptable or favorable to it. Sales and gross margins of the Company's products are principally dependent upon (i) the pricing of and product deletions by competitors, (ii) the introduction of other generic drug manufacturers' products in direct competition with the Company's significant products, (iii) the ability of generic competitors to quickly enter the market after patent or exclusivity period expirations, diminishing the amount and duration of significant profits from any one product, (iv) the continuation of existing distribution agreements, (v) the introduction of new distributed products, (vi) the consolidation among distribution outlets through mergers, acquisitions and the formation of buying groups, (vii) the willingness of generic drug customers, including wholesale and retail customers, to switch among generic pharmaceutical manufacturers, (viii) the approval of ANDAs and introduction of new manufactured products, (ix) the granting of potential marketing exclusivity periods, (x) the extent of market penetration for the existing product line and (xi) the level of customer service. REVENUES Total revenues of $222,273 for the six months ended June 29, 2003 increased $40,010, or 22%, from $182,263 for the corresponding period of 2002. The increase in revenues was primarily due to higher net sales of new products, including tizanidine (Zanaflex(R)) and nizatidine (Axid(R)), introduced in July 2002 and sold under distribution agreements with Reddy and Genpharm, respectively, and torsemide (Demadex(R)) and minocycline (Minocin(R)), introduced in the second quarter 2003. In addition, the Company recognized other -15- revenues of $12,788 in the first six months of 2003 from a profit sharing agreement with Genpharm related to omeprazole. Net sales of fluoxetine and megestrol acetate oral suspension decreased $10,563 and $1,156, respectively, in fiscal 2003. Net sales of distributed products, which consist of products manufactured under contract and licensed products, were approximately 54% and 58%, respectively, of the Company's net sales in the first six months of 2003 and 2002. The Company is substantially dependent upon distributed products for its overall sales and, as the Company continues to introduce new products under its distribution agreements, it expects that this dependence will continue. Any inability by suppliers to meet expected demand could adversely affect future sales. Total revenues in the second quarter 2003 of $115,861 increased $14,106, or 14%, from $101,755 for the corresponding quarter of 2002, primarily due to sales of new products and additional revenues of $7,060 related to omeprazole. The increased revenues in the second quarter 2003 were achieved despite decreases in net sales of $5,588 and $2,281 for fluoxetine and megestrol acetate oral suspension, respectively, compared to the second quarter of the prior year. Net sales of distributed products were approximately 52% of the Company's total net sales in the most recent quarter compared to approximately 58% of the total for the corresponding quarter of last year. Pursuant to the Genpharm Profit Sharing Agreement, the Company receives a portion of the profits, as defined in the Agreement, generated from KUDCo's sale of omeprazole. In December 2002, KUDCo launched omeprazole following a district court decision in which it prevailed, but before any decision was reached on appeal. Astra has appealed the district court's patent infringement decision. The impact of KUDCo's omeprazole sales on the Company's future revenues is presently unclear to the Company since, among other things, Astra has introduced a new drug, Nexium(R), in an apparent attempt to switch consumers using Prilosec(R) and Astra's decision to market a non-prescription form of Prilosec(R) along with Proctor & Gamble, all of which may reduce generic sales of omeprazole. In August 2003, a generic competitor also began selling a form of omeprazole that competes with the prescription form of Prilosec(R). The Company understands that this generic competitor has initiated litigation against KUDCo alleging patent infringement. The Company expects that the impact of this competition will reduce its revenues from omeprazole in future periods. In December 2002, the Company began recognizing revenues related to its share of Genpharm profits, which were significantly reduced as Genpharm recovered out-of-pocket development and legal expenses incurred during the product development process and litigations. The development and legal expenses were substantially recovered by Genpharm in 2002. Although there can no such assurance, the Company anticipates revenues of up to $7,000 for the remainder of fiscal year 2003 from its share of the profits on omeprazole. The Company's exclusivity period for fluoxetine expired in late-January 2002. As a result of generic competition beginning in the first quarter of 2002, the sales price for fluoxetine has substantially declined from the price that the Company charged during the exclusivity period. Accordingly, the Company's sales and gross margins generated by fluoxetine following the expiration of the exclusivity period have been, and will continue to be, adversely affected. The Company's exclusivity period for megestrol acetate oral suspension expired in mid-January 2002. One generic competitor was granted FDA approval to market another generic version of megestrol acetate oral suspension and began shipping the product to a limited number of customers in the second quarter of 2002. In addition, a second potential generic competitor was granted FDA approval for megestrol acetate oral suspension in May 2003 and has announced it expects to launch the product at some point in the third quarter of 2003. At this time, the Company cannot predict accurately the effect of another generic competitor in the market. Megestrol acetate oral suspension is anticipated by the Company to be a significant profit contributor for the remainder of fiscal year 2003, despite the competition. In accordance with its accounting policies, the Company did not record a price protection reserve for megestrol acetate oral suspension as of June 29, 2003. The Company will continue to evaluate the effect of competition and will record a price protection reserve when, if and as it deems necessary. GROSS MARGIN The Company's gross margin of $116,273 (52% of total revenues) in the first six months of fiscal year 2003 increased $30,583 from $85,690 (47% of total revenues) for the corresponding period of fiscal year 2002. The gross margin improvement was achieved primarily as a result of revenues from omeprazole received pursuant to the Genpharm Profit Sharing Agreement and additional contributions from sales of new products, as described above. In the six-month period ended June 29, 2003, lower gross margin contributions from fluoxetine 10 mg and 20 mg, which are subject to profit sharing agreements with Genpharm, were substantially offset by a higher margin contribution from fluoxetine 40 mg due to an increase in the Company's profit sharing percentage under its agreement with Reddy following the end of the -16- Company's exclusivity period. As discussed above, additional generic manufacturers introduced and began marketing comparable fluoxetine products following the expiration of the Company's exclusivity period in January 2002, adversely affecting the Company's sales volumes, selling prices and gross margins for the products, particularly the 10 mg and 20 mg strengths. The Company's gross margin for megestrol acetate oral suspension could also decline when, and as, additional manufacturers introduce and market comparable generic products. Megestrol acetate oral suspension contributed approximately $34,743 in gross margin for the six-month period of 2003 compared to $35,860 in the corresponding period of the prior year. Gross margin for the second quarter of 2003 was $60,970 (53% of total revenues) compared to $46,415 (46% of total revenues) in the corresponding quarter of the prior year. Additional gross margin contributions from omeprazole revenues and higher margin new products, particularly tizanidine and torsemide, generated the higher gross margins in the second quarter of 2003. Inventory write-offs were $1,317 and $905 for the six-month and three-month periods ended June 29, 2003, respectively, compared to $2,742 and $977, respectively, for the corresponding periods of the prior year. The higher six-month write-offs in 2002 included the write-off of inventory for a product whose launch was delayed due to unexpected patent issues and certain raw material not meeting the Company's quality control standards. The inventory write-offs, taken in the normal course of business, were related primarily to work in process inventory not meeting the Company's quality control standards and the disposal of finished products due to short shelf lives. OPERATING EXPENSES RESEARCH AND DEVELOPMENT The Company's research and development expenses of $11,120 for the six months ended June 29, 2003 increased $4,183, or 60%, from $6,937 for the six months ended June 30, 2002. The higher expenses were primarily attributable to biostudies, including the Company's share of Genpharm's biostudy costs for products covered under their distribution agreements. In addition, higher costs were incurred for raw material and development work done by SVC Pharma, the Company's joint venture partnership. Research and development expenses for the second quarter of 2003 were $4,651 compared to $4,063 for the corresponding quarter of 2002. The increase was primarily attributable to higher spending for raw material. Although there can be no such assurance, the Company expects its total annual research and development expenses for fiscal year 2003 to exceed the total for fiscal year 2002 by approximately up to 30% to 40%. The increase is expected as a result of increased internal development activity, projects with third parties and research and development venture activity. The Company currently has ten ANDAs for potential products (two tentatively approved) pending with, and awaiting approval from, the FDA as a result of its own product development program. The Company has in process or expects to commence biostudies for at least eight additional products during the remainder of fiscal year 2003. The Company and Genpharm have entered into a distribution agreement (the "Genpharm 11 Product Agreement"), dated April 2002, pursuant to which Genpharm is developing products, submitting the corresponding ANDAs to the FDA and, subsequently, has agreed to manufacture the potential products covered under the Agreement. Par will serve as the exclusive U.S. marketer and distributor of the products, pay a share of the costs, including development and legal expenses incurred to obtain final regulatory approval, and pay Genpharm a percentage of the gross profits on all sales of products covered by this Agreement. Currently, there are four ANDAs for potential products (one tentatively approved) that are covered by the Genpharm 11 Product Agreement pending with, and awaiting approval from, the FDA. The Company is currently marketing one product under the Genpharm 11 Product Agreement. The Company and Genpharm have also entered into a distribution agreement (the "Genpharm Distribution Agreement"), dated March 1998. Under the Genpharm Distribution Agreement, Genpharm pays the research and development costs associated with the products covered by the Genpharm Distribution Agreement. Currently, there are five ANDAs for potential products (three tentatively approved) that are covered by the Genpharm Distribution Agreement pending with, and awaiting approval from, the FDA. The Company is currently marketing 19 products under the Genpharm Distribution Agreement. -17- Genpharm and the Company share the costs of developing products covered under an agreement (the "Genpharm Additional Product Agreement"), dated November 27, 2000. The Company is currently marketing two products under the Genpharm Additional Product Agreement. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative costs of $30,105 (14% of total revenues) for the six months ended June 29, 2003 increased $13,742 from $16,363 (9% of total revenues) for the corresponding period of last year. The increase in 2003 was primarily attributable to a charge of $3,635 related to a retirement package for the Company's chairman, president and chief executive officer, higher product liability and directors and officers insurance costs totaling $2,004, legal fees associated with potential new product launches of $1,941 and, to a lesser extent, a royalty paid to GSK on sales of paroxetine in Puerto Rico. In addition, the Company incurred expenses it believes are necessary to support the Company's continued growth, including costs for personnel of $1,903, corporate strategic planning of $900, additional warehouse and administrative office facilities of $673, information system reviews of $660 and accounting fees of $504. Distribution costs include those related to shipping product to the Company's customers, primarily through the use of common carriers or an external distribution service. Shipping costs of $1,349 in the first six months of 2003 approximated costs of $1,337 in the corresponding period of the prior year. The Company anticipates that it will continue to incur a high level of legal expenses related to the costs of litigation connected with potential new product introductions (see "Notes to Consolidated Financial Statements-Commitments, Contingencies and Other Matters-Legal Proceedings"). Selling, general and administrative costs are expected to continue to increase over the remainder of 2003. The Company announced on June 19, 2003 that Kenneth I. Sawyer, its chairman, president and chief executive officer, would retire, effective as of July 1, 2003. Mr. Sawyer did retired on July 1, 2003 and the board of directors is conducting a search for a new chairman and chief executive officer of PRX. In the interim, both Scott Tarriff, president and chief executive officer of Par, and Arie L. Gutman, Ph.D., president and chief executive officer of PRX's FineTech subsidiary, will report to the Company's lead outside director. During this transition period, Mr. Sawyer will remain a director and be available to consult with the Company. A one-time charge of $3,635 associated with Mr. Sawyer's retirement package was recorded in the second quarter of 2003. The retirement package consists of expenses for accelerated stock options, a severance payment, the remainder of his 2003 salary and benefits. Selling, general and administrative costs of $18,215 (16% of total revenues) for the second quarter 2003 increased $9,368 from $8,847 (9% of total revenues) for the corresponding quarter of last year. The increased costs in the second quarter 2003 consisted of higher costs for Mr. Sawyer's retirement package, insurance, personnel, information system improvements, facility expansion and legal fees. Distribution costs include those related to shipping product to the Company's customers, primarily through the use of common carriers or an external distribution service. Shipping costs of $742 in the second quarter 2003 approximated costs of $745 in the corresponding quarter of the prior year. SETTLEMENTS On March 5, 2002, the Company entered into the BMS Asset Purchase Agreement and acquired the United States rights to five products from BMS. The products were the antihypertensives Capoten(R) and Capozide(R), the cholesterol-lowering medications Questran(R) and Questran Light(R), and Sumycin(R), an antibiotic. To obtain the rights to these five products, the Company agreed to terminate its outstanding litigation against BMS involving megestrol acetate oral suspension and buspirone, and paid approximately $1,024 in March 2002 and $1,025 in April 2003. The Company determined, through an independent third party appraisal, the fair value of the product rights received to be $11,700, which exceeded the cash consideration of $2,049 and associated costs of $600 by $9,051. The $9,051 value was assigned to the litigation settlements and recorded as settlement income in the first quarter of 2002. The fair value of the product rights received is being amortized on a straight-line basis over the seven-year period beginning in March 2002, with the net amount included in intangible assets on the Company's consolidated balance sheets. ACQUISITION TERMINATION CHARGES On March 15, 2002, the Company terminated its negotiations with ISP related to the Company's purchase of the combined ISP FineTech fine chemical business, based in Haifa, Israel and Columbus, Ohio. At that time, the Company discontinued negotiations with ISP as a result of various events and circumstances that occurred following the announcement of the proposed transaction. Pursuant to the termination of negotiations, the Company paid ISP a $3,000 break-up fee in March 2002, which was subject to certain credits and offsets, and incurred $1,278 in related acquisition costs, both of which were included in acquisition termination charges on the consolidated statements of operations. -18- OTHER EXPENSE Other expenses for the six-month and three-month periods ended June 29, 2003 of $44 and $10, respectively, decreased from $102 and $213, respectively, in the corresponding periods of 2002. Other expenses recorded in the second quarter of 2002 included those related to the withdrawal of the Company's shelf registration statement during the quarter. Included in other expense in all covered periods was the Company's investment in High Rapids, which was partially offset by net rental income from the Company's Congers facility. INTEREST INCOME Net interest income of $333 and $164, respectively, for the six-month and three-month periods ended June 29, 2003 and $381 and $127 for the corresponding periods of the prior fiscal year was primarily derived from money market and other short-term investments. INCOME TAXES The Company recorded provisions for income taxes of $29,758 and $15,112, respectively, and $26,302 and $13,029, respectively, for the six-month and three-month periods ended June 29, 2003 and June 30, 2002 based on the applicable federal and state tax rates for those periods (see "Notes to Consolidated Financial Statements-Income Taxes"). CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES The Company's critical accounting policies are set forth in its Annual Report on Form 10-K for the year ended December 31, 2002. There has been no change, update or revision to the Company's critical accounting policies subsequent to the filing of the Company's Form 10-K for the year ended December 31, 2002. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents of $107,123 at June 29, 2003 increased $42,002 from $65,121 at December 31, 2002, primarily due to cash provided by operations and, to a lesser extent, proceeds from the issuance of shares of the Company's common stock from the exercise of stock options. The Company invested $11,727 in capital improvements during the first six months of 2003, primarily for the expansion of its laboratories in Spring Valley, New York, its administrative offices in Woodcliff Lake, New Jersey and its warehouse facilities in Montebello, New York. In addition, the Company purchased new production machinery for its packaging lines and made improvements in its information technology. The Company's cash balances are deposited primarily with financial institutions in money market funds and overnight investments. Working capital, which includes cash and cash equivalents, increased $55,184 to $191,489 at June 29, 2003 from $136,305 at December 31, 2002, primarily from increases in the Company's cash position, accounts receivable and inventories partially offset by higher income tax and accounts payable. The working capital ratio of 2.77x at June 29, 2003 was comparable to the ratio of 2.83x at December 31, 2002. A summary of the Company's material contractual obligations and commercial commitments as of June 29, 2003 were as follows: AMOUNTS DUE IN FISCAL YEARS --------------------------- TOTAL JUL-DEC 2005 AND OBLIGATION OBLIGATION 2003 2004 THEREAFTER - ---------- ---------- ---- ---- ---------- Operating leases $19,741 $1,490 $2,937 $15,314 Industrial revenue bond 1,820 185 381 1,254 Other 129 80 49 - ------- ------ ------ ------ Total obligations $21,690 $1,755 $3,367 $16,568 ======= ====== ====== ======= In addition to its internal research and development costs, the Company, from time to time, enters into agreements with third parties with respect to the development of new products and technologies. To date, the Company has entered into agreements and advanced funds or has commitments with several non-affiliated companies for products in various stages of development. These types of payments or commitments, certain of which are described below, are either capitalized or expensed according to the Company's accounting policies. -19- The Company and Nortec Development Associates, Inc. (a Glatt company) ("Nortec") have entered into a binding agreement in principle, dated March 3, 2003, subject to final negotiation and execution of a definitive agreement, in which the two companies will develop additional products that are not part of the two previous agreements between the Company and Nortec. During the first two years of the Company's arrangement with Nortec, Par will be obligated to make aggregate initial research and development payments to Nortec in the amount of $3,000, of which $500 has already been paid. On or before the second anniversary of the agreement the Company will have the option to either (i) terminate the arrangement with Nortec, in which case the initial research and development payments will be credited against any development costs that the Company shall owe Nortec at that time, or (ii) acquire all of the capital stock of Nortec over the subsequent two years, including the first fifty (50%) percent of the capital stock of Nortec over the third and fourth years of the arrangement for $4,000, and the remaining capital stock of Nortec from its owners at the end of the fourth year for an additional $11,000. The remaining terms of the agreement are expected to be finalized in the third quarter of 2003. In the second quarter of 2002, the Company made non-refundable payments totaling $1,000 pursuant to other agreements with Nortec, which were charged to research and development expenses as incurred. Pursuant to the agreements, the Company agreed to pay a total of $800 in various installments related to the achievement of certain milestones in the development of two potential products and $600 for each product on the day of the first commercial sale. Pursuant to the Genpharm Profit Sharing Agreement, Genpharm has agreed to pay the Company its share of profits related to KUDCo's sale of omeprazole 60 days after the month in which the product was sold. In December 2002, KUDCo launched omeprazole following a district court decision in which it prevailed, but before any decision was reached on appeal. Astra has appealed the district court's patent infringement decision. In the first six months of 2003, the Company recognized $12,788 of revenues related to its share of profits and expects to record up to $7,000 in additional such revenues over the remainder of fiscal year 2003. As of June 29, 2002, the Company has received cash payments of $6,483 from Genpharm pursuant to this agreement and although there can be no such assurance, expects to receive approximately $12,000 in additional cash payments over the remainder of fiscal year 2003. In November 2002, the Company amended its agreement with Pentech (the "Supply and Marketing Agreement"), dated November 2001, to market paroxetine hydrochloride capsules. Pursuant to the Supply and Marketing Agreement, the Company is responsible for all legal expenses up to $2,000, which have been expensed as incurred, to obtain final regulatory approval. Legal expenses in excess of $2,000 are fully creditable against future profit payments. The Company has agreed to reimburse Pentech for costs associated with the project of up to $1,300 for fiscal year 2003, which are charged to research and development expenses as they are incurred. In the first six months of 2003, the Company incurred $514 in research and development costs pursuant to the Supply and Marketing Agreement. In July 2002, the Company and Three Rivers entered into a distribution agreement (the "Three Rivers Distribution Agreement"), which was amended in October 2002, to market and distribute ribavirin 200 mg capsules, the generic version of Schering-Plough's Rebetol(R). Under the terms of the Three Rivers Distribution Agreement, Three Rivers will supply the product and be responsible for managing the regulatory process and ongoing patent litigation. Par will have the exclusive right to sell the product in non-hospital markets upon FDA approval and final marketing clearance and pay Three Rivers a percentage of the gross profits (as defined in the Agreement). The Company paid Three Rivers $1,000 in November 2002, which was charged to research and development during the period, and has agreed to pay Three Rivers $500 at such time as Par commercially launches the product. As of June 29, 2003, the Company had payables owed to distribution agreement partners of $20,441, related primarily to amounts due pursuant to profit sharing agreements with strategic partners. The Company expects to pay these amounts out of its working capital during the third quarter of 2003. In December 2001, the Company made its first payment of a potential equity investment of up to $2,438 to be made over a period of time in HighRapids. Pursuant to an agreement between the Company and HighRapids, effective December 1, 2001, the Company, subject to its ongoing evaluation of HighRapids' operations, has agreed to purchase units, consisting of secured debt, evidenced by 7% secured promissory notes, up to an aggregate principal amount of $2,425 and up to an aggregate of 1,330 shares of the common stock of HighRapids. HighRapids is to utilize the Company's cash infusion for working capital and operating expenses. Through June 29, 2003, the Company had invested $1,008 of -20- its potential investment. Due to HighRapids' current operating losses and the Company's evaluation of its short-term prospects for profitability, the investments were expensed as incurred and included in other expense on the consolidated statements of operations (see-"Notes to Consolidated Financial Statements-Commitments, Contingencies and Other Matters-Other Matters"). In April 2001, Par entered into a licensing agreement