-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FfTTKtxzShjTCAib1/+/jKqJuXMkCCnZQ6Ome9ODHgmDaF3Iq3O2aCTvdsIwpoDG H7GHkudbZ4/NRwMol7t5BQ== 0000950130-95-000950.txt : 19950530 0000950130-95-000950.hdr.sgml : 19950530 ACCESSION NUMBER: 0000950130-95-000950 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19950501 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950512 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACEUTICAL RESOURCES INC CENTRAL INDEX KEY: 0000878088 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 223122182 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10827 FILM NUMBER: 95537503 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 ROAD CITY: SPRING VALLEY STATE: NY ZIP: 10977 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): May 1, 1995 PHARMACEUTICAL RESOURCES, INC. (Exact name of registrant as specified in its charter) NEW JERSEY FILE NUMBER 1-10827 22-3122182 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation or organization) Identification No.) ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK 10977 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (914) 425-7100 TOTAL NUMBER OF PAGES -- 136 EXHIBIT INDEX IS LOCATED ON PAGE 4 ITEM 5. OTHER EVENTS. - - - - ------ ------------ Stock Purchase Agreement. ------------------------- On May 1, 1995 (the "Closing"), the Registrant sold to Clal Pharmaceutical Industries Ltd., an Israeli corporation ("Clal"), 2,027,272 shares of common stock, $.01 par value per share (the "Shares"), of the Registrant ("Common Stock") representing approximately 12% of the issued and outstanding Common Stock. In addition, the Company issued to Clal at the Closing a Warrant to purchase 936,282 shares of Common Stock (the "Warrant"). The Shares and the Warrant were issued pursuant to a Stock Purchase Agreement, dated March 25, 1995 (the "Agreement"), with Clal, which Agreement was amended on May 1, 1995 (the "Amendment"). The following is a description of certain terms of the Agreement, the Amendment, the Warrant and the Registration Rights Agreement. Such documents are attached hereto as Exhibit 10.1, 10.2, 10.3 and 10.4, respectively. The following descriptions of the terms of such documents do not purport to be complete and are qualified in their entirety by reference to such Exhibits. The Warrant provides for an exercise price of $10 per share for the first year and $11 per share for the next two years, with an increase in such exercise prices of $1 per share in the event of the issuance of the Additional Warrant described below. The Warrant expires on May 1, 1998, subject to earlier termination or redemption upon the occurrence of certain events as specified in the Warrant. Under the Agreement, the Registrant will issue to Clal an additional warrant to purchase shares of Common Stock (the "Additional Warrant") if the Registrant obtains the approval of its shareholders. The Additional Warrant will have the same terms as the Warrant. The issuance of the Additional Warrant is intended to allow Clal to purchase an additional number of shares of Common Stock (approximately 740,000 shares) which, when added to the shares of Common Stock owned by Clal at the time of issuance of the Additional Warrant and the shares of Common Stock issuable upon exercise of the Warrant, would represent 19.99% of the Common Stock issued and outstanding as of the date of issuance of the Additional Warrant (including, for this purpose, the shares of Common Stock covered by the Warrant and the Additional Warrant). Under the Agreement, Clal has the right to designate one-seventh of the members of the Registrant's board of directors as long as Clal owns 8% of the issued and outstanding Common Stock. Clal also has the right to designate a total of two-sevenths of the members of the Registrant's board of directors if Clal owns at least 14% (or, upon issuance of the Additional Warrant, 16%) of the issued and outstanding Common Stock. In addition, Clal has the right to designate a senior member of the Registrant's management. -2- Clal has a right of first refusal with respect to certain business combination transactions of the Registrant and certain sales of the assets or securities of the Registrant as more fully described in the Agreement. Such right extends for a period of 5 years from the Closing, provided that Clal, at the time of exercise of such right (i) has not sold or disposed of shares of Common Stock representing more than 2% of the Registrant's issued and outstanding Common Stock and (ii) owns, or has the right to acquire under the Warrant and the Additional Warrant, 14% (or, upon issuance of the Additional Warrant, 16%) of the issued and outstanding Common Stock. If Clal does not exercise its first refusal rights with respect to any of the above-mentioned transactions, Clal will, subject to certain exceptions, be required to vote its shares of Common Stock in favor of such transactions. Under the Agreement, the Registrant has the right to participate with Clal and certain of its affiliates in certain pharmaceutical acquisitions and transactions. In connection therewith, Clal has agreed to use reasonable efforts to cause Fine-Tech Ltd., an Israeli pharmaceutical research and development company in which Clal owns an interest, to issue 10% of its capital stock to the Registrant for $1,000,000 and to provide the Registrant with access to certain pharmaceutical compounds developed by Fine-Tech Ltd. Clal has agreed to limit acquisitions, including under the Warrant and the Additional Warrant, of the Registrant's securities to 19.99% of the issued and outstanding Common Stock prior to the third anniversary of the Closing. In addition, Clal has agreed to limit such acquisitions to 25% of the issued and outstanding Common Stock after the third anniversary of the Closing. Clal will have the right to tender for or purchase no less than 70% of the issued and outstanding Common Stock after the fifth anniversary of the Closing. These limitations expire six months following the date of expiration of Clal's right of first refusal as described above (the "Restrictive Period"). Clal also has the right to acquire up to 20% of any equity securities issued by the Registrant in an underwritten public offering so long as Clal, at the time, owns 10% of the issued and outstanding Common Stock (assuming, for this purpose, the full exercise of the Warrant and the Additional Warrant). In connection with the Agreement, the Registrant granted to Clal certain demand and piggy-back registration rights with respect to the shares of Common Stock owned by Clal under the Registration Rights Agreement between the Registrant and Clal. During the Restrictive Period, Clal has agreed to limit any sales of Common Stock to any one person or entity or group of related persons or entities in any transaction or series of related transactions to no more than 3% of the issued and outstanding Common Stock. -3- Joint Venture Agreements. ------------------------- The Registrant and Clal formed a joint venture at the Closing for the research and development of generic pharmaceutical products. The joint venture, organized as an Israeli limited partnership under the name of Clal Pharmaceutical Resources Limited Partnership, and is owned 51% by Clal and 49% by the Registrant. The parties have contributed $4 million to the joint venture, and have agreed to contribute an additional $11 million over the next two years. The joint venture's facilities will be primarily located in Israel. Both Clal and the Registrant have certain manufacturing, sales and distribution rights with respect to products developed by the joint venture and by each other. Attached hereto as Exhibits 10.5, 10.6, 10.7, 10.8 and 10.9 are agreements concerning the formation and operation of the joint venture. The foregoing description of the terms of the joint venture agreements does not purport to be complete and is qualified in its entirety by reference to such Exhibits. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. - - - - ------ --------------------------------- (c) Exhibits. 10.1 Stock Purchase Agreement, dated March 25, 1995, between the Registrant and Clal Pharmaceutical Industries Ltd. 10.2 Amendment No. 1 to Stock Purchase Agreement, dated May 1, 1995, between the Registrant and Clal Pharmaceutical Industries Ltd. 10.3 Warrant to Purchase Common Stock, dated May 1, 1995, delivered by the Registrant to Clal Pharmaceutical Industries Ltd. 10.4 Registration Rights Agreement, dated May 1, 1995, between the Registrant and Clal Pharmaceutical Industries Ltd. 10.5 Clal Pharmaceutical Resources L.P. Limited Partnership Agreement, dated as of May 1, 1995, among PRI-Research, Inc., C.T.P. Research and Development (1995) Ltd. and Clal Pharmaceutical Resources (1995) Ltd. 10.6 Clal Pharmaceutical Resources (1995) Ltd. Stockholders Agreement, dated May 1, 1995, among PRI Research, Inc., C.T.P. Research and Development (1995) Ltd. and Clal Pharmaceutical Resources Ltd. -4- 10.7 Supplemental Agreement, dated as of May 1, 1995, among the Registrant, Clal Pharmaceutical Industries Ltd. and Clal Pharmaceutical Resources L.P. 10.8 Guarantee of the Registrant, dated May 1, 1995. 10.9 Guarantee of Clal Pharmaceutical Industries Ltd., dated May 1, 1995. -5- SIGNATURES 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) May 12, 1995 /s/ Robert I. Edinger ------------------------------- Robert I. Edinger Vice President and Chief Officer -6- Exhibit Index
Exhibit No. Description Seq. Page No. - - - - -------------------------- --------------------------------- ------------- 10.1 Stock Purchase Agreement, 9 dated March 25, 1995, between the Registrant and Clal Pharmaceutical Industries Ltd. 10.2 Amendment No. 1 to Stock 48 Purchase Agreement, dated May 1, 1995, between the Registrant and Clal Pharmaceutical Industries Ltd. 10.3 Warrant to Purchase Common 50 Stock, dated May 1, 1995, delivered by the Registrant to Clal Pharmaceutical Industries Ltd. 10.4 Registration Rights Agreement, 59 dated May 1, 1995, between the Registrant and Clal Pharmaceutical Industries Ltd. 10.5 Clal Pharmaceutical Resources 70 L.P. Limited Partnership Agreement, dated as of May 1, 1995, among PRI-Research, Inc., C.T.P. Research and Development (1995) Ltd. and Clal Pharmaceutical Resources (1995) Ltd. 10.6 Clal Pharmaceutical Resources 100 (1995) Ltd. Stockholders Agreement, dated May 1, 1995, among PRI-Research, Inc., C.T.P. Research and Development (1995) Ltd. and Clal Pharmaceutical Resources Ltd. 10.7 Supplemental Agreement, dated 114 as of May 1, 1995, among the Registrant, Clal Pharmaceutical Industries Ltd. and Clal Pharmaceutical Resources L.P. 10.8 Guarantee of the Registrant, 134 dated May 1, 1995.
Exhibit No. Description Seq. Page No. - - - - -------------------------- --------------------------------- ------------- 10.9 Guarantee of Clal 135 Pharmaceutical Industries Ltd., dated May 1, 1995
EX-10.1 2 STOCK PURCHASE AGREEMENT Exhibit 10.1 CONFORMED COPY ================================================================================ STOCK PURCHASE AGREEMENT BETWEEN PHARMACEUTICAL RESOURCES, INC. AND CLAL PHARMACEUTICAL INDUSTRIES LTD. ================================================================================ MARCH 25, 1995 TABLE OF CONTENTS SECTION 1. Closing Transactions......................... 1 1.1 Purchase and Sale of Shares.................... 1 1.2 The Closing.................................... 1 1.3 Closing Transactions........................... 1 SECTION 2. Representations and Warranties of the Company 3 2.1 Organization................................... 3 2.2 Authorization; No Conflicts.................... 3 2.3 Noncontravention............................... 3 2.4 Authorization of Shares........................ 3 2.5 Capitalization................................. 4 2.6 Reports Under Exchange Act..................... 4 2.7 No Brokers or Finders.......................... 4 2.8 Governmental Authorizations; Third Party Con- sents.......................................... 4 2.9 Disclosure..................................... 5 2.10 Financial Statements........................... 5 2.11 Absence of Material Changes.................... 5 2.12 Net Operating Losses........................... 6 2.13 Rights Agreement............................... 6 SECTION 3. Representations and Warranties of the Purchaser 6 3.1 Organization................................... 6 3.2 Authorization; No Conflicts.................... 6 3.3 Noncontravention............................... 7 3.4 No Brokers or Finders.......................... 7 3.5 Governmental Authorizations; Third Party Con- sents.......................................... 7 3.6 Investment Representation...................... 7 3.7 Disclosure..................................... 8 SECTION 4. Conditions to the Company's Obligations...... 8 4.1 Representations and Warranties................. 8 4.2 Performance of Obligations..................... 8 4.3 Opinion of Counsel............................. 9 4.4 No Litigation or Legislation................... 9 4.5 HSR Act........................................ 9 4.6 Clal Industries Ltd. Letter.................... 9 4.7 Purchase Price and Other Closing Deliveries.... 9 SECTION 5. Conditions to the Purchaser's Obligations.... 9 5.1 Representations and Warranties................. 9 5.2 Performance of Obligations..................... 10 5.3 Opinion of Counsel............................. 10 5.4 No Litigation or Legislation................... 10 5.5 HSR Act........................................ 10 5.6 FDA Acknowledgement............................ 10 5.7 No Material Adverse Change..................... 10 5.8 ISRA........................................... 11 5.9 Conduct of Business Prior to Closing........... 11 5.10 Closing Deliveries............................. 11 SECTION 6. Covenants of the Parties..................... 11 6.1 Hart-Scott-Rodino Notification................. 11 6.2 Confidentiality................................ 12 6.3 Publicity...................................... 12 6.4 Further Assurances............................. 13 SECTION 7. Covenants of the Company..................... 13 7.1 Exchange Act Filings........................... 13 7.2 Board Representation........................... 13 7.3 Appointment of Employee........................ 15 7.4 Furman Selz Fee................................ 16 7.5 Environmental Matters.......................... 16 7.6 Notice of Certain Events....................... 16 7.7 Additional Warrant............................. 16 7.8 Quad Pharmaceuticals, Inc...................... 17 7.9 Other Agreements............................... 17 SECTION 8. Covenants of the Purchaser................... 17 8.1 Fine-Tech Agreement............................ 17 8.2 Other Agreements............................... 18 SECTION 9. Company's Participation in Purchaser's Opportunities................................ 18 9.1 Company's Right of Participation............... 18 9.2 Pharmaceutical Opportunities................... 19 9.3 Tag Along...................................... 20 9.4 Purchaser's Financing of Co-Investments........ 20 SECTION 10. Third Party Transactions.................... 20 10.1 Right of First Refusal......................... 20 10.2 Purchaser's Voting Obligations................. 22 SECTION 11. Acquisitions and Dispositions of Securities. 23 11.1 Limitations on Dispositions of Securities...... 23 11.2 Limitations on Acquisitions of the Company's Securities..................................... 24 11.3 Public Offerings............................... 25 11.4 Standstill..................................... 25 SECTION 12. Exchanges; Lost, Stolen or Mutilated Certificates................................ 26 SECTION 13. Survival of Representations, Warranties and Agreements.............................. 26 SECTION 14. Disclosure of Documents..................... 27 SECTION 15. Indemnification............................. 27 15.1 Indemnitors; Indemnified Persons............... 27 15.2 Company Indemnity.............................. 27 15.3 Purchaser Indemnity............................ 28 15.4 Defense........................................ 29 -ii- SECTION 16. Miscellaneous............................... 30 16.1 Expenses....................................... 30 16.2 Assignment..................................... 30 16.3 Entire Agreement............................... 30 16.4 Notices........................................ 30 16.5 Amendments; Waiver............................. 31 16.6 Counterparts................................... 31 16.7 Headings....................................... 31 16.8 Governing Law.................................. 31 16.9 Severability................................... 31 16.10 Consent to Jurisdiction....................... 31 16.11 Termination................................... 32 -iii- STOCK PURCHASE AGREEMENT, dated March 25, 1995, between PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the "Company"), and CLAL PHARMACEUTICAL INDUSTRIES LTD., a corporation formed under the laws of the State of Israel (the "Purchaser"). WHEREAS, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase, a total of 2,027,272 shares (the "Shares") of its common stock, par value $.01 per share ("Common Stock"); WHEREAS, the Company and the Purchaser, incident to the purchase of the Shares, desire to form a pharmaceutical alliance for the development of new drugs and generic drugs through the formation of a joint venture as more fully described herein; WHEREAS, the Company desires to participate or invest in certain pharmaceutical opportunities in which the Purchaser has or proposes to have an investment as more fully described herein; and WHEREAS, the Company and the Purchaser desire to set forth their mutual agreements with respect to the sale and purchase of the Shares and as to such other matters as set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual agreements set forth herein, the parties hereto agree as follows: SECTION 1. Closing Transactions. -------------------- 1.1 Purchase and Sale of Shares. At the Closing (as defined in --------------------------- Section 1.2 hereof), the Company shall sell to the Purchaser, and the Purchaser shall purchase from the Company, upon the terms and subject to the conditions hereinafter set forth, the Shares, for an aggregate cash purchase price of $20,000,000. 1.2 The Closing. The closing of the transactions contemplated by ----------- this Agreement (the "Closing") shall take place at the offices of Hertzog, Calamari & Gleason, 100 Park Avenue, New York, New York, at 10:00 A.M. on April 26, 1995, or such later date on which the conditions set forth in Sections 4 and 5 hereof shall have been satisfied or waived (the "Closing Date"); provided, -------- however, that the Closing, in no event, shall occur later than June 1, 1995. - - - - ------- 1.3 Closing Transactions. (a) At the Closing, the Company shall -------------------- deliver to the Purchaser: (i) a stock certificate representing the Shares, registered in the name of the Purchaser on the Com- 2 pany's books and containing no legends other than as set forth in Section 11.1(d) below or as required under the Company's shareholder rights plan; (ii) a warrant to acquire such number of shares of Common Stock as would result in the Purchaser, after giving effect to the exercise, in full, of such warrant and the purchase of the Shares, holding 19.99% of the Common Stock issued and outstanding immediately prior to the issuance of such warrant (the "Warrant Shares"), duly executed by the Company, substantially in the form annexed hereto as Exhibit A (the "Warrant"); (iii) a registration rights agreement, duly executed by the Company, substantially in the form annexed hereto as Exhibit B (the "Registration Rights Agreement"); (iv) a joint venture agreement substantially in accordance with the terms and conditions set forth in the term sheet annexed hereto as Exhibit C, duly executed by the Company or a wholly-owned subsidiary of the Company (the "Joint Venture Agreement"); (v) the certificates of officers of the Company referred to in Sections 5.1, 5.2 and 5.9 hereof; and (vi) an opinion of counsel referred to in Section 5.3 hereof. (b) At the Closing, the Purchaser shall deliver to the Company: (i) the purchase price of $20,000,000, in the form of a wire transfer of immediately available funds to an account designated by the Company at least five days prior to the Closing Date; (ii) the Registration Rights Agreement, duly executed by the Purchaser; (iii) the Joint Venture Agreement, duly executed by the Purchaser or a wholly-owned subsidiary of the Purchaser; (iv) the certificates of officers of the Company referred to in Sections 4.1 and 4.2 hereof; 3 (v) the opinions of counsel referred to in Section 4.3 hereof; and (vi) the letter agreement addressed to the Company referred to in Section 4.6 hereof. SECTION 2. Representations and Warranties of the Company. The --------------------------------------------- Company hereby represents and warrants to the Purchaser as follows: 2.1 Organization. The Company is a corporation duly organized, ------------ validly existing and in good standing under the laws of the State of New Jersey. The Company has all necessary corporate power and authority to own or lease its properties and to conduct its business as now being conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the property owned, leased or operated by it, or the nature of the business conducted by it, requires such qualification under applicable law, except where the failure to be so qualified would not be materially adverse to the Company or the Company's business. 2.2 Authorization; No Conflicts. The execution, delivery and --------------------------- performance by the Company of this Agreement, the other agreements referred to herein and the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action by the Company. This Agreement constitutes, and each other agreement referred to herein, upon execution and delivery, will constitute, a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 2.3 Noncontravention. Neither the execution, delivery and ---------------- performance of this Agreement and the other agreements referred to herein nor the consummation of the transactions contemplated hereby or thereby will violate or be in conflict with any provision of the certificate of incorporation or by-laws of the Company, or violate or be in conflict with or require any consent under any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which the Company is a party, or violate or be in conflict with any law, judgment, decree, order, regulation or ordinance by which the Company is bound or affected, or result in the creation or imposition of any liens, charges or encumbrances in favor of any third party upon any property or assets of the Company. 2.4 Authorization of Shares. All corporate action necessary for ----------------------- the issuance, sale and delivery of the Shares has been taken by the Company, and, when issued and 4 delivered, the Shares will be validly issued, fully paid and nonassessable, free and clear of any and all liens, pledges, claims or other encumbrances ("Liens"). The Warrant Shares and, subject to the approval by the requisite number of the Company's shareholders of the Proposal (as defined in Section 7.7(b) hereof), the Additional Warrant Shares (as defined in Section 7.7(a) hereof) have been duly and validly authorized for issuance and, when issued upon payment in full of the exercise price for such Shares pursuant to the Warrant and the Additional Warrant (as defined in Section 7.7(a) hereof), will be validly issued, fully paid and nonassessable, free and clear of any and all Liens. 2.5 Capitalization. The authorized capital stock of the Company -------------- consists of 60,000,000 shares of Common Stock, of which 14,711,858 are issued and outstanding as of the date hereof and 6,000,000 shares of preferred stock, par value $.0001 per share, of which 997,252 shares of Series A Convertible Preferred Stock (the "Preferred Stock") are issued and are outstanding as of the date hereof. All outstanding shares of Common Stock and Preferred Stock have been duly and validly issued and are fully paid and nonassessable. There are no outstanding options, warrants, or rights to subscribe for, or to purchase, or commitments to issue, any shares of capital stock of the Company, except as set forth in Schedule 2.5 hereto. 2.6 Reports Under Exchange Act. During the period that the -------------------------- Company has been subject to the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), the Company has filed with the Securities and Exchange Commission (the "SEC") all reports required to be filed by the Company pursuant to the Exchange Act. The Common Stock is registered under Section 12(b) of the Exchange Act. 2.7 No Brokers or Finders. No person, firm or corporation has --------------------- or will have, as a result of any act or omission by the Company, any right, interest or valid claim against the Purchaser for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement. 2.8 Governmental Authorizations; Third Party Consents. No ------------------------------------------------- approval, consent, authorization or other action by, or notice to or filing with, any governmental authority or any other entity, and no lapse of a waiting period, is necessary or required in connection with the execution, delivery or performance by the Company, or enforcement against the Company, of this Agreement, the other agreements referred to herein or the transactions contemplated hereby 5 or thereby, except for (i) such filings or approvals required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations promulgated thereunder (the "HSR Act"), (ii) such filings or approvals required to be obtained in connection with the formation and operation of the Joint Venture, (iii) the approval of the Proposal by the requisite number of the Company's shareholders and (iv) such filings or approvals required to list the Shares, Warrant Shares and Additional Warrant Shares with the New York Stock Exchange and the Pacific Stock Exchange. 2.9 Disclosure. No statement of the Company contained in any ---------- document, certificate or other writing furnished to the Purchaser in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make any of the statements made therein, in light of the circumstances in which they were made, not misleading. No representation or warranty is made herein with respect to any business or financial projections of the Company furnished to the Purchaser or with respect to the business plan of the Joint Venture (as defined in the Joint Venture Agreement). No business or financial projections are contained in any report of the Company filed with the SEC since April 1, 1991. 2.10 Financial Statements. The audited financial statements of -------------------- the Company included in the Company's Annual Report on Form 10-K as of and for the fiscal year ended October 1, 1994 (the "Audited Statements"), and the unaudited financial statements of the Company included in the Company's Quarterly Report on Form 10-Q as of and for the quarter ending December 31, 1994 (the "Unaudited Statements"), were prepared in accordance with generally accepted accounting principles, consistently applied, except (a) as disclosed in the footnotes thereof, (b) for adjustments related to Statement of Financial Accounting Standards No. 109 and (c) in the case of the Unaudited Statements, for audit adjustments and the absence of notes. The Audited Statements and the Unaudited Statements fairly present, in all material respects, the consolidated financial condition and the consolidated results of operations of the Company as of and for the periods indicated. 2.11 Absence of Material Changes. Since October 1, 1994, the --------------------------- business of the Company and its consolidated subsidiaries has been operated in the ordinary course and substantially consistent with past practice, and there has been no material adverse change in the condition (financial 6 or otherwise) or operations of the Company or its subsidiaries, considered as a whole. 