with Elan Transdermal Technologies, Inc. ("Elan") to market a generic clonidine transdermal patch (Catapres TTS(R)). Under such agreement, Elan is responsible for the development and manufacture of the product, while Par is responsible for marketing, sales and distribution. Pursuant to the agreement, the Company paid Elan $1,167 in fiscal year 2001 and $833 in 2002, which were charged to research and development expenses in the respective years. In addition, Par has agreed to pay Elan $1,000 upon FDA approval of the product and a royalty on all sales of the product. The Company expects to continue to fund its operations, including research and development activities, capital projects, and its obligations under the existing distribution and development arrangements discussed herein, out of its working capital and, if necessary, with borrowings against its line of credit with GECC, if and to the extent available. The Company has altered its plans to move a portion of FineTech's operation, including personnel and technological resources to a laboratory facility in Rhode Island. The Company is currently evaluating alternatives related to the proceeds from the industrial revenue bond that were to be used for this operation (see "-Financing"). In fiscal year 2003, the Company expects its capital spending to increase due to the expansion of its laboratories and initiatives related to improvements to its information systems. Although there can be no such assurance, the Company anticipates it will continue to introduce new products and attempt to increase sales of certain existing products, in an effort to offset the loss of sales and any erosion of gross margins from competition on any of its significant products. In addition to expected new product introductions as part of its various strategic alliances and relationships, the Company plans to continue to invest in its internal research and development efforts while, at the same time, seeking additional products for sale through new and existing distribution agreements or acquisitions of complimentary products and businesses, additional first-to-file opportunities, vertical integration with raw material suppliers and unique dosage forms and strengths to differentiate its products in the marketplace. The Company also seeks to reduce the overall impact of its top selling products by adding additional products through new and existing distribution agreements. Execution of the Company's strategies may require additional debt or equity financing and there can be no assurance that the Company will be able to obtain any required financing when needed and on terms acceptable or favorable to it. FINANCING At June 29, 2003, the Company's total outstanding long-term debt, including the current portion, amounted to $1,949. The amount consisted primarily of an industrial revenue bond and capital leases for computer equipment. The industrial revenue bond, in the principal amount of $2,000, is to be paid in equal monthly installments over a term of five years, maturing on January 1, 2008. The bond bears interest at 4.27% per annum and is subject to covenants based on various financial benchmarks. Execution of the Company's strategies may require additional debt or equity financing and there can be no assurance that the Company will be able to obtain any required financing when needed and on terms acceptable or favorable to it. In December 1996, Par entered into the Loan Agreement with GECC. The Loan Agreement, as amended in December 2002, provides Par with a revolving line of credit expiring in March 2005. Pursuant to the Loan Agreement, Par is permitted to borrow up to the lesser of (i) the borrowing base established under the Loan Agreement or (ii) $30,000. The borrowing base is limited to 85% of the eligible accounts receivable plus 50% of the eligible inventory of Par, each as determined from time to time by GECC. As of June 29, 2003, the borrowing base was approximately $27,000. The interest rate charged on any borrowings under the line of credit is based upon a per annum rate of 2.25% above the 30-day commercial paper rate for high-grade unsecured notes adjusted monthly. The line of credit with GECC is collateralized by the assets of the Company, other than real property, and is guaranteed by the Company. In connection with such credit facility, the Company has established a cash management system pursuant to which all cash and cash equivalents received by any of such entities are deposited into a lockbox account over which GECC has sole operating control if there are amounts outstanding under the line of credit. The deposits would then be applied on a daily basis to reduce the amounts outstanding under the line of credit. The revolving credit facility contains covenants based on various financial benchmarks. As of the date hereof, no debt is outstanding under the Loan Agreement. SUBSEQUENT EVENTS: On July 15, 2003, the Company announced that two additional patents relating to megestrol acetate oral suspension have been issued to it by the U.S. Patent Office. The Patent Office issued U.S. Patent Nos. 6,593,318 and 6,593,320 to the Company. The Company presently holds four patents relating to megestrol oral suspension. The first two patents, U.S. Patent No. 6,028,065 and U.S. Patent No. 6,268,356, were issued on February 22, 2000 and July 31, 2001, respectively. -21- On July 16, 2003, the Company announced that the United States District Court for the Central District of California had granted summary judgment of non-infringement regarding ribavirin to Three Rivers. The district court determined that the Three Rivers' product does not infringe any of three patents asserted by ICN Pharmaceuticals in the litigation. Par has exclusive marketing rights for the Three Rivers' ribavirin product. Three Rivers had earlier reached a settlement of its patent litigation with Schering Plough Pharmaceuticals, so this decision appears to resolve the remaining ongoing patent barriers to FDA approval of the ANDA filed by Three Rivers. The timing of Par's launch of this product is uncertain at this time. Three Rivers has not obtained FDA approval, and FDA has not made a determination of whether a generic 180-day exclusivity period will be awarded solely to a generic competitor involved in the lawsuit or Three Rivers jointly with one or both of the other two generic competitorsinvolved in the lawsuit. The patent holder, ICN Pharmaceuticals, may be able to appeal the court decision. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 4. CONTROLS AND PROCEDURES. Based on the evaluation by the Executive Vice President and Chief Financial Officer of the Company as of the end of the period covered by this quarterly report, the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effectively designed to ensure that the information required to be included in this report has been recorded, processed, summarized and reported on a timely basis. There has not been any change in the Company's internal controls over financial reporting that have materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting. -22- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. - ------ ----------------- On May 28, 2003, Asahi Glass Company filed a complaint in the United States District Court for the Northern District of Illinois against GlaxoSmithKline P.L.C. and affiliated entities, Pentech Pharmaceuticals and Par alleging, among other things, violations of state and federal anti-trust laws arising out of the Supply and Distribution Agreement between GlaxoSmithKline and Par. Par denies any wrongdoing in connection with this action and expects to file a motion to dismiss the complaint in August 2003. In the event the action continues following the court's determination of the motion to dismiss, Par intends to defend vigorously this action and may assert counterclaims against Asahi Glass and others. On April 18, 2003, GSK and PRX, through its principal subsidiary Par, announced that Pentech and GSK had reached a settlement of their patent litigation over Pentech's proposed generic capsule version of GSK's anti-depressant Paxil(R) (paroxetine hydrochloride). Pentech granted Par rights under Pentech's ANDA for paroxetine hydrochloride capsules. The settlement allows Par to distribute in Puerto Rico substitutable generic paroxetine hydrochloride immediate release tablets supplied and licensed from GSK for a royalty to be paid to GSK. Under the settlement, Pentech and Par acknowledge that the GSK patent covering the hemihydrate form of paroxetine hydrochloride is valid and enforceable and would be infringed by Pentech's proposed capsule product, for which Pentech has applied for FDA approval. The same GSK patent was found valid and enforceable in a separate patent infringement case in the U.S. District Court for the Northern District of Illinois (Chicago) against Apotex. Apotex was found not to infringe, and, the Company believes, GSK is appealing that ruling. The litigation and the settlement do not involve Paxil CR(TM). Breath Ltd. of the Arrow Group filed an ANDA (currently pending with the FDA) for latanoprost (Xalatan(R)), which was developed by Breath Ltd. pursuant to a joint manufacturing and marketing agreement with the Company, seeking approval to engage in the commercial manufacture, sale and use of one latanoprost drug product in the United States. Par subsequently acquired ownership of the ANDA, which includes a Paragraph IV certification that the patents in connection with Xalatan(R) that are identified in "Approved Drug Products with Therapeutic Equivalence Evaluations" are invalid, unenforceable and/or will not be infringed by Par's generic product. Par believes that its ANDA is the first to be filed for this drug with a Paragraph IV certification. As a result of the filing of the ANDA, Pharmacia Corporation, Pharmacia AB, Pharmacia Enterprises, S.A., Pharmacia and Upjohn Company and the Trustees of Columbia University in the City of New York filed lawsuits against Par on December 14, 2001 in the United States District Court for the District of Delaware and on December 21, 2001 in the United States District Court for the District of New Jersey alleging patent infringement. Pharmacia and Columbia are seeking an injunction to prevent the Company from marketing its generic product prior to the expiration of their patents. On February 8, 2002, Par answered the complaint brought in the District of New Jersey and filed a counterclaim, which seeks a declaration that the patents-in-suit are invalid, unenforceable and/or not infringed by Par's products. Par is also seeking a declaratory judgment that the extension of the term of one of the patents is invalid. All parties are seeking to recover their respective attorneys' fees. On February 25, 2002, the lawsuit brought in the District of Delaware was dismissed pursuant to a stipulation of the parties. The case in the District of New Jersey is currently in the expert discovery stage. Par intends to vigorously defend the lawsuit and pursue its counterclaim and the declaratory judgment sought by it. At this time, it is not possible for the Company to predict the outcome of the plaintiffs' claim for injunctive relief, Par's counterclaim or the claims for attorneys' fees. Par, among others, was a defendant in three lawsuits filed in the United States District Court for the Eastern District of North Carolina (filed on August 1, 2001, October 30, 2001 and November 16, 2001, respectively) by aaiPharma Inc., involving patent infringement allegations connected to three patents related to polymorphic forms of fluoxetine (Prozac(R)). In March 2003, Par settled its lawsuits with aaiPharma Inc. The settlement has not had a material adverse effect on the Company's financial position or results of operation. The Company and/or Par is a party in certain other litigation matters, including product liability and patent actions, and the Company believes these actions are incidental to the conduct of its business and that in the ultimate resolution will not have a material adverse effect on its financial condition, results of operations or liquidity. The Company intends to vigorously defend or, in cases where the Company is plaintiff, prosecute these actions. -23- ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. - ------ ----------------------------------------- As of June 24, 2003, the Company changed its state of incorporation from New Jersey to Delaware. The reincorporation was approved by the holders of a majority of the Company's outstanding shares of common stock, voting in person or by proxy, at its Annual Meeting of Shareholders held on June 19, 2003. The reincorporation was effected by merging the Company with and into Pharmaceutical Resources, Inc., a Delaware corporation and then a wholly-owned subsidiary of the Company, with the Delaware corporation surviving (the "Merger"). Pursuant to the Merger, each share of common stock of the New Jersey corporation was automatically converted into one share of common stock, $.01 par value, of the Delaware corporation. It is not necessary for Company shareholders to exchange their existing stock certificates of the New Jersey corporation for stock certificates of the Delaware corporation. For further information about the reincorporation and for a description of the material differences between the rights of shareholders under the Business Corporation Act of the State of New Jersey and the rights of stockholders under the General Corporation Law of the State of Delaware, please refer to the Company's Proxy Statement, filed with the Commission on May 13, 2003, which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------ --------------------------------------------------- The Company's 2003 Annual Meeting of Shareholders was held on June 19, 2003. The votes for each proposal were as follows: Proposal I - Approval of Election of two Class I Directors. Proposal I Results For Withheld - ------------------ --- -------- Peter S. Knight 28,204,694 1,226,295 Scott L. Tarriff 28,954,292 476,697 Proposal II - Approval of the Reincorporation of the Company in Delaware. Broker Proposal II Results For Against Abstain Non-Votes - ------------------- --- ------- ------- --------- 20,930,202 1,119,443 368,715 8,012,629 Proposal III - Approval of Amendment to 2001 Performance Equity Plan to Increase the Aggregate Number of Shares Reserved for Issuance From 4,000,000 to 5,500,000. Broker Proposal III Results For Against Abstain Non-Votes - -------------------- --- ------- ------- --------- 18,462,926 3,880,166 75,267 7,012,630 Proposal IV - Approval of Amendment to 1997 Directors' Stock Option Plan to Increase the Aggregate Number of Shares that may be Issued under the Plan From 450,000 to 650,000 and Extending the Expiration Date of the Plan from October 28, 2007 to October 28, 2013. Broker Proposal IV Results For Against Abstain Non-Votes - ------------------- --- ------- ------- --------- 18,480,013 3,660,415 277,931 7,012,630 ITEM 5. OTHER INFORMATION. - ------ ----------------- In June 2003, a large group of brand and generic pharmaceutical manufacturers, including the Company, received notice from the U.S. Congress that the Committee on Energy and Commerce (the "Committte") had begun an industry-wide investigation into pharmaceutical reimbursements and rebates under Medicaid. In order to conduct the investigation, the Committee has requested certain pricing and other information relating to certain drugs produced by these pharmaceutical manfacturers because the investigation has only recently begun, the Company is not in a position to determine what action, if any, the federal government may take and what the impact such action could have on our business, prospects or financial conditions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------ -------------------------------- (a) Exhibits: 10.9.4 Amendment to Employment Agreement, dated as of June 2003, by and between Pharmaceutical Resources, Inc., and Scott L. Tarriff. 10.9.5 Terms of Separation from Employment, Consulting, and Post-Employment Obligations, dated as of June 18, 2003, between Pharmaceutical Resources, Inc. and Kenneth I. Sawyer. -24- 10.48 Amended and Restated License and Supply Agreement, dated as of April 16, 2003, among SB Pharmco Puerto Rico Inc., SmithKline Beecham Corporation, Beecham Group p.l.c. and Par Pharmaceutical, Inc.* 10.49 Amended and Restated Settlement Agreement, dated as of April 16, 2003, among SmithKline Beecham Corporation, Beecham Group p.l.c. and Par Pharmaceutical, Inc. and Pentech Pharmaceuticals, Inc.* 31.1 Certification by the Executive Vice President pursuant to Rule 13a-14(a) of the Exchange Act. 31.2 Certification by the Chief Financial Officer pursuant to pursuant to Rule 13a-14(a) of the Exchange Act. 32.1 Certification by the Executive Vice President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Certain portions of these exhibits have been omitted and have been filed with the Securities and Exchange Commission pursuant to a request for confidential treatment thereof. (b) Reports on Form 8-K: On July 28, 2003, July 9, 2003 and June 23, 2003, the Company filed Current Reports on Form 8-K. -25- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHARMACEUTICAL RESOURCES, INC. ------------------------------ (Registrant) August 11, 2003 /s/ Scott L. Tarriff -------------------- Scott L. Tarriff EXECUTIVE VICE PRESIDENT August 11, 2003 /s/ Dennis J. O'Connor ---------------------- Dennis J. O'Connor VICE PRESIDENT; CHIEF FINANCIAL OFFICER AND SECRETARY (Principal Accounting and Financial Officer) -26- EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 10.9.4 Amendment to Employment Agreement, dated as of June 18, 2003, by and between Pharmaceutical Resources, Inc., and Scott L. Tarriff. 10.9.5 Terms of Separation from Employment, Consulting, and Post-Employment Obligations, dated as of June 18, 2003, between Pharmaceutical Resources, Inc. and Kenneth I. Sawyer. 10.48 Amended and Restated License and Supply Agreement, dated as of April 16, 2003, among SB Pharmco Puerto Rico Inc., SmithKline Beecham Corporation, Beecham Group p.l.c. and Par Pharmaceutical, Inc.* 10.49 Amended and Restated Settlement Agreement, dated as of April 16, 2003, among SmithKline Beecham Corporation, Beecham Group p.l.c. and Par Pharmaceutical, Inc. and Pentech Pharmaceuticals, Inc.* 31.1 Certification by the Executive Vice President pursuant to Rule 13a-14(a) of the Exchange Act. 31.2 Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act. 32.1 Certification by the Executive Vice President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Certain portions of these exhibits have been omitted and have been filed with the Securities and Exchange Commission pursuant to a request for confidential treatment thereof. -27- EX-10 3 exh10-9four.txt EXHIBIT 10.9.4 EXHIBIT 10.9.4 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- This Agreement, entered into on this 18th day of June, 2003 ("Amendment") by and between Scott Tarriff ("Executive") and Pharmaceutical Resources, Inc., a New Jersey corporation ("Resources"), is an amendment to that Employment Agreement entered into as of the 6th day of February, 2003 ("Employment Agreement"). This Amendment incorporates by reference the definitions and other terms contained in the Employment Agreement, unless otherwise specified herein. RECITALS A. WHEREAS, Executive is currently employed by the Employer pursuant to the Employment Agreement; B. WHEREAS, in light of the anticipated retirement of Resources Chief Executive Officer ("CEO") and Par Chairman of the Board ("Chairman") Kenneth Sawyer, the parties wish to secure continuity of business functions, and assure a smooth transition to a new CEO and Chairman to be appointed ("New CEO"); and C. WHEREAS, to accomplish these goals, the parties desire to amend certain provisions of the Employment Agreement, and their respective rights and obligations thereunder during and after such transition. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto agree as follows: 1. PERIOD OF MUTUAL COMMITMENT TO EMPLOYMENT. Employer and Executive agree that for a period of (i) nine (9) months following the date of the Amendment, or (ii) four (4) months after the commencement of the service of a New CEO, whichever is greater ("Commitment Period"), Employer shall not exercise its rights under Section 3.2.5 of the Employment Agreement to terminate the Employment Term Without Cause, and Executive shall not exercise his rights under Section 3.2.2 of the Employment Agreement to terminate the Employment Term Without Cause, or under Section 3.2.6(ii) of the Employment Agreement upon the Employer's material breach. Unless otherwise agreed in writing by the parties hereto, the Commitment Period shall not exceed one (1) year from the date of this Amendment. 2. DUTIES DURING AND AFTER THE COMMITMENT PERIOD. Executive's duties following the execution of this Amendment shall include, in addition to his duties under the Employment Agreement (unless otherwise directed): (i) to assist in the search for and hiring of a New CEO, as directed by the Independent Directors of the Board, or their designated Lead Director ("Lead Director"); (ii) to assist in effecting an orderly transition of all Par and Resources business to the New CEO following his or her hire by the Employer; (iii) to take direction from and to report fully and regularly to the Lead Director as requested, on all matters related to business transactions, operations, finances, and any other matters material to Par and/or Resources, within Executive's purview or knowledge; and (iv) to carry out such other or different duties as may from time to time be directed by the Lead Director or the New CEO. 2 3. ELECTION BY EITHER PARTY TO SEPARATE UPON CONCLUSION OF THE COMMITMENT PERIOD. At the conclusion of the Commitment Period, and for a period of up to two (2) months thereafter ("Separation Period"), either Executive or Employer may, upon no less than fifteen (15) days prior written notice to the other specifying the Date of Termination, elect to terminate the Employment Term for any reason or no reason ("Election to Separate"). In the event either party exercises its Election to Separate during the Separation Period, and only in such event, Employer's obligations to Executive shall be exclusively as set forth in Section 3 hereof. 3.1. SEVERANCE AMOUNT AND RELEASE. In the event of an Election to Separate under Section 3 hereof by either party, and only in such event, and subject to the provisions of Section 7 hereof, Employer shall pay to Executive, in lieu of any other bonus or severance pay, the Severance Amount of $1 million, in twelve (12) equal installments over the course of one (1) year from the Date of Termination, in accordance with Employer's regular payroll practices. As a condition of payment of such Severance Amount by Employer, Executive shall execute a General Release of All Claims against Employer, its parent corporations, subsidiaries and affiliates, successors and assigns, and their respective Directors, Officers, agents and employees, in a form satisfactory to Employer and Executive. 3.2. STOCK OPTIONS. In the event of an Election to Separate under Section 3 hereof by either party, and only in such event, Stock Options which were granted to Executive up to and including the Date of Termination and which had not vested as of the Date of Termination (the "Unvested Options"), shall be 3 permitted to vest (except as otherwise provided herein) in accordance with the schedule attached hereto as "Schedule A", which shall supersede the existing vesting schedules for the Unvested Options; provided, that the relevant stock option plan remains in effect and such stock options shall not have otherwise expired in accordance with the terms thereof. In connection herewith, Employer agrees to use commercially reasonable efforts to amend Executive's Stock Option Agreements, if necessary to effectuate the provisions of this Section 3.2. In the event Executive breaches his obligations under Sections 5 or 6 hereof, or receives notice terminating his stock options pursuant to Section 7 hereof, all unexercised Options, whether vested or unvested, shall terminate immediately and be of no further force and effect. 3.3. OTHER PAY AND BENEFITS. In the event of an Election to Separate under Section 3 hereof by either party, the Employer shall pay to Executive, in a single lump-sum, an amount equal to any unpaid but earned Base Salary through the Date of Termination, and shall reimburse Executive for any unpaid expenses incurred prior to the Date of Termination pursuant to Section 2.5.1 of the Employment Agreement, in accordance with the Employer's reimbursement policies. Executive may elect to receive health care continuation coverage pursuant to COBRA, if applicable, and Employer will reimburse Executive the cost of such coverage for a period of up to twelve (12) months following his separation from employment by Election to Separate. Nothing herein shall prevent consideration 4 by the Employer's Compensation Committee of any discretionary bonus for Executive. 3.4. EXCLUSIVE RIGHTS. Executive's rights under this Section 3 are Executive's sole and exclusive rights against Employer and Employer's sole and exclusive liability to Executive under this Amendment, whether in contract, tort or otherwise, with respect to any termination of the employment relationship or rights arising under or related to the employment relationship. Executive covenants not to sue or assert any claim, demand or cause of action against Employer for any sums other than those specified in this Section 3. If Executive breaches this covenant, Employer shall be entitled to recover from Executive all sums expended by Employer (including costs and attorneys fees) in connection with such suit, claim, demand or cause of action. 3.5. EMPLOYER'S RIGHTS PRESERVED. Employer may terminate the Employment Term pursuant to Sections 3.2.4, 3.3 and 3.3.1 of the Employment Agreement, provided that such Termination is based on events, conduct, acts or omissions of Executive occurring or discovered after the date of this Amendment; and in such event, the rights and obligations of the parties shall be exclusively as set forth in the Employment Agreement, as amended hereby, and Executive shall not be entitled to the benefits provided in Sections 3.1 or 3.2 hereof. 3.6. EFFECT OF NEITHER PARTY ELECTING TO SEPARATE. Should neither party issue a notice of Election to Separate prior to the conclusion of the Separation Period, Section 3 hereof shall expire, and the rights and obligations of the parties shall thereafter be governed by the Employment Agreement, as 5 amended hereby, excluding Section 3 hereof. 4. SIMULTANEOUS TERMINATION OF DIRECTORSHIP AND OTHER OFFICES. In the event of any action resulting in the termination of the Employment Term by either party for any reason, including an Election to Separate, Executive shall immediately tender his resignation from, and shall be deemed by Employer to have resigned from, any and all positions as Director, Officer or Fiduciary as to the Employer or any parent company, affiliate, or subsidiary thereof, or any benefit plan or other entity sponsored thereby. 5. NON-COMPETITION AND PROTECTION OF CONFIDENTIAL INFORMATION AND TRADE SECRETS; NO SOLICITATION. 5.1. EMPLOYER'S PROTECTIBLE INTEREST IN ITS CONFIDENTIAL INFORMATION. Executive acknowledges that he has been employed by Employer in executive and chief executive capacities since 1998. Executive acknowledges that, in those fiduciary capacities, he has been afforded unimpeded access to the Employer's trade secrets, intellectual property, business opportunities, confidences, business and strategic plans, methods of operation, formulas and formulations, research and development programs, and all other confidential, internal and proprietary information of the Employer (together, and as further defined below in this Section and Section 5.10 hereof, the "Confidential Information") upon which Employer's business is premised, and which Executive acknowledges is essential for Employer's business success. Executive further acknowledges that such Confidential Information includes and constitutes Trade Secrets and 6 information not readily available to the general public, which would not have been disclosed to or learned of by Executive had he not been employed by the Employer in executive capacities and positions of trust. Executive acknowledges that the Confidential Information is a protectible interest of the Employer under applicable law. 5.1.1. INTELLECTUAL PROPERTY. Executive acknowledges that, as part of Employer's confidences and trust reposed in him, he has been afforded unimpeded access to Employer's Intellectual Property. As used herein "Intellectual Property" shall mean and include all research and development, patent applications, patent research and development strategies and planning, protocols for design and approval of products, development plans for manufacturing, sites and raw materials, and all other or related intellectual property of Employer or generated on Employer's behalf or for its benefit with or through others. Executive further acknowledges that all such Intellectual Property is valuable property of Employer, not of Executive, and constitutes Confidential Information and Trade Secrets in which Employer has a protectible interest under applicable law. 5.1.2. BUSINESS RELATIONSHIPS WITH THIRD PARTIES. Executive acknowledges that, in significant part, Employer conducts its business and intends to conduct future business through business relationships with third parties such as agents, contractors, vendors, business partners or affiliates, or joint-venturers who, with Employer or on its behalf or for its benefit, engage, inter alia, in research and development, patent strategy or applications, manufacturing, distribution, or similar business enterprises 7 significant to Employer's business ("Third-Party Relationships"). Executive agrees that the work product and content of Employer's business plans, relationships, financial arrangements, product development and business confidences involved in the Third Party Relationships, and those planned for or engaged in the future, are Confidential Information in which Employer has a protectible interest under applicable law. 5.2. UNIQUE CHARACTER OF EXECUTIVE'S POSITION. Executive further acknowledges that his duties for the Employer in executive and chief executive capacities are and were of a special, unique, extraordinary and intellectual character which placed him in a position of trust and responsibility for the Employer in relation to its specialized business, including, without limitation, trust and responsibility relating to conceptualization and/or implementation of the Employer's marketing and sales strategies, business relationships developed by Executive with the clients and potential clients of Employer, public and investor communications, strategic plans, business targets, projects, partners, and product developments in the unique aspects of the pharmaceutical and generic pharmaceutical business conducted by Employer. Therefore, Executive acknowledges that each of the restrictions set forth in Section 5.4 below are reasonable and necessary to protect the Employer from unfair competition by any party using or seeking to use the Employer's Confidential Information and Trade Secrets, or using or seeking to use the Executive's unique skills and knowledge acquired with and for the Employer, or his position of trust with the Employer, to the 8 Employer's disadvantage. 5.3. NATIONAL AND INTERNATIONAL SCOPE OF BUSINESS. Executive acknowledges that Employer's business includes manufacture, distribution and/or sale on its own behalf and through Third Party Relationships, is nation-wide in scope among the fifty United States, and also includes Israel and other locations or markets in which Employer has or is developing a Market Presence, as hereafter defined. Accordingly, Executive acknowledges that the restrictions set forth in Sections 5.4 and 5.4.1 below are reasonable in their national and international scope and geographic territory. 5.4. COVENANT NOT TO COMPETE. Executive agrees that, at all times during his employment by Employer, and for a period of not less than ONE (1) YEAR from the date such employment relationship is terminated, irrespective of the reason for the termination of the employment relationship, EXECUTIVE SHALL NOT, directly or indirectly, on his own behalf or for his own benefit, or on behalf of or for the benefit of another (other than the Employer), own, operate, manage, engage in, participate in, be employed by, affiliate with, or provide material assistance to, contract for services for or with, render advice or services to or otherwise assist in any capacity, directly or indirectly (whether as an officer, director, partner, agent, investor, consultant, contractor, employee, equityholder, lender, counselor, or otherwise) any Competitive Enterprise, as defined in Section 5.4.1. below. Nothing herein shall prevent Executive from owning up to 2% of publicly traded securities in a Competitive Enterprise. 9 5.4.1. DEFINITION OF COMPETITIVE ENTERPRISE AND GEOGRAPHIC TERRITORY COVERED. As used herein, and notwithstanding anything to the contrary in the Employment Agreement, the term "Competitive Enterprise" means and includes any person, association, business, or entity: (a) that manufactures, markets, licenses, distributes, contracts for the sale of, or sells (or causes to be manufactured, marketed, licensed, distributed, contracted for or sold through others) any product, that competes with, or is developing any product that is intended to compete with (i) any product manufactured, marketed, distributed, licensed, contracted for sale or sold by Employer or through its Third Party Relationships, or (ii) any product which the Employer has developed, targeted for development, or is developing for manufacture, marketing, license, distribution, contract, or sale and which is projected to reach the wholesale or retail market within five (5) years of the date of this Amendment (each, a "Competitive Product"); or (b) that obtains finished goods, source materials, or research and development (i) from any source or supplier with whom Employer regularly does business ("Employer Source"), or (ii) to formulate any Competitive Product. The geographic territory covered by the term "Competitive Enterprises" includes any such person, association, business or entity (a) doing business in the United States or in Israel or any other location or market in which the Employer has a Market Presence (defined as more than de MINIMUS gross revenue as to any product line or business of Employer as of the Date of Termination), whether or not through a Third Party Relationship, or (b) obtaining finished goods, source materials, or resources and development for a 10 Competitive Product in any location or market in which Employer does so, or from any Employer Source, wherever located; and includes any person, association, business or entity, (c) outside the United States or Israel which manufactures, markets, licenses, contracts for, distributes or sells (or causes to be manufactured, marketed, licensed, contracted for, distributed or sold through others) any Competitive Product, or engages in the development of any Competitive Product intended to be manufactured, distributed, licensed, contracted for or sold in the United States, Israel or any other location or market in which Employer has a Market Presence. 5.5. COVENANT NOT TO SOLICIT SUPPLIERS AND OTHERS. Executive SHALL NOT, while employed by Employer and for a period of TWO (2) YEARS following the Date of Termination of the employment relationship for any reason, directly or indirectly solicit or divert (or seek to divert) or entice away, for the benefit of Executive or any other person or entity, or cause (or attempt to cause) or persuade in any manner to cease doing business with Employer or reduce its level of business with Employer, any Third Party Relationship, client, supplier, vendor, contractor, business partner, licensee, licensor, agent or investor, or supplier of source materials or finished goods, product lines or research, who was doing business with Employer at any time within 12 months prior to the Date of Termination, or who was actively engaged in discussions in contemplation of any such business relationship during such period. During the above-referenced 2-year period, Executive may not accept business from any of the above-referenced entities where doing so would have the effect of diverting 11 Employer's existing business, or would have the effect of reducing its existing level of business with such entities. 5.6. COVENANT NOT TO HIRE OR SOLICIT EMPLOYEES. Except with the express written permission of Employer, Executive SHALL NOT, while employed by Employer and for a period of TWO (2) YEARS following the date of termination of the employment relationship for any reason, directly or indirectly hire, retain or engage, or offer to hire, retain or engage, or solicit for employment or other retention or engagement of services, or otherwise induce to leave Employer, for the benefit of Executive or any other person or entity, any employee, consultant or contractor who is then employed by or engaged by Employer or was so employed or engaged as of the Date of Termination. 5.7. TOLLING DURING PERIODS OF VIOLATION. The parties agree that, in the event Executive violates any of the provisions of Sections 5.4, 5.5 or 5.6 hereof during the time periods of restriction set forth respectively therein, any such period of restriction shall be tolled for the duration of such violation, and the applicable period of restriction shall not expire, and shall be extended for a period of time commensurate with the duration of the violation. 5.8. GOODWILL. Executive acknowledges that, through and solely as a result of his employment by Employer, he has acquired a continuing equity stake in the Employer's business in the form of substantial and valuable stock options granted by Employer, portions of which grants have been exercised by Executive to his significant economic advantage. Accordingly, solely for purposes of enforcement of the covenants contained in this Section 5, Executive agrees to be 12 deemed and regarded under applicable legal precedent as if he were in the same position as a seller of a business interest and goodwill appurtenant thereto. 5.9. APPLICATION IRRESPECTIVE OF REASON FOR TERMINATION OF EMPLOYMENT. In light of the acknowledgements set forth in Sections 5.1, 5.2, 5.3 and 5.8 of this Section, and notwithstanding anything to the contrary in the Employment Agreement, the parties agree that the provisions of this Section 5 shall apply in the event of Executive's termination or separation from employment, whether by Employer or Executive, whether for cause or without cause, or for any other reason or asserted reasons. 5.10. CONFIDENTIAL INFORMATION FURTHER DEFINED; DISCLOSURE PROHIBITED. For purposes of this Amendment, "Confidential Information" shall be defined as set forth in Section 4.1 of the Employment Agreement, and as further set forth in Section 5.1 hereof. Without limiting the foregoing, Confidential Information shall include all information related to products targeted for development by Employer, subjects of research and development, projected launch dates, FDA protocols, projected dates for regulatory filing, consumer studies, market research, clinical research, business plans, content of the New Product Planning Committee ("NPP") meetings, planned expenditures, profit margins, strategic evaluation plans and initiatives, and those commissioned by Employer through outside vendors or consultants, such as IBM, Cap Gemini and LEK, and the content of all business and strategic planning conducted with or through Third Party Relationships. Executive's obligation not to disclose Confidential Information 13 shall be as set forth in Section 4.2 of the Employment Agreement, and shall include but not be limited to his obligation not to place himself in any business position in which use or disclosure of Employer's confidences would be likely, expected or inevitable, for his own benefit or the benefit of any other person or entity. 5.10.1. LISTING OF ALL PRODUCTS IN DEVELOPMENT, THIRD PARTY RELATIONSHIPS, AND OTHERS. Not later than thirty (30) days from the date hereof, Executive shall produce, in a form acceptable to the Lead Director, a comprehensive listing of all (i) Employer's products and potential products in development, (ii) products under consideration for potential manufacture, marketing, licensing, contracting for, distribution or sale, whether or not through Third Party Relationships, (iii) Third Party Relationships engaged in during the preceding two (2) years and all such prospective relationships (including a brief description of their nature), and (iv) patent research and strategic planning related to patents, their expiration or avoidance, engaged in or commissioned during the previous two (2) years (and a brief description of their nature). Executive shall include such other or related information or description as may be required by the Lead Director to assure the comprehensiveness of the listing and to facilitate its understanding. Executive shall update the listing no less than quarterly, or as otherwise requested, and in addition, as of his separation from employment for any reason. Employer shall acknowledge receipt of each list. The contents of the listing shall form part of the description of items which are included in Confidential Information protected from disclosure by Executive under this Amendment. 14 5.11. INJUNCTIVE RELIEF. All of the parties' covenants and Employer's rights to specific enforcement, injunctive relief, and other remedies as set forth herein and in Section 4.6 of the Employment Agreement, shall apply in the event of any breach or threatened breach by Executive of any of the provisions of this Section 5, or of Section 4 of the Employment Agreement, without the requirement of posting a bond or other security in connection with any such application for specific performance or injunctive relief, which is hereby waived. The parties further agree that any action concerning alleged breach of Section 4 of the Employment Agreement or Section 5 of this Amendment shall not be brought or addressed in arbitration, and the existence of any demand for arbitration or pendency of any dispute in arbitration under the Employment Agreement shall not be a basis to delay or defer adjudication by a Court of any demand for specific performance, injunctive relief, or other remedies in relation to any alleged breach of Section 4 of the Employment Agreement or Section 5 of this Amendment. In connection with any such action, the parties agree that the Court may sever any provision or portion thereof of Section 4 of the Employment Agreement or Section 5 of this Amendment which is contrary to law, void or otherwise unenforceable, and that the remainder shall survive unaffected, and further, that such Court may reform or limit any such void or unenforceable provision to give maximum lawful effect to the covenants of non-competition and non-disclosure of Confidential Information contained herein and in the Employment Agreement. 15 5.12. EMPLOYER DEFINED. For purposes of Section 5 hereof and Section 4 of the Employment Agreement, "Employer" shall mean and include Resources, Par, FineTech, and any parent corporations, affiliates, subsidiaries, joint ventures and related entities thereof. 6. NO DISPARAGEMENT. During or after the Employment Term, Executive shall not disparage the former CEO or Chairman, the New CEO, or any proposed New CEO, nor make any statement or publication tending to disparage, impugn or injure the good name and reputation or business interests of the Employer or its products, services, past or present officers, directors or employees regardless of the perceived truth of such statement or publication, except as may be necessary exclusively on an internal basis to conduct in good faith the personnel and business affairs of Employer. 6.1. COMPLIANCE WITH LISTING OBLIGATIONS. Executive shall accurately and comprehensively list all items set forth in Section 5.10.1. as set forth therein, and shall certify the accuracy and completeness thereof. 6.2. CONTINUED COOPERATION. Executive shall, during and after the conclusion of his employment relationship for any reason, cooperate fully with Employer with respect to any internal or external agency or legal investigation (whether FDA, SEC, or otherwise), lawsuits, financial reports, or with respect to other matters within his knowledge, responsibilities or purview with Employer. Employer will pay a reasonable per diem for post-termination services rendered by Executive in compliance herewith, based on Executive's last base salary and time reasonably expended by him. Executive shall execute all lawful 16 documents reasonably necessary to Employer to secure or maintain its Intellectual Property, Confidential Information, or other business requirements. 6.3. RETURN OF DOCUMENTS AND PROPERTY. Executive shall, upon the conclusion of the employment relationship for any reason, participate in an exit interview, and shall deliver promptly to Employer all documents, records, files, customer or client materials, computer files or discs, and Confidential Information fixed in any tangible medium of expression, together with all computers and harddrives, Employee identification cards, Employer credit cards, keys, and any other physical property of Employer. 7. CONDITIONS PRECEDENT FOR VESTING OF STOCK OPTIONS AND PAYMENT OF SEVERANCE. Executive's continued compliance with the terms of Sections 5 and 6 of this Amendment and Section 4 of the Employment Agreement shall be a mandatory condition precedent to the vesting and exercise of Stock Options pursuant to Section 3.2 hereof and to the payment of the Severance Amount or any portion thereof as set forth in Section 3.1 hereof. 7.1. OTHER MATTERS. Should Employer learn of or discover, after the date of this Amendment, the existence of events, conduct, acts or omissions on the part of Executive, not previously known to Employer, that would have constituted grounds for termination of the Employment Term for Cause under Section 3.2.5 of the Employment Agreement had they been discovered during the Employment Term, Employer shall notify Executive of same and upon the tendering 17 of such notification, all unexercised Stock Options granted to Executive, whether vested or unvested, shall terminate immediately and be of no further force or effect; and all further obligations of Employer to pay the Severance Amount shall likewise cease. 7.2. EXECUTIVE'S ACTIONS CAUSING RESTATEMENT OF FINANCIAL STATEMENTS OR REPORTS. Should any act or omission of Executive, or any person under Executive's direct supervision, during the Employment Term, materially contribute to Employer being caused to restate or amend any of its Financial Statements, reports or disclosures at any time to reflect a material change in its financial condition (irrespective of whether such act, omission or supervision by Executive would have constituted Cause for termination under the Employment Agreement), Employer will so notify Executive, and upon the tendering of such notice, all unexercised Stock Options granted to Executive, whether vested or unvested, shall terminate immediately and be of no further force or effect, and all further obligations of Employer to pay the Severance Amount shall likewise cease. This provision shall not apply where the acts, omissions, or supervision of Executive that materially contributed to the restatement or amendment were disclosed to the Audit Committee of the Board of Directors and Executive has made reasonable efforts to disclose same to the Certified Public Accountants then auditing Employer's financial statements, reports and disclosures, and were explicitly acknowledged and acquiesced in by them. 18 7.3. REMEDIES ARE CUMULATIVE. Nothing in this Section 7 shall limit or restrict Employer from pursuing or obtaining any other remedies which may be available to it in law, contract or otherwise, in addition to the remedies set forth herein, in response to any improper conduct of Executive, or conduct in violation of the parties' agreements. 8. NO ADDITIONAL STOCK OPTIONS GRANTED; NO ASSIGNMENT OF OPTIONS. Notwithstanding anything in the Employment Agreement or any other agreement to the contrary, unless the parties otherwise specify in writing hereafter, no further grant of Stock Options shall be made to Executive after the date hereof. No Stock Option granted to Executive by Employer at any time may be assigned by Executive to any other individual or entity. 9. SECTION REFERENCES. References to any Section number herein shall mean and include all subsections thereof. 10. RELATIONSHIP BETWEEN AMENDMENT AND EMPLOYMENT AGREEMENT. Except as amended herein, the Employment Agreement shall remain in full force and effect. In the event of a conflict between the Employment Agreement and this Amendment, the provisions of this Amendment shall govern. 11. COUNTERPARTS. This Amendment may be signed in counterparts. 19 IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by the parties hereto effective as of the date first above written. PHARMACEUTICAL RESOURCES, INC. SCOTT L. TARRIFF By: /s/ MARK AUERBACH By: /s/ SCOTT L. TARRIFF ----------------------------- ----------------------------- Name: Mark Auerbach Title: Director 20 SCHEDULE A ---------- VESTING SCHEDULE FOR OPTIONS FOLLOWING COMMITMENT PERIOD -------------------------------------------------------- 1. Those Unvested Options which, pursuant to the previously existing vesting schedules for such Options, would have vested in the period after the Date of Termination up to and including the first anniversary of the Date of Termination, shall instead vest exclusively in the following two equal installments (with Options having the earliest previous vesting dates included in the first installment): (i) one-half (1/2) as of six months after the Date of Termination, or September 18, 2004, whichever is earlier; and (ii) one-half (1/2) as of the first anniversary of the Date of Termination. 2. Those Unvested Options which, pursuant to the previously-existing vesting schedules for such Options, would have vested after the first anniversary of the Date of Termination up to and including the second anniversary of the Date of Termination, shall instead vest exclusively in the following two equal installments (with Options having the earliest previous vesting dates included in the first installment): (i) one-half (1/2) as of six (6) months after the first anniversary of the Date of Termination; and (ii) one-half (1/2) as of the second anniversary of the Date of Termination. 3 Those Unvested Options which, pursuant to the previously existing vesting schedules for such Options, would have vested after the second anniversary of the Date of Termination, shall instead vest exclusively in the following two equal installments (with Options having the earliest previous vesting dates included in the first installment): (i) one-half (1/2) as of six (6) months after the second anniversary of the Date of Termination; and (ii) one-half (1/2) as of the third anniversary of the Date of Termination. All such vesting and exercise shall be subject to the provisions of this Amendment. EX-10 4 exh10-9five.txt EXHIBIT 10.9.5 EXHIBIT 10.9.5 June 18, 2003 Kenneth I. Sawyer c/o Pharmaceutical Resources, Inc. One Ram Ridge Road Spring Valley, New York 10977 Re: Terms of Separation From Employment, Consulting, and Post-Employment Obligations ------------------------------------------------ Dear Ken: This letter sets forth the terms of your anticipated separation from executive employment with Pharmaceutical Resources Inc. ("PRI," or the "Company") in the near term, our arrangements for you to continue in a consulting capacity for the Company thereafter, and the post-employment obligations of both parties. The terms set forth below amend the Employment Agreement entered as of January 4, 2003 (the "Employment Agreement"), and supersede the Employment Agreement to the extent of any conflict between them. Otherwise, the terms of the Employment Agreement continue to apply. We have incorporated by reference the definitions and other terms contained in the Employment Agreement, unless otherwise specified. Section numbers likewise refer to those in the Employment Agreement. 1. You have indicated that you intend to resign as Chairman and Chief Executive Officer of PRI and Chairman of the Board of Directors of Par Pharmaceutical, Inc. ("Par"), and the Company will accept your resignation, to be effective on a date in the near future to be agreed upon (the "Resignation"). Your Resignation will be treated as a Termination Without Cause by PRI under Section 3.2.5. 