2.12 Net Operating Losses. There has been no "ownership change" -------------------- within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, affecting the Company's ability to use the net operating loss carryforwards described in the notes to the Audited Statements (the "NOLs"), and the purchase of the Shares at the Closing and the exercise of the Warrant or the Additional Warrant, assuming they were issued and exercised at the Closing, will not cause such "ownership change" or any limitation on the NOLs. 2.13 Rights Agreement. The Company and the Midlantic Bank, NA, ---------------- have each executed and delivered an amendment to the Rights Agreement, dated August 6, 1991, between them exempting from operation under the Rights Agreement acquisitions of and tender offers for shares of Common Stock permitted under this Agreement. Such amendment is in full force and effect and constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms. SECTION 3. Representations and Warranties of the Purchaser. The ----------------------------------------------- Purchaser represents and warrants to the Company as follows: 3.1 Organization. The Purchaser is a corporation duly organized ------------ and validly existing and in good standing under the laws of the State of Israel. The Purchaser has all necessary corporate power and authority to own or lease its properties and to conduct its business as now being conducted. The Purchaser is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the property owned, leased or operated by it, or the nature of the business conducted by it, requires such qualification under applicable law, except where the failure to be so qualified would not be materially adverse to the Purchaser or the Purchaser's business. 3.2 Authorization; No Conflicts. The execution, delivery and --------------------------- performance by the Purchaser of this Agreement, the other agreements referred to herein and the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action by the Purchaser. This Agreement constitutes, and each other agreement referred to herein, upon execution and delivery, will constitute, a valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms. 7 3.3 Noncontravention. Neither the execution, delivery and ---------------- performance of this Agreement and the other agreements referred to herein nor the consummation of the transactions contemplated hereby or thereby will violate or be in conflict with any provision of the certificate of incorporation or articles of organization and by-laws of the Purchaser, or violate, be in conflict with or require any consent under any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which the Purchaser is a party, or violate or be in conflict with any law, judgment, decree, order, regulation or ordinance by which the Purchaser is bound or affected, or result in the creation or imposition of any liens, charges or encumbrances in favor of any third party upon any property or assets of the Purchaser. 3.4 No Brokers or Finders. No person, firm or corporation has --------------------- or will have, as a result of any act or omission by the Purchaser, any right, interest or valid claim against the Company for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement. 3.5 Governmental Authorizations; Third Party Consents. No ------------------------------------------------- approval, consent, authorization or other action by, or notice to or filing with, any governmental authority or any other entity, and no lapse of a waiting period, is necessary or required in connection with the execution, delivery or performance by the Purchaser, or enforcement against the Purchaser, of this Agreement, the other agreements referred to herein or the transactions contemplated hereby or thereby, except for such filings or approvals required (a) pursuant to the HSR Act, (b) to be obtained in connection with the formation and operation of the Joint Venture and (c) to be obtained from the Bank of Israel authorizing the exchange of New Israeli Shekels for United States Dollars and the transfer of such funds for investment in the United States. 3.6 Investment Representations. (a) The Purchaser is acquiring -------------------------- the Shares, and, upon exercise of the Warrant and the Additional Warrant, will be acquiring the Warrant Shares and Additional Warrant Shares, for its own account, for investment and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act of 1933 (the "Securities Act"). The Purchaser is an "accredited investor" (as defined in Rule 501(a) of Regulation D promulgated under the Securities Act). 8 (b) The Purchaser understands that (i) the Shares have not been registered, and the Warrant Shares and Additional Warrant Shares, when issued, will not be registered, under the Securities Act or applicable state securities laws, by reason of their issuance by the Company in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws and (ii) the Shares, Warrant Shares and Additional Warrant Shares must be held by the Purchaser indefinitely unless a subsequent disposition thereof is registered under the Securities Act or applicable state securities laws or is exempt from such registration. (c) No oral representations have been made or furnished to, or relied on by, the Purchaser or its representatives in connection with an investment in the Shares. The Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the risks and merits of this investment. 3.7 Disclosure. No statement of the Purchaser contained in any ---------- document, certificate or other writing furnished to the Company in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make any of the statements made therein, in light of the circumstances in which they were made, not misleading. No representation or warranty is made herein with respect to any business or financial projections furnished by the Purchaser to the Company or with respect to the business plan of the Joint Venture. SECTION 4. Conditions to the Company's Obligations. --------------------------------------- The obligations of the Company to consummate the transactions contemplated hereby shall be subject to the satisfaction, or waiver by the Company, at or prior to the Closing, of all the following conditions: 4.1 Representations and Warranties. The representations and ------------------------------ warranties of the Purchaser set forth in this Agreement shall be true and correct in all material respects on and as of the date hereof and on and as of the Closing Date (with the same effect as though such representations and warranties had been made on and as of such Date), and the President of the Purchaser shall have certified to such effect to the Company in writing. 4.2 Performance of Obligations. The Purchaser shall have -------------------------- performed, satisfied and complied with all 9 covenants, agreements and conditions required by this Agreement to be performed or complied with by it on or before the Closing Date, and the President of the Purchaser shall have certified to such effect to the Company in writing. 4.3 Opinion of Counsel. The Company shall have received from ------------------ Ken Lalo, in-house counsel to the Purchaser, and Proskauer Rose Goetz & Mendelsohn LLP, counsel for the Purchaser, opinions addressed to the Company, dated the Closing Date, in form and substance satisfactory to the Company. 4.4 No Litigation or Legislation. No Federal, state, local or ---------------------------- foreign statute, rule or regulation shall have been enacted after the date hereof, and no litigation, proceeding, government inquiry or investigation shall be pending, which prohibits or seeks to prohibit or materially restricts the consummation of the transactions contemplated by this Agreement or the other agreements specified herein, or materially restricts or impairs the ability of the Purchaser to own an equity interest in the Company. 4.5 HSR Act. All applicable waiting periods under the HSR Act ------- shall have expired or been terminated with respect to the transactions contemplated by this Agreement and by the Joint Venture Agreement. 4.6 Clal Industries Ltd. Letter. Clal Industries Ltd. ("CIL") --------------------------- shall have delivered a letter to the Company, in form and substance reasonably satisfactory to the Company, pursuant to which CIL, together with its wholly-owned subsidiaries, agree to be bound by the covenants contained in Sections 6.2, 6.3, 8.1(b), 9.1, 9.2, 9.3, 11.1, 11.2 and 11.4 hereof as if they were named as the Purchaser herein. 4.7 Purchase Price and Other Closing Deliveries. The Purchaser ------------------------------------------- shall have paid the purchase price and delivered the other agreements, instruments and certificates specified in Section 1.3(b) of this Agreement. SECTION 5. Conditions to the Purchaser's Obligations. ----------------------------------------- The obligations of the Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction, or waiver by the Purchaser, at or prior to the Closing, of all the following conditions: 5.1 Representations and Warranties. The representations and ------------------------------ warranties of the Company set forth in this 10 Agreement shall be true and correct in all material respects on and as of the date hereof and on and as of the Closing Date (with the same effect as though such representations and warranties had been made on and as of such Date), and the President of the Company shall have certified to such effect to the Purchaser in writing. 5.2 Performance of Obligations. The Company shall have -------------------------- performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed or complied with by it on or before the Closing Date, and the President of the Company shall have certified to such effect to the Purchaser in writing. 5.3 Opinion of Counsel. The Purchaser shall have received from ------------------ Hertzog, Calamari & Gleason, counsel for the Company, an opinion addressed to the Purchaser, dated the Closing Date, in form and substance satisfactory to the Purchaser. 5.4 No Litigation or Legislation. No Federal, state, local or ---------------------------- foreign statute, rule or regulation shall have been enacted after the date hereof, and no litigation, proceeding, government inquiry or investigation shall be pending, which prohibits or seeks to prohibit or materially restricts the consummation of the transactions contemplated by this Agreement or the other agreements specified herein, or materially restricts or impairs the ability of the Purchaser to own an equity interest in the Company. 5.5 HSR Act. All applicable waiting periods under the HSR Act ------- shall have expired or been terminated with respect to the transactions contemplated by this Agreement and by the Joint Venture Agreement. 5.6 FDA Acknowledgement. The Purchaser shall have received ------------------- written acknowledgement or confirmation from the United States Food and Drug Administration (the "FDA") that Par Pharmaceutical, Inc. ("Par"), a wholly-owned subsidiary of the Company, will no longer be under any impediment from submitting and receiving approval for New Drug Applications and Abbreviated New Drug Applications for drug and generic drug products. 5.7 No Material Adverse Change. There shall not have been a -------------------------- material adverse change in the condition (financial or otherwise) or operations of the Company or its subsidiaries, considered as a whole, since the date of this Agreement. 11 5.8 ISRA. The Company shall have delivered to the Purchaser ---- evidence of the Company's having obtained an ISRA Clearance (as defined in Section 7.5 hereof). 5.9 Conduct of Business Prior to Closing. From and after the ------------------------------------ date hereof to the Closing Date, neither the Company nor its subsidiaries (a) shall have conducted their respective businesses other than in the ordinary course, except as contemplated by this Agreement; (b) shall have amended its charter or by-laws; (c) shall have sold, mortgaged, pledged or otherwise disposed of any material assets or properties owned or used in the operation of their respective businesses, except for the sale of inventory and disposition of obsolete equipment in the ordinary course of business; (d) shall have dissolved or merged or consolidated with, or agreed to dissolve or merge or consolidate with, or purchased or agreed to purchase all or substantially all of the assets of, or otherwise acquire, any other business entity; or (e) shall have authorized for issuance, issued or sold any additional shares of its capital stock or any securities or obligations convertible into shares of its capital stock or issued or granted any option, warrant or other right to purchase any shares of its capital stock, except for the (i) issuance or granting of capital stock, options, warrants or rights under the Company's existing stock option or stock purchase plans listed on Schedule 2.5 and (ii) the issuance or sale of capital stock pursuant to the exercise or conversion of convertible securities, options or rights outstanding on the date hereof or pursuant to the exercise of any options, warrants or rights granted after the date hereof under the Company's stock option or stock purchase plans listed on Schedule 2.5. The President of the Company shall have certified in writing to the Purchaser at the Closing that the conditions set forth in this Section 5.9 have been satisfied. 5.10 Closing Deliveries. The Company shall have delivered the ------------------ agreements, instruments and certificates specified in Section 1.3(a) of this Agreement. SECTION 6. Covenants of the Parties. ------------------------ The Company and the Purchaser hereby agree as follows: 6.1 Hart-Scott-Rodino Notification. As soon as practicable ------------------------------ after the execution of this Agreement, the Company and the Purchaser will each file, or cause to be filed, with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice, pursuant to the HSR Act, the notifications and documentary materials required in connection with the transactions contemplated by 12 this Agreement and by the Joint Venture Agreement. Thereafter, the Company and the Purchaser will promptly file any additional information requested as soon as practicable after receipt of a request for additional information and will use reasonable efforts to obtain early termination of the applicable waiting period under the HSR Act. The Company and the Purchaser will coordinate and cooperate with each other in exchanging such information and providing such reasonable assistance as may be requested in connection with such filings. 6.2 Confidentiality. All information to which access is given --------------- or furnished by one party to another in connection with this Agreement, the other agreements referred to herein and the transactions contemplated hereby and thereby will be kept confidential by each such party and will be used only in connection with this Agreement, such other agreements and the transactions contemplated hereby and thereby; provided, however, that the -------- ------- foregoing shall not apply to any information that (a) shall be publicly available as of the date hereof, (b) shall become publicly available other than as a result of prohibited disclosure by such party, (c) shall be disclosed to such party by any person or entity that is not known to such party to be subject to any confidentiality restrictions imposed by the other party or (d) shall be required to be disclosed by law, the applicable rules of any stock exchange or by order of any court of competent jurisdiction. This covenant shall survive the Closing or any termination of this Agreement. Without limiting the foregoing, the Purchaser shall not disclose and shall use reasonable efforts to cause its Affiliates (as defined in Section 8.1(b) hereof) to not disclose any such confidential information to any person or entity that is not an Affiliate or a director or officer of such Affiliate. 6.3 Publicity. The Company and the Purchaser shall consult with --------- each other, to the extent practicable, as to the form and substance of any press releases and other third party communications or disclosures relating to this Agreement, the other agreements referred to herein or any of the transactions contemplated hereby or thereby. No party shall be prohibited from issuing or filing any press release or other third party communication or disclosure which, upon advice of its legal counsel, shall be deemed necessary or required under applicable law or the applicable rules of any stock exchange, provided that such party shall have first consulted with the other party as to the form and content of such disclosure. This covenant shall survive the Closing or any termination of this Agreement. 13 6.4 Further Assurances. Upon reasonable request of a party and ------------------ without further consideration, the other party, whether prior to or after the Closing, shall execute, acknowledge and deliver all such other instruments and documents, and shall take all such other actions, as may be reasonably requested for the purpose of effecting and evidencing the consummation of the transactions contemplated under this Agreement and the other agreements referred to herein. SECTION 7. Covenants of the Company. ------------------------ The Company hereby covenants as follows: 7.1 Exchange Act Filings. The Company shall use its best -------------------- efforts to file in a timely manner all reports required to be filed by it with the SEC under the Exchange Act, and, promptly upon filing, deliver copies of such reports to the Purchaser. 7.2 Board Representation. (a) Subject to the conditions set -------------------- forth herein, the Company shall nominate, and use its best efforts to cause the election of, certain persons designated by the Purchaser after the Closing to serve as directors on the Board of Directors of the Company such that: (i) one-seventh of the members of the Board shall be comprised of the Purchaser's representatives at all times during which Purchaser shall own at least 8% of the outstanding shares of Common Stock; and (ii) two-sevenths of the members of the Board shall be comprised of the Purchaser's representatives at all times during which the Purchaser shall own at least 14% (subject to Section 7.7(b) hereof) of the outstanding shares of Common Stock. Notwithstanding anything to the contrary contained herein, each representative designated by the Purchaser shall be nominated to serve on the Board of Directors unless such representative shall not be satisfactory to the Company for good faith reasons. (b) The representatives designated by Purchaser hereunder shall be nominated by the Company to serve on its Board of Directors as soon as practicable after such designation. If there shall be no vacancies on such Board at the time of the Purchaser's designation, the Company shall nominate such representatives for election at the next meeting of the Company's stockholders held for the election of directors. Any director designated by the Purchaser 14 shall serve subject to the terms of the Company's Certificate of Incorporation and By-laws and subject to the provisions of applicable law. (c) In addition to the foregoing, the Company shall appoint one of the directors designated by the Purchaser as a member of the compensation and stock option committee, the audit committee and the strategic planning committee of the Company. (d) At such time as the Purchaser shall own less than 8% of the issued and outstanding shares of Common Stock, the Purchaser shall obtain the resignation from the Board of each director designated by the Purchaser who shall be serving on the Board at such time. At such time as the Purchaser shall own less than 14% but more than 8% of the issued and outstanding shares of Common Stock and if the Purchaser has designated representatives then constituting two-sevenths of the members of the Board, the Purchaser shall obtain the resignation from the member of the Board designated by the Purchaser comprising one-seventh of the members of the Board. (e) If the Purchaser shall be entitled to have one or more representatives serve as members of the Board pursuant to Section 7.2(a) above and either (1) such representatives shall not have yet been elected to the Board or (2) the Purchaser shall notify the Company that the provisions of this Section 7.2(e) shall apply instead of Sections 7.2(a)-(c) hereof, then: (i) the Company shall give to the Purchaser notice of each meeting of the Board or committee thereof at the same time and in the same manner as notice shall be given to the directors or committee members; (ii) a designee of the Purchaser shall be entitled to attend in person or by telephone, as an observer, all meetings held in person and to participate in all telephone meetings of the Board or any committee thereof solely for the purpose of allowing the Purchaser to have current information with respect to the affairs of the Company; (iii) the Company shall provide to the Purchaser in connection with each meeting that its designee shall be entitled to attend, whether or not present at such meeting, copies of all notices, minutes, consents and all other materials or information that the Company provides to the directors of the Company or committee members with respect to such meeting, at the same time 15 such materials and information shall be given to the directors of the Company or committee members (except that materials and information provided to directors of the Company or committee members at meetings of the Board at which a designee of the Purchaser shall not be present shall be provided to the Purchaser promptly after the meeting); (iv) if the Board or any committee thereof shall propose to take any action by written consent in lieu of a meeting, then the Company shall give written notice thereof to the Purchaser prior to the effective date of such consent describing in reasonably detail the nature and substance of such action; (v) such observer shall be bound by the confidentiality provisions set forth in Section 6.2 hereof, but such provisions shall not prohibit or restrict such observer from disclosing or providing any information of any kind whatsoever to the Purchaser; and (vi) such observer and the Purchaser shall be subject to the Company's standard policy on insider trading as applicable to members of the Board. (f) The Company shall promptly reimburse the directors or observers designated by the Purchaser for costs and expenses incurred by them in attending meetings of the Board or any committee meeting thereof. No director or observer designated by the Purchaser shall be entitled to receive director's fees or other compensation paid by the Company to its directors who are not employees of the Company. 7.3 Appointment of Employee. Subject to the conditions set forth ----------------------- herein, the Company, as soon as reasonably practicable after the Closing, shall employ a person designated by the Purchaser and reasonably satisfactory to the Company as a senior member of management of the Company involved in all aspects of the Company's business. Such employee shall report directly to the Company's chief executive officer. The Company shall not be required to employ such employee as the chief executive officer, chief financial officer, secretary or general counsel of the Company. The position of employment, authority and responsibility of such employee shall be determined by the Company, in its reasonable discretion; provided, however, that such employee's responsibilities -------- ------- and authority shall not be limited to the Joint Venture. The compensation and other terms and conditions of employment of such employee shall be determined by the Company, in its 16 reasonable discretion, and shall be comparable to other senior members of the Company's management. Notwithstanding any other terms of such employee's employment with the Company, the Company shall not be required to employ such employee unless, at the time, the Purchaser shall own at least 10% of the issued and outstanding shares of Common Stock. 7.4 Furman Selz Fee. The Company shall pay, when and if due, such --------------- fee, if any, as may be payable by the Company to Furman Selz Incorporated. 7.5 Environmental Matters. For each parcel of real property which is --------------------- owned, operated, leased or used by the Company in the State of New Jersey, the Company will comply with the obligations imposed by the New Jersey Industrial Site Recovery Act and the regulations, if any, promulgated thereunder, at or prior to the Closing by either (a) securing any of the following: (i) a letter of non-applicability from the New Jersey Department of Environmental Protection ("NJDEP"); (ii) approval by NJDEP of a negative declaration submitted by the Company; (iii) a no further action letter from NJDEP; (iv) a letter of authorization for the transfer of ownership form NJDEP; or (v) securing approval from NJDEP of a remediation agreement; or (b) filing a De Minimis Quantity -- ------- Exemption Affidavit with NJDEP (any of the items listed in (a) and (b) above being an "ISRA Clearance"). 7.6 Notice of Certain Events. During the period after the date of ------------------------ this Agreement and before the Closing, the Company shall promptly give the Purchaser notice of the occurrence of any event or action described in Section 5.9 hereof. 7.7 Additional Warrant. (a) Subject to the approval of the requisite ------------------- number of the Company's shareholders at the next annual meeting of the Company's shareholders (the "Annual Meeting"), the Company shall promptly deliver to the Purchaser a warrant to acquire such number of shares of Common Stock (the "Additional Warrant Shares") as would result in the Purchaser, after giving effect to the exercise in full of such warrant and the Warrant together with all shares of Common Stock then owned by the Purchaser, holding 19.99% of the shares of Common Stock issued and outstanding as of the date of issuance of such warrant (including, for this purpose, the Warrant Shares and the Additional Shares). Such warrant (the "Additional Warrant") shall be issued substantially in the form of the Warrant. The Additional Warrant shall have an exercise price of $11.00 per share up to the first 17 anniversary of the Closing Date and $12.00 per share thereafter until the third anniversary of the Closing Date. (b) The Company shall include in its proxy statement for the Annual Meeting, and shall recommend the approval of, a proposal to grant the Additional Warrant to the Purchaser (the "Proposal"). The Purchaser shall vote all shares of Common Stock in favor of the Proposal. If the requisite number of shareholders of the Company shall approve the Proposal, then (i) the exercise price of the Warrant shall be automatically increased to $11.00 per share up to the first anniversary of the Closing Date and $12.00 per share thereafter until the third anniversary of the Closing Date and (ii) all references to "14%" in this Agreement shall be automatically amended and replaced with "16%". (c) The Company shall give the Purchaser written notice not less than 10 days prior to the filing with the SEC of the preliminary proxy statement for the Annual Meeting to allow the Purchaser to designate a director for inclusion in such proxy statement, subject to Section 7.2 hereof. The Company shall have no obligation to include such designee in the proxy statement unless the Company receives written notice from the Purchaser not later than 5 days after the Company's notice to the Purchaser. 7.8 Quad Pharmaceuticals, Inc. The Company and its subsidiaries -------------------------- shall not effect any dissolution or liquidation of Quad Pharmaceuticals, Inc. ("Quad"), or a merger of Quad with or into the Company or its subsidiaries, for a period of 5 years after the Closing without the written consent of the Purchaser. 7.9 Other Agreements. At the Closing, upon satisfaction of the ---------------- conditions set forth in Section 4 hereof, the Company shall execute and deliver the agreements, instruments and certificates specified in Section 1.3(a) of this Agreement. SECTION 8. Covenants of the Purchaser. -------------------------- The Purchaser hereby covenants as follows: 8.1 Fine-Tech Agreement. (a) The Purchaser shall use its reasonable ------------------- efforts to cause Fine-Tech Ltd. ("Fine-Tech"), an Israeli company, to agree, no later than 60 days after the Closing Date, to issue ordinary shares, par value NIS 1 per share, of Fine-Tech to the Company which, at the time of issuance, shall represent 10% of the issued and outstanding capital stock of Fine-Tech (the "Fine-Tech Shares"), against payment of $1,000,000 by the 18 Company to Fine-Tech. The agreement between Fine-Tech and the Company relating to the purchase of the Fine-Tech Shares shall contain such reasonable terms and conditions as shall be satisfactory to the Company and Fine-Tech, including, without limitation, the following: (i) the Company shall have exclusive rights in North America, Central America, South America and the Caribbean (the "Americas") to (a) purchase bulk raw materials or compounds developed by Fine-Tech which are not commonly marketed or otherwise being sold in the Americas and (b) manufacture and market pharmaceutical products therefrom; and (ii) the Company shall have the right to nominate one member to the Board of Directors of Fine-Tech. The Purchaser shall use its reasonable efforts to cause Fine-Tech to comply with the agreements between Fine-Tech and the Company, and shall provide reasonable assistance to the Company with respect to the enforcement of the Company's rights with respect to its agreements with Fine-Tech. (b) The Purchaser shall not, and shall cause its Affiliates (as hereinafter defined) not to, sell all or any portion of the ordinary shares of Fine-Tech owned by the Purchaser or such Affiliates unless the Company shall be permitted to sell a proportionate amount of the Fine-Tech Shares for the same type of consideration and otherwise on the same terms and conditions obtained by the Purchaser or such Affiliates. The Purchaser shall give the Company notice of any sale subject to this Section 8.1(b) at least 15 days before such sale, and the Company, if it shall elect to participate in such sale, shall give the Purchaser notice to such effect within 10 days after the Company's receipt of the Purchaser's notice. For the purposes of this Agreement, "Affiliates" shall mean all wholly-owned subsidiaries of the Purchaser. 