2. Upon your Resignation, you will be released from any duties under the Employment Agreement except those set forth in Section 4. However, you will continue to serve as a Director on the Board of Directors of PRI until the date that a new CEO for PRI is appointed, whereupon you will resign from such Directorship. Kenneth I. Sawyer June 18, 2003 Page 2 3. Upon your Resignation, PRI will pay you the one time cash payment of $1,000,000 provided for in Section 2.1.2, and your remaining base salary through December 31, 2003 in a lump sum pursuant to Section 3.3.2, upon execution of a general release of all claims against PRI (including Par, and all of the Company's subsidiaries, affiliates and related entities, and their respective agents, directors, officers and employees) in a form satisfactory to the Company. 4. After your Resignation, PRI will reimburse you for the cost of medical, health and accident and disability plans and programs in which you are currently participating for two years (provided that your continued participation is possible under the terms and provisions of such plans). If such participation is not possible, PRI will provide you with substantially similar benefits pursuant to Section 3.2.5. 5. PRI will reimburse you for unpaid expenses incurred prior to the date of Resignation pursuant to Section 3.3.5, in accordance with PRI' reimbursement policies. 6. All existing Stock Options previously granted to you by PRI will accelerate and vest upon your Resignation; however, those Stock Options which were granted as of September 21, 2002, must be exercised within one year from the resignation date, or they will be cancelled and forfeited. 7. Following your Resignation, you will become a consultant to PRI, at a rate of compensation equivalent to your current base salary for the same period. The consultancy will commence on or about July 1, 2003 and will continue until December 31, 2003, and may be extended at the Company's option. 8. PRI will provide you with an automobile cash allowance commensurate with your new role as a consultant, for the duration of your retention as a consultant, pursuant to Section 2.3.3. 9. You agree that you will not engage in conduct prohibited by the Non-Competition clause contained in Section 4.4 (but substituting the United States for the geographic scope set forth in Section 4.4) so long as you are retained as a consultant to PRI, and for a period of one (1) year thereafter, except that you will be permitted to act as a part-time consultant to another business in the generic drug industry, if you have requested and received advance approval for such engagement from the Chairman of the Audit Committee. Kenneth I. Sawyer June 18, 2003 Page 3 10. You agree that you will not engage in conduct prohibited by Section 4.3 so long as you are retained as a consultant to PRI, and for one (1) year thereafter. 11. You agree that you will not, at any time during or after your employment has ended, disparage PRI or Par, or any of their subsidiaries, affiliates, or related entities, or their respective, prior, current, new or proposed new executives or Board members, nor make any statement or publication tending to disparage, impugn or injure the good name and reputation or business interests of PRI or Par, or any of their subsidiaries, affiliates or related entities, or their respective products, services, past or present officers, directors or employees, regardless of the perceived truth of such statement or publication. 12. PRI's obligations to you hereunder and under the Employment Agreement will remain contingent upon your continued compliance with your obligations under Paragraphs 9, 10 and 11 hereof, and Section 4 of the Employment Agreement, all of which may be enforced pursuant to Section 4.5 of the Employment Agreement, without limiting other remedies which may be available to the Company in law or equity. I trust this fully sets forth all the terms of our arrangement. Please signify your assent hereto by returning a copy of this letter to me with your signature on the lower left. On behalf of the Company, we thank you for your dedication and efforts as a key executive and an architect of much of the Company's success, and we look forward to building a positive future relationship with you in your consulting and other future capacities. Very truly yours, /s/ Mark Auerbach -------------------------------- (Name) Mark Auerbach (Title) Director ACCEPTED AND AGREED: Kenneth I. Sawyer - ------------------------------- Kenneth I. Sawyer Kenneth I. Sawyer June 18, 2003 Page 4 Dated: June 18, 2003 ----------------------- EX-10 5 exh10-48.txt EXHIBIT 10.48 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION EXHIBIT 10.48 AMENDED AND RESTATED LICENSE AND SUPPLY AGREEMENT AMONG SB PHARMCO PUERTO RICO INC. SMITHKLINE BEECHAM CORPORATION BEECHAM GROUP P.L.C. AND PAR PHARMACEUTICAL, INC. APRIL 16, 2003 AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION AMENDED AND RESTATED LICENSE AND SUPPLY AGREEMENT TABLE OF CONTENTS ARTICLE I - DEFINITIONS 2 ARTICLE II - INTELLECTUAL PROPERTY GRANTS 9 ARTICLE III - PAYMENTS 15 ARTICLE IV - SUPPLY 18 ARTICLE V - REPRESENTATIONS, WARRANTIES AND COVENANTS 26 ARTICLE VI - INTELLECTUAL PROPERTY 32 AND CONFIDENTIAL INFORMATION 32 ARTICLE VII - TERM AND TERMINATION ERROR! BOOKMARK NOT DEFINED. ARTICLE VIII - INDEMNIFICATION, INSURANCE AND DISPUTE RESOLUTION 41 ARTICLE IX - MISCELLANEOUS 45 AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION AMENDED AND RESTATED LICENSE AND SUPPLY AGREEMENT TABLE OF EXHIBITS, SCHEDULES AND APPENDICES SCHEDULE 4.3(B) "GSK SUPPLIED PRODUCT SPECIFICATIONS" SCHEDULE 4.3(D) "INITIAL PAR ESTIMATE" SCHEDULE 4.4(B) "GSK PAXIL SUPPLIERS" AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION AMENDED AND RESTATED LICENSE AND SUPPLY AGREEMENT PREAMBLE This AMENDED AND RESTATED LICENSE AND SUPPLY AGREEMENT dated as of the 16th day of April, 2003 (the "Execution Date") among SMITHKLINE BEECHAM CORPORATION, a private limited company, organized and existing under the laws of the Commonwealth of Pennsylvania and having a registered office at One Franklin Plaza, Philadelphia, PA 19102, USA; SB PHARMCO PUERTO RICO INC., a private limited company, organized and existing under the laws of Puerto Rico and having a registered office at The Prentice Hall Corp. System of P.R. Inc., c/o FGR Corporate Services, Inc., BBV Tower, 8th Floor, 254 Munoz Rivera Avenue, San Juan, Puerto Rico 00918, USA; and BEECHAM GROUP P.L.C., a public limited company, organized and existing under the laws of England and Wales and having a registered office at 980 Great West Road, Brentford, Middlesex, TW8 9GS, England (collectively, "GSK"), and PAR PHARMACEUTICAL, INC., a New Jersey corporation having its principal office at 300 Tice Boulevard, 3d Floor, Woodcliff Lake, NJ 07677 ("PAR"). PAR and GSK are sometimes collectively referred to herein as the "Parties" and separately as a "Party." WHEREAS, the Parties wish to amicably settle patent litigation currently ongoing between them; and WHEREAS, PAR desires to exclusively purchase certain products from GSK for resale to its distributors and other customers for ultimate sale to consumers in certain territories, and GSK desires to manufacture and supply such products to PAR in such territories, subject to the terms and conditions set forth in this Agreement; and WHEREAS, GSK is willing to grant, and PAR is willing to receive, a license under certain GSK patents to enable PAR to sell such products in such territories to its distributors and other customers for ultimate sale to consumers in such territories, subject to the terms and conditions set forth in this Agreement; and AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 1 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION WHEREAS, this Agreement amends and restates in its entirety the License and Supply Agreement between the Parties dated February 26, 2003. NOW, THEREFORE, in consideration of the mutual covenants, agreements and stipulations set forth herein, and in the Settlement Agreement (as defined hereinafter), and the Proposed Order of Dismissal (as defined hereinafter), the receipt and legal sufficiency of which are hereby mutually acknowledged, GSK and PAR hereby agree as follows: ARTICLE I - DEFINITIONS Section 1.1 DEFINITIONS. As used in this Agreement, the following terms, whether used in the singular or plural, shall have the following meanings: "723 PATENT" shall mean U.S. Patent No. 4,721,723. ** ****** "A/B RATED" shall mean "therapeutically equivalent" as evaluated by FDA, applying the definition of "therapeutically equivalent" set forth in the Preface to the current edition of the FDA publication "APPROVED DRUG PRODUCTS WITH THERAPEUTIC EQUIVALENCE EVALUATIONS" (the "Orange Book"), it being expressly stated in the current edition of the Orange Book and agreed by the Parties that "[a]ny drug product ... repackaged and/or distributed by other than the [NDA or ANDA] application holder is considered to be therapeutically equivalent to the application holder's drug product ...." "ADDITIONAL CLAIM" shall have the meaning set forth in Section 8.2. "ADVERSE EVENT REPORTS" shall have the meaning set forth in Section 4.5. "AFFILIATE" shall mean any corporation, firm, partnership or other entity, whether DE JURE or DE facto, which controls, is controlled by, or is under common control with a Party. For purposes of this definition, "control" shall mean: (a) in the case of corporate entities, direct or indirect ownership of at least 50% of the stock or shares (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) entitled to vote for the election of directors or otherwise having the power to vote on or direct the affairs of such Party; and (b) in the case of AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 2 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION non-corporate entities, direct or indirect ownership of at least 50% of the equity interest or the power to direct the management and policies of such noncorporate entities. "AGREEMENT" shall mean this License and Supply Agreement including all exhibits, schedules and appendices attached hereto. "ANDA" shall mean an Abbreviated New Drug Application as defined in the U.S. Federal Food, Drug and Cosmetic Act and all applicable regulations promulgated thereunder. "APPLICABLE LAW" shall mean all applicable provisions of all statutes, laws, rules, regulations, administrative codes, ordinances, decrees, orders, decisions, guidance documents (including FDA guidance documents), injunctions, awards judgments, and permits and licenses of or from governmental authorities relating to the use or regulation of the subject item. "AUDITOR" shall have the meaning set forth in Section 3.8. "BUREAU" shall have the meaning set forth in Section 7.1. "BUSINESS DAY" shall mean any day other than a day which is a Saturday, a Sunday or federal bank holiday in the USA. "cGMP" shall mean current good manufacturing practices of the FDA, as set forth in 21 C.F.R. Parts 210 and 211 and all applicable rules, regulations, guides and guidances. "CALENDAR QUARTER" shall mean each of the three (3) month periods during a calendar year starting on the first of January, April, July and October. "CHANGE OF CONTROL" shall mean, with respect to the applicable Party, an event where: (A) any Third Party (alone or together with such Third Party's Affiliates) or "group" (as such term is defined under Section 13(d) of the Securities Exchange Act of 1934, as amended) (i) acquires beneficial ownership of capital stock of such Party entitling the holder(s) thereof to greater than fifty percent (50%) of the voting power of the then outstanding capital stock of such Party with respect to the election of directors of such Party, or (ii) otherwise actually controls or is in a controlling position with respect to the voting power of the then outstanding capital stock of such Party; or AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 3 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (B) such Party consummates a merger, consolidation, reorganization or similar transaction or series of related transactions, whether direct or indirect, with another Third Party, alone or together with such Third Party's Affiliates (the "Acquiring Corporation"), in which: (i) such Party is not the surviving corporation in such transaction, (ii) the members of the Board of Directors of such Party prior to such transaction constitute less than one half of the members of the Board of Directors of the Acquiring Corporation following such transaction, (iii) greater than fifty percent (50%) of the voting power of the outstanding capital stock of the Acquiring Corporation with respect to the election of directors following such transaction is held by Third Parties who were shareholders of the Acquiring Corporation prior to such transaction, or (iv) such Party is otherwise effectively controlled by the Acquiring Corporation, or (C) such Party sells to any Third Party(s) (alone or together with such Third Party's Affiliates) in one or more related transactions properties or assets representing greater than fifty percent (50%) of: (i) such Party's consolidated total assets as reflected on its most recent annual audited financial statements, provided that all or substantially all of the properties and assets used in connection with such Party's pharmaceutical business are included in such transaction(s), (ii) such Party's pharmaceutical business, or (iii) such Party's consolidated operating income for the most recent fiscal year as reflected on its most recent annual audited financial statements. Notwithstanding anything to the contrary in this definition, a Change of Control shall not be deemed to have occurred with respect to a Party where any acquisition, merger, consolidation, reorganization, sale or similar transaction occurs solely between such Party and any one or more of its Affiliates. "COGS AUDITOR" shall have the meaning set forth in Section 7.2(f). ** ****** "COMMISSION" shall have the meaning set forth in Section 7.1. "COMPETITIVE GENERIC ENTRY EFFECTIVE DATE" shall mean ** ****** AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 4 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION "COMPETITIVE GENERIC ENTRY INITIAL QUANTITY" shall have the meaning set forth in Section 4.3(f). "COMPETITIVE GENERIC ENTRY SUPPLY TERM" shall have the meaning set forth in Section 4.2(a), subject to the provisions of Section 4.2(c). "COMPETITIVE GENERIC ENTRY SUPPLY TERMINATION DATE" shall have the meaning set forth in Section 4.2(a), subject to the provisions of Section 4.2(c). "COMPETITIVE GENERIC ENTRY TERRITORY" shall mean the USA. "COMPETITIVE GENERIC ENTRY ROYALTY" shall have the meaning set forth in Section 3.1. "CONFIDENTIAL INFORMATION" shall mean any and all confidential information regarding, related to, or associated with the Product, the Patents, the Royalty Reports, and this Agreement (including the terms and conditions hereof) that is disclosed by the Disclosing Party to the Recipient as of and after the Execution Date. Provided, however, that Confidential Information shall not include information which is: (i) at the time of disclosure is in the public domain; (ii) after disclosure becomes part of the public domain, except through breach of this Agreement; (iii) the Recipient can demonstrate by reasonable proof was in its possession prior to the time of disclosure by the Disclosing Party hereunder, and was not acquired directly or indirectly from the Disclosing Party; or (iv) becomes available to Recipient from a Third Party who did not acquire such information directly or indirectly from the Disclosing Party and who is not otherwise prohibited from disclosing such information. ** ****** "DISCLOSING PARTY" shall have the meaning set forth in Section 6.2(a). "EXECUTION DATE" shall be the date upon which this Agreement shall be mutually executed by authorized representatives of each Party, which date shall be that which is set forth in the Preamble. "FDA" shall mean the U.S. Food and Drug Administration, or any successor agency thereto. "GSK" shall have the meaning set forth in the Preamble. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 5 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION "GSK PARTY" shall have the meaning set forth in Section 8.2. "GSK Supplied Product" shall mean all Products supplied to PAR (and its Affiliates) by GSK (and its Affiliates) pursuant to the provisions of this Agreement. It is understood that PAR shall have the right to require GSK to supply Product (other than PAR Product) to PAR under this Agreement in the same dosage forms as those marketed for commercial sale by GSK (or its Affiliates) in the relevant Territory. "NDA" shall mean a New Drug Application as defined in the U.S. Federal Food, Drug, and Cosmetic Act and all applicable regulations promulgated thereunder. "NDC" shall mean a National Drug Code. ** ****** In the event that PAR sells Product as part of a bundle or group sale with other products not covered by this Agreement, and PAR provides a discount, allowance or rebate to the purchaser of such products based on the invoiced prices for all products sold, such discount must be allocated pro rata based on the selling prices of such products before taking into account the discount, allowance or rebate on Product provided as part of such bundle. In the event that a Product is sold or otherwise commercially exploited by PAR in a manner such that the above means of calculating Net Sales is not possible or otherwise is inappropriate, the Parties agree to negotiate in good faith a reasonable mechanism for fairly calculating the "Net Sales" resulting from such sales or other commercial exploitation. Net Sales shall be determined using the accrual method of accounting in accordance with USA generally accepted accounting principles ("GAAP") applied in a consistent manner. "PAR" shall have the meaning set forth in the Preamble. "PAR PARTY" shall have the meaning set forth in Section 8.1. "PAR PRODUCT" shall mean any drug product containing Paroxetine Hydrochloride that may be approved under Pentech's ANDA No. 75-771, in the dosage sizes and containing the ingredients for which Pentech's ANDA seeks FDA approval as of the Execution Date (i.e., Paroxetine Hydrochloride capsules in 10 mg and 20 mg dosage sizes containing Paroxetine Hydrochloride solid solution supplied by Pentech with allegedly amorphous Paroxetine Hydrochloride active AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 6 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION ingredient supplied by Asahi Glass Co., Ltd.), that is manufactured on behalf of PAR by PAR Sublicensees. "PAR PRODUCT ACTION" shall have the meaning set forth in Section 5.9(c). "PAR SUBLICENSEE" shall have the meaning set forth in Section 2.3(e). "PATENTS" shall mean all patents in the applicable Territory and Japan including, without limitation, U.S. Patent No. 4,721,723, which are or become owned by GSK, or to which GSK otherwise has, now or in the future, the right to grant licenses, which cover the activities licensed to be carried out by PAR or its sublicensees, as relevant, under Sections 2.1 - 2.3 of this Agreement. "PAROXETINE HYDROCHLORIDE" shall mean (-)- TRANS -4 R -(4'-fluorophenyl)-3 S -[(3',4'-methylenedioxyphenoxy) methyl] piperidine hydrochloride. "PARTY OR PARTIES" shall have the meaning set forth in the Preamble. "PENTECH" shall mean Pentech Pharmaceuticals, Inc., an Illinois corporation, having a place of business at 3315 Algonquin Road, Suite, 310, Rolling Meadows, Illinois 60008, USA. "PRIME RATE" shall mean the rate of interest that Citibank N.A. lists as its prime lending rate on the last day of the applicable Calendar Quarter, or if such rate is not available, the prime lending rate listed in the New York City, USA version of THE WALL STREET JOURNAL on the last day of the applicable Calendar Quarter. "PR INITIAL QUANTITY" shall have the meaning set forth in Section 4.3(f). "PR EFFECTIVE DATE" shall mean the date on which the U.S. District Court for the Northern District of Illinois enters the Proposed Order of Dismissal. "PR SUPPLY TERM" shall have the meaning set forth in Section 4.1(a), subject to the provisions of Section 4.1(b). "PR SUPPLY TERMINATION DATE" shall have the meaning set forth in Section 4.1(a), subject to the provisions of Section 4.1(b). "PR ROYALTY" shall have the meaning set forth in Section 3.1. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 7 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION "PR TERRITORY" shall mean Puerto Rico. "PRODUCT" shall mean, collectively or individually, depending on context, the following drug products: (a) any tablet containing Paroxetine Hydrochloride that is A/B Rated to the product(s) approved under GSK's immediate release NDA No. 20-03 provided that such tablet is in a dosage form which is marketed for commercial sale by GSK (or its Affiliates) in the Competitive Generic Entry Territory; and ** ****** (c) any PAR Product. For the avoidance of doubt, Product shall not include any controlled, sustained, or other prolonged or otherwise modified release form of Paroxetine Hydrochloride, or any oral suspension form of Paroxetine Hydrochloride. "PRODUCT CLAIMS" shall have the meaning set forth in Section 8.1. "PRODUCT ACTION" shall have the meaning set forth in Section 5.9(b). "PROPOSED ORDER OF DISMISSAL" shall mean that certain Agreed Motion to Dismiss among certain GSK Affiliates and Pentech, in the matter captioned SMITHKLINE BEECHAM CORPORATION AND BEECHAM GROUP, P.L.C. V PENTECH PHARMACEUTICALS, INC. AND ASAHI GLASS CO. LTD., CIVIL ACTION NOS. 00C 2855 AND 00C 5831 (N.D. ILLINOIS), and the Proposed Order of Dismissal that is sought thereby, the forms of which those parties have agreed to as of the Execution Date. "PUERTO RICO" shall mean the Commonwealth of Puerto Rico. "RECIPIENT" shall have the meaning set forth in Section 6.2(a). "ROYALTY" shall mean, collectively, the Competitive Generic Entry Royalty and the PR Royalty. "ROYALTY REPORT" shall have the meaning set forth in Section 3.3. "SETTLEMENT AGREEMENT" shall mean the Settlement Agreement, which is dated as of the Execution Date, among certain GSK Affiliates, PAR and Pentech, regarding the matter captioned SMITHKLINE BEECHAM CORPORATION AND BEECHAM GROUP, AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 8 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION P.L.C. V PENTECH PHARMACEUTICALS, INC. AND ASAHI GLASS CO. LTD., CIVIL ACTION NOS. 00C 2855 AND 00C 5831 (N.D. ILLINOIS). "SUPPLY TERM" shall mean, as applicable, the PR Supply Term, or the Competitive Generic Entry Supply Term. "TERM" shall have the meaning set forth in Section 7.1. "TERRITORY" shall mean, collectively, the PR Territory and the Competitive Generic Entry Territory. "THIRD PARTY" shall mean any person, corporation, partnership, associations, joint venture, trust or other entity other than PAR or GSK, or an Affiliate of either of them. "USA" shall mean the United States of America and its territories and possessions other than Puerto Rico. Section 1.2 The word "INCLUDING" or any variation thereof means "including without limitation" or any variation thereof and shall not be construed to limit any general statement which it follows to the specific or similar items or matters immediately following it. ARTICLE II - INTELLECTUAL PROPERTY GRANTS Section 2.1 PR TERRITORY INTELLECTUAL PROPERTY GRANT. (a) Effective as of the PR Effective Date, GSK hereby grants to PAR, for the period comprising the PR Supply Term, a non-transferable license, with no right to grant sublicenses, under the Patents in the PR Territory, to offer for sale and sell GSK Supplied Product and PAR Product (made by PAR Sublicensees in accordance with Section 2.3(e)) to PAR's distributors and other customers only for the purpose of ultimate sale by such distributors and other customers to consumers in the PR Territory. For the avoidance of doubt, the Parties agree that the foregoing right of selling GSK Supplied Product and PAR Product in the PR Territory shall permit PAR to conduct all activities necessary for it to sell GSK Supplied Product and PAR Product to its distributors and other customers for the purpose of ultimate sale by such distributors and other customers to consumers in the PR Territory during the PR Supply Term, which activities would, AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 9 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION but for the license herein granted, infringe one or more of the Patents; provided, however, it is expressly understood that no rights to import, make, have made, or use the GSK Supplied Product and PAR Product in the PR Territory, and no rights to import, make, have made, use, sell or offer for sale the GSK Supplied Product and PAR Product in any other region of the world, are granted to PAR or its Affiliates in this Agreement, except as is otherwise set forth in Sections 2.2 and 2.3. The foregoing grant shall only be in effect for the period comprising the PR Supply Term and shall automatically terminate as of the PR Supply Termination Date. (b) Effective as of the PR Effective Date, (i) GSK hereby grants to PAR, for the period comprising the PR Supply Term, a non-transferable license, with no right to grant sublicenses, under the Patents in the Commercial Generic Entry Territory, ** ****** and (ii) GSK hereby grants to PAR, for the period comprising the PR Supply Term, a non-transferable license, with no right to grant sublicenses, under the Patents in the PR Territory, ** ******only for the purpose of ultimate sale by such distributors and other customers to consumers in the PR Territory. For the avoidance of doubt, the Parties agree that the foregoing rights ** ****** GSK Supplied Product in the Commercial Generic Entry Territory and the PR Territory shall permit PAR to conduct all activities necessary for it ** ****** for the purpose of ultimate sale by such distributors and other customers to consumers in the PR Territory during the PR Supply Term, which activities would, but for the license herein granted, infringe one or more of the Patents; provided, however, it is expressly understood that no rights to make, have made, sell, have sold, or use the GSK Supplied Product in the Competitive Generic Entry Territory and the PR Territory, and no rights to import, make, have made, use, sell or offer for sale the GSK Supplied Product in any other region of the world, are granted to PAR or its Affiliates in this Agreement, except as is otherwise set forth in Sections 2.1(a), 2.2 and 2.3. The foregoing grant shall only be in effect for the period comprising the PR Supply Term and shall automatically terminate as of the PR Supply Termination Date. (c) For the time period beginning on the PR Effective Date ** ****** unless this Agreement terminates or expires for any reason at an earlier date, the