8.2 Other Agreements. At the Closing, upon satisfaction of the ---------------- conditions set forth in Section 5 hereof, the Purchaser shall pay the purchase price and deliver the other agreements, instruments and certificates specified in Section 1.3(b) of this Agreement. SECTION 9. Company's Participation in Purchaser's Opportunities. ----------------------------------------------------- 9.1 Company's Right of Participation. From time to time, and at any -------------------------------- time, after the Closing, the Purchaser shall permit the Company directly or indirectly to acquire, at the same time and under the same terms and conditions as 19 are applicable to the Purchaser, up to 20% of any interests or rights acquired by the Purchaser or any Affiliate in or with respect to any Pharmaceutical Opportunity (as hereinafter defined). The Purchaser shall give the Company at least 60 days prior written notice of any Pharmaceutical Opportunity to be acquired by the Purchaser, including a detailed description of the material terms and conditions for the acquisition thereof. The Purchaser shall use its best efforts (which shall not require the Purchaser to commence litigation or incur material expense) to allow the Company to invest directly in the Pharmaceutical Opportunity and to provide the Company with due diligence documents and access to other material information respecting the Pharmaceutical Opportunity. The Purchaser shall periodically notify the Company of material changes to the terms and conditions of the acquisition of and due diligence related to the Pharmaceutical Opportunity, but no such notice shall commence an additional 60-day notice period. If the Company shall elect to acquire an interest or right in such Pharmaceutical Opportunity pursuant to this Section 9.1, the Company shall notify the Purchaser of such election within 30 days after receipt of the Purchaser's first notice of each Pharmaceutical Opportunity; provided, that, the Company shall have five days after it shall -------- ---- receive notification of material changes to the terms and conditions of the acquisition or the related due diligence to notify the Purchaser of its intent to complete its acquisition of the Pharmaceutical Opportunity. 9.2 Pharmaceutical Opportunities. For the purposes hereof, a ---------------------------- "Pharmaceutical Opportunity" shall mean and include any transaction, including any acquisition or licensing of any products or other assets, or any acquisition of any company or business, relating in any way to the development, manufacture, sale, distribution or marketing of nongeneric pharmaceutical products in the Company's line of business (determined based upon product and geographic factors) in which line the Company shall be actively engaged, or of generic drugs. Notwithstanding the foregoing but subject to the next sentence of this Section 9.2, a Pharmaceutical Opportunity shall exclude (i) the acquisition of any company, assets or business that conducts its operations, markets its products and is located primarily in Israel or (ii) the acquisition of any license for the development, manufacture, sale, distribution or marketing of pharmaceutical products primarily in Israel (such excluded opportunities, "Israeli Opportunities"); provided, however, that, in each instance, no such -------- ------- acquisition shall be excluded if such acquisition engages in the development, manufacture, sale, distribution or marketing of products competitive with those of the Joint Venture. The Purchaser shall notify the Company of Israeli 20 Opportunities and shall view favorably the Company's acquisition of up to 20% of the Israeli Opportunity. 9.3 Tag Along. In the event that the Company shall acquire any --------- interest in any Pharmaceutical Opportunity pursuant to Section 9.1 hereof, the Company shall be entitled to participate in any sale or other disposition by the Purchaser or its Affiliates of any of their interests in such Pharmaceutical Opportunity by selling the same proportionate part of the Company's interest in such Pharmaceutical Opportunity, at the same price and on the same terms and conditions, as proposed to be sold by the Purchaser or such Affiliates. The Purchaser shall give the Company at least 30 days prior written notice of any proposed sale or other disposition, and the Company shall notify the Purchaser, within 10 days from the receipt of such notice, of the Company's election to participate in such sale or disposition pursuant to this Section 9.3. 9.4 Purchaser's Financing of Co-Investments. (a) In the event that --------------------------------------- the Company shall propose to fund its acquisition of interests or rights in any co-investment with the Purchaser including, without limitation, any Pharmaceutical Opportunity, through the issuance of its equity securities at any time during the period from the Closing Date until the fifth anniversary thereof, the Company shall give notice (the "Financing Notice") to the Purchaser, specifying the terms and conditions of such funding, including the type of securities to be issued, and the amount of consideration to be received, by the Company pursuant thereto. Subject to the conditions set forth herein, the Purchaser shall have the right, exercisable by giving written notice to the Company within 10 Israeli business days after receipt of the Financing Notice, to consummate the funding transaction described therein on the same terms and conditions as specified therein. In the event that the Purchaser shall fail to notify the Company, the Company shall be entitled to consummate the funding described in the Financing Notice on the terms and conditions specified therein. (b) The Purchaser shall be entitled to exercise its right under this Section 9.4 only if, at the time of the Financing Notice, the Purchaser shall own shares of Common Stock at least equal to 8% of the issued and outstanding shares of Common Stock. SECTION 10. Third Party Transactions. ------------------------ 10.1 Right of First Refusal. (a) Subject to the conditions set forth ---------------------- in this Section 10.1, the Company, during the period from the Closing Date until the fifth 21 anniversary thereof, shall give the Purchaser notice (the "Transaction Notice") of the Company's intention to enter into or consummate a Third Party Transaction (as hereinafter defined), specifying the terms and conditions of such Third Party Transaction, including the type and amount of consideration to be received by the Company and/or its stockholders in such Transaction. Subject to the conditions set forth in this Section 10.1, the Purchaser shall have the right, exercisable by giving written notice to the Company within 60 days after receipt of the Transaction Notice, to consummate the transaction described in the Transaction Notice with the Company and/or its stockholders on substantially the same terms and conditions as specified in such Transaction Notice. As a condition to exercising its right in this Section 10.1, the Purchaser shall (i) deliver with its notice an opinion of Wertheim Schroder & Co. (or an investment bank of similar or greater standing and reputation which shall have significant operations in the United States) addressed to the Company's Board of Directors to the effect that the type and amount of consideration offered by the Purchaser in its notice is equivalent to the type and amount of the consideration being paid in the Third Party Transaction and (ii) demonstrate to the reasonable satisfaction of the Company that the Purchaser has the financial ability and resources to consummate the transaction contemplated in the Purchaser's notice. The cost of such opinion shall be paid equally by the Purchaser and the Company. In the event that the Purchaser shall not provide notice of its election to consummate such transaction within such 60-day period, the Company may consummate such Third Party Transaction on substantially the same terms and conditions as specified in the Transaction Notice at any time within 180 days after the expiration of such 60-day period. If the Company shall not consummate such Third Party Transaction within such period, the consummation of such Transaction or any other Third Party Transaction shall again be subject to the Purchaser's rights under this Section 10.1(a). (b) The closing of any transaction to be consummated with the Purchaser pursuant to this Section 10.1 shall take place at the offices of the Company or its counsel on a date designated by the Company and reasonably acceptable to the Purchaser, not later than 120 days after the Purchaser's receipt of the Transaction Notice. (c) A "Third Party Transaction", for the purposes hereof, shall mean any transaction with a third party pursuant to which the Company would (i) be involved in a merger or other business combination in which the Company's stockholders, as a result of such transaction, would cease to beneficially own at least 50% of the voting power of, or 22 equity interests in, the resulting entity, (ii) sell an amount of its securities which, as a result of such transaction, would cause such third party to own, beneficially, 51% or more of the outstanding voting securities of the Company or (iii) sell all or substantially all of its assets. (d) Notwithstanding anything to the contrary contained herein, the Purchaser shall only be entitled to exercise its right of first refusal pursuant to Section 10.1(a) hereof if, at the time of exercise of such right of first refusal, (i) the Purchaser shall not have previously sold, transferred or otherwise disposed of (in a transaction or series of transactions) more than the sum of 334,778 shares of Common Stock plus 2% of any additional shares of Common Stock issued after the date hereof and prior to the Closing and (ii) either (A) the Warrant or the Additional Warrant shall be outstanding or (B) the Purchaser shall own of record 14% (subject to Section 7.7(b) hereof) of the issued and outstanding shares of Common Stock. (e) If the Company shall consummate a Third Party Transaction as to which the Purchaser did not exercise, for any reason, the right of first refusal pursuant to Section 10.1(a) hereof, the Purchaser shall have no further rights under said Section 10.1(a) with respect to any future Third Party Transactions. 10.2 Purchaser's Voting Obligations. (a) The Purchaser shall, during ------------------------------ the period from the Closing Date until the date on which its rights shall terminate under Section 10.1 hereof, vote all shares of Common Stock owned or held by it in favor of a Third Party Transaction (other than a Third Party Transaction as to which the Purchaser shall have exercised its right under Section 10.1 hereof) with respect to which a vote of the Company's stockholders shall be taken, and shall take such other actions (including, without limitation, surrendering its shares of Common Stock and the Warrant and the Additional Warrant, if issued) reasonably required or appropriate to facilitate the consummation of such Transaction. (b) Notwithstanding the foregoing, the Purchaser shall not be required to vote its shares of Common Stock in favor of, or take other actions to facilitate, such Third Party Transaction if (i) less than 75% of the members of the Company's Board of Directors (exclusive of those members appointed by the Purchaser pursuant to Section 7.2 hereof) shall have voted in favor of such Transaction or (ii) any member of the Board (other than any member appointed by the Purchaser pursuant to Section 7.2 hereof) shall have voted against such Transaction, regardless of how many directors 23 voted in favor of such Transaction. Furthermore, in the event that the Purchaser shall notify the Company that, in the opinion of the Purchaser, the consummation of the Third Party Transaction would be detrimental to the Company and/or its stockholders, the Purchaser shall not be required to vote its shares of Common Stock in favor of, or take other actions to facilitate, such Third Party Transaction unless the Company, in response to the Purchaser's notice, shall have delivered, at the Company's cost, to the Purchaser a fairness opinion with respect to such Third Party Transaction from a nationally recognized investment banking firm selected by the Company. SECTION 11. Acquisitions and Dispositions of Securities. ------------------------------------------- The Purchaser, for itself and each of its Affiliates, agrees as follows: 11.1 Limitations on Dispositions of Securities. (a) During the period ----------------------------------------- ("Consent Period") commencing on the Closing Date and terminating six months after the date on which the Purchaser's rights shall terminate under Section 10.1 hereof, the Purchaser shall not sell, assign, pledge, transfer or otherwise dispose of (collectively, a "Transfer") any Securities (as hereinafter defined) without the written consent of the Company (which may be granted or withheld in its sole discretion) unless such Securities (i) shall be registered under the Securities Act and applicable state securities laws, (ii) shall be sold in brokers' transactions pursuant to Rule 144 promulgated under the Securities Act or (iii) shall be sold or transferred in connection with a Third Party Transaction or any other transaction that has been approved by a majority of the members of the Board (exclusive of those members appointed by the Purchaser pursuant to Section 7.2 hereof). For the purposes hereof, "Securities" shall mean and include the Shares, the Warrant Shares, the Additional Warrant Shares, if issued, any other shares of Common Stock, and any rights, options, warrants or other securities of the Company exercisable or exchangeable for, or convertible into, shares of Common Stock. (b) Except as permitted by Section 16.2 hereof, the Purchaser, during the Consent Period, shall not sell, transfer or otherwise dispose of any shares of Common Stock, constituting 3% or more of the issued and outstanding shares of Common Stock at the time of such sale, transfer or disposition to any one person or entity or group of related persons or entities in one transaction or series of related transactions, notwithstanding anything to the contrary contained herein. 24 (c) At any time or from time to time subsequent to the Consent Period, the Purchaser shall not transfer any Securities unless such Transfer shall be in full compliance with all applicable provisions of the Securities Act and all applicable provisions of state securities laws. (d) Each certificate for the Shares, the Warrant Shares and the Additional Warrant Shares shall be endorsed with the following legend: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THE SECURITIES REPRESENTED HEREBY ARE ALSO SUBJECT TO LIMITATIONS ON TRANSFER PURSUANT TO A STOCK PURCHASE AGREEMENT DATED MARCH 25, 1995, BETWEEN THE COMPANY AND THE HOLDER HEREOF (A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY)." 11.2 Limitations on Acquisitions of the Company's Securities. (a) ------------------------------------------------------- During the Consent Period, the Purchaser shall not purchase or otherwise acquire any additional Securities without the prior written consent of the Company (which may be granted or withheld in its sole discretion), except for (i) acquisitions of the Warrant Shares or the Additional Warrant Shares, (ii) acquisitions of Securities pursuant to subdivisions (b) and (c) of this Section 11.2, (iii) acquisitions of Securities pursuant to Sections 11.3 and 11.4(b) hereof and (iv) acquisitions of Securities pursuant to Section 9.4 hereof. (b) The Purchaser, at any time after the Closing Date, shall be entitled, upon at least 24 hours' prior written notice to the Company, to purchase or acquire, in open market transactions, such number of Securities as will cause the Purchaser to own up to 19.99% of the then issued and outstanding shares of the Common Stock (assuming, for this purpose, the exercise, exchange or conversion, as applicable, of such Securities into shares of Common Stock). Upon the acquisition of any such Securities by the Purchaser, the aggregate number of Warrant Shares and Additional Warrant Shares issuable upon exercise of the Warrant or the Additional Warrant shall, as of the date of such acquisition, be reduced, on a share for share basis, in an amount equal to the number of shares of Common Stock acquired by the Purchaser (including, for this purpose, shares of Common Stock issuable upon any exercise, exchange 25 or conversion of the Securities), with any such reduction first being applied against the Warrant Shares and, thereafter, being applied against the Additional Warrant Shares; provided, that, prior to the issuance of the Additional Warrant, -------- ---- no such reduction shall occur unless the sum of the shares of Common Stock owned by the Purchaser plus the Warrant Shares equals 19.99% of the then issued and outstanding shares of Common Stock (assuming, for this purpose, exercise of the Warrant in full). (c) The Purchaser, subsequent to the third anniversary of the Closing Date, shall be entitled, upon at least 24 hours' prior written notice to the Company, to purchase or acquire, in open market transactions, such number of Securities as will cause the Purchaser to own up to 25% of the then issued and outstanding shares of the Common Stock (assuming, for this purpose, the exercise, exchange or conversion, as applicable, of such Securities into shares of Common Stock). 11.3 Public Offerings. The Purchaser, after the Closing, shall be ---------------- entitled to acquire up to 20% of any Securities to be issued by the Company in an underwritten public offering registered pursuant to the Securities Act on the same terms and conditions, including the same price per share, as such Securities shall be sold in such offering. If the Purchaser shall elect to exercise such right, the Purchaser shall give notice to the Company of the number of shares to be acquired by the Purchaser, within 15 days after receipt of a notice from the Company describing the terms and conditions of the proposed offering. The Purchaser shall not be entitled to exercise its right under this Section 11.3 unless, at the time, the Purchaser shall own shares of Common Stock (including, for this purpose, Warrant Shares then issuable upon exercise of the Warrant and the Additional Warrant Shares then issuable upon exercise of the Additional Warrant, if issued) at least equal to 10% of the sum of (i) the number of issued and outstanding shares of Common Stock, (ii) the number of Warrant Shares then issuable upon exercise of the Warrant and (iii) if issued, the Additional Warrant Shares then issuable upon exercise of the Additional Warrant. 11.4 Standstill. (a) During the Consent Period, the Purchaser shall ---------- not, without the prior approval of a majority of the Company's Board of Directors (exclusive of members appointed by the Purchaser pursuant to Section 7.2 hereof), enter into any agreement or arrangement with any person or entity (other than the Company) concerning the voting, holding or transferring of any Securities, or initiate, propose or participate in any transaction involving the Company (including, without limitation, any 26 purchase of, or tender for, any Securities or any purchase of the Company's assets), except as otherwise provided in Section 11.4(b) hereof. (b) Nothing contained herein shall prohibit the Purchaser, subsequent to the fifth anniversary of the Closing Date, to tender for, and/or purchase or otherwise acquire, such number of shares of Securities as would cause the Purchaser to own at least 70% of the issued and outstanding shares of Common Stock. Notwithstanding the foregoing, the Company shall have no obligation to support, or otherwise cooperate with, the Purchaser or any of its Affiliates in any such tender offer or acquisition of Securities, and the Company, in no event, shall be required to make any favorable recommendation in furtherance of such tender offer or such acquisition. SECTION 12. Exchanges; Lost, Stolen or Mutilated Certificates. ------------------------------------------------- Subject to Section 11 hereof and upon surrender by the Purchaser to the Company of any certificates representing the Shares, the Warrant Shares or the Additional Warrant Shares, the Company, at its expense, shall issue in exchange therefor, and deliver to the Purchaser, a new certificate or certificates representing such Shares, Warrant Shares or Additional Warrant Shares, in such denominations as may be requested in writing by the Purchaser. Every surrendered certificate representing the Shares, the Warrant Shares or the Additional Warrant Shares shall be duly endorsed or be accompanied by a written instrument of the Purchaser's attorney duly authorized in writing. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any certificate representing any Shares, Warrant Shares or Additional Warrant Shares, and in case of any such loss, theft or destruction, upon delivery of an indemnity agreement satisfactory to the Company, or in case of any such mutilation, upon surrender and cancellation of such certificate, the Company shall issue and deliver to the Purchaser a new certificate for such Shares, Warrant Shares or Additional Warrant Shares of like tenor and in the same amount and name, in lieu of such lost, stolen or mutilated certificate. SECTION 13. Survival of Representations, Warranties and Agreements. ------------------------------------------------------- All representations and warranties of the parties hereunder shall survive the Closing. Except as otherwise provided herein, all covenants and agreements of the parties contained herein shall survive indefinitely until, by their respective terms, they shall no longer be operative. 27 SECTION 14. Disclosure of Documents. The Company represents to the ------------------------ Purchaser that, to the best of the Company's knowledge, there are no documents which contain information materially adverse to the Company that have not been disclosed in the documents set forth on Exhibit D annexed hereto (to the extent supplemented by the Company as provided herein) or in publicly available documents filed with the SEC or issued in public press releases. Set forth in Exhibit D is an itemized list, prepared by the Purchaser, of documents made available to the Purchaser and/or its representatives (including its attorneys, its accountants and its regulatory advisor) for review. The Company shall have the right to supplement Exhibit D up to five days prior to the Closing by making additional documents available to Purchaser for its review. In the event that the Company provides any such additional document and that document contains information materially adverse to the Company, which information was not previously disclosed in the documents set forth in Exhibit D or in publicly available documents filed with the SEC or issued in public press releases, then the Purchaser shall (with respect to each such document) have the right (exercisable by written notice to the Company within five days after the Purchaser's receipt of such document) to elect not to consummate the transactions contemplated by this Agreement, in which case neither party shall have any liability or obligation to the other hereunder and this Agreement shall terminate. SECTION 15. Indemnification. --------------- 15.1 Indemnitors; Indemnified Persons. For purposes of this Section -------------------------------- 15, each party which, pursuant to this Section 15, agrees to indemnify any other person or entity shall be referred to, as applicable, as the "Indemnitor" with respect to such persons and entities, and each such person and entity who is indemnified shall be referred to as the "Indemnified Person" with respect to such Indemnitor. 15.2 Company Indemnity. The Company hereby agrees to indemnify and ----------------- hold harmless each of the Purchaser, and its directors, officers, employees, agents and controlling persons (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act), from and against any and all claims, liabilities, losses, damages and expenses (including, without limitation, reasonable attorneys' fees and disbursements, regardless of whether incurred in connection with a third-party claim) asserted against or incurred by any such Indemnified Person which are caused by or are related to or arise out of (a) any breach of any representation, warranty, covenant or agreement of the Company contained in this Agreement, the Warrant, the Additional Warrant or the Registration Rights Agreement or 28 (b) (i) any violation by the Company or any subsidiary thereof, or their non- compliance with, any Environmental Law (as defined below), or the disposal, discharge or release of solid wastes, pollutants or hazardous substances, whether in compliance with Environmental Laws or not, (ii) the ownership, operation or use of any landfill, wastewater treatment plant, air pollution control equipment, storage lagoon or other waste management or pollution control facility, whether in compliance with Environmental Laws or not, or (iii) exposure of any person to any chemical substances, noises or vibration generated by the Company, any of its subsidiaries, or any of their respective predecessors, whether in compliance with Environmental Laws or not; provided, -------- however, no indemnification shall be provided hereunder for any reduction or - - - - ------- diminution in the value of the shares of Common Stock owned by the Purchaser. The Company shall reimburse any such Indemnified Person for all costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements), as they shall be incurred, in connection with investigating, preparing for, or defending any action, claim, investigation, inquiry or other proceeding, whether or not in connection with pending or threatened litigation, which are caused by or related to or arise out of the foregoing, whether or not such Indemnified Person shall be named as a party thereto and whether or not any liability shall result therefrom. For purposes of this Section 15.2, "Environmental Law" shall mean any law, regulation, rule or requirement (whether existing now or in the future) of the United States, any other country or any state, province, municipality or other subdivision thereof relating to the pollution or protection of the environment (including, without limitation, ambient air, surface waters, ground water, lands, sub-surface strata, biota and cultural properties), and any permit, licensed or registration issued pursuant to any of the foregoing notwithstanding anything herein to the contrary. 15.3 Purchaser Indemnity. The Purchaser hereby agrees to indemnify ------------------- and hold harmless each of the Company, and its directors, officers, employees, agents and controlling persons (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act), from and against any and all claims, liabilities, losses, damages and expenses (including, without limitation, reasonable attorneys' fees and disbursements, regardless of whether incurred in connection with a third-party claim) asserted against or incurred by any such Indemnified Person which are caused by or are related to or arise out of the Purchaser's breach of any representation, warranty, covenant or agreement of the Purchaser contained in this Agreement, the Warrant, the Additional Warrant or the Registration Rights Agreement, and shall reimburse any such Indemnified Person 29 for all costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements), as they shall be incurred, in connection with investigating, preparing for, or defending any action, claim, investigation, inquiry or other proceeding, whether or not in connection with pending or threatened litigation, which shall be caused by or related to or arise out of such breach, whether or not such Indemnified Person shall be named as a party thereto and whether or not any liability shall result therefrom. 