license granted in paragraph (a) of this Section shall be ** ****** For the AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 10 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION avoidance of doubt, the Parties hereby agree and acknowledge that ** ****** a license under the Patents to sell or offer for sale Product bearing any trademark other than Paxil(R) for the purpose of ultimate sale to consumers in the PR Territory during the PR Supply Term, ** ****** and for the further avoidance of doubt, the Parties agree that ** ****** all rights to make, have made, use, sell to its distributors and other customers, offer for sale to its distributors and other customers and import Product (other than PAR Product) in the PR Territory during the term of the Agreement and all rights to make, have made, use, sell, offer for sale and import any other dosages or forms containing Paroxetine Hydrochloride in any form, including any salt, hydrate or anhydrate form during the PR Supply Term. ** ****** Section 2.2 COMPETITIVE GENERIC ENTRY TERRITORY INTELLECTUAL PROPERTY GRANT. (a) Effective as of the Competitive Generic Entry Effective Date, GSK hereby grants to PAR, for the period comprising the Competitive Generic Entry Supply Term, a non-transferable license, with no right to grant sublicenses, under the Patents in the Competitive Generic Entry Territory, to offer for sale and sell GSK Supplied Product and PAR Product (made by PAR Sublicensees in accordance with Section 2.3(e)) to PAR's distributors and other customers only for the purpose of ultimate sale by such distributors and other customer to consumers in the Competitive Generic Entry Territory. For the avoidance of doubt, the Parties agree that the foregoing right of selling GSK Supplied Product and PAR Product in the Competitive Generic Entry Territory shall permit PAR to conduct all activities necessary for it to sell GSK Supplied Product and PAR Product to its distributors and other customers for the purpose of ultimate sale by such distributors and other customer to consumers in the Competitive Generic Entry Territory during the Competitive Generic Entry Supply Term, which activities would, but for the license herein granted, infringe one or more of the Patents; PROVIDED, HOWEVER, no rights to import, make, have made or use GSK Supplied Product and PAR Product in the Competitive Generic Entry Territory, and no rights to import, make, have made, use, sell or offer for sale the GSK Supplied Product and PAR Product in any other region of the world, are granted to PAR or its Affiliates in this Agreement, except as is otherwise set forth in Sections 2.1 and 2.3. In the event the Competitive Generic Entry Supply Term is 11 AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION suspended pursuant to Section 4.2(b), the foregoing license grant, and the Competitive Generic Entry Supply Term shall also automatically be suspended for the entirety of such suspension period, and in the event such suspension is lifted pursuant to Section 4.2(b), the foregoing grant shall automatically be reinstated. The foregoing license grant shall only be in effect for the period comprising the Competitive Generic Entry Supply Term and shall automatically terminate as of the Competitive Generic Entry Supply Termination Date. (b) For the time period beginning on the Competitive Generic Entry Effective Date and continuing until the 723 Patent Termination Date, if the Competitive Generic Entry Term begins by that date and unless this Agreement terminates or expires for any reason at an earlier date, the license granted in paragraph (a) of this Section shall be ** ****** For the avoidance of doubt, the Parties hereby agree and acknowledge that ** ****** a license under the Patents to sell or offer for sale Product bearing any trademark other than Paxil(R) for the purpose of ultimate sale to consumers in the Competitive Generic Entry Territory during the Competitive Generic Entry Supply Term but not beyond the 723 Patent Termination Date; and for the further avoidance of doubt, the Parties agree that ** ****** all rights to make, have made, use, sell to its distributors and other customers, offer for sale to its distributors and other customers and import Product (other than PAR Product) in the Competitive Generic Entry Territory during the term of the Agreement, and all rights to make, have made, use, sell, offer for sale and import any other dosages or forms containing Paroxetine Hydrochloride in any form, including any salt, hydrate or anhydrate form during the Competitive Generic Entry Supply Term. ** ****** Section 2.3 PAR PRODUCT INTELLECTUAL PROPERTY GRANT (a) Effective as of the PR Effective Date, GSK hereby grants to PAR, for the period comprising the PR Supply Term, a non-transferable license, with no right to grant sublicenses, under the Patents in the PR Territory to ** ****** PAR Product made by PAR Sublicensees in accordance with Section 2.3(e), provided that such PAR Product is only used by PAR for sale or for offer for sale in accordance with the license granted to PAR under Section 2.1(a). The AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 12 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION foregoing grant shall only be in effect for the period comprising the PR Supply Term and shall automatically terminate as of the PR Supply Termination Date. (b) Effective as of the Competitive Generic Entry Effective Date, GSK hereby grants to PAR, for the period comprising the Competitive Generic Entry Supply Term, a non-transferable license, with no right to grant sublicenses, under the Patents in the Competitive Generic Entry Territory to ** ****** PAR Product made by PAR Sublicensees in accordance with Section 2.3(e), provided that such PAR Product is only used by PAR for sale or for offer for sale in accordance with the license granted to PAR under Section 2.2(a). The foregoing grant shall only be in effect for the period comprising the Competitive Generic Entry Supply Term and shall automatically terminate as of the Competitive Generic Entry Supply Termination Date. ** ****** The foregoing license grant shall only be in effect for the period comprising the Competitive Generic Entry Supply Term and shall automatically terminate as of the Competitive Generic Entry Supply Termination Date. (c) For the time period beginning on the PR Effective Date ** ****** unless this Agreement terminates or expires for any reason at an earlier date, the license granted in paragraph (a) of this Section shall be ** ****** For the time period beginning on the Competitive Generic Entry Effective Date ** ****** and unless this Agreement terminates or expires for any reason at an earlier date, the license granted in paragraph (b) of this Section shall be ** ****** For the avoidance of doubt, the Parties hereby agree and acknowledge that ** ****** a license under the Patents to import PAR Product made by PAR Sublicensees in accordance with Section 2.3(e) into the PR Territory or Competitive Generic Entry Territory, whichever is applicable, ** ****** and for the further avoidance of doubt, the Parties agree that ** ****** all rights to make, have made, use, sell to its distributors and other customers, offer for sale to its distributors and other customers, and import Product (other than PAR Product) in the PR Territory and the Competitive Generic Entry Territory, whichever is applicable, during the term of the Agreement, and all rights to make, have made, use, sell, offer for sale and import any other dosages or forms containing Paroxetine Hydrochloride in any form, including any salt, hydrate or anhydrate form. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 13 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION ** ****** (e) Effective as of the PR Effective Date, GSK hereby grants to PAR, for the period comprising the PR Supply Term, a non-transferable license, with no right to grant sublicenses except as set forth in this Section 2.3(e), under the Patents in the Competitive Generic Entry Territory ** ****** in the Competitive Generic Entry Territory to ** ****** for the sole purpose of enabling ** ****** With respect to such capsules, PAR may only utilize them as follows: (i) during the PR Supply Term - ** ****** the PR Territory in accordance with the license granted to PAR under Section 2.3(a) and sell the capsules or offer them for sale in accordance with the license granted to PAR under Section 2.1(a); or (ii) during the Competitive Generic Entry Supply Term ** ****** the Competitive Generic Entry Territory in accordance with the license granted to PAR under Section 2.3(b) and sell the capsules or offer them for sale in the Competitive Generic Entry Territory in accordance with the license granted to PAR under Section 2.2(a). ** ****** shall be known as a PAR Sublicensee, and the following shall be applicable with respect to each of them: (i) ** ****** (ii) ** ****** (iii) ** ****** (iv) ** ****** (v) ** ****** (vi) ** ****** (vii) ** ****** The foregoing ** ****** For the time period beginning on the PR Effective Date ** ****** unless this Agreement terminates or expires for any reason at an earlier date, the license granted in this paragraph (e) with regard to capsules for sale in the PR Territory shall be ** ****** For the time period beginning on the Competitive Entry Effective Date ** ****** unless this Agreement terminates or AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 14 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION expires for any reason at an earlier date, the license granted in this paragraph (e) with regard to capsules for sale in the Competitive Generic Entry Territory shall be ** ****** For the avoidance of doubt, the Parties hereby agree and acknowledge that ** ****** in the Competitive Generic Entry Territory ** ****** PAR Product during the PR Supply Term or Competitive Generic Entry Supply Term, as applicable, ** ****** ** ****** Section 2.4. Nothing in this Agreement shall be deemed or implied to be, and the Parties disclaim all implied rights to, the grant by any of the Parties to the other Party of any right, title or interest in any Product, intellectual property rights (including the Patents), any formulation technology or know-how, manufacturing technology or know-how, operating procedures, marketing materials or strategies, intangibles, material or proprietary rights of the other except as are expressly set forth in this Agreement. Section 2.5 PAR hereby agrees and acknowledges that the licenses granted to PAR by GSK pursuant to Sections 2.1 through 2.3 hereof, shall not, in any way whatsoever, give or grant PAR any rights to make, have made, import or sell PAR Product approved under any GSK NDA, including, GSK's NDA Nos. 20-03 and 20-885. ARTICLE III - PAYMENTS Section 3.1 ROYALTY PAYMENTS. In consideration of the rights and the licenses granted by GSK to PAR under this Agreement and in consideration for GSK supplying PAR with the GSK Supplied Product in the Territories under the terms and conditions of this Agreement, PAR shall make the following royalty payments to GSK: ** ****** Section 3.2. ROYALTY OBLIGATION EFFECTIVE, SUSPENSION AND TERMINATION DATES. PAR's PR Royalty obligation shall automatically become effective in the PR Territory as of the Effective Date, and PAR's Competitive Generic Entry Royalty obligation shall automatically become effective in the Competitive Generic Entry Territory as of the Competitive Generic Entry Effective Date. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 15 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION PAR's Royalty obligations to GSK in the PR Territory shall automatically terminate as of the PR Supply Termination Date, provided that PAR shall notify GSK of the amount of Product PAR and its Affiliates then have on hand, the sale of which would, but for the termination, be subject to Royalties, and PAR and its Affiliates shall thereupon be permitted to sell that amount of Product in accordance with the provisions of its license under this Agreement in the PR Territory, provided that PAR shall pay the Royalties thereon at the time herein provided for, and subject to the provisions of this Agreement. PAR's Royalty obligations to GSK in the Competitive Generic Entry Territory shall automatically terminate as of the Competitive Generic Entry Supply Termination Date. In the event the Competitive Generic Entry Supply Term is suspended pursuant to Section 4.2(b), PAR's Competitive Generic Entry Royalty obligation shall also automatically be suspended and shall not be in effect for such suspension period, provided that PAR shall notify GSK of the amount of Product PAR and its Affiliates then have on hand, the sale of which would, but for the termination, be subject to Royalties, and PAR and its Affiliates shall thereupon be permitted to sell that amount of Product in accordance with the provisions of its license under this Agreement in the Competitive Generic Entry Territory, provided that PAR shall pay the Royalties thereon at the time herein provided for, and subject to the provisions of this Agreement. In the event such suspension is lifted pursuant to Section 4.2(b), PAR's Competitive Generic Entry Royalty obligation shall automatically be reinstated. Notwithstanding the foregoing, GSK shall be entitled to receive from PAR all Royalties accrued prior to any suspension or termination, as applicable, of the foregoing Royalty obligations. Section 3.3 NET SALES REPORTING AND PAYMENT. Within ** ****** days after the end of each Calendar Quarter in which a sale of Product has been made by PAR in the PR Territory or the Competitive Generic Entry Territory (and within ** ****** days after the date this Agreement is terminated for any reason or the date this Agreement expires, as applicable), PAR shall submit to GSK a written report (the "Royalty Report") containing the following information regarding such preceding Calendar Quarter: an itemized accounting and calculation of the total Net Sales of Product (including a break-down of PAR Product and GSK Supplied Product sales figures) sold by PAR during such preceding Calendar Quarter in each Territory and the amount of any Royalty due GSK on such Net AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 16 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION Sales, and such report shall include information in sufficient detail reasonably necessary for GSK to confirm the accuracy of the amount of the Royalties due GSK, if any, during such preceding Calendar Quarter. All such Royalty Reports shall be considered GSK Confidential Information under this Agreement. Concurrent with the submission of a Royalty Report to GSK, PAR shall also remit payment to GSK of any and all Royalties due GSK for such preceding Calendar Quarter in the Territories. Section 3.4 LATE PAYMENTS. Any Royalty payment due GSK from PAR that is not paid on or before the date such payment is due under this Agreement shall bear interest at a rate ** ****** Section 3.5 METHOD OF PAYMENT. PAR shall make all Royalty payments to GSK in lawful money of the United States by electronic transfer to an account designated by GSK, or by such other means as may be agreed in advance by both Parties. Section 3.6 TAXES. All taxes and duties (and any related penalties or interest) imposed on any payment by PAR to GSK ** ****** PAR and GSK shall bear sole responsibility for payment of compensation to their respective personnel, employees or subcontractors and for all employment Taxes and withholding with respect to such compensation pursuant to Applicable Law. Section 3.7 RECORDS. PAR shall keep and require its Affiliates to keep complete and accurate records of all sales of Product under the licenses granted herein pursuant to Section 5.7. Section 3.8 AUDIT. Upon the written request of GSK (but not more frequently than once per calendar year), GSK shall have the right, during the term of this Agreement and for one year thereafter, to have an independent certified public accountant or like individual reasonably acceptable to PAR (the "Auditor") inspect PAR's records for the preceding ** ****** years for the purpose of determining the accuracy of PAR's Royalty Reports and the associated Royalty payments made to GSK under this Agreement. ** ****** AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 17 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION ARTICLE IV - SUPPLY Section 4.1 PR SUPPLY TERM. (a) Effective as of the PR Effective Date, GSK shall use its commercially reasonable efforts to supply PAR with its entire commercial requirements of GSK Supplied Product for sale to PAR's distributors and other customers in the PR Territory pursuant to the provisions of this Agreement, including those provisions regarding the timing of such supply. PAR shall use its commercially reasonable efforts to sell Product to its distributors and other customers in the PR Territory pursuant to the terms hereof as of the PR Effective Date. Such supply obligation shall cease as of the earlier of: ** ****** The period between the PR Effective Date and the PR Supply Termination Date shall be referred to herein as the "PR Supply Term". ** ****** Notwithstanding anything to the contrary, the PR Supply Term shall automatically terminate as of the earlier of the date upon which this Agreement terminates or expires for any reason. Section 4.2 COMPETITIVE GENERIC ENTRY SUPPLY TERM. (a) Effective as of the Competitive Generic Entry Effective Date, GSK shall use its commercially reasonable efforts to supply PAR with its entire commercial requirements of GSK Supplied Product for sale to its distributors and other customers in the Competitive Generic Entry Territory pursuant to the terms of this Agreement, including those provisions regarding the timing of such supply. PAR shall use its commercially reasonable efforts to sell Product to its distributors and other customers in the Competitive Generic Entry Territory pursuant to the terms hereof as of the Competitive Generic Entry Effective Date. Such supply obligation shall cease as of the earlier of: ** ****** The period between the Competitive Generic Entry Effective Date and the Competitive Generic Entry Supply Termination Date shall be referred to herein as the "Competitive Generic Entry Supply Term". (b) The Competitive Generic Entry Supply Term shall be automatically suspended ** ****** the suspension of the Competitive Generic Entry Supply Term shall be automatically lifted and GSK shall resume supplying PAR with GSK Supplied Product, and PAR shall resume selling Product to its distributors and AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 18 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION other customers in the Competitive Generic Entry Territory pursuant to the terms hereof until the Competitive Generic Entry Supply Termination Date. The suspension mechanism set forth in this Section 4.2(b) may, if applicable, be triggered multiple times during the Competitive Generic Entry Supply Term, and any suspension of the Competitive Generic Entry Supply Term shall not extend the Competitive Generic Entry Supply Term beyond the Competitive Generic Entry Supply Termination Date. ** ****** Notwithstanding anything to the contrary, the Competitive Generic Entry Supply Term shall automatically terminate as of the earlier of the date upon which this Agreement terminates or expires for any reason. Section 4.3 SUPPLY TERMS. ** ****** (b) SPECIFICATIONS AND SUPPLY. GSK hereby warrants that all GSK Supplied Product shall be in fully finished form, labeled and packaged for supply to the ultimate consumer. GSK warrants that all GSK Supplied Product shall meet the applicable specifications and requirements set forth in SCHEDULE 4.3(B) hereto. GSK further warrants that all GSK Supplied Product shall be white in color and embossed with the PAR logo, provided, however, ** ****** (c) ORDERING/FORECASTING. (i) Except as is set forth below with regard to the PR Initial Quantity and the Competitive Generic Entry Initial Quantity, at least ** ****** days prior to the start of each Calendar Quarter, PAR shall provide GSK with a written estimate of the quantities of GSK Supplied Product it requires during such Calendar Quarter and the next ** ****** Calendar Quarters in each applicable Territory. Each of such quarterly estimates shall contain an update of the immediately preceding estimate with respect to the final ** ****** Calendar Quarters referred to in such preceding estimate. PAR shall place its firm order with GSK for its GSK Supplied Product requirements at least ** ****** in advance of the start of each Calendar Quarter, and PAR shall include with each firm order a purchase order covering the quantities contained in such firm AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 19 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION order. GSK shall respond within ** ****** Business Days to such firm order, in the event GSK responds other than accepting the firm order, the Parties shall cooperate and use good faith efforts to meet as closely as reasonably possible the schedule for delivery specified in the firm order, provided such schedule is subject to the provisions of subsection (ii) below. ** ****** (ii) Each purchase order shall specify a delivery date. The specified delivery date shall be at least ** ****** after the date of the purchase order. Should a purchase order call for shipment of quantities of GSK Supplied Product in excess of ** ****** of the immediately preceding estimated requirements previously provided to GSK, GSK will use its commercially reasonable efforts, but shall not be obligated, to ship that portion of excess by the dates instructed by PAR; provided, however, in no event shall GSK (or its Affiliates) have any obligation to forego manufacture of any GSK (or its Affiliates') products on common equipment that would have a material adverse consequence to GSK business in order to deliver GSK Supplied Product to PAR in excess of the preceding estimated requirements. Notwithstanding anything to the contrary, PAR's firm orders for GSK Supplied Product from GSK shall be in full batch quantities or full multiples thereof as specified in SCHEDULE 4.3(B) with regard to specific dose sizes. ** ****** (d) ADDITIONAL PR TERRITORY ORDERING REQUIREMENTS. With regard to orders submitted by PAR to GSK for GSK Supplied Product to be sold in the PR Territory: (i) Attached hereto as SCHEDULE 4.3(D), is PAR's first estimate of its requirements of GSK Supplied Product for the PR Territory for the four (4) Calendar Quarters following the PR Effective Date and such estimate ** ****** and (ii) After the first written estimate set forth in Subparagraph (i) above, each of such quarterly estimates shall contain an update of the immediately preceding quarterly estimate with respect to the final ** ****** Calendar Quarters referred to in such preceding estimate, and shall include market information for the PR Territory that is reasonably deemed AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 20 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION accurate and reliable by GSK in order to justify the requirements outlined in such estimate; and (e) AUDIT RIGHTS. GSK shall have the right, at its own cost, to audit Product prescriptions by patients in each of the PR Territory and the Competitive Generic Entry Territory. In the event that GSK determines that PAR's supply of Product exceeds the quantity of Product prescriptions in the applicable Territory ** ****** GSK shall have the right to deduct such excess quantity from PAR's future supply requirements for GSK Supplied Product in the applicable Territory. In the event PAR disagrees such GSK deduction, it shall so notify GSK of the reasons for its disagreement, in writing, and the Parties shall use good faith efforts to attempt to resolve such dispute in a timely manner. (f) INITIAL QUANTITY. (i) The PR Initial Quantity shall equal ** ****** (ii) The Competitive Generic Entry Initial Quantity shall equal ** ****** of Product ** ****** it being understood that GSK shall supply ** ****** of Product ** ****** later. (iii) As soon as is reasonably possible after the PR Effective Date, GSK shall supply to PAR the PR Initial Quantity of the GSK Supplied Product for sale in the PR Territory pursuant to the provisions of this Agreement. GSK shall use its reasonable efforts, based upon reliable and publicly available information that the Competitive Generic Entry Effective Date appears imminent, ** ****** GSK hereby agrees to use its reasonable efforts to,** ****** GSK and PAR shall reasonably co-operate in organizing the logistics of such shipping of the Competitive Generic Entry Initial Quantity, and such co-operation shall include PAR providing GSK with all information necessary for GSK to make such shipments. (iv) GSK and PAR shall use their commercially reasonable efforts to make all reasonable manufacturing preparations to enable GSK to be able to meet the obligations set forth in subsection (iii) above, and as of the Execution Date, GSK and PAR shall exercise their reasonable efforts, and shall co-operate with each other, to obtain all necessary certifications, permits and other registrations required pursuant to Applicable Law to enable GSK to manufacture and supply, and PAR to sell, the GSK Supplied Product pursuant to the provisions of this Agreement. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 21 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (v) With regard to the initial quantities set forth in subsections (i) and (ii) above, within ten (10) Business Days after the Execution Date, PAR shall submit to GSK, in writing, a breakdown of the applicable dosage forms of such initial quantities. ** ****** (g) LABELING. After receipt from GSK, PAR and its Affiliates shall not alter or in any way change the labels, package inserts or trade dress of any GSK Supplied Product supplied to it by GSK, and shall require its customers to expressly undertake this same obligation. The labels on each bottle of Product (including PAR Product), to the extent permitted by Applicable Law, will expressly state that the Product contained therein is licensed only for ultimate use by patients residing in the applicable Territory, and any other sale or use is not licensed under GSK's patents and will be considered an infringement of GSK's intellectual property rights. All GSK Supplied Product and PAR Product labels, package inserts or trade dress shall be approved in advance by GSK and shall comply with Applicable Law (including the terms of the applicable Product's NDA). Except with respect to information provided to GSK by PAR, GSK shall be responsible for ensuring the accuracy of all information contained on all GSK labels and labeling for the GSK Supplied Products and for the compliance of all such labels and labeling with Applicable Law. Should PAR desire or be required to make any change in any such labels or labeling, PAR shall be responsible for the updating of all artwork and text associated with such change and providing such changes to GSK. GSK shall make all necessary arrangements for such changed labels or labeling to be printed and shall provide to PAR printer's proofs for PAR's review. PAR shall, within two (2) weeks of receipt of said printer's proofs, either provide GSK any necessary corrections thereto or notify GSK of its approval of such proofs. PAR shall reimburse GSK for the cost of making such corrections and of preparing the proofs of such new labels or labeling, as well as all other costs associated with such new labels or labeling. If a change of labels or labeling requested by PAR results in obsolete inventory of former labels or labeling that GSK cannot otherwise use, PAR shall reimburse GSK for the direct costs of up to six (6) months of inventory of such obsolete labels or labeling. (h) MANUFACTURING. GSK may manufacture ** ****** All GSK Supplied Product shall be manufactured and supplied to PAR in compliance with Applicable Law, including cGMP standards. ** ****** AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 22 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION All PAR Product shall be manufactured and supplied to PAR in compliance with Applicable Law, including cGMP standards, in FDA approved manufacturing facilities. (i) DELIVERY. GSK shall deliver to PAR all such GSK Supplied Product as may be ordered by PAR under a purchase order issued to GSK pursuant to this Agreement ** ****** Nothing herein shall be construed as limiting the Parties' ability to mutually agree in writing to any adjustment to a delivery date without any modification to a then outstanding purchase order or order forecast. GSK shall provide a certificate of analysis to PAR for each lot of GSK Supplied Product shipped to PAR. (j) REJECTION. Within ** ****** days of receipt of any GSK Supplied Product, PAR may perform appropriate samplings and inspections to determine whether the GSK Supplied Product meets the applicable specifications set forth in SCHEDULE 4.3(B). Any GSK Supplied Product not refused by PAR within ** ****** days of receipt of shipment shall be deemed accepted by PAR. If PAR wishes to refuse acceptance, PAR shall within such ** ****** days' time, inform GSK in writing of its refusal to accept the batch(s), and the reasons therefor. In the event that PAR refuses or revokes acceptance, GSK, upon confirmation of the reasons for refusal of the GSK Supplied Product, shall use its reasonable efforts to replace the defective GSK Supplied Product. If GSK and PAR do not agree on the refusal or rejection of GSK Supplied Product, then either Party may refer the matter for final analysis to a specialized laboratory of national reputation acceptable to both Parties for the purpose of determining the results. Any determination by such laboratory shall be binding upon both Parties. The cost of any such testing and evaluation by an independent third party shall be borne by PAR if it is determined that the Product conforms to the requirements of this Agreement, and by GSK if determined that it does not. Section 4.4 (a) COVENANTS. PAR hereby agrees, represents and covenants that it shall, and it shall ensure that its Affiliates likewise agree, represent and covenant, for the Term: AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 23 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (i) not seek or accommodate customers, or establish any branch or maintain any distribution depot, for Product outside the applicable Territory; (ii) impose, as an essential condition of doing business, upon its Third Party distributors and other customers for Product in the applicable Territory contractual obligations not to seek or accommodate customers, or establish any branch or maintain any distribution depot, for the Product outside of the applicable Territory; (iii) restrict its marketing, promotion, advertisement, sale and distribution of the Product solely within the applicable Territory, in accordance with the Applicable Laws, and PAR shall impose, as an essential condition of doing business, upon its distributors and other customers a contractual obligation to observe the same; (iv) not sell, market, promote, advertise, or distribute the Product outside the applicable Territory, and PAR shall impose, as an essential condition of doing business, upon its distributors and other customers a contractual obligation to observe the same; (v) not knowingly, directly or indirectly, sell Product to any Third Party in the Territory for resale outside the applicable Territory; and (vi) not sell Product via the Internet, or sell Product via mail order outside of the PR Territory prior to the Competitive Generic Entry Effective Date, or sell Product via mail order outside of the PR Territory and Territory after the Competitive Generic Entry Effective Date, and PAR shall impose, as an essential condition of doing business, upon its distributors and other customers a contractual obligation to observe the same; and (vii) except as is otherwise expressly provided for in this Agreement, ** ****** The foregoing constitute certain of the essential obligations undertaken by PAR hereunder (and with regard to PAR's distributors and other customers, via the applicable contractual obligation), and the violation of, or non-compliance with, any of the foregoing shall constitute a breach of such essential provisions and this Agreement and thereby entitle GSK to exercise all rights AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 24 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION available to it under this Agreement and pursuant to Applicable Law, including the termination of this Agreement. In addition to the foregoing, PAR shall (i) exercise its reasonable commercial efforts to ensure its distributors and customers do not ship, sell or otherwise distribute Product for ultimate use by patients outside the Commercial Generic Entry Territory, and (ii) exercise its reasonable commercial efforts to ensure its distributors and customers do not ship, sell or otherwise distribute Product for ultimate use by patients outside the PR Territory. (b) With regard to the PR Territory, ** ****** subject to the terms and conditions of this Agreement. Section 4.5 PHARMACOVIGILANCE. (a) PAR shall promptly notify GSK (with such notice made to the contact listed below) of all information coming into its possession concerning adverse event or pregnancy reports associated with commercial or clinical uses, studies, investigations or tests with GSK Supplied Product (animal or human), throughout the world, whether or not determined to be attributable to GSK Supplied Product within the scope of 21 C.F.R. ss. 14.80(c)(iii) ("Adverse Event Reports"), and PAR shall transmit such Adverse Event Reports to GSK so that they are received by GSK within two (2) Business Days after receipt by PAR, or such other reporting period as may be required by Applicable Law. GSK shall promptly notify PAR of any Adverse Event Reports that require the cessation or substantial alteration of the activities contemplated under this Agreement. Also, GSK will notify PAR in writing of any GSK Supplied Product labeling change requirements pursuant to Applicable Law. Such notification shall be made within a reasonable time period after such GSK Supplied Product labeling change is made. PAR shall submit all Adverse Event Reports to: Post Marketing Group GlaxoSmithKline Upper Providence FAX no: (610) 917- 4826 AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 25 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION Contact: Christina Cauterucci Director - Post Marketing Group (Upper Providence) Global Clinical Safety and Pharmacovigilance (610) 917- 4794; or Heidi Cunning Director - Quality Management (Upper Providence) Global Clinical Safety and Pharmacovigilance (610) 917-5747) (b) GSK shall be responsible for processing and submitting to the applicable authorities or agencies all Adverse Event Reports and Product complaint reports regarding GSK Supplied Product. GSK and PAR will collaborate in good faith in developing procedures for providing to GSK any information coming into PAR's possession concerning adverse events or Product complaints with GSK Supplied Product. (c) For the avoidance of doubt, the Parties agree that GSK ** ****** ARTICLE V - REPRESENTATIONS, WARRANTIES AND COVENANTS Section 5.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each of GSK and PAR hereby represent, warrant and covenant to the other Party as of the Execution Date, as follows: (a) It is an entity duly organized, validly existing and is in good standing under the laws of its jurisdictions of formation, and has all requisite power and authority, corporate or otherwise, to execute, deliver and perform this Agreement. (b) The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of its stockholders, (ii) violate any provision of any Applicable Law or any provision of its certificate of incorporation, by-laws or other founding document, or (iii) result in a breach of or constitute a default AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 26 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a party or by which it or its properties may be bound or affected. (c) It is not currently debarred, suspended or otherwise excluded by any government agency from receiving government contracts, nor is it or any of its employees disbarred under the applicable provisions of the Food, Drug, and Cosmetic Act. (d) It is not under any obligation to any Third Party, or entity, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations hereunder. (e) This Agreement is a legal, valid and binding obligation enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditor's rights generally. Section 5.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations, warranties and covenants contained in this Article V shall survive the execution, delivery and performance of this Agreement by the Parties. Section 5.3 REPRESENTATIONS/COVENANTS. (a) Each Party hereby agrees, represents and covenants it shall perform all of its respective obligations, responsibilities and duties under this Agreement in full compliance with all Applicable Law, and in no event shall either Party be required to conduct any activities or undertake any actions hereunder that are contrary to Applicable Law. (b) PAR agrees, represents and covenants it shall cause its employees responsible for the distribution, sale or promotion of Product in the Territories to comply with all Applicable Laws regarding the promotion and marketing of Product, including, but not limited to, with respect to the U.S. Federal Food, Drug and Cosmetics Act of 1938, as amended, and the Prescription Drug Marketing Act of 1987, as amended. (c) Each of GSK and PAR agrees, represents and covenants it shall cause its employees responsible for the supply, distribution, sale or AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 27 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION promotion of Product in the Territories to act in accordance with the highest standards of the industry and in a professional, ethical and lawful manner and consistent with the same diligence used with regard to other Products marketed by GSK and PAR, respectively. (d) PAR agrees, represents and covenants it shall use its best efforts to ensure that its employees responsible for the distribution, sale or promotion of Product in the Territories shall not make any statement, representation or warranty, oral or written, to any Third Party concerning use of Product that is inconsistent with, or contrary to, the then-applicable approved FDA labeling for Product. (e) GSK agrees, represents, and covenants that it shall manufacture GSK Supplied Product in accordance with cGMP. (f) GSK agrees, represents, and covenants that it shall manufacture GSK Supplied Product in accordance with its specifications in its NDA(s) for Product. (g) GSK agrees, represents, and covenants that it shall, within five (5) Business Days after GSK's receipt thereof, inform PAR of any adverse manufacturing notice to GSK affecting the manufacture of GSK Supplied Product including an FDA Form 483 warning letter, a consent decree, or other regulatory action. (h) Each of GSK and PAR hereby agrees, represents, and covenants to the other Party that it has not since February 26, 2003 entered, and will not after the Execution Date enter, into any obligation to any Third Party, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations hereunder. (i) GSK shall not, during the Term, withdraw its NDA Nos. 20-03 or 20-885, provided, however, GSK shall be entitled to withdraw such NDAs: (i) pursuant to an FDA (or other regulatory agency) request, advisory or order to withdraw such NDAs; or (ii) or upon a good faith determination by GSK or the FDA (or other regulatory agency) that the applicable Product is not safe, or effective for use in accordance with the approved label. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 28 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION Section 5.4 PAR hereby acknowledges and agrees that, except as is set forth in Section 2.3(e), it may not sublicense, subcontract, or delegate to any Third Party all or part of the rights and obligations of PAR under this Agreement, and shall not grant any Third Party any rights to market, promote, advertise, distribute or sell the Product, except as is explicitly set forth herein. Section 5.5 Notwithstanding anything in this Agreement to the contrary, the Parties acknowledge and agree that no rights are conveyed to PAR under this Agreement with respect to distributing, marketing, selling or promoting the Product as non-prescription drugs in the over-the-counter market or any other market, and PAR further acknowledges and agrees that neither it nor any of its Affiliates shall engage in any marketing, promotion, advertisement, sale or distribution of Product as non-prescription drugs in the over-the-counter market or any other markets. Section 5.6 PAR hereby acknowledges and agrees that, except as is expressly set forth herein, nothing in this Agreement shall grant to PAR any rights to any new formulations, indications, dosages, forms of administration or other presentations of Product at any time derived or developed by or on behalf of GSK (or its Affiliates), or any other Product, compound or molecule owned or controlled by GSK (or its Affiliates). Section 5.7 Each of GSK and PAR shall keep complete and accurate written records of all of its activities associated with or regarding this Agreement to the extent commercially reasonably possible. All such applicable records shall be maintained by GSK or PAR, as applicable, for the period required by Applicable Law or a period of ** ****** years from the date of the record's creation, whichever is longer. Section 5.8 REGULATORY MATTERS. (a) GSK shall obtain, maintain, or shall cause to be obtained or maintained, all regulatory and governmental permits, licenses and approvals for the GSK Supplied Product supplied to PAR that are necessary for GSK to manufacture and ship the GSK Supplied Product to PAR in accordance with the terms of this Agreement and Applicable Law. GSK warrants that it has an FDA AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 29 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION approved NDA(s) and Drug Master File(s) for the GSK Supplied Product, and that it has appropriate registrations, approvals, facilities and the ability to manufacture the GSK Supplied Product in accordance with cGMPs and Applicable Law. In addition to fulfilling other regulatory requirements pursuant to Applicable Law, PAR shall obtain its own labeler code and its own NDC for use in connection with the sale of Product pursuant to the terms and conditions of this Agreement, and will promptly provide such information to GSK as needed for inclusion on the Product labeling. (b) During the Term of this Agreement, GSK will be responsible for any required reporting of matters regarding the manufacture, integrity, and conformance to specifications of GSK Supplied Product for PAR to the FDA in accordance with Applicable Law. GSK shall furnish copies of such reports to PAR within ** ****** Business Days of submission to FDA. GSK shall also advise PAR within ** ****** Business Days of any occurrences or information that arise out of GSK's manufacturing activities that have or could reasonably be expected to have adverse regulatory compliance or reporting consequences concerning any of the GSK Supplied Product previously supplied to PAR. (c) GSK shall be responsible for handling and responding to any FDA or other governmental agency inspections with respect to the manufacture of the GSK Supplied Product supplied to PAR during the Term. GSK shall provide to PAR any information reasonably requested by PAR (subject to any confidentiality restrictions or obligations to which GSK is subject) and all information requested by any governmental agency in connection with any governmental inspection related to the GSK Supplied Product supplied to PAR. (d) For the avoidance of doubt, the Parties agree that GSK ** ****** Section 5.9. BUSINESS OPERATIONS. (a) PRODUCT COMPLAINTS. GSK shall have the sole right and responsibility in the Territories for: (i) responding to GSK Supplied Product quality complaints relating to GSK Supplied Product. PAR shall within two (2) Business Days after receiving a Product quality complaint relating to GSK Supplied Product, refer any such Product quality complaints it receives regarding GSK Supplied Product to GSK. GSK and PAR shall collaborate in AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 30 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION developing procedures for providing information on Product quality complaints to PAR for response. (b) RECALLS, WITHDRAWALS, FIELD ALERTS AND OTHER FIELD CORRECTIONS. (i) PAR shall promptly provide to GSK any information obtained by it suggesting that a recall, field alert, Product withdrawal, or other field action relating to GSK Supplied Product (hereinafter "Product Action") is or may be necessary. Further, PAR shall cooperate with GSK in obtaining any additional information that may bear upon whether to initiate a Product Action. The final decision regarding whether to initiate a Product Action shall, however, rest with GSK. (ii) GSK shall provide PAR with prompt notice of any determination by GSK to initiate a Product Action, and PAR shall immediately comply with all reasonable applicable policies established by GSK from time to time and communicated to PAR in order to effectuate such Product Actions. Further, PAR shall undertake whatever assistance may be reasonably requested by GSK to facilitate a Product Action, including but not limited to ensuring dissemination of information to its distributors and other customers and administering the retention, return and disposition of the applicable GSK Supplied Product inventory in the applicable Territory. (iii) The costs of any Product Actions shall be borne ** ****** provided, however, ** ****** (c) For the avoidance of doubt, the Parties agree that GSK ** ****** Section 5.10 During the Term, the Parties shall notify each other as soon as practicable of any circumstances of which they are aware which arise whereby the integrity and reputation of Product or of the Parties are threatened by the unlawful activity of any Third Party in relation to Product, or any evidence or incidents of the manufacturing, marketing or sale of Product outside the applicable Territory by any Third Party (other than GSK and its Affiliates), which circumstances shall include, by way of illustration, deliberate tampering with or contamination of Product by any Third Party as a means of extorting payment from the Parties or another Third Party. In any such circumstances, the AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 31 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION Parties shall, to a reasonable extent, cooperate fully to limit any loss to the Parties. Section 5.11 EXCEPT FOR THE EXPRESS WARRANTIES AND REPRESENTATIONS AND COVENANTS CONTAINED IN THIS AGREEMENT, NEITHER PAR NOR GSK MAKES, AND EACH HEREBY EXPRESSLY DISCLAIMS, ANY WARRANTIES OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, WHETHER IN FACT OR IN LAW, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. ARTICLE VI - INTELLECTUAL PROPERTY AND CONFIDENTIAL INFORMATION Section 6.1 OWNERSHIP OF PRE-EXISTING INTELLECTUAL PROPERTY RIGHTS. Any intellectual property rights (including patents, patent applications, copyrights, trade dress and trademarks) owned by either Party prior to the Execution Date shall remain solely owned by such Party. Each of GSK and PAR shall not during the Term, or at any time thereafter, represent or assert that it is the owner of any such intellectual property rights of the other Party, whether or not such rights are registered. For the avoidance of doubt, the Parties agree that each of GSK and PAR shall have no rights to use any trademark, housemark, copyright, or trade dress, of the other, and PAR specifically has no right, directly or indirectly, to use the Paxil(R) trademark for any purpose. Except as otherwise explicitly provided herein, no right, express or implied, is granted by the Agreement to use in any manner the name "GSK," "PAR," or "GlaxoSmithKline" or the name of any Affiliate of any Party. Section 6.2 CONFIDENTIAL INFORMATION, PUBLICITY AND PUBLICATION. PAR and GSK each hereby recognize and acknowledge that the other Party's Confidential Information constitutes valuable and confidential information. Subject to other express provisions of this Agreement, GSK and PAR each agree that during the Term, and for a period of five (5) years after the effective date of termination for any reason of this Agreement or the date of expiration of the expiration hereof: AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 32 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (a) the Parties shall not disclose, directly or indirectly, in any manner whatsoever to any Third Parties any Confidential Information received from the other Party (the "Disclosing Party") without first obtaining the written consent of the Disclosing Party, and the other Party ("Recipient") shall keep confidential, all of the Disclosing Party's Confidential Information that is disclosed to Recipient. Recipient agrees to use the same level of care in safeguarding the Disclosing Party's Confidential Information that Recipient uses with its own confidential information of a similar nature, but in no event less than reasonable care. Recipient shall restrict disclosure of the Disclosing Party's Confidential Information solely to those of its (or its Affiliate's) employees or representatives having a need to know such Confidential Information in order to accomplish the purposes of this Agreement. Each Party represents that its respective employees and representatives who shall have access to the Confidential Information of the Disclosing Party are bound by an Agreement to maintain such Confidential Information in accordance with the confidentiality obligations set forth in this Article VI. (b) Recipient shall not use the Disclosing Party's Confidential Information in any manner whatsoever other than solely in connection with the performance of its obligations under this Agreement. (c) Except as expressly set forth herein, Recipient shall not, directly or indirectly, without the Disclosing Party's prior written consent, disclose in any manner whatsoever to any Third Party the fact that the Disclosing Party's Confidential Information exists or has been made available to Recipient. (d) In the event Recipient is requested pursuant to, or required by, Applicable Law to disclose any of the Disclosing Party's Confidential Information, it will notify the Disclosing Party promptly so that the Disclosing Party may seek a protective order or other appropriate remedy or, in the Disclosing Party's sole discretion, waive compliance with the confidentiality provisions of this Agreement. At the Disclosing Party's expense, Recipient will co-operate in all reasonable respects, in connection with any reasonable actions to be taken for the foregoing purpose. In the event that no such protective order or other remedy is obtained, or that the Disclosing Party waives compliance with the confidentiality provisions of this Agreement, Recipient will, without liability hereunder, furnish only that portion of the Confidential Information which Recipient is advised by its counsel is legally AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 33 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION required, and Recipient will exercise reasonable efforts to obtain reliable assurances that confidential treatment will be accorded the Disclosing Party's Confidential Information. (e) Upon the date of the expiration or termination of this Agreement for any reason, either Party may request in writing, and the other Party shall either: (i) promptly destroy all copies of the requesting Party's Confidential Information in the possession of the other Party and confirm such destruction in writing to the requesting Party; or (ii) promptly deliver to the requesting Party, at the other Party's expense, all copies of such Confidential Information in the possession of the other Party, provided, however, the other Party shall be permitted to retain one (1) copy of the requesting Party's Confidential Information for the sole purpose of determining any continuing obligations hereunder. Additionally, both Parties shall immediately cease all use of the other Party's Confidential Information including, without limitation, removing all references to such Confidential Information from its analyses, compilations, studies or other documents. All Confidential Information shall continue to be subject to the terms of this Agreement for the period set forth in this Section 6.2. (f) Each Party represents and warrants to the other Party that it has, and shall have, all right, title, and ownership interest in and to its Confidential Information or it has, and shall have, the right to disclose its Confidential Information to the other Party. Each Party may seek to enforce all rights and legal remedies available under