15.4 Defense. Promptly after receipt by an Indemnified Person of ------- notice of any claim or demand or the commencement of any action or proceeding with respect to which indemnification may be sought hereunder, such Indemnified Person shall notify the Indemnitor of such claim or demand or the commencement of such action or proceeding, but failure so to notify the Indemnitor shall not relieve the Indemnitor from any liability which the Indemnitor may have hereunder or otherwise, unless the Indemnitor shall be materially prejudiced by such failure. If the Indemnitor shall so elect, the Indemnitor shall assume the defense of such claim, demand, action or proceeding, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall pay the fees and disbursements of such counsel. In the event, however, that such Indemnified Person shall reasonably determine in its judgment that having common counsel would present such counsel with a conflict of interest or alternative defenses shall be available to an Indemnified Person or if the Indemnitor shall fail to assume the defense of the claim, demand, action or proceeding in a timely manner, then such Indemnified Person may employ separate counsel to represent or defend such Person against any such claim, demand, action or proceeding and the Indemnitor shall pay the reasonable fees and disbursements of such counsel; provided, however, that the Indemnitor shall not be required to -------- ------- pay the fees and disbursements of more than one separate counsel for all Indemnified Persons in any jurisdiction in any single action or proceeding. For any claim, demand, action or proceeding the defense of which the Indemnitor shall assume, the Indemnified Person shall have the right to participate therein and to retain its own counsel at such Indemnified Person's own expense (except as otherwise provided in this Section 15.4), so long as such participation does not interfere with the Indemnitor's control of such claim, demand, action or proceeding. The Indemnitor shall not, without the prior written consent of the Indemnified Person, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder unless such settlement, compromise or consent shall include an unconditional release of such Indemnified 30 Person from all liability arising out of such claim, demand, action or proceeding and would not prohibit, restrict or impair the Indemnified Person or the Joint Venture from engaging in any business. SECTION 16. Miscellaneous. ------------- 16.1 Expenses. The parties shall bear their own respective expenses -------- (including, but not limited to, all fees and expenses of counsel, financial advisers and independent accountants) incurred in connection with the preparation and execution of this Agreement, the other agreements referred to herein and the consummation of the transactions contemplated hereby and thereby, except that the Company and the Purchaser shall each pay one-half of the filing fees required to accompany the notifications under the HSR Act with respect to the transactions contemplated by this Agreement and by the Joint Venture Agreement. 16.2 Assignment. All terms and provisions of this Agreement shall be ---------- binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party hereto without the prior written consent of the other party; provided, that, the -------- ---- Purchaser may assign its rights under this Agreement, in whole or in part, to any subsidiary or related entity "Hevra Kshura" of the Purchaser, within the meaning of the Israel Securities Act 5728-1968, as amended, so long as such (i) subsidiary or related party shall assume and agree to be bound by all of the Purchaser's obligations hereunder and (ii) the Purchaser shall not be relieved of its primary liability to the Company for all of the Purchaser's obligations set forth herein. 16.3 Entire Agreement. This Agreement and the other agreements ---------------- referred to herein or delivered pursuant hereto contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 16.4 Notices. All notices hereunder shall be in writing and shall be ------- given: (a) if to the Company, at One Ram Ridge Road, Spring Valley, New York 10977 (attention: Kenneth I. Sawyer), fax number: (914) 425-5097, or such other address or fax number as the Company shall have designated in writing to the Purchaser, or (b) if to the Purchaser, at Clal House, 5 Druyanov Street, Tel Aviv 63143, Israel (attention: Zeev Zehavi), fax number: (011-972-3) 293633, with a copy to Proskauer Rose Goetz & Mendelsohn 31 LLP, 1585 Broadway, New York, New York 10036 (attention: Jeffrey A. Horwitz, Esq.), fax number: (212) 969-2900, or such other address or fax number as the Purchaser shall have designated in writing to the Company. Any notice shall be deemed to have been given if personally delivered or sent by express commercial courier or delivery service or by telegram, telefax, telex or facsimile transmission. Any notice given in any other manner shall be deemed given when actually received. 16.5 Amendments; Waiver. This Agreement may not be amended or ------------------ terminated, and no provision hereof may be waived, except pursuant to a written instrument executed by the Company and the Purchaser. 16.6 Counterparts. This Agreement may be executed in any number of ------------ counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 16.7 Headings. The headings of the Sections of this Agreement have -------- been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 16.8 Governing Law. This Agreement (but expressly excluding the Joint ------------- Venture Agreement and the Fine-Tech Agreement) shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly therein. 16.9 Severability. If any term or provision hereof shall be invalid ------------ or unenforceable, (i) the remaining terms and provisions hereof shall be unimpaired, (ii) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction and (iii) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision as determined by a court to be valid and enforceable and to express the intention of the parties with respect to the invalid or unenforceable term or provision. 16.10 CONSENT TO JURISDICTION. IN CONNECTION WITH ANY DISPUTE WHICH ----------------------- MAY ARISE UNDER THIS AGREEMENT (BUT EXPRESSLY EXCLUDING THE JOINT VENTURE AGREEMENT AND THE FINE-TECH AGREEMENT) OR UNDER ANY OTHER AGREEMENT REFERRED TO HEREIN, EACH OF THE PARTIES HEREBY IRREVOCABLY SUBMITS TO, CONSENTS TO, AND WAIVES ANY OBJECTION TO, THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND WAIVES ANY OBJECTION TO THE LAYING OF VENUE IN SUCH COURTS. EACH SUCH 32 PARTY ADMITS THAT ANY SUCH DISPUTE MAY BE RESOLVED AT LEAST AS CONVENIENTLY IN SUCH A COURT AS IN ANY OTHER COURT, AND SHALL NOT SEEK DISMISSAL OR A CHANGE OF VENUE ON THE GROUND THAT RESOLUTION OF SUCH A DISPUTE IN ANY SUCH COURT SHALL NOT BE CONVENIENT OR IN THE INTERESTS OF JUSTICE. THE PURCHASER HEREBY APPOINTS PROSKAUER ROSE GOETZ & MENDELSOHN LLP AS ITS AGENT UPON WHOM SERVICE OF PROCESS MAY BE MADE WITH THE SAME FORCE AND EFFECT AS IF SUCH SERVICE SHALL HAVE BEEN MADE PERSONALLY UPON THE PURCHASER. THE COMPANY HEREBY APPOINTS HERTZOG, CALAMARI & GLEASON AS ITS AGENT UPON WHOM SERVICE OF PROCESS MAY BE MADE WITH THE SAME FORCE AND EFFECT AS IF SUCH SERVICE SHALL HAVE BEEN MADE PERSONALLY UPON THE COMPANY. 16.11 Termination. This Agreement may be terminated and the ----------- transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by mutual written consent of the Purchaser and the Company; or (b) by any party to this Agreement, if there shall have been a material breach of a representation or warranty in this Agreement by the other party, or a material breach by the other party of any covenant set forth herein and such breach or failure cannot be cured by the Closing Date and has not been waived, or a failure of any condition to which the obligations of the first party hereunder are subject. Upon such termination, all further obligations of the parties hereto shall become null and void and no party shall have any liability to any other party, unless the basis for such termination shall have been the breach by such party of a representation or warranty in this Agreement or the failure by such party to fulfill its covenants and agreements set forth herein. [The next page is the signature page.] 33 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed as of the date first written above. PHARMACEUTICAL RESOURCES, INC. By /s/Kenneth I. Sawyer ------------------------------ CLAL PHARMACEUTICAL INDUSTRIES LTD. By /s/Mair Laiser, Director ----------------------------- By /s/Mony Ben-Dor, Director ----------------------------- CLAL INDUSTRIES LTD. Guarantee --------- The undersigned, being directly or indirectly, the beneficial owner of Clal Pharmaceutical Industries Ltd., an Israeli corporation (the "Purchaser"), in order to induce Pharmaceutical Resources, Inc., a New Jersey corporation (the "Company"), to enter into that certain Stock Purchase Agreement, dated March 25, 1995, between the Company and the Purchaser, does hereby unconditionally guarantee the full and timely performance of all the Purchaser's obligations to the Company under and with respect to said Stock Purchase Agreement which, in accordance with the terms thereof, are to be performed prior to or on the Closing Date (as such term is defined in the Stock Purchase Agreement), including any obligation of the Purchaser to make all payments required thereunder. This Guarantee is being delivered by the undersigned to the Company in connection with the execution and delivery of the Stock Purchase Agreement. The undersigned hereby represents and warrants that it is a corporation duly organized, validly existing and in good standing under the laws of Israel. The undersigned hereby further represents and warrants that it has all necessary corporate power and authority to execute, deliver and perform this Guarantee, that the execution, delivery and performance by the undersigned of this Guarantee has been duly authorized by all necessary corporate or other action by or on behalf of the undersigned and that this Guarantee constitutes a valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms. IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS GUARANTEE, THE UNDERSIGNED HEREBY IRREVOCABLY SUBMITS TO, CONSENTS TO, AND WAIVES ANY OBJECTION TO, THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND WAIVES ANY OBJECTION TO THE LAYING OF VENUE IN SUCH COURTS. THE UNDERSIGNED SHALL NOT SEEK DISMISSAL OR A CHANGE OF VENUE ON THE GROUND THAT ANY SUCH COURTS SHALL NOT BE CONVENIENT OR IN THE INTERESTS OF JUSTICE. THE UNDERSIGNED HEREBY APPOINTS PROSKAUER ROSE GOETZ & MENDELSOHN LLP AS ITS AGENT UPON WHOM SERVICE OF PROCESS MAY BE MADE WITH THE SAME FORCE AND EFFECT AS IF SUCH SERVICE SHALL HAVE BEEN MADE PERSONALLY UPON THE UNDERSIGNED. Dated: March 25, 1995 CLAL INDUSTRIES LTD. By /s/Mair Laiser, President ----------------------------- By /s/Mony Ben-Dor, Vice President --------------------------------- EX-10.2 3 AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT Exhibit 10.2 PHARMACEUTICAL RESOURCES, INC. ONE RAM RIDGE ROAD SPRING VALLEY, NEW YORK 10977 May 1, 1995 Clal Pharmaceutical Industries Ltd. Clal House 5 Druyanov Street Tel Aviv 63143, ISRAEL Re: Amendment No. 1 to Stock Purchase Agreement ----------------------------------------------- Gentlemen: Reference is made to the Stock Purchase Agreement, dated March 25, 1995, between Pharmaceutical Resources, Inc. and Clal Pharmaceutical Industries Ltd. (the "Agreement"). Terms defined herein shall have the meanings as set forth in the Agreement. The Company and the Purchaser hereby agree to amend Section 7.2(c) of the Agreement by inserting the following before the ".": ; provided, that the Company shall have no obligation hereunder to appoint -------- ---- one of the directors designated by the Purchaser as a member of the audit committee of the Company if such appointment shall not be permitted under the rules and regulations of the New York Stock Exchange; provided further -------- ------- that, in such event (i) the Company shall provide to the Purchaser all ---- materials at the time such materials shall be provided by the Company to the members of the audit committee, (ii) the director designated by the Purchaser shall have the right to consent to changes in accounting principles of the Company as long as such changes are not required to be adopted under rules, regulations or pronouncements of any regulatory agency or authority or financial or accounting standards board applicable to the Company (which consent shall not be unreasonably withheld, it being agreed that Purchaser's objection to any change that could result in an increase in Standard Cost(as defined in Exhibit C to the Agreement) shall be deemed to be reasonable), (iii) the appointment of the Company's auditors shall be approved by the entire board of directors of the Company and (iv) the Company shall consult with the director or directors designated by the Purchaser in respect of all actions to be taken by the audit committee. The Company shall use its best efforts (which shall not require the Company to commence litigation or incur material expense) to obtain the appointment of the one of the directors designated by the Purchaser as a member of the audit committee. Except as amended hereby, the Agreement shall not be otherwise amended and the Agreement shall remain in full force and effect. This Amendment No. 1 to the Agreement shall be governed by the Section 16 of the Agreement. PHARMACEUTICAL RESOURCES, INC. By /s/Kenneth I. Sawyer ---------------------------- Kenneth I. Sawyer President CLAL PHARMACEUTICAL INDUSTRIES LTD. By /s/Ze'ev Zehavi ------------------- By /s/Mony Ben-Dor ------------------- EX-10.3 4 WARRANT TO PURCHASE COMMON STOCK Exhibit 10.3 VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON THE EARLIER OF (A) MAY 1, 1998, (B) THE EARLY EXPIRATION DATE (AS HEREINAFTER DEFINED) OR (C) THE FINAL REDEMPTION DATE (AS HEREINAFTER DEFINED). NEITHER THIS WARRANT NOR THE WARRANT SHARES (AS HEREINAFTER DEFINED) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE WARRANT SHARES MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS UNDER FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO PHARMACEUTICAL RESOURCES, INC. THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT. THE WARRANT SHARES ARE ALSO SUBJECT TO THE LIMITATIONS ON TRANSFER PURSUANT TO A STOCK PURCHASE AGREEMENT DATED MARCH 25, 1995, BETWEEN PHARMACEUTICAL RESOURCES, INC. AND THE HOLDER HEREOF (A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY). PHARMACEUTICAL RESOURCES, INC. WARRANT TO PURCHASE COMMON STOCK -------------------------------- MAY 1, 1995 FOR VALUE RECEIVED, PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the "Company"), hereby certifies that CLAL PHARMACEUTICAL INDUSTRIES LTD., a corporation formed under the laws of the State of Israel (the "Holder"), together with its permitted assigns, is entitled, subject to the provisions of this Warrant, to purchase from the Company up to NINE HUNDRED AND THIRTY SIX THOUSAND, TWO HUNDRED AND EIGHTY TWO (936,282) shares of common stock, par value $.01 per share, of the Company ("Common Shares") at a price (the "Exercise Price") of (i) Ten Dollars ($10.00) per share during the period commencing on the date hereof and expiring at 5:00 P.M., New York City time, on the first anniversary of the date hereof (the "First Period") or (ii) Eleven Dollars ($11.00) per share during the period commencing on the day after the first anniversary of the date hereof and expiring at 5:00 P.M., New York City time, on the third anniversary of the date hereof (the "Second Period"). This Warrant is being executed and delivered by the Company in connection with a Stock Purchase Agreement dated March 25, 1995, between the Company and the Holder (the "Stock Purchase Agreement"). SECTION 1. Exercise of Warrant. Subject to the provisions hereof, -------------------- this Warrant may be exercised in whole or in part at any time, or from time to time, during the period commencing on the date hereof and expiring at 5:00 p.m., New York City time, on the first to occur of (a) the third anniversary of the date hereof, (b) the Early Expiration Date or (c) the Final Redemption Date, by presentation and surrender of this Warrant to the Company at its principal office, with the Warrant Exercise Form attached hereto duly executed and accompanied by payment (either in cash or by United States certified or official bank check payable to the order of the Company) of the Exercise Price for the number of shares specified in such Form. Upon receipt thereof, the Company shall, as soon as practicable but in any case within five business days, cause to be delivered to the Holder one or more certificates representing the aggregate number of fully paid and nonassessable shares of Common Stock issuable upon exercise as specified in the Form. If this Warrant should be exercised or redeemed in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. All such Warrants shall be dated the date of this Warrant. The shares issuable upon exercise of this Warrant, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares". The Warrant Shares and the Exercise Price may be adjusted from time to time as hereinafter set forth. SECTION 2. Reservation of Shares. The Company will reserve for ---------------------- issuance and delivery upon exercise of this Warrant all authorized but unissued Common Shares or other shares of capital stock of the Company (and other securities and property) from time to time receivable upon exercise of this Warrant. SECTION 3. Fractional Shares. The Company shall not be required to ------------------ issue certificates representing fractions of shares, and it shall not be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the Company and the Holder that all fractional interests shall be eliminated by rounding up or down to the closest whole number. 2 SECTION 4. Restrictions on Transfer; Registration. --------------------------------------- 4.1 Limited Transferability. This Warrant may not be sold, ------------------------ transferred, pledged or otherwise disposed of (collectively, "Transferred") by the Holder, except to any successor firm or corporation of the Holder and shall be so transferable only upon the books of the Company. The Company may treat the registered holder of this Warrant as it appears on the Company's books at any time as the Holder for all purposes. 4.2 Compliance with Stock Purchase Agreement. No Warrant Shares may ----------------------------------------- be transferred except in compliance with Section 11.1 of the Stock Purchase Agreement. 4.3 Legend. Each certificate for the Warrant Shares shall be ------- endorsed with the following legend: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THE SECURITIES REPRESENTED HEREBY ARE ALSO SUBJECT TO LIMITATIONS ON TRANSFER PURSUANT TO A STOCK PURCHASE AGREEMENT DATED MARCH 25, 1995, BETWEEN THE COMPANY AND THE HOLDER HEREOF (A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY)." 4.4 Registration. The Warrant Shares shall have the benefit of a ------------- Registration Rights Agreement, dated the date of this Warrant, between the Company and the Holder. 4.5 Listing. The Company shall not be obligated to deliver any -------- Warrant Shares unless and until such Warrant Shares shall have been listed on each securities exchange or other self-regulatory body on which the Common Shares may then be listed or until there shall have been qualification under or compliance with applicable Federal or state laws. The Company shall use reasonable efforts to obtain such listing, qualification and compliance. SECTION 5. Rights of the Holder. The Holder shall not, by virtue --------------------- hereof, be entitled to any rights of a shareholder of the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. 3 SECTION 6. Anti-Dilution Provisions. ------------------------- 6.1. Adjustments for Stock Dividends; Combinations, Etc. In case the --------------------------------------------------- Company shall do any of the following (each, an "Event"): (a) declare a dividend or other distribution on its Common Shares payable in Common Shares of the Company; (b) effect a subdivision of its outstanding Common Shares into a greater number of Common Shares (by reclassification, stock split or otherwise than by payment of a dividend in Common Shares); (c) effect a combination of its outstanding Common Shares into a lesser number of Common Shares (by reclassification, reverse split or otherwise); (d) issue by reclassification, exchange or substitution of its Common Shares any shares of capital stock of the Company; or (e) effect any other transaction having a similar effect, then the Exercise Price in effect at the time of the record date for such Event shall be adjusted to a price determined by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of Common Shares outstanding immediately prior to such Event and the denominator of which shall be the number of Common Shares outstanding immediately after such Event. Each such adjustment of the Exercise Price shall be calculated to the nearest cent. No such adjustment shall be made in an amount less than One Cent ($.01), but any such amount shall be carried forward and shall be given effect in connection with the next subsequent adjustment. Such adjustment shall be made successively whenever any Event shall occur. 6.2 Adjustment in the Number of Warrant Shares. Whenever the ------------------------------------------- Exercise Price shall be adjusted pursuant to Section 6.1 hereof, the number of Warrant Shares which the Holder may purchase upon exercise of the Warrant shall be adjusted, to the nearest full share, by multiplying such number of Warrant Shares immediately prior to such adjustment by a fraction, the numerator of which shall be the Exercise Price immediately prior to such adjustment and the denominator of which shall be the Exercise Price immediately thereafter. 4 6.3 Adjustment for Consolidation or Merger. In case of any --------------------------------------- consolidation or merger to which the Company shall be a party, other than a consolidation or merger in which the Company shall be the surviving or continuing corporation, or in case of any sale or conveyance to another entity of all or substantially all of the property of the Company, or in the case of any statutory exchange of securities with another entity (including any exchange effected in connection with a merger of any other corporation with the Company), the Holder shall have the right thereafter to convert this Warrant into the kind and amount of securities, cash or other property which it would have owned or have been entitled to receive immediately after such consolidation, merger, statutory exchange, sale or conveyance had this Warrant been exercised immediately prior to the effective date of such transaction and, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section 6 with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth in this Section 6 shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. Notice of any such consolidation, merger, statutory exchange, sale or conveyance, and of the provisions proposed to be adjusted, shall be mailed to the Holder not less than thirty days prior to such event. SECTION 7. Redemption. ----------- 7.1 Optional Redemption. The Company may, at any time after December -------------------- 1, 1995, and from time to time, elect to redeem all or any portion of this Warrant at a redemption price of One Cent ($.01) per share (the "Redemption Price") in the event that the average of the closing sale prices per share of the Common Shares on The New York Stock Exchange for any forty-five consecutive trading days shall equal or exceed the Target Price (as hereinafter defined). For purposes hereof, the "Target Price" shall be Seventeen Dollars ($17.00) per share until the first anniversary of the date hereof and thereafter shall be Eighteen Dollars ($18.00) per share. The Target Price shall be subject to adjustment in the manner set forth in Section 6.1 if any of the events set forth therein shall occur. Following any redemption pursuant to this Section 7.1, a further forty-five consecutive day trading period in which the closing sale prices per share of the Common Shares on the New York Stock Exchange shall equal or exceed the Target Price shall apply to any further right to redemption by the Company. 5 7.2 Redemption After Sale of Shares. The Company may elect to redeem -------------------------------- all or a portion of this Warrant at the Redemption Price at any time after the Holder shall hold less than 8% of the issued and outstanding Common Shares. 7.3 Redemption Notice. If the Company shall elect to redeem this ------------------ Warrant or any portion thereof pursuant to Sections 7.1 or 7.2 hereof, notice of redemption shall be given to the Holder not less than thirty days prior to the date fixed by the Company for redemption (the "Redemption Date"). Such notice shall specify the portion of the Warrant to be redeemed, the reason for the redemption, the Redemption Date and the Redemption Price. Such notice shall also state that payment of such Redemption Price will be made at the principal office of the Company, upon presentation and surrender of this Warrant within thirty days following the Redemption Date and that the right to exercise this Warrant (to the extent redeemed) shall terminate at 5:00 P.M., New York City time, on the Redemption Date. "Final Redemption Date" shall mean the Redemption Date fixed by the Company for redemption of the remaining portion of this Warrant. SECTION 8. Early Expiration Date. Notwithstanding anything to the ---------------------- contrary contained herein, this Warrant shall expire on the second anniversary of the date hereof and shall cease to be exercisable, in whole or in part, after such date, if the Company's net income after tax, as set forth on the Company's year-end audited financial statements and as adjusted pursuant to this Section 8, for its fiscal year ended September 28, 1996, shall exceed $5,000,000 (the "Early Expiration Date"). The Company's net income after tax, for purposes of this Section 8, shall be recomputed to (a) exclude the amount of any extraordinary items of income or loss determined in accordance with generally accepted accounting principles in the United States, and (b) subtract the amount, if any, by which $6,500,000 exceeds the amount of the Company's research and development expenses, as shown on its year-end audited financial statements for its 1996 fiscal year (exclusive of any amounts included in such research and development expenses attributable to the Company's investment in the joint venture formed pursuant to that certain Joint Venture Agreement, dated as of the date hereof between the Company and the Holder). SECTION 9. Increase in Exercise Price. If the requisite number of --------------------------- shareholders of the Company shall approve the Proposal (as such term is defined in the Stock Purchase Agreement) then, as of the date of such approval, the Exercise Price shall be automatically increased to Eleven Dollars ($11.00) per share during the First Period 6 and Twelve Dollars ($12.00) per share during the Second Period. SECTION 10. Reduction in Warrant Shares. If the Holder shall, at any ---------------------------- time and from time to time after the date hereof, purchase or acquire, in open market transactions, any number of Securities (as hereinafter defined) in accordance with Section 11.2(b) of the Stock Purchase Agreement, the number of Warrant Shares issuable upon exercise of this Warrant shall, as of the date of such acquisition, be reduced in the manner specified in said Section 11.2(b) of the Stock Purchase Agreement. For the purposes hereof, "Securities" shall mean and include Common Shares, and any rights, options, warrants or other securities of the Company exercisable or exchangeable for, or convertible into Common Shares. SECTION 11. Fully Paid Shares; Taxes. The Company agrees that the ------------------------- Common Shares represented by each and every certificate for Warrant Shares delivered on the exercise of this Warrant in accordance with the terms hereof shall, at the time of such delivery, be validly issued, fully paid and nonassessable, free and clear of all liens, pledges, options, claims or other encumbrances. The Company further covenants and agrees that it will pay, when due and payable, any and all Federal and state stamp, original issue or similar taxes (but not including any income taxes) which may be payable in respect of the issue of any Warrant Shares or certificates therefor. SECTION 12. Lost, Stolen or Destroyed Warrants. In the event that ----------------------------------- the Holder shall notify the Company that this Warrant has been lost, stolen or destroyed and either (a) provides a letter, in form satisfactory to the Company, to the effect that it shall indemnify the Company from any loss incurred by the Company in connection therewith, and/or (b) provides an indemnity bond in such amount as shall be reasonably required by the Company, the Company having the option of electing either (a) or (b) or both, the Company may, in its sole discretion, accept such letter and/or indemnity bond in lieu of the surrender of this Warrant as required by Section 1 hereof. SECTION 13. Notices. All notices hereunder shall be in writing and -------- shall be given: (a) if to the Company, at One Ram Ridge Road, Spring Valley, New York 10977 (attention: Kenneth I. Sawyer), fax number: (914) 425-5097, or such other address or fax number as the Company has designated in writing to the Holder, or (b) if to the Holder, at Clal House, 5 Druyanov Street, Tel Aviv 63143, Israel (attention: Zeev Zahavi), fax number: (011-972-3) 293633, with a copy to Proskauer Rose Goetz & Mendelsohn 7 LLP, 1585 Broadway, New York, New York 10036 (attention: Jeffrey A. Horwitz, Esq.), fax number: (212) 969-2900, or such other address or fax number as the Holder shall have designated in writing to the Company. Any notice shall be deemed to have been given if personally delivered or sent by express commercial courier or delivery service or by telegram, telefax, telex or facsimile transmission. Any notice given in any other manner shall be deemed given when actually received. SECTION 14. Amendments; Waiver. This Warrant may not be amended or ------------------- terminated, and no provision hereof may be waived, except pursuant to a written instrument executed by the Company and the Holder. SECTION 15. Headings. The headings of the Sections of this Warrant --------- have been inserted for convenience of reference only and shall not be deemed to be a part of this Warrant. SECTION 16. Applicable Law. This Warrant is issued under, and shall --------------- be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly within. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, on May 1, 1995. PHARMACEUTICAL RESOURCES, INC. By /s/Kenneth I. Sawyer ------------------------------ Kenneth I. Sawyer President Attest: /s/Robert I. Edinger ------------------------- Robert I. Edinger Secretary 8 PHARMACEUTICAL RESOURCES, INC. WARRANT EXERCISE FORM --------------------- The undersigned hereby irrevocably elects to exercise the within Warrant dated _____________, 1995, and expiring on ______________, 1998, to the extent of purchasing ___________ shares of common stock of Pharmaceutical Resources, Inc. The undersigned hereby makes a payment of $__________ in payment therefor. ------------------------------ Name of Holder ------------------------------ Signature of Holder or Authorized Representative ------------------------------ Name and Title of Authorized Representative ------------------------------ Address of Holder ------------------------------ Date EX-10.4 5 REGISTRATION RIGHTS AGREEMENT Exhibit 10.4 REGISTRATION RIGHTS AGREEMENT, dated May 1, 1995, between PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the "Company"), and CLAL PHARMACEUTICAL INDUSTRIES LTD., a corporation formed under the laws of the State of Israel (the "Holder"). WHEREAS, the Holder has purchased shares of common stock, par value $.01 per share, of the Company ("Common Stock") pursuant to a Stock Purchase Agreement, dated March 25, 1995, between the Company and the Holder (the "Stock Purchase Agreement") and may purchase additional shares of Common Stock upon exercise of the Warrant and the Additional Warrant (as such terms are defined in the Stock Purchase Agreement) (collectively referred to herein as the "Warrants" and each as a "Warrant"); and WHEREAS, the Stock Purchase Agreement provides that the execution and delivery of this Agreement is a condition precedent to the obligation of the Holder to consummate such Stock Purchase Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual agreements set forth herein, the parties hereto agree as follows: SECTION 1. Demand Registration. -------------------- 1.1 The Company agrees that, upon receiving a written request (the "Request") from the Holder to register under the Securities Act of 1933 (the "Securities Act") and under the securities laws of a reasonable number of states specified by the Holder in the Request (the "Specified States") a specified number of shares of Subject Stock (as hereinafter defined), which number may be all or part of the Subject Stock then owned by the Holder, the Company shall, as soon thereafter as practicable, file with the Securities and Exchange Commission (the "Commission") on the appropriate form a registration statement, together with any requisite registration statements or applications under the securities laws of the Specified States, covering the number of shares of Subject Stock specified in the Request. The Company, under no circumstances, shall be required to make more than two effective filings of a registration statement under this Section 1; provided, however, that beginning at such time, if ever, -------- ------- as the Holder shall exercise the Warrant which shall be dated the date hereof, in whole or in part, the Company shall be obligated to effect one additional registration pursuant to this Section 1 following the Holder's delivery of a Request and, provided further, that -------- ------- 2 the Holder may not deliver more than one Request during any 12 month period. The Company may, in its sole discretion, include additional shares of Common Stock in such registration statement, provided that the inclusion of any such shares shall not reduce the number of shares of Subject Stock contained in the Request. 1.2 "Subject Stock" shall mean the number of shares of Common Stock owned by the Holder which shall have been purchased by the Holder (a) under the Stock Purchase Agreement at the Closing (as such term is defined therein), (b) upon any exercise of the Warrants or (c) in any other manner. "Registration statement" means all registration statements, including all prospectuses contained therein and all amendments or supplements thereto, or any applications filed under the Securities Act or under the securities laws of the applicable states. 1.3 The Company agrees that it shall use its best efforts to cause the registration statement including the shares of Subject Stock to become effective under the Securities Act and under the securities laws of the Specified States. The Company shall further use its best efforts to maintain the effectiveness of such registration statement for such period as may be reasonably necessary to complete the distribution of the Subject Stock, subject to the limitations set forth in Section 4 hereof. 1.4 If the method of disposition requested by the Holder pursuant to this Section 1 shall be an underwritten public offering, the Holder shall have the right to designate the underwriter of such offering. Any underwriter selected by the Holder shall be subject to the approval of the Company, which approval shall not be unreasonably withheld (the "Underwriter"). The Company will join the Holder in entering into an underwriting agreement and related agreements with the Underwriter, which shall be in form and substance reasonably satisfactory to the Company but to contain terms and provisions typically contained in the underwriting agreements utilized by such Underwriter in connection with comparable public offerings, including an indemnification of the Underwriter by the Company. 1.5 All expenses, disbursements, fees (filing fees and others), legal and accounting expenses, and other costs of every kind and nature incurred or borne by the Company and the Holder in connection with a registration requested under this Section 1 (both under the Securities Act and under the securities laws of the Specified States) shall be paid by the Holder; provided, however, -------- ------- that if the Company shall include any shares of Common Stock in any such registration, then the Company shall reimburse the Holder, 3 within ten days following the Holder's written request, for the Company's pro rata share of any underwriting discounts, commissions, filing fees, other fees and transfer taxes on the sale of any shares, based on the number of shares of Common Stock included by the Company in such registration as compared to the total number of shares of Common Stock being registered. SECTION 2. Piggyback Registration. ----------------------- 2.1 The Company agrees that, on each occasion that it shall propose to file a registration statement covering shares of Common Stock, whether on its own behalf or at the request of any other stockholder of the Company (other than a registration statement on Form S-4 or Form S-8 under the Securities Act), with the Commission or under the laws of any state jurisdiction, the Company shall give written notice ("Piggyback Notice") of such proposed filing to the Holder at least forty days prior to such filing. Upon the written request of the Holder, given within fourteen days after the date of the Piggyback Notice, the Company shall use its best efforts to include in any such filing such number of shares of Subject Stock that shall be requested by the Holder, subject to limitations as to the number of shares of Subject Stock that may be imposed by the Company's underwriter; provided, however, that if such registration -------- ------- statement is being filed at the request of another stockholder of the Company, then the maximum number of shares of Subject Stock included in such registration shall be equal to the lesser of (a) the aggregate number of shares of the Common Stock to be included in such registration multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock owned by the Holder on the date of the Piggyback Notice and the denominator of which shall be the aggregate number of shares of Common Stock that are issued and outstanding on such date, or (b) the number of shares of the Common Stock that the Holder shall have requested to have included in such registration. 2.2 The Company agrees that it shall use its best efforts to cause the registration statement including the shares of Subject Stock to become effective under the Securities Act and under the securities laws of a reasonable number of states specified by the Holder. The Company shall further use its best efforts to maintain the effectiveness of such registration statement for such period as may be reasonably necessary to complete the distribution of the Subject Stock, subject to the limitations set forth in Section 4 hereof. 4 2.3 The Holder shall pay all fees and expenses of its counsel and accountants who shall not also be representing the Company, and shall reimburse the Company for certain additional expenses incurred by the Company as set forth in this Section 2.3. The Company shall pay all expenses, disbursements, fees (filing and others), legal and accounting and other costs of every kind and nature incurred or borne by the Company in connection with such a registration requested under this Section 2 (both under the Securities Act and under the laws of the states in which shares of the Subject Stock are being sold), except that the Holder shall promptly reimburse the Company for all such expenses using the ratio of net cash received by the Holder to the total amount of net cash received by the Company and any other sellers of shares of Common Stock under such registration statement unless the Company shall have otherwise agreed to bear such expenses on behalf of any other stockholder of the Company for whom shares of Common Stock are being included in such registration. SECTION 3. Holdback Agreement; Limitation on Resales. (a) If the ------------------------------------------ Company at any time shall register shares of Common Stock under the Securities Act for sale to the public, the Holder shall not sell publicly, make any short sale, or grant any option for the purchase of, or otherwise dispose publicly of, any of the shares of Subject Stock (other than Subject Stock included in a registration statement pursuant to Sections 1 or 2 hereof), without the prior written consent of the Company, for a period designated by the Company in writing to the Holder, which period shall begin not more than ten days prior to the effectiveness of the registration statement pursuant to which such public offering shall be made and shall terminate at such time as similar restrictions imposed on directors and executive officers of the Company shall terminate; provided, however, that, in no event, shall such restrictions last more than 180 - - - - -------- ------- days after the effective date of such registration statement. (b) During the Consent Period (as such term is defined in the Stock Purchase Agreement), the Holder shall not sell, transfer or otherwise dispose of shares of Common Stock registered pursuant to this Agreement constituting 3% or more of the issued and outstanding shares of Common Stock at the time of such sale, transfer or disposition, to any one person or entity or group of related persons or entities in one transaction or series of related transactions, notwithstanding anything herein to the contrary. SECTION 4. Preparation and Filing. Whenever the Company shall be ----------------------- under an obligation pursuant to this Agreement to use its best efforts to effect the registration 5 of the shares of Subject Stock, the Company and the Holder agree as follows: (a) The Company shall, in no event, be required to keep such registration effective for longer than nine months after the effective date or during any period in which the trading of any shares of Common Stock shall be suspended for any reason by the Commission. (b) The Company shall use its best efforts to cause all shares of Subject Stock registered pursuant to Sections 1 or 2 hereof to be listed for trading on each securities exchange or other securities market on which the shares of Common Stock shall then be listed. (c) The Company may require the Holder to promptly furnish in writing to the Company such information regarding the distribution of the shares of Subject Stock as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration. (d) The Company shall supply the Holder with such number of copies of registration statements, and amendments and supplements thereto, and any prospectus relating thereto as may be reasonably requested by the Holder, and will supply such Holder with copies of any preliminary and final prospectus filed in connection therewith that may be reasonably required and, if necessary, with copies of a prospectus meeting the requirements of Section 10(a)(3) of the Securities Act; provided, however, that no such -------- ------- prospectus need be supplied more than nine months after the effective date of any such registration statement. (e) The Company shall not be required in connection with any qualification of the shares of Subject Stock to be sold within any state jurisdiction to qualify to do business as a foreign corporation in any state, to execute a general consent to service of process, to subject itself to taxation or to any unreasonable regulatory requirements or unreasonable expenses, but shall execute and deliver consents to service of process in the Specified States as to matters relating to the sale of the shares of Subject Stock in such States. (f) The Company shall promptly notify the Holder of any stop order issued or threatened by the Commission or any state regulatory authority with respect to any registration statement covering the 6 shares of Subject Stock and shall take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (g) The Company shall promptly notify the Holder of the occurrence of any event which shall require the filing of an amendment or supplement to any registration statement and prospectus covering the shares of Subject Stock. Upon receipt of such notice, the Holder shall refrain from the sale of any shares of Subject Stock pursuant to such registration statement and prospectus until the receipt by such Holder of copies of the supplemented or amended registration statement and prospectus. SECTION 5. Information. The Holder agrees that, promptly upon the ------------ request of the Company, it shall furnish to the Company such information regarding itself and its Affiliates, as such term is defined in Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act"), and its holdings of shares of the Subject Stock as the Company shall specify in such request and as shall be required in connection with any registration statement, proxy or other reporting requirements of the Company. The Holder further agrees to cooperate with the Company in any way reasonably necessary to accomplish any such registration hereunder and, when participating in any such registration, to comply with all of the requirements of the Securities Act and the securities laws of the states in which the shares of Subject Stock are being sold, including delivery by the Holder to any purchaser of the shares of Subject Stock of a copy of any required prospectus. Notwithstanding anything herein to the contrary, the Holder further agrees that it indemnify the Company and hold it harmless from and against any liability, loss, cost or damage, including attorneys' fees, incurred by the Company as a result of any failure on the Holder's part to carry out the foregoing agreement. SECTION 6. Indemnification. ---------------- 6.1 Indemnitors; Indemnified Persons. For purposes of this Section --------------------------------- 6, each party which, pursuant to this Section 6, agrees to indemnify any other person or entity shall be referred to, as applicable, as the "Indemnitor" with respect to such persons and entities, and each such person and entity who is indemnified shall be referred to as the "Indemnified Person" with respect to such Indemnitor. 6.2 Company Indemnity. The Company hereby agrees to indemnify and ----------------- hold harmless each of the Holder, and its directors, officers, employees, agents and controlling persons (within the meaning of Section 15 of the Securities 7 Act or Section 20(a) of the Exchange Act), from and against any and all claims, liabilities, losses, damages and expenses (including reasonable attorneys' fees and disbursements) asserted against or incurred by any such Indemnified Person which shall be caused by any untrue statement of a material fact contained in any registration statement or prospectus relating to the Subject Stock, including any amendment or supplement thereto, or shall be caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities and expenses shall be caused by any untrue statement or omission based upon information furnished in writing to the Company by the Holder or on the Holder's behalf expressly for use therein. 6.3 Holder Indemnity. The Holder hereby agrees to indemnify and hold ---------------- harmless each of the Company, and its directors, officers, employees, agents and controlling persons (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act), from and against any and all claims, liabilities, losses, damages and expenses (including reasonable attorneys' fees and disbursements) asserted against or incurred by any such Indemnified Person to the same extent as the foregoing indemnity from the Company to the Holder, but only with reference to information relating to the Holder furnished in writing by the Holder or on the Holder's behalf expressly for use in any registration statement or prospectus relating to the Subject Stock or any amendment or supplement thereto. The total amount payable by the Holder pursuant to this Section 6.3 shall not exceed an amount equal to the number of shares sold by the Holder in the registered offering that give rise to any such claim for indemnity multiplied by the selling price per share. 6.4 Defense. Promptly after receipt by an Indemnified Person of ------- notice of any claim or demand or the commencement of any action or proceeding with respect to which indemnification may be sought hereunder, such Indemnified Person shall notify the Indemnitor of such claim or demand or the commencement of such action or proceeding, but failure so to notify the Indemnitor shall not relieve the Indemnitor from any liability which the Indemnitor may have hereunder or otherwise, unless the Indemnitor shall be materially prejudiced by such failure. If the Indemnitor shall so elect, the Indemnitor shall assume the defense of such claim, demand, action or proceeding, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall pay the fees and disbursements of such counsel. In the event, however, that such Indemnified Person shall reasonably determine in its 8 judgment that having common counsel would present such counsel with a conflict of interest or alternative defenses shall be available to an Indemnified Person or if the Indemnitor shall fail to assume the defense of the claim, demand, action or proceeding in a timely manner, then such Indemnified Person may employ separate counsel to represent or defend such Person against any such claim, demand, action or proceeding and the Indemnitor shall pay the reasonable fees and disbursements of such counsel; provided, however, that the Indemnitor shall -------- ------- not be required to pay the fees and disbursements of more than one separate counsel for all Indemnified Persons in any jurisdiction in any single action or proceeding. For any claim, demand, action or proceeding the defense of which the Indemnitor shall assume, the Indemnified Person shall have the right to participate therein and to retain its own counsel at such Indemnified Person's own expense, so long as such participation shall not interfere with the Indemnitor's control of such claim, demand, action or proceeding. The Indemnitor shall not, without the prior written consent of the Indemnified Person, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder unless such settlement, compromise or consent shall include an unconditional release of such Indemnified Person from all liability arising out of such claim, demand, action or proceeding. 6.5 Contribution. If the indemnification in this Section 6 shall be ------------- held by a court to be unavailable to an Indemnified Person with respect to any claim, liability, loss, damage or expense referred to herein, then the Indemnitor shall contribute to the amounts paid or payable by such Indemnified Person as a result of such claim, liability, loss, damage or expense in such proportion as is appropriate to reflect the relative benefits and also the relative fault of the Indemnitor, on the one hand, and the Indemnified Party, on the other, in connection with the transactions giving rise to such claim, liability, loss, damage or expense, as well as any other relevant equitable considerations. The relative benefits received by the Indemnitor, on the one hand, and the Indemnified Party, on the other, shall be deemed to be in the same proportion as the total net proceeds from the sale of Common Stock under the registration statement or prospectus (before deducting expenses) received by the Indemnitor shall bear to the total net proceeds from such sale received by the Indemnified Person. The relative fault of the Indemnitor and of the Indemnified Person shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact shall relate to information supplied by the Indemnitor or by the 9 Indemnified Person and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holder agree that it would not be just and equitable if contribution were determined by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the foregoing, (a) the total amount payable by the Holder pursuant to this Section 6.5 shall not exceed an amount equal to the number of shares sold by the Holder in the registered offering that give rise to any such claim for contribution multiplied by the selling price per share and (b) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of fraudulent misrepresentation. SECTION 7. Termination. This Agreement shall terminate upon the sale ------------ or disposition of beneficial ownership by the Holder of all shares of the Subject Stock; provided, however, this Agreement shall continue in effect as to -------- ------- any indemnification and payment or reimbursement obligations herein. SECTION 8. Miscellaneous. ------------- 8.1 Assignment. All terms and provisions of this Agreement shall be ---------- binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party hereto without the prior written consent of the other party; provided, however, that -------- ------- the Holder may assign this Agreement to any permitted assignee under Section 15.2 of the Stock Purchase Agreement without the Company's written consent so long as (i) such assignee shall agree to assume and agree to be bound by all of the Holder's obligations hereunder and (ii) the Holder shall not be relieved of its primary liability to the Company for all of the Holder's obligations set forth herein. 8.2 Entire Agreement. This Agreement and the other agreements ---------------- referred to herein or delivered pursuant hereto contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 8.3 Notices. All notices hereunder shall be in writing and shall be ------- given: (a) if to the Company, at One Ram Ridge Road, Spring Valley, New York 10977 (attention: 10 Kenneth I. Sawyer), fax number: (914) 425-5097, or such other address or fax number as the Company shall have designated in writing to the Holder, or (b) if to the Purchaser, at Clal House, 5 Druyanov Street, Tel Aviv 63143, Israel (attention: Ze'ev Zehavi), fax number: (011-972-3) 293633, with a copy to Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036 (attention: Jeffrey A. Horwitz, Esq.), fax number: (212) 969-2900, or such other address or fax number as the Holder shall have designated in writing to the Company. Any notice shall be deemed to have been given if personally delivered or sent by express commercial courier or delivery service or by telegram, telefax, telex or facsimile transmission. Any notice given in any other manner shall be deemed given when actually received. 8.4 Amendments; Waiver. This Agreement may not be amended or ------------------ terminated, and no provision hereof may be waived, except pursuant to a written instrument executed by the Company and the Holder. 8.5 Counterparts. This Agreement may be executed in any number of ------------ counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 8.6 Headings. The headings of the Sections of this Agreement have -------- been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 8.7 Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly therein. 8.8 Severability. If any term or provision hereof shall be invalid or ------------ unenforceable, (i) the remaining terms and provisions hereof shall be unimpaired, (ii) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction and (iii) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision as determined by a court to be valid and enforceable and to express the intention of the parties with respect to the invalid or unenforceable term or provision. 11 IN WITNESS WHEREOF, each of the undersigned has caused this Registration Rights Agreement to be executed as of the date first written above. PHARMACEUTICAL RESOURCES, INC. By /s/ Kenneth I. Sawyer --------------------------- Kenneth I. Sawyer, President CLAL PHARMACEUTICAL INDUSTRIES LTD. By /s/Mony Ben-Dor, Director --------------------------- By /s/Ze'ev Zehavi, President ---------------------------- EX-10.5 6 LIMITED PARTNERSHIP AGREEMENT Exhibit 10.5 ================================================================================ ---------------------------------------------- CLAL PHARMACEUTICAL RESOURCES L.P. (AN ISRAELI LIMITED LIABILITY PARTNERSHIP) ---------------------------------------------- LIMITED PARTNERSHIP AGREEMENT ================================================================================ CLAL PHARMACEUTICAL RESOURCES L.P. LIMITED PARTNERSHIP AGREEMENT Table of Contents ----------------- ARTICLE I. DEFINED TERMS 1.1. Definitions.................................... 1 1.2. Currency....................................... 3 ARTICLE II. ORGANIZATION 2.1. Formation of the Partnership................... 4 2.2. Name........................................... 4 2.3. Place of Business and Office................... 4 2.4. Purpose........................................ 4 2.5. Term........................................... 5 2.6. Qualification in Other Jurisdictions........... 5 ARTICLE III. CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 3.1. Capital Contributions.......................... 5 3.2. Sharing Percentages............................ 6 3.3. Partner Loans.................................. 7 3.4. No Partition................................... 8 3.5. Capital Accounts............................... 8 3.6. Grants......................................... 8 ARTICLE IV. ALLOCATIONS AND DISTRIBUTIONS 4.1. Allocations of Net Income and Net Loss......... 8 4.2. Distributions.................................. 10 4.3. Changes in Sharing Percentages................. 