this Article VI or by law, including, without limitation, injunctive relief, specific performance and other equitable remedies in the event of a breach of the provisions of this Article VI by the other Party. (g) Recipient shall cause its Affiliates to observe the terms of this Article VI hereof, and shall be responsible for any breach of its provisions by any of its Affiliates. (h) Notwithstanding the provisions of this Article VI, the Parties agree that nothing contained in this Article VI shall prevent Recipient in any way whatsoever from disclosing any of the Disclosing Party's Confidential Information, without obtaining Disclosing Party's prior consent, to any Affiliate of Recipient or to any Third Party for the purposes of conducting their respective rights and obligations under this Agreement, provided such Third Party has undertaken an obligation of confidentiality similar to such AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 34 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION obligations contained in Article VI herein with respect to the Disclosing Party's Confidential Information. Section 6.3 PUBLICITY. No public announcement or other disclosure to any Third Party in any manner whatsoever concerning the existence of, terms, or subject matter of this Agreement shall be made, either directly or indirectly, by any Party, except, in the opinion of legal counsel for the party desiring to make such announcement, publicity or disclosure, as may be legally required by Applicable Law, without first obtaining the approval of the other Party and agreement upon the nature and text of such announcement, publicity or disclosure which such agreement and approval shall not be unreasonably withheld. The Party desiring to make any such announcement, publicity or disclosure (including those which are legally required) shall inform the other Party of the proposed announcement or disclosure in reasonably sufficient time prior to public release, which shall be not less than ** ****** days (or such shorter period as the Parties may agree upon in writing) prior to release of such proposed announcement, publicity or disclosure, and shall provide the other Party with a written copy thereof in order to allow such other Party to comment upon such announcement, publicity or disclosure. Each Party agrees that it shall co-operate fully with the other with respect to all disclosures regarding this Agreement to any governmental or regulatory agencies, including requests for confidential treatment of proprietary information of either Party included in any such disclosure. Section 6.4 PUBLICATION. PAR shall not submit for written, electronic or oral publication any document, manuscript, abstract or the like which includes any data, results or any other information regarding, related to, or associated with this Agreement other than submissions required by Applicable Law, subject to Section 6.2(d). Any PAR contributions shall be acknowledged in any GSK publication. Section 6.5 PAR hereby represents, warrants and covenants, after consultation with its legal counsel, that: (a) the act of executing this Agreement, the Settlement Agreement, the Proposed Order of Dismissal, or any of them, does not trigger or otherwise instigate any reporting, filing or other disclosure obligation on PAR's (or any of its Affiliate's) behalf pursuant to Applicable Law (including AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 35 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION any U.S. Securities Exchange Commission reporting or disclosure obligations or requirements) until the U.S. District Court for the Northern District of Illinois enters the Proposed Order of Dismissal; provided, however, (b) notwithstanding Section 6.2(d), if the execution of this Agreement, the Settlement Agreement, the Proposed Order of Dismissal, or any of them were to trigger or otherwise instigate a reporting, filing or other disclosure obligation on PAR's (or any of its Affiliate's) behalf pursuant to Applicable Law prior to the U.S. District Court for the Northern District of Illinois entering the Proposed Order of Dismissal, PAR shall immediately notify GSK of such obligation, and PAR further agrees not to make, file, or issue such report, filing or disclosure, directly or indirectly, until the Parties, in good faith, agree upon the content, media and timing of such report, filing or disclosure. Section 6.6 Nothing in this Agreement shall be construed as preventing or in any way inhibiting either Party from complying with Applicable Law governing activities and obligations undertaken pursuant to this Agreement, in any manner which it reasonably deems appropriate, including, for example, by disclosing to regulatory authorities confidential or other information received from the other Party, subject to Section 6.2(d). ARTICLE VII - TERM AND TERMINATION Section 7.1 TERM. This Agreement shall become effective as of the Execution Date and, unless sooner terminated as provided herein, shall automatically expire as of the date the last existing Supply Term expires or is terminated (the "Term"), provided that the Parties shall submit the Agreement, the Settlement Agreement, and the Proposed Order of Dismissal to the Federal Trade Commission ("Commission") Bureau of Competition ("Bureau") for review. The Parties agree to fully cooperate with any Bureau investigation that may ensue as a result of such submission and not to oppose any motion by the Commission to intervene. (a) Notwithstanding the above, it is expressly understood that this Agreement, the Settlement Agreement and the Proposed Order of Dismissal are contingent upon none of the following occurring before April 10, 2003 -- the Bureau decides: AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 36 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (1) to recommend to the Commission that it intervene, or otherwise participate, in the GSK-Pentech litigation to oppose this Agreement, the Settlement Agreement, or the Proposed Order of Dismissal, (2) to recommend to the Commission that it initiate its own judicial or administrative litigation against GSK, PAR, or Pentech related to this Agreement, the Settlement Agreement, or the Proposed Order of Dismissal, (3) to use its current resolution authorizing investigation of GSK to investigate this Agreement, the Settlement Agreement, or the Proposed Order of Dismissal, or (4) to seek a new resolution authorizing investigation of GSK, PAR, or Pentech related to this Agreement, the Settlement Agreement, or the Proposed Order of Dismissal. The Parties shall submit the Proposed Order of Dismissal to the U.S. District Court for the Northern District of Illinois and request that the Court enter the Proposed Order of Dismissal in the event none of the events set forth in Section 7.1(a)(1) though (4) have occurred within the time period set forth in Section 7.1(a) above. ** ****** If, prior to the entry of the Proposed Order of Dismissal by the Court, GSK or PAR is informed that any of the events set forth in Section 7.1(a)(1) though (4) have occurred, the other Party will be given the opportunity to verify the Bureau's decision, provided that, once verified, either Party may choose to nullify and void this Agreement, the Settlement Agreement, and the Proposed Order of Dismissal effective as of the Execution Date, subject to Section 7.1(b). If GSK or PAR is informed that either of the events set forth in Section 7.1(a)(1) or Section 7.1(a)(2) has occurred after entry of the Proposed Order of Dismissal by the Court, the other Party will be given the opportunity to verify the Bureau's decision, provided that, once verified, either Party may choose to nullify and void this Agreement and the Settlement Agreement, subject to Section 7.1(b). If the Bureau does not recommend to the Commission to intervene or initiate litigation, or investigate or seek to investigate, as set forth in this Section 7.1(a), but reserves the right to do so at a later date, this will be AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 37 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION insufficient for GSK or PAR to use the foregoing contingency to nullify and void this Agreement, the Settlement Agreement, and the Proposed Order of Dismissal. (b) If any of the events set forth in Sections 7.1(a)(1) through (4) occur before entry of the Proposed Order of Dismissal by the Court, or if the Court refuses to enter the Proposed Order of Dismissal, then the Parties (and the parties to the Settlement Agreement and the Proposed Order of Dismissal) shall using good faith, reasonable commercial efforts, modify, if possible, this Agreement, the Settlement Agreement, and the Proposed Order of Dismissal to overcome any objections by the Bureau or the Court, provided that such modifications do not materially change the economic value of the transaction for either Party. If any of the events set forth in Sections 7.1(a)(1) through (4) occur after the Court enters the Proposed Order of Dismissal, then the Parties (and the parties to the Settlement Agreement and Proposed Order of Dismissal) shall using good faith, reasonable commercial efforts, modify, if possible, this Agreement and the Settlement Agreement to overcome any objections by the Bureau, provided that such modifications do not materially change the economic value of the transaction for either Party. (c) Subject to the above provisions, if before Court entry of the Proposed Order of Dismissal, GSK or PAR exercises its right under Section 7.1(a) to terminate either this Agreement or the Settlement Agreement, both of those agreements and the Proposed Order of Dismissal shall be null and void as to all parties to those agreements and as to all parties to the Proposed Order of Dismissal. If after Court entry of the Proposed Order of Dismissal, GSK or PAR exercises its right under Section 7.1(a) to terminate either this Agreement or the Settlement Agreement, both of those agreements shall be null and void as to all parties to those agreements. Section 7.2 TERMINATION. (a) TERMINATION FOR BREACH. Except as otherwise provided in Paragraphs 7.2(d) and 7.2(g), each Party shall be entitled to terminate this Agreement by written notice to the other Party in the event that the other Party shall be in material default or breach of any of its obligations hereunder, and shall fail to remedy any such default or breach within ** ****** days after notice thereof by the non-defaulting/non-breaching Party. If such default or breach is not corrected within the foregoing ** ****** day period, the AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 38 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION non-breaching Party shall have the right to terminate this Agreement by giving written notice to the Party in default, provided the notice of termination is given within ** ****** months of the default and prior to correction of the default. (b) TERMINATION UPON BANKRUPTCY. Either Party may terminate this Agreement if, at any time, the other Party shall file in any court or agency pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of the Party or of its assets, or if the other Party proposes a written agreement of composition or extension of its debts, or if the other Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed with sixty (60) days after the filing thereof, or if the other Party shall propose or be a Party to any dissolution or liquidation, or if the other Party shall make an assignment for the benefit of creditors. (c) This Agreement may be terminated at any time pursuant to the mutual written consent of all Parties. (d) Notwithstanding Section 7.2(a), in the event GSK determines that PAR has breached this Agreement by having exported or otherwise diverted Product, or allowed Product to be exported or otherwise diverted, outside the applicable Territory GSK shall provide written notice to PAR summarizing its evidence of such export. If PAR shall fail to immediately take appropriate actions to remedy such breach, including halting (or causing to be halted) such exports, implementing procedures to ensure such breach does not re-occur, and recalling all such exported Product, within ** ****** days after receipt of notice thereof by GSK, GSK shall have the right to immediately terminate this Agreement in its entirety, or solely with regard to the affected Territory, upon giving written notice to PAR. (e) If PAR, or its parent entity, undergoes a Change of Control and, if as a result of such Change of Control, the sales effort of the Third Party successor with respect to Product falls below that which was AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 39 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION executed by PAR under this Agreement, GSK shall have the right to immediately terminate this Agreement upon giving written notice to such Third Party successor. (f) ** ****** Section 7.3 EFFECT OF TERMINATION. (a) Upon termination of this Agreement, GSK shall have the right to retain any sums already paid by PAR hereunder, and PAR shall immediately pay to GSK all sums accrued hereunder which are then due, including any and all Royalties accrued, but not paid. (b) Termination of this Agreement in accordance with the provisions hereof and, the operation of any provisions of this Section 7.3, shall not in any way limit the Parties' remedies that may be otherwise available to them in law or equity. (c) Termination of this Agreement in its entirety shall terminate all outstanding obligations and liabilities between the parties arising from this Agreement except those described in: (i) Sections 3.1 through 3.7 (for the post-termination period in which PAR owes GSK royalties on Net Sales of Product during the Term, and for the post-termination period in which PAR sells its remaining Product inventory pursuant to Section 3.2); (ii) Section 3.8 (for the post-termination period set forth therein); (iii) Article VI (for the post-termination period set forth therein); (iv) Articles VIII and IX and Section 7.3; (v) solely for the post-termination period during which PAR sells its remaining Product inventory pursuant to Section 3.2 the following: Articles II, Section 4.3(g), Sections 4.4 and 4.5, and Article V; and (vi) notwithstanding the foregoing, Sections 4.5 and 5.9 shall survive termination for the period required pursuant to Applicable Law. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 40 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION as well as those under any other provisions which by their nature are intended to survive any such termination, shall survive and continue to be enforceable. For the avoidance of doubt, the Parties agree that upon termination of this Agreement, except as otherwise set forth in Section 3.2, PAR shall immediately cease all sales and distribution activities with regard to the Product in the Territories. (d) In the event GSK terminates this Agreement pursuant to Section 7.2(a) or Section 7.2(d) due to a PAR breach, PAR shall reimburse GSK for all reasonable costs associated with any obsolete materials (labels, packaging, tooling with PAR's trademarks, etc.) resulting from the termination of this Agreement, provided GSK uses its reasonable efforts to mitigate the costs associated with such obsolete materials. ARTICLE VIII - INDEMNIFICATION, INSURANCE AND DISPUTE RESOLUTION Section 8.1. PRODUCT CLAIMS: GSK and PAR hereby agree: ** ****** (f) PAR and GSK agree that all claims or disputes asserted by either party against the other arising from or relating to a Product Claim, including those for indemnification or contribution, shall be resolved through either mediation or, if not possible, binding arbitration. No claims or cross-claims shall be asserted as between PAR and GSK in any Product Claims covered or claimed to be covered by this section and neither Party shall ever argue that the other has waived its right to seek contribution or other monetary relief by not filing a claim or cross-claim in any underlying lawsuit. The Party seeking to mediate or arbitrate any claim or group of claims under this section shall give timely notice thereof, but nothing herein shall prevent the Parties from agreeing to postpone mediation or arbitration for any length of time if they believe that doing so is in their mutual best interest. Further, nothing herein shall prevent the Parties from mediating or arbitrating multiple claims in a single aggregated proceeding. (g) PAR and GSK are responsible for ** ****** PAR and GSK are further responsible for ** ****** AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 41 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION Section 8.2. ADDITIONAL CLAIMS. ** ****** (d) PAR agrees to defend, indemnify and hold harmless GSK and any GSK Party for any and all losses, liabilities, damages (including all special, indirect, exemplary, incidental, or consequential losses or damages), expenses and fees (including all reasonable attorney's fees and other legal fees and costs) incurred, suffered, paid or payable by GSK or a GSK Party to a Third Party arising from, related to, or associated with a breach by PAR of this Agreement by having exported Product, or allowed Product to be exported, outside the applicable Territory ( an "Export Claim"). (e) PAR Sublicensee Claims, PAR Product Claims, Export Claims, and ** ****** shall, collectively, be referred to herein as "Additional Claims"). (f) GSK shall provide PAR with prompt written notice of any Additional Claim against GSK or a GSK Party, as well as copies of all papers or other documents received by GSK or a GSK Party that contain or give notice of such Additional Claims. (g) The Parties agree to cooperate with each other and their respective legal counsel in the defense of any Additional Claim and to provide each other with any information or other reasonable assistance requested in a timely manner. Section 8.3 OTHER CLAIMS: This section applies solely to all actual or threatened claims, demands or causes of action arising out of, related to, or associated with this Agreement that are not Product Claims or Additional Claims and that are not joined with or made part of a lawsuit or other legal proceeding asserting Product Claims or Additional Claims ("Other Claims"). Examples of such Other Claims (which are not meant to be exhaustive in any way) include claims of: antitrust violations; fraud or abuse in marketing; unfair business or trade practices; unfair or discriminatory labor practices; tortious interference; or violations of any securities laws, or Puerto Rico's Act 75 of June 24, 1964 (as is set forth in Section 8.3(e)). (a) PAR agrees to defend, indemnify and hold harmless GSK and any GSK Party for any and all losses, liabilities, damages (excluding all AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 42 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION special, indirect, exemplary, incidental, or consequential losses or damages), expenses and fees (exclusive of all legal fees as set forth in Section 8.3(f)) paid or payable by GSK or a GSK Party on an Other Claim arising from or related to the improper, unlawful or otherwise liability-creating conduct of PAR or a PAR Party; and (b) GSK agrees to defend, indemnify and hold harmless PAR and any PAR Party for any and all losses, liabilities, damages (excluding all special, indirect, exemplary, incidental, or consequential losses or damages), expenses and fees (exclusive of all legal fees as set forth in Section 8.3(f)) paid or payable by GSK or a GSK Party on an Other Claim arising from or related to the improper, unlawful or otherwise liability-creating conduct of GSK or a GSK Party; and (c) Any Party seeking to assert a right of indemnification under this Section shall provide the other with prompt written notice of the Other Claim against it, as well as copies of all papers or other documents received by it that contain or give notice of such Other Claims, and shall tender its defense of such Other Claims to the indemnifying Party in such notice; and (d) Any Party granting indemnification under this Section shall have the right to control the defense of such Other Claim, which right shall include, but is not limited to, the right to select legal counsel of its choice and determine whether to settle and the amount of any settlement, PROVIDED, HOWEVER, that an indemnified Party may participate in, but not control, the defense of such Other Claims using attorneys of its choice and at its sole cost and expense, and FURTHER PROVIDED that the indemnifying Party may not settle such Other Claims in any manner that would require payment by the indemnified Party, or would materially adversely affect the rights granted to the indemnified Party under this Agreement, or would materially conflict with the terms of this Agreement, or with respect to GSK adversely effect the Products in or outside the Territory, without first obtaining the indemnified Party's prior written consent, which consent shall not be unreasonably withheld; and (e) (i) ** ****** (ii) ** ****** AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 43 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (f) Each Party agrees that it will cooperate with the other in the defense of any Other Claims for which indemnification is sought, and provide the other with any information or other assistance reasonably requested in a timely manner; and (g) PAR and GSK are responsible for their own legal fees (including attorney's fees) and costs arising out of or related to any Other Claims. PAR and GSK are further responsible for their own attorneys fees and costs arising out of or related to any mediation or arbitration to resolve any claim for indemnification or contribution pursuant to this section. Section 8.4. EXCEPT AS SET FORTH IN SECTION 8.2 RELATING TO ADDITIONAL CLAIMS, IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, PUNITIVE, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, A PRODUCT CLAIM, OR OTHERWISE ARISING OUT OF OR RELATED TO THIS AGREEMENT. Section 8.5. INSURANCE. (a) For the Term, and for a period of five (5) years after the expiration of this Agreement or the earlier termination thereof, PAR shall maintain at its sole cost and expense, product liability and other insurance in amounts, respectively, which are reasonable and customary in the USA pharmaceutical industry for companies of comparable size and activities at the respective place of business of PAR, provided in no event shall the product liability insurance amounts be less than ** ****** per occurrence (or claim) and ** ****** in the aggregate limit of liability per year. Such insurance shall insure against all liability, including personal injury, product liability, physical injury, clinical development liabilities, or property damage arising out of the development, manufacture, sale, distribution, or marketing of Products. PAR shall provide written proof of the existence of such insurance to GSK upon request. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 44 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (b) GSK hereby represents that it is self-insured for product liability and general liability, and that it has and will maintain such coverage for the Term and for a period of five (5) years after the expiration of this Agreement or the earlier termination thereof. Such self-insurance is in an amount which is reasonable and customary in the USA pharmaceutical industry for companies of comparable size and activities at the respective place of business of GSK. Such self-insurance covers all liability, including personal injury, product liability, physical injury, clinical development liabilities, or property damage arising out of the development, manufacture, sale, distribution, or marketing of GSK Supplied Products. ARTICLE IX - MISCELLANEOUS Section 9.1 ASSIGNMENT. This Agreement may not be assigned by either Party to a Third Party without the prior written consent of the other Party; PROVIDED, HOWEVER, that GSK shall have the right to assign its rights, licenses and obligations under this Agreement to any Third Party successor to all or substantially all of (i) its entire business or (ii) its pharmaceutical business; or (iii) the assets associated with this Agreement. In addition, each Party may assign, to any of its Affiliates, its rights, licenses and obligations of such Party under this Agreement, provided that such Affiliate is fully capable of fulfilling the assigned rights, licenses and obligations. In no event shall such assignment be deemed to relieve the assigning Party of its liabilities or obligations to the other Party under this Agreement, and the assigning Party expressly acknowledges and agrees that it shall remain fully and unconditionally obligated and responsible for the full and complete performance of all of its obligations under the terms and conditions of this Agreement. The limited rights of assignment permitted in this Section 9.1, shall in no way limit GSK's right to terminate this Agreement pursuant to Section 7.2(e). Section 9.2 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Section 9.3 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 45 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION government action, war, fire, explosion, flood, strike, lockout, embargo, shortage of materials or utilities, vendor failure to supply, act of God, or any other cause beyond the control and without the fault or negligence of the defaulting Party, provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance. Such excuse shall continue as long as the condition preventing the performance continues. Upon cessation of such condition, the affected Party shall promptly resume performance hereunder. Each Party agrees to give the other Party prompt written notice of the occurrence of any such condition, the nature thereof, and the extent to which the affected Party will be unable to perform its obligations hereunder. Each Party further agrees to use all reasonable efforts to correct the condition as quickly as possible and to give the other Party prompt written notice when it is again fully able to perform its obligations. Section 9.4 FURTHER ASSURANCES. Each Party hereto agrees to execute, acknowledge and deliver such further instruments and do all such further acts as may be necessary or appropriate to carry out the purposes and intent of this Agreement. Section 9.5 MODIFICATION. No waiver, alteration or modification of any of the provisions hereof shall be binding unless made in writing and signed by the Parties by their respective officers thereunto duly authorized. Section 9.6. INDEPENDENT CONTRACTORS. The Parties are independent contractors and this Agreement shall not constitute or give rise to an employer-employee, agency, partnership or joint venture relationship among the Parties and each Party's performance hereunder is that of a separate, independent entity. Section 9.7 NO SOLICITATION OR HIRING OF EMPLOYEES. During the Term and for one (1) year thereafter, neither PAR nor GSK shall, without the prior consent of the other Party, solicit the employment of or hire any person who during the course of employment with the other Party was involved with activities hereunder and who when solicited or to be hired is a current employee of the other Party. Notwithstanding the foregoing, nothing herein shall restrict or preclude either Party for making generalized searches for employees by AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 46 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION advertising in the media or engaging search firms to engage in searches that are not targeted on an employee or employees of the other Party. Section 9.