10 4.4. Tax Elections.................................. 11 4.5. Withholding.................................... 11 i ARTICLE V. RIGHTS AND DUTIES OF THE GENERAL PARTNER 5.1. Management Power............................... 11 5.2. Restrictions on the Authority of the General Partner........................................ 13 5.3. Duties and Obligations of the General Partner........................................ 13 5.4. Other Business of Partners..................... 14 ARTICLE VI. RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS 6.1. No Participation in Management................. 14 6.2. No Authority to Act............................ 14 6.3. Liability of Limited Partners.................. 15 6.4. Representations and Indemnification............ 15 ARTICLE VII. TRANSFERABILITY OF INTERESTS; BUY/SELL 7.1. Transferability of Interests................... 16 7.2. Buy/Sell....................................... 17 7.3. Withdrawals of Partners........................ 18 ARTICLE VIII. DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP 8.1. Dissolution.................................... 19 8.2. Liquidation.................................... 19 8.3. Incorporation of the Partnership............... 21 ARTICLE IX. RECORDS AND ACCOUNTING; FISCAL AFFAIRS 9.1. Records and Accounting......................... 22 9.2. Tax Information................................ 22 9.3. Financial Reporting............................ 22 ii ARTICLE X. MISCELLANEOUS 10.1. Notices........................................ 23 10.2. Entire Agreement; Amendments................... 23 10.3. Confidentiality................................ 23 10.4. Applicable Law................................. 24 10.5. Headings, etc.................................. 24 10.6. Binding Provisions............................. 24 10.7. No Waiver...................................... 24 10.8. Severability................................... 24 10.9. Counterparts................................... 25 10.10. Further Assurances............................. 25 10.11. Arbitration.................................... 25 10.12. Announcements and Publications................. 25 iii LIMITED PARTNERSHIP AGREEMENT OF CLAL PHARMACEUTICAL RESOURCES L.P. LIMITED PARTNERSHIP AGREEMENT dated as of May 1, 1995, between Clal Pharmaceutical Resources (1995) Ltd., an Israeli private company limited by shares, as the General Partner, and C.T.P. Research and Development (1995) Ltd., an Israeli private company limited by shares ("C.T.P."), and PRI-Research, Inc., a Delaware corporation ("PRI-Research"), as the Limited Partners. WHEREAS, Pharmaceutical Resources, Inc., a New Jersey corporation ("PRI"), owning all of the issued and outstanding shares of PRI-Research, and Clal Pharmaceutical Industries Ltd., an Israeli private company limited by shares ("CPI"), owning all but one of the 100 issued and outstanding shares of C.T.P., entered into a Stock Purchase Agreement dated March 25, 1995 (the "SPA"); WHEREAS, PRI and CPI, pursuant to the SPA, each agreed that either they or their subsidiaries would enter into a joint venture substantially in accordance with a Term Sheet annexed as Exhibit C to the SPA; and WHEREAS, the General Partner and the Limited Partners (collectively, the "Partners") desire to enter into this Agreement to provide for the formation of Clal Pharmaceutical Resources L.P. (the "Partnership") as a limited liability partnership under Israeli law and to set forth their respective rights, obligations and duties as Partners in the Partnership. NOW, THEREFORE, the Partners, in consideration of the mutual covenants herein contained, hereby covenant and agree as follows: ARTICLE I. DEFINED TERMS 1.1. Definitions. The following defined terms used in this Agreement ----------- shall, unless the context otherwise requires, have the meanings specified in this Article I. "Affiliate" shall mean, with respect to C.T.P., CPI, Clal Industries Ltd., an Israeli corporation, and any direct or indirect wholly-owned subsidiaries thereof or of CPI or C.T.P., and shall mean, with respect to PRI- Research, PRI and any direct or indirect majority owned subsidiaries thereof. "Agreement" shall mean this Limited Partnership Agreement, as amended, modified, supplemented, or restated from time to time. "Americas" shall mean North America, South America, Central America and the Caribbean. "ANDAs" shall mean Abbreviated New Drug Applications pursuant to and under applicable FDA rules and regulations. "Buy/Sell Procedure" shall mean the procedure described in Section 7.2 hereof. "Capital Account" shall mean the capital account of each Partner described in Section 3.5 hereof. "Capital Contribution" shall mean the total amount of money and the net fair market value of any property contributed to the Partnership by a Partner or Partners. "CPI" shall mean Clal Pharmaceutical Industries Ltd., an Israeli private company limited by shares. "C.T.P." shall mean C.T.P. Research and Development (1995) Ltd., an Israeli private company limited by shares. "Fiscal Year" shall mean the fiscal year of the Partnership specified in Section 9.1(b) hereof. "General Partner" shall mean Clal Pharmaceutical Resources (1995) Ltd., an Israeli private company limited by shares. "Interest" shall mean the entire ownership interest of a Partner in the Partnership at any particular time, including the right of such Partner to any and all benefits to which a Partner may be entitled as provided in this Agreement, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement. "Limited Partners" shall mean C.T.P., PRI-Research and any other Person admitted as a limited partner of the Partnership, as provided herein, in such Person's capacity as a limited partner of the Partnership. "NDAs" shall mean New Drug Applications pursuant to and under applicable rules and regulations of the United States Food and Drug Administration. "Net Income" or "Net Loss" shall mean, for each Fiscal Year, an amount equal to the Partnership's net income 2 or loss for such Fiscal Year, as determined in accordance with Israeli generally accepted accounting principles; provided, however, that upon distribution of any -------- ------- asset by the Partnership, the difference between the adjusted basis and the fair market value (as determined in accordance with this Agreement) of such asset shall be taken into account as an item of Net Income or Net Loss. "Partners" shall mean both the General Partner and the Limited Partners. "Partnership" shall mean the limited liability partnership governed hereby, as such limited partnership may from time to time be constituted. "Partnership Ordinance" shall mean the Israel Partnership Ordinance (New Version) 1975, as amended from time to time. "Person" shall mean any individual, partnership, corporation, unincorporated organization or association, limited liability company, trust or other entity. "PRI" shall mean Pharmaceutical Resources, Inc., a New Jersey corporation. "Sharing Percentages" shall mean those percentages specified in Section 3.2(a) hereof, as adjusted from time to time pursuant to Section 3.2(b) hereof. "SPA" shall mean the Stock Purchase Agreement dated March 25, 1995, between CPI and PRI. 1.2. Currency. The principal currency of the Partnership shall be -------- the New Israeli Shekel (NIS). All Capital Contributions, distributions or payments to or from any party hereunder, including, without limitation, the Capital Contributions denominated in United States Dollars in Section 3.1 hereof, may be made either in United States Dollars or in the NIS equivalent thereof, determined based upon the prevailing representative exchange rate determined by The Bank of Israel at 12:00 P.M., Tel Aviv time, on the Israeli business day before such capital contribution, distribution or payment is made. 3 ARTICLE II. ORGANIZATION 2.1. Formation of the Partnership. The Partners hereby agree to form ---------------------------- the Partnership as a limited liability partnership in accordance with the laws of the State of Israel, by filing a notice with the Israeli Registrar of Partnerships. The Partners agree to continue the business of the Partnership for the period and on the terms and conditions set forth herein. 2.2. Name. The name of the Partnership shall be Clal Pharmaceutical ---- Resources L.P. The Hebrew name of the Partnership shall be Clal Mashabim Pharmazebtiem S.M. The business of the Partnership may be conducted, upon compliance with all applicable laws, under any other name agreed to in writing by the Partners. C.T.P. and its Affiliates shall retain the exclusive right to use the "Clal" name, and PRI-Research and its Affiliates shall retain the exclusive right to use the "Pharmaceutical Resources" name, in connection with all activities or operations outside of the Partnership. Upon the withdrawal of C.T.P. from the Partnership for any reason, the "Clal" name shall be deleted from the Partnership's name, and upon the withdrawal of PRI-Research from the Partnership for any reason, the word "Resources" shall be deleted from the Partnership's name. 2.3. Place of Business and Office. The Partnership shall maintain ---------------------------- its principal office at 5 Druyanov Street, Tel Aviv, Israel. The General Partner may, at any time, change the location of the Partnership's principal office and may establish additional offices, both inside and outside the State of Israel, if it shall deem it advisable, after notice shall have been given to the Limited Partners. The Partnership's research and development facilities shall be primarily based in Israel, but the General Partner may, with the prior unanimous written consent of the Limited Partners, establish additional facilities outside Israel as it shall deem necessary or advisable for the Partnership's operations. 2.4. Purpose. The Partnership, subject to the terms hereof, is ------- organized to engage in the research and development of generic pharmaceutical products, including, without limitation, solids, creams, ointments, suppositories and sustained release products, and to engage in such other related activities, including, without limitation, the manufacture and distribution of such products, as the General Partner may determine from time to time in accordance with Section 5.2(a)(ii) hereof. 4 2.5. Term. The term of the Partnership shall commence upon its ---- formation in accordance with Israeli law, and shall continue through December 31, 2035, unless dissolved prior thereto pursuant to the provisions hereof. 2.6. Qualification in Other Jurisdictions. The General Partner shall ------------------------------------ use its best efforts to cause the Partnership to be qualified to do business in each jurisdiction where the activities of the Partnership require such qualification under applicable law, except where the failure to be so qualified would not be materially adverse to the Partnership or its business. ARTICLE III. CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 3.1. Capital Contributions. (a) Upon the formation of the --------------------- Partnership under Israeli law, the General Partner shall make a Capital Contribution to the Partnership in the amount of $40,000, and C.T.P. and PRI- Research shall make Capital Contributions to the Partnership in the amounts of $2,019,600 and $1,940,400, respectively. (b) The Partners shall make the following additional Capital Contributions: (i) On the first anniversary of the date hereof, the General Partner shall make a Capital Contribution to the Partnership in the amount of $60,000, and C.T.P. and PRI-Research shall make Capital Contributions to the Partnership in the amounts of $3,029,400 and $2,910,600, respectively. (ii) On the second anniversary of the date hereof, the General Partner shall make a Capital Contribution to the Partnership in the amount of $50,000, and C.T.P. and PRI-Research shall make Capital Contributions to the Partnership in the amounts of $2,524,500 and $2,425,500, respectively. (c) All Capital Contributions pursuant to Section 3.1(b) hereof shall be made in cash, unless the Partners shall unanimously agree otherwise. In the event that the Partners shall agree to accept loans from a Partner or a guaranty of third-party debt by a Partner in lieu of Capital Contributions pursuant to Section 3.1(b) hereof, such loans or guarantees shall be treated as Capital Contributions for purposes of this Section 3.1 and, except as provided in Section 3.3(a) hereof, for purposes of Section 3.2(b) hereof, but for no other purposes of this Agreement. 5 (d) Notwithstanding anything herein to the contrary, the Partners shall not be personally liable for the failure to make any Capital Contributions specified in Section 3.1(b) hereof. In the event of the failure of any Partner to make all or any portion of any such Capital Contributions, the sole remedies of the other Partners shall be as specified in Sections 3.2(b) and 3.3(a) hereof. (e) No additional Capital Contributions, other than those required pursuant to Sections 3.1(a) and (b) hereof, shall be made to the Partnership without the unanimous written consent of the Partners. Any such additional Capital Contributions shall, unless otherwise agreed, be made in proportion to the Partners' Sharing Percentages on the date thereof. 3.2. Sharing Percentages. (a) The initial Sharing Percentages of ------------------- the Partners shall be as follows: General Partner - 1.00%; C.T.P. - 50.49%; and PRI-Research - 48.51%. (b) Upon any failure of a Limited Partner to make all or any portion of any Capital Contributions specified in Section 3.1(b) hereof, the other Limited Partner shall be entitled to make all or any portion of such unpaid Capital Contributions on behalf of the first Limited Partner. Simultaneously with any Capital Contribution pursuant to Section 3.1(b) hereof or the first sentence of this Section 3.2(b), the Sharing Percentages of the Limited Partners shall be adjusted so that such Sharing Percentages shall be in proportion to the aggregate Deemed Contributions of each of such Limited Partners. For purposes hereof, a Limited Partner's "Deemed Contributions" shall equal the sum of (i) such Limited Partner's initial Capital Contributions pursuant to Section 3.1(a) hereof, (ii) any Proportional Contributions (as defined in Section 3.2(c) hereof) made by such Limited Partner, (iii) 200% of any Capital Contributions described in Section 3.1(b)(i) hereof made by such Limited Partner (on behalf of itself or on behalf of the other Limited Partner) to the extent such Capital Contributions do not constitute Proportional Contributions, and (iv) 111% of any additional Capital Contributions described in Section 3.1(b)(ii) hereof made by such Limited Partner (on behalf of itself or on behalf of the other Limited Partner) to the extent such Capital Contributions do not constitute Proportional Contributions. The General Partner's Sharing Percentage shall remain at 1.00% throughout the term of the Partnership. (c) For purposes of this Section 3.2, a Limited Partner's Capital Contributions shall be deemed to be "Proportional Contributions" only to the extent that the other Limited Partner shall make a corresponding Capital Contribution in proportion to its initial Sharing Percentage, 6 as set forth in Section 3.2(a) hereof. Capital Contributions pursuant to Section 3.1(a) hereof shall not be treated as Proportional Contributions for purposes of Section 3.2(b)(ii) hereof. (d) For purposes of illustration only, if, on the first anniversary of the date hereof, C.T.P. shall make its entire required Capital Contribution of $3,029,400, but PRI-Research shall make only $980,000 of its required Capital Contribution of $2,910,600, only $1,020,000 ($980,000 x 50.49% / 48.51%) of C.T.P.'s $3,029,400 Capital Contributions would constitute Proportional Contributions. In such a situation, the aggregate Deemed Contributions of C.T.P. would be $7,058,400 ($2,019,600 + $1,020,000 + (200% x $2,009,400)) and the aggregate Deemed Contributions of PRI-Research would be $2,920,400 ($1,940,400 + $980,000), and their Sharing Percentages would be adjusted to 70.03% and 28.97%, respectively. 3.3. Partner Loans. (a) In the event that any Limited Partner (a ------------- "Defaulting Partner") shall fail to make all or any portion of any additional Capital Contributions described in Section 3.1(b) hereof, the other Limited Partner, to the extent it shall not have made a Capital Contribution pursuant to Section 3.2(b) hereof, shall be entitled to loan to the Partnership (i) all or any portion of the Capital Contributions that were not made by the Defaulting Partner, and (ii) all or any portion of its own required Capital Contributions that would not constitute Proportional Contributions. Any such loan shall be payable by the Partnership out of any cash flow from operations or any available refinancing proceeds and shall bear interest at one percentage point above the Prime Lending Rate announced by Citibank, N.A. from time to time. Notwithstanding the provisions of Section 3.1(c) hereof, any such loans shall not be treated as Capital Contributions for purposes of Section 3.2(b) hereof; provided, however, that a lending Partner who shall have made a loan pursuant to - - - - -------- ------- this Section 3.3(a) shall be entitled, at any time, to convert all or any portion of the principal amount of such loans to Capital Contributions for all purposes of this Agreement (including for purposes of Section 3.2(b) hereof). Any such conversion shall be effective on the date the Partnership and the Defaulting Partner shall receive notice thereof. (b) Loans from the Partners to the Partnership (other than loans described in Section 3.3(a) hereof) may be requested by the General Partner at any time. Such loans shall be on such terms as shall be agreed to by all the Partners and shall be offered by the General Partner to the Partners in proportion to their initial Sharing Percentages, 7 as set forth in Section 3.1(a) hereof. No Partner shall be required to make any loans to the Partnership. 3.4. No Partition. No Partner shall have the right to require ------------ partition of the Partnership's property or to compel the sale of the Partnership's assets or the dissolution of the Partnership. Except as otherwise specified herein, no Partner shall have the right to demand or receive cash or other property for its Interest prior to the liquidation of the Partnership. No interest will be paid on any Partner's Capital Contributions or Capital Account. 3.5. Capital Accounts. An individual Capital Account shall be ---------------- established and maintained for each Partner in accordance with this Section 3.5. Each Partner's Capital Account shall be credited with (i) such Partner's Capital Contributions and (ii) the amount of Net Income allocated to such Partner pursuant to Section 4.1(a) hereof. Each such Capital Account shall be debited with (i) the net fair market value of any property distributed to such Partner, as determined hereunder; (ii) the amount of any cash distributions to such Partner from the Partnership; and (iii) the amount of Net Loss allocated to such Partner pursuant to Section 4.1(b) hereof. Upon the transfer of any Interest, the transferee shall receive the portion of the Capital Account of the transferor attributable to the transferred Interest. 3.6. Grants. The Partnership shall take all reasonable actions ------ necessary to solicit and obtain grants from governmental bodies inside and outside Israel. The General Partner shall seek to have the activities of the Partnership classified as an "approved enterprise" by the Israeli Investment Center, and to obtain grants from the Chief Scientist of the Israeli Ministry of Industry and Trade. ARTICLE IV. ALLOCATIONS AND DISTRIBUTIONS 4.1. Allocations of Net Income and Net Loss. (a) For accounting -------------------------------------- purposes, Net Income for each Fiscal Year shall be allocated as follows: (i) First, to the General Partner to the extent of the aggregate amount of Net Loss, if any, previously allocated to it pursuant to Section 4.1(b)(iii) hereof which shall not have been offset by previous allocations of Net Income pursuant to this Section 4.1(a)(i); (ii) Next, among any Partners which shall have been allocated Net Loss pursuant to Section 4.1(b)(ii) hereof, 8 in proportion to, and to the extent of, the aggregate amount of such Net Loss previously allocated to each of them which shall not have been offset by previous allocations of Net Income pursuant to this Section 4.1(a)(ii); (iii) Next, among any Partners which shall have been allocated Net Loss pursuant to Section 4.1(b)(i) hereof, in proportion to, and to the extent of, the aggregate amount of such Net Loss previously allocated to each of them which shall not have been offset by previous allocations of Net Income pursuant to this Section 4.1(a)(iii); and (iv) Thereafter, among the Partners in proportion to their respective Sharing Percentages. (b) Net Loss for each Fiscal Year shall be allocated as follows: (i) First, among the Partners in proportion to their respective initial Sharing Percentages set forth in Section 3.2(a) hereof until such allocation shall cause or increase a negative balance in any Limited Partner's Capital Account; (ii) Next, to the General Partner and any Limited Partner that shall not have a negative balance in its Capital Account, in proportion to their respective Sharing Percentages, until such allocation shall cause a negative balance in such Limited Partner's Capital Account; and (iii) Thereafter, to the General Partner. (c) Each Partner's share of each item of the Partnership's income, gain, deduction, loss or credit for Israeli and United States income tax purposes shall be determined by the Partnership's accountants in accordance with the laws of such jurisdictions based, as closely as possible, on the allocations of Net Income and Net Loss contained herein. In the event that the Partnership shall incur any "Nonrecourse Liabilities" or "Partner Nonrecourse Debt", as such terms are defined under the Treasury Regulations promulgated pursuant to Section 704 of the United States Internal Revenue Code of 1986, as amended, the Partners shall amend the provisions of this Article IV to the extent necessary to allow the Limited Partners to claim "Nonrecourse Deductions" and "Partner Nonrecourse Deductions" for United States income tax purposes. 9 4.2. Distributions. (a) Each Limited Partner may, at any time or ------------- from time to time, by notice to the Partnership, request a distribution pursuant to this Section 4.2(a) for the purpose of paying any additional taxes (including estimated income tax payments) actually required to be paid within 45 days of the date of such request by such Limited Partner (or its consolidated tax group) with respect to any period in excess of the taxes that would have been due for such period if such Limited Partner had not been a Partner in the Partnership. Each such notice shall specify the type of tax and the amount (the "Tax Distribution Amount") of any such additional taxes. The General Partner shall cause the Partnership to distribute the Tax Distribution Amount to such Limited Partner, in cash, within thirty (30) days after any such distribution request. Simultaneously therewith, the General Partner shall cause the Partnership to distribute to each of the other Partners, an amount equal to the product of (i) the Tax Distribution Amount, and (ii) the ratio of such other Partner's Sharing Percentage to the Sharing Percentage of the Limited Partner that shall have requested the tax distribution (determined as of the date such distribution shall have been requested). (b) The General Partner shall cause the Partnership to distribute, in cash, within sixty (60) days after the close of each Fiscal Year, in addition to any distributions pursuant to Section 4.2(a) hereof, the amount of the Partnership's Excess Cash. For purposes hereof, the Partnership's "Excess Cash" shall be determined as of the last day of each Fiscal Year and shall equal the excess of (i) the amount of the Partnership's cash and cash equivalents on such date, over (ii) the sum of (A) the amount of the Partnership's anticipated future expenditures, as set forth in the budget described in Section 5.3(b) hereof, and (B) the amount of reasonable reserves for anticipated expenses, working capital, anticipated distributions pursuant to Section 4.2(a) hereof, or repayment of Partnership borrowings, as determined in good faith by the General Partner. Any distributions pursuant to this Section 4.2(b) shall be made among the Partners in proportion to their respective Sharing Percentages. (c) Notwithstanding Sections 4.2(a) and (b) above, upon dissolution of the Partnership, all liquidating distributions shall be made in the manner specified in Section 8.2 hereof. 4.3. Changes in Sharing Percentages. In the event of any change in ------------------------------ the Partners' Sharing Percentages during any Fiscal Year, any Net Income or Net Loss required to be allocated for such Fiscal Year in accordance with such Sharing Percentages shall be allocated (a) for the portion of such Fiscal Year through the close of the calendar quarter in which 10 such change shall occur, on the basis of the average of the Partners' Sharing Percentages as of the close of each calendar month during such period, and (b) for the remainder of such Fiscal Year, in accordance with the Partners' new Sharing Percentages. In the event of such a change, any distributions pursuant to Section 4.2(b) hereof with respect to such Fiscal Year shall be made among the Partners in proportion to amounts of Net Income allocated to each of them for such Fiscal Year (or, if there shall be no such Net Income, in proportion to the Partners' Sharing Percentages on the last day of such Fiscal Year). 4.4. Tax Elections. All matters concerning the allocation of tax ------------- items among the Partners, tax elections under either Israeli or United States law (except as may otherwise be required by either of such countries' income tax laws) and accounting procedures not expressly and specifically provided for by the terms of this Agreement shall be determined in good faith by the General Partner, in consultation with the Partnership's accountants, on a basis which shall be equitable among the Partners and such determination shall be final and conclusive as to all of the Partners. 4.5. Withholding. The Partnership shall have the right to deduct and ----------- withhold from any distributions hereunder, any taxes which the General Partner shall determine in good faith are required to be withheld therefrom. Any such withholding taxes shall be charged to the Capital Account of the Partner on whose behalf such taxes shall have been withheld. In the event that the Partnership shall be required to withhold any taxes on behalf of any Partner at any time other than the time of a distribution, the amount of such withholding shall be deemed to be a Tax Distribution Amount paid on behalf of such Partner and the other Partners shall be entitled to a simultaneous distribution in accordance with the last sentence of Section 4.2(a) hereof. ARTICLE V. RIGHTS AND DUTIES OF THE GENERAL PARTNER 5.1. Management Power. (a) Except as otherwise expressly provided ---------------- herein, the General Partner shall have full, exclusive and complete discretion in the management and control of the affairs of the Partnership, shall make all decisions affecting the Partnership's affairs and shall have all of the rights, powers and obligations of a general partner of a limited partnership under the Partnership Ordinance and otherwise as provided by law. The General Partner shall not 11 receive any compensation or fees for managing the Partnership or serving as general partner thereof. (b) Except as otherwise expressly provided herein, the General Partner shall have the right, power and authority to do on behalf of the Partnership all things which, in its sole judgment, shall be necessary or appropriate to manage the Partnership's affairs and fulfill the purposes of the Partnership, including by way of illustration and not by way of limitation, the power and authority from time to time to do the following: (i) to manage the Partnership's research and development and other activities; (ii) to employ and dismiss from employment any and all employees, agents, attorneys, accountants or consultants of the Partnership; (iii) to enter into, execute, amend, supplement, acknowledge and deliver any and all contracts, agreements or other instruments, including, but not limited to, contracts with one or more manufacturers, distributors, suppliers, or banks or trust companies, related to the Partnership's business; (iv) to establish and maintain one or more bank accounts for the Partnership in such bank or banks as the General Partner may, from time to time, designate as depositaries of the funds of the Partnership; (v) to borrow money and to repay, in whole or in part, any such borrowings; (vi) to designate and appoint one or more agents for the Partnership who shall have such authority as may be conferred upon them by the General Partner and who may perform any of the duties, and exercise any of the powers and authority conferred upon the General Partner hereunder, including, but not limited to, designation of one or more agents as authorized signatories on any bank accounts maintained by the Partnership; (vii) to establish and maintain the books and records of the Partnership in accordance with Section 9.1 hereof; (viii) to prepare an annual budget and business plan for the Partnership in the manner described in Section 5.3(b) hereof; 12 (ix) to solicit and obtain grants for the Partnership from governmental bodies inside and outside Israel; (x) to engage in legal action in the name of the Partnership and to prosecute, defend, settle or compromise all claims by or against third parties, and to execute all documents and make all representations, admissions and waivers in connection therewith; and (xi) to perform all normal business functions, and otherwise operate and manage the business and affairs of the Partnership, in accordance with, and as limited by, this Agreement. Notwithstanding anything to the contrary contained herein, the acts of the General Partner in carrying on the business of the Partnership as authorized herein shall bind the Partnership. 5.2. Restrictions on the Authority of the General Partner. (a) ---------------------------------------------------- Without the unanimous written consent of the Limited Partners, the General Partner shall not have the authority to: (i) do any act in contravention of this Agreement; (ii) cause the Partnership to research or develop any products other than those as shall be agreed in writing by all the Partners or to engage in any manufacturing, distribution or other related activities with respect to any products developed by the Partnership; and (iii) admit any other Person as a Partner, except as specified in Section 7.1 hereof. (b) The General Partner shall not perform any act that would subject any Limited Partner to liability as a general partner in any jurisdiction. 5.3. Duties and Obligations of the General Partner. (a) The General --------------------------------------------- Partner shall take all actions which may be necessary or appropriate for the continuation of the Partnership's valid existence as a limited liability partnership under the laws of the State of Israel and of each other jurisdiction in which such existence shall be necessary to protect the limited liability of the Limited Partners or to enable the Partnership to conduct its business. (b) On or before the commencement of each Fiscal Year of the Partnership, the General Partner shall prepare an annual budget reflecting the anticipated receipts and 13 expenditures of the Partnership for such Fiscal Year, and an annual business plan reflecting the anticipated activities and operations of the Partnership, including products to be developed, for such Fiscal Year. 5.4. Other Business of Partners. (a) Except as otherwise expressly -------------------------- provided herein or in the SPA and notwithstanding the provisions of Section 39 of the Partnership Ordinance: (i) no Partner and no Affiliate thereof shall be prohibited from engaging in or possessing any interest in other business ventures of any kind, nature or description, independently or with others, whether such ventures shall be competitive with the Partnership or otherwise; (ii) neither the Partnership nor any Partner shall have any rights or obligations by virtue of this Agreement or the relationship created hereby in or to such independent ventures or the income or profits or losses derived therefrom; and (iii) no Partner shall be obligated to present any such additional ventures to the Partnership and each Partner shall have the right to take for its own account (individually or as a shareholder, partner or fiduciary) any such additional opportunities. (b) Notwithstanding the provisions of Section 5.4(a) hereof, neither C.T.P. nor any of its Affiliates shall develop any product which shall have been researched or developed by the Partnership during the period in which C.T.P. or any of its Affiliates shall have been a Limited Partner, and neither PRI- Research nor any of its Affiliates shall develop any product which shall have been researched or developed by the Partnership during the period in which PRI- Research or any of its Affiliates shall have been a Limited Partner. ARTICLE VI. RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS 6.1. No Participation in Management. The Limited Partners shall have ------------------------------ no right to control and shall take no part in the management or control of the Partnership's business but may exercise the rights and powers of Limited Partners under this Agreement. The exercise of such rights and powers are deemed to relate to material matters related to the business of the Partnership or matters affecting the basic structure of the Partnership. 6.2. No Authority to Act. The Limited Partners shall have no power ------------------- to represent, act for, sign for or bind the Partnership. The Limited Partners hereby consent to the 14 exercise by the General Partner of the powers conferred on it by law and this Agreement. 6.3. Liability of Limited Partners. The liability of the Limited ----------------------------- Partners shall be limited in accordance with the Partnership Ordinance. 6.4. Representations and Indemnification. (a) Each Limited Partner ----------------------------------- hereby represents and warrants to the other Partners and the Partnership as follows: (i) It is a corporation duly organized, validly existing, and in good standing under the laws of the state of its formation. It has all requisite corporate power and authority to conduct its business and to enter into and perform its obligations under this Agreement in accordance with the terms hereof; (ii) It has taken all required corporate actions to approve and adopt this Agreement. This Agreement constitutes a duly authorized, valid and binding agreement on it and enforceable against it in accordance with its terms. Each person executing this Agreement on its behalf is duly authorized and empowered to do so; (iii) The execution and delivery of this Agreement and the consummation of the transactions as contemplated hereunder (A) do not, and will not, violate or conflict with any statute, regulation, judgment, order, writ, decree or injunction currently applicable to it or any of its property or assets; and (B) do not, and will not violate or conflict with its charter or By-laws and/or Memorandum and Articles of Association, or any existing mortgage, indenture, contract, licensing agreement, financing statement or other agreement binding on it; (iv) All required consents and approvals, as well as any approvals or consents of any governmental authorities or any other third parties in connection with the execution and delivery of this Agreement or the performance of the transactions contemplated hereunder, have been obtained by it, except for such filings or approvals required to be obtained from the Bank of Israel authorizing the exchange of New Israeli Shekels for United States Dollars and the transfer of such funds to the United States. No contract or agreement binding upon it restricts its ability to fulfill its obligations and responsibilities under this Agreement or to carry out the activities contemplated herein; and (v) It is not a party to or, to the best of its knowledge, threatened with any litigation or judicial or 15 administrative proceeding that, if decided adversely to it, would delay or preclude the consummation of the transactions contemplated in this Agreement or have a material adverse effect upon the transactions contemplated hereby. (b) PRI-Research hereby represents and warrants to the Partnership and the other Partners that all of its issued and outstanding shares of stock are owned by PRI and that no options, warrants or other instruments which are exercisable for, or convertible into, any shares of its capital stock have been issued to any Person. C.T.P. hereby represents and warrants to the Partnership and the other Partners that all of its 100 issued and outstanding shares of capital stock are owned by CPI, except that one share is owned by Clal Industries Ltd., and that no options, warrants or other instruments which are exercisable for, or convertible into, any shares of its capital stock have been issued to any Person. (c) Each Limited Partner agrees to indemnify and hold harmless the other Partners and the Partnership and their respective employees, agents and Affiliates against all losses, liabilities, claims, damages, and expenses (including, but not limited to, reasonable counsel fees) resulting from or arising out of any actual or alleged misrepresentation or breach by such Limited Partner of any representation or warranty set forth in this Section 6.4 or elsewhere in this Agreement. ARTICLE VII. TRANSFERABILITY OF INTERESTS; BUY/SELL 7.1. Transferability of Interests. (a) Except as provided in ---------------------------- Section 7.1(b) or Section 7.2 hereof, no Partner shall have the right to assign, transfer, sell, encumber, pledge or otherwise dispose of all or any portion of its Interest (a "Transfer") without the unanimous prior written consent of the other Partners, which consent may be granted or withheld by each Partner in its sole discretion. (b) Notwithstanding the provisions of Section 7.1(a) hereof, a Limited Partner may Transfer its Interest, in whole or in part, to one or more majority- owned subsidiaries, without obtaining the prior written consent of the other Partners; provided, however, that such Transfer shall not release such Limited -------- ------- Partner from its obligations hereunder; and, provided, further, that, as a -------- ------- condition to such Transfer, 16 each such subsidiary shall agree to be bound by the terms of this Agreement. (c) Each Limited Partner agrees that it will, upon the request of the General Partner, execute such certificates or other documents and perform such acts as the General Partner shall deem appropriate to preserve the limited liability of the Limited Partners under the laws of the jurisdictions in which the Partnership is doing business after any Transfer by that Limited Partner. Any purported Transfer in violation of the provisions of this Section 7.1 shall be null and void and shall not bind, or be recognized by, the Partnership. (d) Each Partner and each assignee thereof shall indemnify and hold harmless the Partnership, every other Partner and any Affiliate of the foregoing (each, an "Indemnified Person") against all losses, claims, damages, liabilities, costs and expenses (including reasonable counsel fees), joint or several, to which such Indemnified Persons may become subject by reason of or arising from any Transfer made by such Limited Partner in violation of this Section 7.1. 7.2. Buy/Sell. (a) Either Limited Partner may elect to institute the -------- Buy/Sell Procedure at any time after the third anniversary of the date hereof. Notwithstanding the foregoing, C.T.P. shall be entitled to institute the Buy/Sell Procedure at any time within two years after the occurrence of a "Third Party Transaction", as defined in Section 10.1(c) of the SPA, and PRI-Research shall not be entitled to institute the Buy/Sell Procedure during any period that C.T.P. or its Affiliates shall have a right to require PRI or any successors thereto to acquire C.T.P.'s Interest as a result of such a Third Party Transaction, pursuant to any effective agreement between PRI and CPI or their Affiliates. (b) In order to institute the Buy/Sell Procedure, a Limited Partner (the "Offeror") shall send the other Limited Partner (the "Offeree") a written notice (the "Buy/Sell Notice") specifying a value for the Partnership, net of liabilities (the "Net Value"). The Buy/Sell Notice shall contain an unconditional offer by the Offeror to either (i) purchase the entire Interest of the Offeree, together with all of the stock owned by the Offeree and its Affiliates in the General Partner, at the Offeree's Deemed Liquidation Value, or (ii) sell its entire Interest, together with all of the stock owned by it and its Affiliates in the General Partner, to the Offeree at the Offeror's Deemed Liquidation Value. For purposes hereof, a Limited Partner's "Deemed Liquidation Value" shall equal the sum of (A) the amount such Limited Partner would have received in respect of its Interest had the Partnership been liquidated and the Net Value been distributed 17 in cash in accordance with Section 8.2(b)(iv) hereof, plus (B) the product of (1) the amount the General Partner would have received in respect of its Interest had the Partnership been liquidated and the Net Value been distributed in cash in accordance with Section 8.2(b)(iv) hereof, and (2) the percentage of the General Partner's stock owned by such Limited Partner and its Affiliates. (c) The Offeree shall have 60 days after its receipt of the Buy/Sell Notice to accept the offer described in either clause (i) or clause (ii) of Section 7.2(b) hereof. If the Offeree shall not notify the Offeror, in writing, within such 60-day period that it shall have elected to accept the offer described in clause (ii) of such Section 7.2(b), the Offeree shall be conclusively deemed to have accepted the offer described in clause (i) thereof. (d) The closing of the purchase and sale of a Limited Partner's Interest and its (or its Affiliates') stock in the General Partner shall occur on a date designated by the Limited Partner purchasing such Interest and stock (the "Purchaser"), which date shall be no later than 120 days after the date of the Buy/Sell Notice. On the date of such closing, the Purchaser shall deliver the purchase price determined pursuant to Section 7.2(b) hereof to the Limited Partner selling its Interest (the "Seller"), in cash. In connection therewith, the Seller shall execute such documents as shall be necessary to convey its Interest to the Purchaser; and the Seller and/or its Affiliates shall deliver certificates representing all shares of stock owned by them in the General Partner to the Purchaser. The Interest and any stock in the General Partner sold to the Purchaser shall be conveyed free and clear of any liens, charges or encumbrances thereon (other than liens, charges or encumbrances placed thereon as a result of borrowings by the Partnership or the General Partner). (e) The Seller shall not solicit any employees of the Partnership or the General Partner (other than persons who are or were previously also employees of the Seller or its Affiliates) for a period of two years after the closing of any purchase and sale pursuant to the Buy/Sell Procedure. For purposes of the preceding sentence, the term "Affiliates" shall not include the Partnership or the General Partner. 7.3. Withdrawals of Partners. No Partner shall withdraw from the ----------------------- Partnership prior to the Partnership's dissolution except in connection with a transfer of such Partner's entire Interest pursuant to this Article VII. 18 ARTICLE VIII. DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP 8.1. Dissolution. The Partnership shall be dissolved upon the ----------- happening of any of the following events: (a) the expiration of its term; (b) the election of all the Partners to dissolve the Partnership; (c) the adjudication of bankruptcy of the Partnership; (d) the dissolution or adjudication of bankruptcy of the General Partner unless, within 90 days thereafter, Limited Partners holding at least 65% of the Sharing Percentages and 65% of the aggregate Capital Account balances on the date of the General Partner's dissolution or adjudication of bankruptcy, shall agree to continue the business of the Partnership and appoint a new General Partner; (e) the sale of all or substantially all of the assets of the Partnership for cash; and (f) any dissolution required by operation of law. 8.2. Liquidation. (a) Upon dissolution of the Partnership, the ----------- General Partner or a liquidator appointed by the General Partner shall wind up the affairs of the Partnership and liquidate its assets. (b) As soon as practicable after the date of dissolution of the Partnership, the Partnership's assets shall be distributed in the following manner and order: (i) the claims of all creditors of the Partnership who are not Partners shall be paid and discharged or adequately reserved against; (ii) the claims of the Partners as creditors of the Partnership shall be paid and discharged or adequately reserved against; (iii) the expenses of dissolution and winding up shall be paid and discharged or adequately reserved against; and (iv) the remaining assets of the Partnership shall be distributed to the Partners, in cash or in kind, in the manner set forth in Section 8.2(c) hereof, in accordance with the Capital Accounts of the Partners. (c) In connection with the liquidation of the Partnership, PRI- Research shall have the first option to receive all or any portion of any assets of the Partnership relating to the Partnership's operations in the Americas (including, without limitation, future revenues, intellectual property, trademarks, permits, ANDAs, NDAs, manufacturing and 19 distribution rights and any tangible assets physically located in the Americas on the date of dissolution) as a liquidating distribution, and C.T.P. shall have the first option to receive all or any portion of any other assets of the Partnership, including, without limitation, the Israeli plant and equipment, as a liquidating distribution. In the event that a Limited Partner shall elect not to exercise such option with respect to any asset within 30 days after the effective date of the Partnership's dissolution, the other Limited Partner shall be granted the option, exercisable at any time within 30 days after the expiration of the first Limited Partner's option, to receive such asset as a liquidating distribution. The Limited Partners shall cooperate with respect to the development of any products under development by the Partnership on the date of such dissolution; all rights to manufacture and distribute in the Americas any such products shall be granted to PRI-Research, and all rights to manufacture and distribute any such products outside the Americas shall be granted to C.T.P. Any other assets of the Partnership shall be sold to third parties as part of the liquidation process or distributed to a liquidating trust for the benefit of the Partners. The fair market value of any assets distributed to any Limited Partner pursuant to this Section 8.2(c) shall be determined by an independent appraiser mutually acceptable to the Limited Partners and shall be applied against such Limited Partner's final Capital Account balance for purposes of Section 8.2(b)(iv) hereof. In the event that the fair market value of the assets distributable to any Limited Partner pursuant to this Section 8.2(c) shall exceed such Limited Partner's final Capital Account balance, such Limited Partner shall make a cash Capital Contribution to the Partnership in the amount of such excess. In the event that the final Capital Account balance of a Limited Partner shall exceed the fair market value of any assets distributable to such Limited Partner pursuant to this Section 8.2(c), such excess shall be distributed to such Limited Partner in cash. The General Partner's final Capital Account balance shall be distributed to it in cash. In the event that the foregoing order of distribution shall not be permitted under the Partnership Act, distributions shall be made as closely as legally possible to the order of distribution required hereby. (d) In the event the General Partner shall have a deficit balance in its Capital Account following the liquidation of the Partnership or its Interest, after taking into account all adjustments to such Capital Account for the Fiscal Year in which such liquidation occurs, it shall be unconditionally obligated to restore the amount of such deficit to the Partnership, as a Capital Contribution, by the end of such Fiscal Year (or, if later, within 90 days of the final date of such liquidation). No Limited Partner with a deficit balance in its Capital Account shall be required to 20 restore the amount of such deficit balance to the Partnership upon liquidation of the Partnership or such Limited Partner's Interest therein. (e) If there shall be any pending transaction or claim by or against the Partnership as to which the interest or obligation of any Partner therein cannot, in the judgment of the General Partner or the liquidator, be then ascertained, the value thereof or probable loss therefrom may be excluded from the valuation of assets for purposes of computing such Partner's Capital Account upon liquidation. No amount shall be paid or charged to any such Partner's Capital Account in respect of any such transaction or claim until its final settlement or such earlier time as the General Partner or the liquidator shall determine. Moreover, the Partnership may retain from any sums due any such Partner an amount which the General Partner or the liquidator shall estimate to be sufficient to cover the share of such Partner in any probable loss or liability on account of such transaction or claim. The General Partner or the liquidator shall, at the earliest practicable time, distribute any assets (or proceeds realized from the sale thereof) excluded or retained pursuant to this Section 8.2(e) to each Partner from whom such assets or proceeds shall have been withheld. 8.3. Incorporation of the Partnership. The Partners shall review the -------------------------------- structure of the Partnership as a limited liability partnership under Israeli law upon the request of any Partner. In the event that any Partner shall request that the Partnership (a) be converted into a corporation or other form of entity or (b) organize a corporate subsidiary to conduct all or any part of the Partnership's operations, such conversion, or the formation of such subsidiary, shall be effectuated on terms acceptable to all the Partners if the prior written consent of each other Partner thereto shall have been obtained. No Partner shall unreasonably withhold its consent to any request to convert the Partnership into another entity or to organize such a corporate subsidiary; provided, however, that a Partner shall not be deemed to have unreasonably - - - - -------- ------- withheld its consent to such a conversion or organization of a subsidiary if it shall obtain an opinion of its counsel that such conversion or organization of a subsidiary would have a reasonable possibility of resulting in significant adverse tax or regulatory consequences to such Partner or the Partnership. 21 ARTICLE IX. RECORDS AND ACCOUNTING; FISCAL AFFAIRS 9.1. Records and Accounting. (a) Proper and complete records and ---------------------- books of account of the business of the Partnership shall be maintained by the General Partner at the Partnership's principal place of business, and each Limited Partner or its duly authorized representative shall have access to them, upon reasonable notice and for a proper purpose, at all reasonable times during business hours. (b) The books and records of the Partnership shall be kept on the basis of accounting determined by the General Partner. The financial statements of the Partnership shall be prepared on a monthly basis in accordance with Israeli generally accepted accounting principles consistently applied denominated in NIS and restated to the general purchasing power of the Israeli currency, and shall be appropriate and adequate for the Partnership's business and for carrying out all provisions of this Agreement. In addition, similar financial statements prepared in accordance with United States generally accepted accounting principles consistently applied and denominated in U.S. Dollars shall be prepared and furnished to PRI-Research, at the expense of the Partnership, at each time Israeli financial statements shall be prepared. In the event of any conflict between the Partnership's Israeli and United States financial statements, the Israeli financial statements shall be controlling. The Fiscal Year of the Partnership shall end on December 31. 9.2. Tax Information. Within 60 days after the end of each Fiscal --------------- Year, the General Partner will cause to be delivered to each Person who was a Partner at any time during such Fiscal Year all information necessary for the preparation of such Partner's income tax returns in Israel, the United States and any other jurisdiction (federal, state or local) in which a Partner shall be required to file an income tax return as a result of the Partnership's operations. The Partnership shall, if required under the United States tax laws, file an annual partnership return of income in the United States on Form 1065 (or any successor form) in accordance with all applicable requirements of such United States tax laws. 9.3. Financial Reporting. The Partnership shall provide each ------------------- Partner, in a timely manner, such information which such Partner's auditors shall require in order to comply with any applicable laws, regulations or guidelines in Israel or the United States. The Partnership shall be audited as of the Saturday closest to September 30 in each Fiscal Year, and as of such other dates as shall be requested by any Partner. 22 ARTICLE X. MISCELLANEOUS 10.1. Notices. All notices hereunder shall be in writing and shall be ------- given: (a) if to the General Partner or the Partnership, at the address of the Partnership's principal office, as set forth in Section 2.3 hereof, or at such other address designated in writing to the Limited Partners, (b) if to PRI- Research, at One Ram Ridge Road, Spring Valley, New York 10977 (attention: Kenneth I. Sawyer), fax number: (914) 425-5097, or such other address or fax number as PRI-Research shall have designated in writing to the other Partners, or (c) if to C.T.P., at Clal House, 5 Druyanov Street, Tel Aviv 63143, Israel (attention: Zeev Zehavi), fax number: (011-972-3) 293633, with a copy to Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036 (attention: Jeffrey A. Horwitz, Esq.), fax number (212) 969-2900, or such other address or fax number as C.T.P. shall have designated in writing to the other Partners. Any notice shall be deemed to have been given if personally delivered or sent by express commercial courier or delivery service or by telegram, telefax, telex or facsimile transmission. Any notice given in any other manner shall be deemed given when actually received. Any notice delivered by a Limited Partner to the General Partner shall be simultaneously delivered to the other Limited Partner in the manner set forth in this Section 10.1. 10.2. Entire Agreement; Amendments. This Agreement constitutes the ---------------------------- entire understanding of the parties hereto and supersedes the Term Sheet annexed to the SPA. This Agreement shall not be amended except by an instrument in writing signed by all the Partners. 10.3. Confidentiality. (a) Each Partner hereby agrees that it and --------------- its Affiliates, and each of their respective agents, representatives and employees shall, at no time prior to the dissolution of the Partnership, in any manner, directly or indirectly disclose to any third party, firm or corporation, or use for any purpose other than the exclusive benefit of the Partnership, any Confidential Information or any Invention. (b) For purposes hereof, "Confidential Information" shall mean any information and/or data which the Partnership conceives, originates, discovers, develops or acquires, by whatsoever means, including but not limited to information and/or data, whether or not in tangible form, relating to the products, technology, processes or practices of the Partnership, which information or data is not generally 23 available, without restriction, to the public; provided, however, that -------- ------- Confidential Information shall exclude (i) information and/or data which enters the public domain otherwise than by reason of a breach of this Section 10.3, (ii) information and/or data that a Partner can document was in its possession prior to its receipt thereof from the Partnership, (iii) information and/or data which a Partner can document was independently developed by such Partner without reference or recourse to information supplied by the Partnership, and (iv) information a Partner shall be required to disclose by law, the applicable rules of any stock exchange or by order of any court of competent jurisdiction. (c) For purposes hereof, "Inventions" shall mean any and all discoveries, innovations, improvements, concepts and ideas, whether patentable or not, including but not limited to, methods, devices, formulas and techniques, improvements thereon and knowhow related thereto, which are conceived and/or reduced to practice by the Partnership. 