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles. Section 9.9 LANGUAGE. This Agreement, and any amendments or modifications thereto, shall be executed in the English language. No translation, if any, of this Agreement into any other language shall be of any force or effect in the interpretation of this Agreement or in determination of the intent of either of the parties hereto. Section 9.10 ARTICLE HEADINGS. The Article headings are placed herein merely as a matter of convenience and shall not affect the construction or interpretation of any of the provisions of this Agreement. Section 9.11 NOTICES. Notices required or permitted under this Agreement shall be in writing and sent by prepaid registered or certified air mail or by overnight express mail (e.g., FedEx), or by telefacsimile confirmed by prepaid registered or certified air mail letter or by overnight express mail (e.g., FedEx), (failure of such confirmation shall not affect the validity of such notice by telefacsimile to the extent the receipt of such notice is confirmed by the act of the receiving party (e.g., a telefacsimile of the receiving party submitting its receipt of such notice)) and shall be deemed to have been properly served to the addressee upon receipt of such written communication, to the following addresses of the parties: If to PAR: Par Pharmaceutical, Inc. 300 Tice Boulevard, 3d Floor Woodcliff Lake, NJ 07677 Attention: Office of the President Facsimile: 201-802-4622 If to GSK: SmithKline Beecham Corporation (a GlaxoSmithKline Company) One Franklin Plaza AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 47 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION P.O. Box 7929 Philadelphia, Pennsylvania 19101, USA Attention: Senior Vice President - General Pharmaceutical Business Unit Facsimile: 215-751-3729 AND: SmithKline Beecham Corporation (a GlaxoSmithKline Company) One Franklin Plaza (Mail Code FP 2360) P.O. Box 7929 Philadelphia, Pennsylvania 19101, USA Attention: Corporate Law - U.S. Vice President and Associate General Counsel Business Development Transactions Team. Facsimile: 1-215-751-3935 Section 9.12 THIRD PARTIES. None of the provisions of this Agreement shall be for the benefit of or enforceable by any Third Party. Section 9.13 WAIVER. The waiver by either Party of a breach or a default of any provision of this Agreement by the other Party shall not be construed as a waiver of any succeeding breach of the same or any other provision, nor shall any delay or omission on the part of either Party to exercise or avail itself of any right, power or privilege that it has or may have hereunder operate as a waiver of any right, power or privilege by such Party. Section 9.14 SEVERABILITY. If any part of this Agreement is declared invalid by any legally governing authority having jurisdiction over either Party, then such declaration shall not affect the remainder of the Agreement and the Parties shall revise the invalidated part in a manner that will render such provision valid without impairing the Parties' original intent. Section 9.15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the Parties relating to the subject matter hereof and supersedes all previous writings and understandings. Section 9.16 INTERNATIONAL SALE OF GOODS ACT. The Parties acknowledge and agree that the International Sale of Goods Act and the United Nations Convention on Contracts for the International Sale of Goods have no application to this Agreement. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 48 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION [SIGNATURES APPEAR ON THE FOLLOWING PAGE] AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) 49 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the Execution Date by their duly authorized representatives. SB PHARMCO PUERTO RICO INC. By: /s/ David M. Pernock -------------------- David M. Pernock Senior Vice President, General Pharmaceutical Business Unit Attorney-in-fact for SB PHARMCO PUERTO RICO INC. SMITHKLINE BEECHAM CORPORATION By: /s/ David M. Pernock -------------------- David M. Pernock Senior Vice President, General Pharmaceutical Business Unit Attorney-in-fact for SMITHKLINE BEECHAM CORPORATION BEECHAM GROUP P.L.C. By: /s/ David M. Pernock -------------------- David M. Pernock Senior Vice President, General Pharmaceutical Business Unit Attorney-in-fact for BEECHAM GROUP P.L.C. AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION PAR PHARMACEUTICAL, INC. By: /s/ Scott Tarriff ----------------- Scott Tarriff President and Chief Executive Officer AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION SCHEDULE 4.3(B) GSK SUPPLIED PRODUCT SPECIFICATIONS Paroxetine DC Tables Specifications ** ****** Packaging Bottles ** ****** PACKAGING BLISTER ** ****** AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION SCHEDULE 4.3(D) INITIAL PAR ESTIMATE ** ****** AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION SCHEDULE 4.4(B) GSK PAXIL(R) DISTRIBUTORS ** ****** AMENDED AND RESTATED GSK-PAR LICENSE & SUPPLY AGMT (EXECUTION) EX-10 6 exh10-49.txt EXHIBIT 10.49 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION EXHIBIT 10.49 AMENDED AND RESTATED SETTLEMENT AGREEMENT PREAMBLE This AMENDED AND RESTATED SETTLEMENT AGREEMENT, dated as of the 16th day of April, 2003, ("Execution Date") is among: SmithKline Beecham Corporation and Beecham Group, p.l.c. (collectively, "Plaintiffs"); Par Pharmaceutical, Inc. ("PAR"); and Pentech Pharmaceuticals, Inc. ("PENTECH") (collectively, the "Parties"). WHEREAS: 1. This Amended and Restated Settlement Agreement ("this Settlement Agreement") revises and supersedes the Settlement Agreement between the Parties dated February 26, 2003. 2. Plaintiffs brought suit against PENTECH and Asahi Glass Co., Ltd. ("ASAHI") (collectively, "Defendants") for infringement of four United States patents owned by Plaintiffs, namely U.S. Patent No. 4,721,723 ("the `723 patent"), No. 5,872,132, No. 5,900,423, and No. 6,080,759 (collectively, "the Patents"), under 35 U.S.C. ss. 271(e)(2)(A), and Defendants brought counterclaims of noninfringement and invalidity with regard to the Patents, in civil actions in the United States District Court for the Northern District of Illinois ("the Court"), Civil Action Nos. 00C 2855 and 00C 5831 ("the Litigation"). 3. Plaintiffs and PENTECH wish to settle the Litigation. 4. In the Litigation, Plaintiffs alleged that PENTECH infringed the Patents by PENTECH's submission of Abbreviated New Drug Application No. 75-771 ("PENTECH's ANDA") to the United States Food and Drug Administration ("FDA"), and that ASAHI induced that infringement. 1 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION 5. PENTECH's ANDA was submitted to the FDA under 21 U.S.C. ss. 355(j), and seeks FDA approval for certain capsule drug products containing as their active ingredient paroxetine hydrochloride. ** ****** 6. ** ****** 7. Plaintiffs, PAR, and PENTECH have reached an agreement to settle the Litigation, which is set forth in this Settlement Agreement, and a separate Amended and Restated License and Supply Agreement ("License and Supply Agreement") between SB Pharmco Puerto Rico Inc. ("GSK"), Plaintiffs, and PAR, each of which is being executed contemporaneously, and an Agreed Motion to Dismiss All Claims and Counterclaims Between Plaintiffs and Defendant Pentech Pharmaceuticals, Inc., accompanied by a proposed Order of Dismissal, for signature by Plaintiffs and PENTECH ("Agreed Motion to Dismiss"). 8. The settlement is procompetitive. As a result of the settlement, there will be generic competition in Puerto Rico immediately, which competition otherwise would not have existed until the expiration of Plaintiffs' `723 patent, had Plaintiffs prevailed in the litigation. Furthermore, as a result of the settlement, in the event that another firm successfully launches an A/B-rated generic version of paroxetene hydrochloride, an additional competitor would be launched into the marketplace that otherwise would not have been permitted to compete, had Plaintiffs prevailed in the litigation. The settlement allows generic entry into the marketplace in advance of the expiration of Plaintiffs' `723 patent and is therefore procompetitive. 9. This Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss are the only consideration exchanged by or on behalf of Plaintiffs or GSK, on the one side, and PENTECH or PAR, on the other side, in reaching the agreement to settle the Litigation. Plaintiffs, GSK, PENTECH, and PAR have received no consideration for their entry into this settlement other than that which is described in those three documents. This settlement therefore constitutes PENTECH's and PAR's best independent judgment as to how most expeditiously and competitively to enter the marketplace in light of PENTECH's 2 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION relative chances of success in the Litigation. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the License and Supply Agreement, and the Agreed Motion to Dismiss, Plaintiffs, PENTECH, and PAR hereby agree as follows: 1. PAR consents to the jurisdiction of this Court solely for the purposes of the settlement of this litigation and enforcement of the terms of this settlement. 2. The Court has jurisdiction over the Litigation, the Plaintiffs, the Defendants, and PAR (solely for the purpose of this settlement), and venue is proper in the Northern District of Illinois. 3. PENTECH and PAR admit that the commercial manufacture, use, selling, offering for sale, or importing of the drug products for which PENTECH's ANDA currently seeks FDA approval would infringe the `723 patent, and admit that the `723 patent is valid and enforceable. 4. PENTECH warrants that it has provided to attorneys for Plaintiffs in the Litigation copies of all amendments to PENTECH's ANDA that have been submitted to the FDA as of the date and time this Settlement Agreement is being signed by PENTECH. 5. PENTECH and PAR agree that, ** ****** 6. PENTECH warrants that it has not granted or assigned to and will not grant or assign to any entity or individual, directly or indirectly, any rights under or to its ANDA, other than those to PAR set forth above. 7. Plaintiffs unconditionally represent that they will not sue Defendants or PAR for any infringement of any claims of three of the patents for which suit initially had been brought, namely United States Patent No. 5,872,132, No. 5,900,423, and No. 6,080,759, concerning the paroxetine hydrochloride drug products for which PENTECH seeks FDA approval in PENTECH's ANDA at the time this 3 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION Settlement Agreement is signed, including the paroxetine hydrochloride active ingredient supplied by ASAHI for those drug products. 8. ** ****** 9. ** ****** 10. As is more fully set forth in the License and Supply Agreement, ** ****** 11. As provided in section 13 of this Settlement Agreement, Plaintiffs and PENTECH will execute and submit to the Court their Agreed Motion to Dismiss, requesting that the Court dismiss without prejudice all claims in the Litigation brought by Plaintiffs against PENTECH, and all counterclaims in the Litigation brought by PENTECH against Plaintiffs, pursuant to Rule 41(a)(2). 12. Plaintiffs and PENTECH each will bear its own costs and legal fees for the Litigation. 13. The Parties and GSK shall submit this Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss to the Federal Trade Commission ("Commission") Bureau of Competition ("Bureau") for review. The Parties agree, and GSK has agreed in the License and Supply Agreement, to fully cooperate with any Bureau investigation that may ensue as a result of such submission and not to oppose any motion by the Commission to intervene. (a) Notwithstanding the above, it is expressly understood that this Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss are contingent upon none of the following occurring before April 10, 2003: the Bureau decides 4 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (1) to recommend to the Commission that it intervene, or otherwise participate, in the Litigation to oppose this Settlement Agreement, the License and Supply Agreement, or the Agreed Motion to Dismiss, (2) to recommend to the Commission that it initiate its own judicial or administrative litigation against GSK, Plaintiffs, PAR, or Pentech related to this Settlement Agreement, the License and Supply Agreement, or the Agreed Motion to Dismiss, (3) to use its current resolution authorizing investigation of GSK to investigate this Settlement Agreement, the License and Supply Agreement, or the Agreed Motion to Dismiss, or (4) to seek a new resolution authorizing investigation of GSK, Plaintiffs, PAR, or Pentech related to this Settlement Agreement, the License and Supply Agreement, or the Agreed Motion to Dismiss. The Parties shall execute the Agreed Motion to Dismiss and submit it to the U.S. District Court for the Northern District of Illinois, in the event that none of the events set forth in Section 13(a)(1) through (4), above, have occurred before April 10, 2003. If, prior to entry of the order sought by the Agreed Motion to Dismiss, GSK or PAR is informed that any of the events set forth in Section 13(a)(1) though (4) of this Settlement Agreement have occurred, the other entity will be given the opportunity to verify the Bureau's decision, provided that, once verified, either Plaintiffs or PAR may choose to nullify and void this Settlement Agreement and the Motion to Dismiss, effective as of the Execution Date, subject to Section 13(b) of this Settlement Agreement, and either GSK or PAR may choose to nullify and void the License and Supply Agreement under Section 7.1(a) of that agreement, effective as of the Execution Date, subject to Section 7.1(b) of the License and Supply Agreement. If GSK or PAR is informed that either of the events set forth in Section 13(a)(1) or (2) of this Settlement Agreement has occurred after entry of the order sought by the Agreed Motion to Dismiss, the other entity will be given the opportunity to verify the 5 Bureau's decision, provided that, once verified, either Plaintiffs or PAR may choose to nullify and void this Settlement Agreement, effective as of the Execution Date, subject to Section 13(b) of this Settlement Agreement, and either GSK or PAR may choose to nullify and void the License and Supply Agreement under Section 7.1(a) of that agreement, effective as of the Execution Date, subject to Section 7.1(b) of the License and Supply Agreement. If the Bureau does not recommend to the Commission to intervene or initiate litigation, or investigate or seek to investigate, as set forth in this Section 13(a) of this Settlement Agreement, but reserves the right to do so at a later date, this will be insufficient for GSK, Plaintiffs, or PAR to use the foregoing contingency to nullify and void this Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss. (b) If any of the events set forth in Sections 13(a)(1) through (4) of this Settlement Agreement occur before entry of the order sought by the Agreed Motion to Dismiss, or the Court refuses to enter the order sought by the Agreed Motion to Dismiss, then the Parties (and the parties to the License and Supply Agreement and the Agreed Motion to Dismiss) shall, using good faith, reasonable commercial efforts, modify, if possible, this Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss to overcome any objections by the Bureau or the Court, provided that such modifications do not materially change the economic value of the transaction for any such party. If any of the events set forth in Sections 13(a)(1) through (4) of this Settlement Agreement occur after entry of the order sought by the Agreed Motion to Dismiss, then the Parties (and the parties to the License and Supply Agreement and Agreed Motion to Dismiss) shall, using good faith, reasonable commercial efforts, modify, if possible, this Settlement Agreement and the License and Supply Agreement to overcome any objections by the Bureau, provided that such modifications do not materially change the economic value of the transaction for any such party. (c) Subject to the above provisions, if before entry of the order sought by the Agreed Motion to Dismiss, either Plaintiffs or PAR exercises its right under Section 13(a) of this Settlement Agreement to terminate this 6 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION Agreement, or either GSK or PAR exercises its right under Section 7.1(a) of the License and Supply Agreement to terminate that agreement, both of those agreements and the Agreed Motion to Dismiss shall be null and void as to all parties to those agreements and as to all parties to the Agreed Motion to Dismiss. If after entry of the order sought by the Agreed Motion to Dismiss, Plaintiffs or PAR exercises its right under Section 13(a) of this Settlement Agreement to terminate this Settlement Agreement, or GSK or PAR exercises its right under Section 7.1(a) of the License and Supply Agreement to terminate that agreement, both of those agreements shall be null and void as to all parties to those agreements. 14. At the Court Status Conference on February 27, 2003, Plaintiffs and PENTECH jointly requested that the Court take certain actions, which the Court took: (a) toll the stay on FDA approval of PENTECH's ANDA pursuant to 21 U.S.C. ss. 355(j)(5)(B), which had been due to expire on March 3, 2003, through and including April 25, 2003, to enable Plaintiffs and PENTECH to resolve important issues being discussed between them. Plaintiffs and PENTECH made this request solely for the purpose of enabling their current discussions to continue. Their request to toll the FDA stay was made wholly without prejudice to their respective positions on the propriety of any extension to the current FDA stay, including without limitation the position expressed in their motion papers regarding Plaintiffs' request for an extension of that stay; (b) defer ruling on the three motions currently pending before the Court, namely (1) Plaintiffs' Motion to Extend Stay on FDA Approval of Pentech's ANDA, (2) Defendants' Motion to Reopen Limited Fact Discovery, and (3) Defendants' Motion to Amend the Answer and Counterclaim, until after the next Status Conference; and (c) reset a Status Conference to April 15, 2003. 7 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION 15. If any of GSK, Plaintiffs, or PAR, were to exercise its option to terminate this Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss, as provided in Section 13, above, then Plaintiffs and PENTECH promptly will jointly request that the Court resume consideration of the three pending motions mentioned above, and rule on the three pending motions before the expiration of the tolled stay on FDA approval of PENTECH's ANDA. 16. Each Party to this Settlement Agreement warrants that the person executing this Settlement Agreement on its behalf has the power and authority to enter this Settlement Agreement on behalf of that Party. 17. (a) No public announcement or other disclosure to any third party, including any government entity, in any manner whatsoever concerning the existence, terms, or subject matter of this Settlement Agreement, the License and Supply Agreement, or the Agreed Motion to Dismiss shall be made, either directly or indirectly, by any Party, except, subject to Section 17(b), below, in the opinion of legal counsel for the Party desiring to make such announcement, publicity or disclosure, as may be legally required by applicable law, without first obtaining the approval of the other Parties and agreement upon the nature and text of such announcement, publicity or disclosure, which approval shall not unreasonably be withheld. The Party desiring to make any such announcement, publicity or disclosure (including those which are legally required) shall inform the other Parties of the proposed announcement or disclosure in reasonably sufficient time prior to public release, which shall be not less than fifteen (15) days (or such shorter period as the Parties may agree upon in writing) prior to release of such proposed announcement, publicity or disclosure, and shall provide the other Parties with a written copy thereof in order to allow such other Parties to comment upon such announcement, publicity or disclosure. Each Party agrees that it shall cooperate fully with the others with respect to all disclosures regarding this Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss to any governmental or regulatory agencies, including requests for confidential treatment of proprietary information of any Party included in any such disclosure. 8 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION (b) PAR and PENTECH each represents, warrants, and covenants, after consultation with counsel, that (1) the act of executing this Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss, or any of them, does not trigger or otherwise instigate any reporting, filing or other disclosure obligation on PAR's or PENTECH's (or any of either's affiliates') behalf pursuant to applicable law (including any U.S. Securities Exchange Commission reporting or disclosure obligations or requirements) until the order sought by the Agreed Motion to Dismiss is entered by the U.S. District Court for the Northern District of Illinois; provided, however, (2) notwithstanding Section 17(a), above, if the execution of this Settlement Agreement, the License and Supply Agreement, and the Agreed Motion to Dismiss, or any of them, were to trigger or otherwise instigate a reporting, filing or other disclosure obligation on PAR's or PENTECH's (or any of either's Affiliates') behalf pursuant to applicable law prior to entry of the order sought by the Agreed Motion to Dismiss by the U.S. District Court for the Northern District of Illinois, PAR or PENTECH, as applicable, shall immediately notify GSK of such obligation, and PAR and PENTECH each further agree not to make, file, or issue such report, filing or disclosure, directly or indirectly, until the Parties, in good faith, agree upon the content, media and timing of such report, filing or disclosure. (c) The prohibition on disclosure to any third party set forth in Section 17(a), above, ** ****** except as provided in paragraph (d), below, no ** ****** in any manner whatsoever concerning ** ****** either directly or indirectly, other than ** ****** and further, PAR and PENTECH represent and warrant that, except as provided in paragraph (d), below, they have not made, and shall not make for a period of one (1) year after the date hereof, any disclosure to ** ****** except as the Parties may agree otherwise in writing, ** ****** (d) At the Status Conference held before the Court on March 21, 2003, ** ****** At that time, certain information concerning the proposed settlement was provided confidentially to the Court ** ****** by the respective counsel for the Parties. 9 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION ** ****** 10 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION SO AGREED: SmithKlineBeecham Corporation: Date: April 16, 2003 By: /s/ David M. Pernock ---------------------------------------- David M. Pernock Senior Vice President, General Pharmaceutical Business Unit Attorney-in-fact for SmithKlineBeecham Corporation Beecham Group Ltd., p.l.c. Date: April 16, 2003 By: /s/ David M. Pernock ---------------------------------------- David M. Pernock Senior Vice President, General Pharmaceutical Business Unit Attorney-in-fact for Beecham Group Ltd., p.l.c. 11 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION ASTERISKS DENOTE SUCH OMISSION Par Pharmaceutical, Inc.: Date: April 16, 2003 By: /s/ Scott Tarriff ----------------------------------- Name: Scott Tarriff Title: President & CEO Pentech Pharmaceuticals, Inc.: Date: April 16, 2003 By: /s/ Albert F. Hummel --------------------------------------- Name: Albert F. Hummel Title: President 12 EX-31 7 exh31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT I, Scott L. Tarriff, Executive Vice President of Pharmaceutical Resources, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pharmaceutical Resources, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting; Date: August 11, 2003 /s/ Scott L. Tarriff --------------------- Scott L. Tarriff Executive Vice President EX-31 8 exh31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT I, Dennis J. O'Connor, Chief Financial Officer of Pharmaceutical Resources, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pharmaceutical Resources, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting; Date: August 11, 2003 /s/ Dennis J. O'Connor ----------------------- Dennis J. O'Connor Chief Financial Officer EX-32 9 exh32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION OF EXECUTIVE VICE PRESIDENT CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Pharmaceutical Resources, Inc. (the "Company") on Form 10-Q for the period ended June 29, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Scott L. Tarriff, Executive Vice President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Scott L. Tarriff - -------------------- Scott L. Tarriff Executive Vice President August 11, 2003 EX-32 10 exh32-2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Pharmaceutical Resources, Inc. (the "Company") on Form 10-Q for the period ended June 29, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis J. O'Connor, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Dennis J. O'Connor - ---------------------- Dennis J. O'Connor Chief Financial Officer August 11, 2003 -----END PRIVACY-ENHANCED MESSAGE-----