10.4. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the laws of the State of Israel. 10.5. Headings, etc. The headings in this Agreement are inserted for ------------- convenience of reference only and shall not affect the interpretation of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural and pronouns stated in either the masculine or the neuter gender shall include the masculine, the feminine and the neuter genders. 10.6. Binding Provisions. The covenants and agreements contained ------------------ herein shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. 10.7. No Waiver. The failure of any Partner to seek redress for --------- violation, or to insist on strict performance, of any covenant or condition of this Agreement shall not prevent a subsequent act which would have constituted a violation from having the effect of an original violation. 10.8. Severability. If any sentence, paragraph or Section of this ------------ Agreement shall be declared by a court of competent jurisdiction to be void, such sentence, paragraph or Section shall be deemed severed from the remainder of the Agreement and the balance of the Agreement shall remain in effect. 24 10.9. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 10.10. Further Assurances. Each of the Partners hereby agrees that it ------------------ shall do and perform, or cause to be done and performed, all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other Partner may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 10.11. Arbitration. Any disagreement or dispute among the Partners ----------- arising hereunder or in connection with the transactions hereunder shall be resolved by arbitration by a single arbitrator. The arbitration shall be held in Tel Aviv and shall be conducted in the English language, in accordance with the Israel Arbitration Law - 1968; provided, however, that if the provisions of -------- ------- this Section 10.11 are in conflict with such law, the provisions hereof shall prevail. The arbitrator shall be selected by agreement of the parties, and, failing such agreement within ten (10) days after either party shall have requested such arbitration, the arbitrator shall be appointed by the then President of the Israel Bar Association. The arbitrator's award shall be final and binding upon the parties, and judgment upon the arbitral award may be entered by any court of competent jurisdiction. Unless the arbitrator shall otherwise determine, the parties shall bear equally the fees and expenses of the arbitrator. Each of the parties shall bear its own expenses in connection with the arbitration, but in the event that court proceedings are instituted in connection with this Agreement or in connection with any arbitration hereunder, the party prevailing in such proceedings shall be entitled to recover its reasonable attorneys' fees and expenses. This provision shall be deemed to be an arbitration agreement for the purposes of the Israel Arbitration Law. 10.12. Announcements and Publications. The Partners shall consult ------------------------------ with each other, to the extent practicable, as to the form and substance of any press releases and other third party communications or disclosures relating to this Agreement or any of the transactions contemplated hereby. No Partner (or Affiliate thereof) shall be prohibited from issuing or filing any press release or other third party communication or disclosure which, upon advice of its legal counsel, shall be deemed necessary or required under applicable law or the applicable rules of any stock exchange, provided that such Partner shall have first consulted with the other Partners as to the form and content of such disclosure. 25 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. GENERAL PARTNER: CLAL PHARMACEUTICAL RESOURCES (1995) LTD. By /s/ Mair Laiser ------------------------------- By /s/ Kenneth I. Sawyer ------------------------------- LIMITED PARTNERS: C.T.P. RESEARCH AND DEVELOPMENT (1995) LTD. By /s/ Mony Ben-Dor -------------------------------- By /s/ Zeev Zehavi -------------------------------- PRI RESEARCH INC. By /s/ Kenneth I. Sawyer -------------------------------- 26 EX-10.6 7 STOCKHOLDERS AGREEMENT Exhibit 10.6 ================================================================================ ---------------------------------------------- CLAL PHARMACEUTICAL RESOURCES (1995) LTD. ---------------------------------------------- STOCKHOLDERS AGREEMENT ================================================================================ STOCKHOLDERS AGREEMENT OF CLAL PHARMACEUTICAL RESOURCES (1995) LTD. Table of Contents ----------------- 1. Capital Contributions; Issuances of Stock........... 2 1.1. Capital Contributions......................... 2 1.2. Issuances of Stock............................ 2 2. Management of the Company........................... 3 2.1. Election of Directors......................... 3 2.2. Special Issues................................ 4 3. Transferability of Stock............................ 6 3.1. Transfer Restrictions......................... 6 3.2. Legend........................................ 6 4. Representations and Indemnification................. 7 4.1. Representations............................... 7 4.2. Additional Representations.................... 8 4.3. Indemnification............................... 8 5. Records and Accounting.............................. 8 5.1. Records and Accounting........................ 8 5.2. Financial Reporting........................... 9 6. Miscellaneous....................................... 9 6.1. Notification.................................. 9 6.2. Entire Agreement; Amendments.................. 10 6.3. Term.......................................... 10 6.4. Applicable Law................................ 10 6.5. Headings, etc................................. 10 6.6. Binding Provisions............................ 10 6.7. No Waiver..................................... 10 6.8. Severability.................................. 10 6.9. Counterparts.................................. 10 6.10. Further Assurances............................ 11 6.11. Arbitration................................... 11 6.12. Definitions................................... 11 STOCKHOLDERS AGREEMENT OF CLAL PHARMACEUTICAL RESOURCES (1995) LTD. STOCKHOLDERS AGREEMENT dated as of May 1, 1995, among C.T.P. Research and Development (1995) Ltd., an Israeli private company limited by shares ("C.T.P."), Pharmaceutical Resources, Inc., a New Jersey corporation ("PRI"), and Clal Pharmaceutical Resources (1995) Ltd., an Israeli private company limited by shares (the "Company"). WHEREAS, PRI and Clal Pharmaceutical Industries Ltd., an Israeli private company limited by shares and the owner of all but one of the 100 issued and outstanding shares of capital stock of C.T.P. ("CPI"), entered into a Stock Purchase Agreement dated March 25, 1995 (the "SPA"); WHEREAS, the Company has been formed previously under Israeli law; WHEREAS, pursuant to the SPA, PRI and CPI have agreed to form Clal Pharmaceutical Resources L.P. (the "Partnership"), as a limited liability partnership under Israeli law, with the Company as its general partner and C.T.P. and PRI-Research, Inc., a Delaware corporation wholly-owned by PRI ("PRI- Research"), as its limited partners, for the purpose of engaging in the research and development of certain pharmaceutical products and engaging in other related activities; WHEREAS, simultaneously herewith, the Company, C.T.P. and PRI-Research have entered into a Limited Partnership Agreement (the "Partnership Agreement") with respect to the Partnership and PRI, CPI and the Partnership have entered into a Supplemental Agreement (the "Supplemental Agreement") of even date herewith; and WHEREAS, PRI and C.T.P. (each being hereinafter sometimes referred to individually as a "Stockholder" and collectively as the "Stockholders"), being the sole owners of all of the issued and outstanding stock of the Company, desire to enter into this Agreement to set forth their respective rights, obligations and duties as Stockholders of the Company. NOW, THEREFORE, the parties, in consideration of the mutual covenants herein contained, hereby covenant and agree as follows: 1. Capital Contributions; Issuances of Stock. ----------------------------------------- 1.1. Capital Contributions. (a) Upon the formation of the --------------------- Partnership under Israeli law, C.T.P. shall make a capital contribution to the Company in the amount of $20,400 and PRI shall make a capital contribution to the Company in the amount of $19,600. Such capital contributions shall be made in cash and shall be used to fund the Company's capital contribution to the Partnership described in Section 3.1(a) of the Partnership Agreement. (b) Subject to Section 1.2(b) hereof, the Stockholders shall make the following additional capital contributions to the Company: (i) On the first anniversary of the date hereof, C.T.P. shall make a capital contribution to the Company in the amount of $25,500 and PRI shall make a capital contribution to the Company in the amount of $24,500. Such capital contributions shall be used to fund the Company's capital contribution to the Partnership described in Section 3.1(b)(i) of the Partnership Agreement. (ii) On the second anniversary of the date hereof, C.T.P. shall make a capital contribution to the Company in the amount of $30,600 and PRI shall make a capital contribution to the Company in the amount of $29,400. Such capital contributions shall be used to fund the Company's capital contribution to the Partnership described in Section 3.1(b)(ii) of the Partnership Agreement. (c) All capital contributions pursuant to this Section 1.1 shall be made in cash and in either United States Dollars or the New Israeli Shekel (NIS) equivalent thereof, determined based upon the prevailing representative exchange rate determined by The Bank of Israel at 12:00 P.M., Tel Aviv time, on the Israeli business day before the payment of such capital contributions, unless the Stockholders shall unanimously agree otherwise. 1.2. Issuances of Stock. (a) In return for the capital contributions ------------------ described in Section 1.1(a) hereof, C.T.P. has been issued 510 shares of the Company's ordinary shares, par value 1.0 NIS per share (the "Stock"), and PRI has been issued 490 shares of the Stock. Except as provided in Section 1.2(c) hereof, no additional Stock shall be issued in return for the capital contributions described in Section 1.1(b) hereof. 2 (b) In the event that a Stockholder or its Affiliates shall, at any time, fail to make all or any portion of any capital contribution required pursuant to Section 3.1(b) of the Partnership Agreement, such Stockholder's required capital contribution to the Company shall be adjusted to equal one ninety-ninth (1/99th) of the capital contribution, if any, made by such Stockholder or its Affiliates to the Partnership at such time. In addition, if any Stockholder or its Affiliates shall make any capital contribution to the Partnership on behalf of the other Stockholder or its Affiliates pursuant to the first sentence of Section 3.2(b) of the Partnership Agreement, such Stockholder shall make a simultaneous capital contribution to the Company in an amount equal to one ninety-ninth (1/99th) of such contribution. (c) Upon any adjustment of the Sharing Percentages of the Limited Partners pursuant to Section 3.2(b) of the Partnership Agreement, the Stockholder whose Sharing Percentage (or whose Affiliate's Sharing Percentage) shall have increased shall simultaneously be issued such number of additional shares (including fractional shares) of Stock as shall cause the Stock to be owned by the Stockholders in the same proportion as the Sharing Percentages are owned by such Stockholders or their respective Affiliates. 2. Management of the Company. ------------------------- 2.1. Election of Directors. (a) The Company's Board of Directors --------------------- (the "Board") shall initially consist of six directors. The number of members of the Board shall not be changed without the consent of each of the Stockholders. (b) C.T.P. and PRI shall each have the right to designate three directors. In the event of the death, disability, resignation or other withdrawal of any director, the Stockholder that appointed such director shall have the right to designate a replacement. In addition, the Stockholder owning a majority of the Stock shall have the right to designate one of its directors to serve as the Board's Chairperson who shall be entitled to cast the deciding vote to resolve tie votes of the Board. Each of the Stockholders agrees to vote for all directors designated by the other Stockholder in all elections of directors to the Board and to use its best efforts to cause the directors appointed by it to vote for the director appointed by the majority Stockholder to be elected as the Board's Chairperson. The provisions of this Section 2.1(b) shall be reflected in the Company's Articles of Association. 3 (c) Members of the Board shall not be paid any compensation for their services as directors nor shall they be entitled to reimbursement of any expenses incurred in connection therewith. (d) Subject to Section 2.2 hereof, the Board shall take all necessary actions to enable the Company to fulfill its obligations as general partner of the Partnership in accordance with the Partnership Agreement and applicable law. (e) Within five days after the date on which the Offeree responds to a Buy/Sell Notice in accordance with Section 7.2(c) of the Partnership Agreement, the Stockholder that shall be (or whose Affiliate shall be) the Seller pursuant to the Buy/Sell Procedure shall cause each of the persons that it designated pursuant to Section 2.1(b) hereof to resign as directors of the Company and shall thereafter vote for any replacement directors designated by the other Stockholder. The other Stockholder and the Company shall indemnify and hold harmless the Seller and its Affiliates against any losses, claims, damages, liabilities, costs and expenses (including reasonable counsel fees) to which any of such persons shall become subject by reason of any action or omission by such other Stockholder, its Affiliates or the Company relating to the operations of the Company or the Partnership after the date of such resignations. 2.2. Special Issues. The Stockholders agree that, so long as a -------------- Stockholder shall own at least 35% of the Stock, the following actions shall not be approved by the Board, taken by the Company or authorized by the Company in its capacity as General Partner of the Partnership, without the consent of a majority of the directors designated by such Stockholder pursuant to Section 2.1(b) hereof: (a) Any irregular transaction ("Iska Hariga") with an interested person ("Baal Inian"), as defined in the Israel Companies Ordinance (New Version), of the Company or the Partnership; (b) Any transaction not within the stated purpose of the Partnership; (c) Any merger or consolidation of the Company or the Partnership with or into another entity; (d) Any creation or acquisition of any other entity by the Company or the Partnership, or any transfer or assignment of all or any substantial part of the Partnership's assets to another entity; 4 (e) Any preparation or modification of, or any material deviation from, the Partnership's business plan, including, without limitation, products to be developed, or annual and other budgets; (f) Any appointment or removal of the Company's General Manager; (g) Any appointment or removal of the auditors for the Company or the Partnership; (h) Any transaction affecting the capital of the Company or the interests of the Partnership's partners, including, without limitation, any issuance of shares, warrants, options or other securities with respect to the Company or any issuance of additional Interests in the Partnership, except as expressly provided in Section 1.2(c) hereof or Section 3.2(b) of the Partnership Agreement; (i) Any matter requiring a special resolution under the Israel Companies Ordinance (New Version); (j) Any amendment of the Partnership Agreement or the Company's Memorandum of Association or Articles of Association; (k) Any liquidation or dissolution of the Company or the Partnership, or any sale or other disposition of a substantial portion of the Company's or the Partnership's assets outside the ordinary course of its business; (l) Any borrowings by the Company or any placement of liens or other encumbrances on the Company's assets, or any borrowings by the Partnership or placement of liens on the Partnership's assets in excess of $250,000 (treating borrowings from the same lender pursuant to a series of related instruments as one loan); (m) Any capital expenditures by the Partnership, other than capital expenditures expressly authorized under its business plan, in excess of $500,000 in the aggregate, or any capital expenditures by the Company; (n) Any retention of cash distributed to the Company by the Partnership (other than cash distributed for the purpose of paying the Company's expenses); (o) Any appointment or removal of any third-party manufacturer or distributor of the Partnership's products pursuant to the last sentence of Section 5.2(a) of the Supplemental Agreement and any approval of the terms of 5 any agreement between such third-party manufacturer or distributor and the Partnership; (p) Any distributions of property other than cash by either the Company or the Partnership; (q) Any Transfer of all or any portion of the Company's interest in the Partnership; and (r) Any business activity of the Company, other than in its capacity as General Partner of the Partnership. 3. Transferability of Stock. ------------------------ 3.1. Transfer Restrictions. (a) Except as provided in Section --------------------- 3.1(b), (c) or (d) hereof or in the Supplemental Agreement, no Stockholder shall Transfer all or any portion of its Stock without the prior written consent of the other Stockholder, which consent may be granted or withheld by each Stockholder in its sole discretion. (b) Notwithstanding the provisions of Section 3.1(a) hereof, a Stockholder may Transfer all of its Stock to a majority-owned subsidiary without obtaining the prior written consent of the other Stockholder; provided, however, -------- ------- that such Transfer shall not release such Stockholder from its obligations hereunder; and, provided, further, that, as a condition to such Transfer, such -------- ------- subsidiary shall agree to be bound by the terms of this Agreement. (c) Notwithstanding the provisions of Section 3.1(a) hereof, a Stockholder may Transfer all of its Stock in connection with a merger or consolidation involving such Stockholder or a sale of all or substantially all of such Stockholder's assets. (d) Upon the closing of a purchase and sale of a Limited Partner's Interest in the Partnership pursuant to the Buy/Sell Procedure described in Section 7.2 of the Partnership Agreement, the Seller and its Affiliates shall transfer all of their shares of Stock to the Purchaser in accordance with the provisions of Section 7.2 of the Partnership Agreement. The consideration for such shares has been included in the purchase price payable pursuant to such Section 7.2 and, therefore, no additional consideration shall be payable in connection with the transfer of such shares. 3.2. Legend. There shall be endorsed upon all certificates of Stock ------ issued to any Stockholder, an endorsement reading as follows: 6 "Transfer of the shares of common stock represented by this certificate is restricted by a Stockholders Agreement, dated May 1, 1995, a copy of which is on file at the office of the Company." 4. Representations and Indemnification. ----------------------------------- 4.1. Representations. Each Stockholder hereby represents and --------------- warrants to the other Stockholder and the Company as follows: (a) It is a corporation duly organized, validly existing, and in good standing under the laws of the state of its formation. It has all requisite corporate power and authority to conduct its business and to enter into and perform its obligations under this Agreement in accordance with the terms hereof. (b) It has taken all required corporate actions to approve and adopt this Agreement. This Agreement constitutes a duly authorized, valid and binding agreement on it and enforceable against it in accordance with its terms. Each person executing this Agreement on its behalf is duly authorized and empowered to do so. (c) The execution and delivery of this Agreement and the consummation of the transactions as contemplated hereunder (i) do not, and will not, violate or conflict with any statute, regulation, judgment, order, writ, decree or injunction currently applicable to it or any of its property or assets; and (ii) do not, and will not, violate or conflict with its charter or By-laws and/or Memorandum and Articles of Association, or any existing mortgage, indenture, contract, licensing agreement, financing statement or other agreement binding on it. (d) All required consents and approvals, as well as any approvals or consents of any governmental authorities or any other third parties in connection with the execution and delivery of this Agreement or the performance of the transactions contemplated hereunder, have been obtained by it, except for such filings or approvals required to be obtained from the Bank of Israel authorizing the exchange of New Israeli Shekels for United States Dollars and the transfer of such funds to the United States. No contract or agreement binding upon it restricts its ability to fulfill its obligations and responsibilities under this Agreement or to carry out the activities contemplated herein. (e) It is not a party to or, to the best of its knowledge, threatened with any litigation or judicial or 7 administrative proceeding that, if decided adversely to it, would delay or preclude the consummation of the transactions contemplated in this Agreement or have a material adverse effect upon the transactions contemplated hereby. 4.2. Additional Representations. PRI hereby represents and warrants -------------------------- to C.T.P. that it owns all of the issued and outstanding shares of capital stock of PRI-Research and that no options, warrants or other instruments which are exercisable for, or convertible into, such shares have been issued to any Person. C.T.P. hereby represents and warrants to PRI that all of the 100 issued and outstanding shares of its capital stock are owned by CPI, except for one share which is owned by Clal Industries Ltd., and that no options, warrants or other instruments which are exercisable for, or convertible into, any shares of its capital stock have been issued to any Person. 4.3. Indemnification. Each Stockholder agrees to indemnify and hold --------------- harmless the other Stockholder and the Company and their respective employees, agents and Affiliates against all losses, liabilities, claims, damages, and expenses (including, but not limited to, reasonable counsel fees) resulting from or arising out of any actual or alleged misrepresentation or breach by such Stockholder of any representation or warranty set forth in Section 4.1 or Section 4.2 hereof or otherwise set forth in this Agreement. 5. Records and Accounting. ---------------------- 5.1. Records and Accounting. (a) Proper and complete records and ---------------------- books of account of the business of the Company shall be maintained at the Company's principal place of business, and each Stockholder or its duly authorized representative shall have access to them, upon reasonable notice and for a proper purpose, at all reasonable times during business hours. (b) The financial statements of the Company shall be prepared on a monthly basis in accordance with Israeli generally accepted accounting principles consistently applied denominated in NIS and restated to the general purchasing power of the Israeli currency, and shall be appropriate and adequate for the Company's business. In addition, similar financial statements prepared in accordance with United States generally accepted accounting principles consistently applied and denominated in U.S. Dollars, shall be prepared and furnished to PRI, at the expense of the Company, at each time Israeli financial statements shall be prepared. In the event of any conflict between the Company's Israeli and United States financial statements, the Israeli financial statements shall be 8 controlling. The fiscal year of the Company shall end on December 31. (c) The Company shall deliver to each Stockholder, within 60 days after the end of each of its fiscal years, all information necessary for the preparation of such Stockholder's income tax returns in Israel, the United States and any other jurisdiction (federal, state or local) in which a Stockholder shall be required to file an income tax return as a result of the Company's operations or such Stockholder's receipt of distributions therefrom. (d) The Company's and the Partnership's auditors shall initially be Luboshitez Kasierer & Co. 5.2. Financial Reporting. The Company shall provide each ------------------- Stockholder, in a timely manner, such information which such Stockholder's auditors shall require in order to comply with any applicable laws, regulations or guidelines in Israel or the United States. The Company shall be audited as of the Saturday closest to September 30 in each fiscal year, and as of such other dates as shall be requested by any Stockholder. 6. Miscellaneous. ------------- 6.1. Notification. All notices hereunder shall be in writing and ------------ shall be given: (a) if to the Company, at Clal House, 5 Druyanov Street, Tel Aviv 63143, Israel (attention Zeev Zehavi), fax number: (011-972-3) 293633, or at such other address as the Company shall have designated in writing to the Stockholders, (b) if to PRI, at One Ram Ridge Road, Spring Valley, New York 10977 (attention: Kenneth I. Sawyer), fax number: (914) 425-5097, or such other address or fax number as PRI shall have designated in writing to CPI and the Company, or (c) if to C.T.P. at Clal House, 5 Druyanov Street, Tel Aviv 63143, Israel (attention: Zeev Zehavi), fax number: (011-972-3) 293633, with a copy to Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036 (attention: Jeffrey A. Horwitz, Esq.), fax number (212) 969-2900, or such other address or fax number as C.T.P. shall have designated in writing to PRI and the Company. Any notice shall be deemed to have been given if personally delivered or sent by express commercial courier or delivery service or by telegram, telefax, telex or facsimile transmission. Any notice given in any other manner shall be deemed given when actually received. Any 9 notice delivered by a Stockholder to the Company shall be simultaneously delivered to the other Stockholder in the manner set forth in this Section 6.1. 6.2. Entire Agreement; Amendments. This Agreement constitutes the ---------------------------- entire understanding of the parties hereto and shall not be amended except by an instrument in writing signed by the Company and all the Stockholders. 6.3. Term. This Agreement shall expire upon the first to occur of ---- the following dates: (i) the date of the termination of the Partnership, (ii) the date on which the Stockholders agree to terminate this Agreement, or (iii) the date on which either Stockholder ceases to own any Stock. 6.4. Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the laws of the State of Israel. 6.5. Headings, etc. The headings in this Agreement are inserted for ------------- convenience of reference only and shall not affect the interpretation of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural and pronouns stated in either the masculine, feminine or the neuter gender shall include the masculine, the feminine and the neuter genders. 6.6. Binding Provisions. The covenants and agreements contained ------------------ herein shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. 6.7. No Waiver. The failure of any Partner to seek redress for --------- violation, or to insist on strict performance, of any covenant or condition of this Agreement shall not prevent a subsequent act which would have constituted a violation from having the effect of an original violation. 6.8. Severability. If any sentence, paragraph or Section of this ------------ Agreement shall be declared by a court of competent jurisdiction to be void, such sentence, paragraph or Section shall be deemed severed from the remainder of the Agreement and the balance of this Agreement shall remain in effect. 6.9. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 10 6.10. Further Assurances. Each of the Stockholders hereby agrees that ------------------ it shall do and perform, or cause to be done and performed, all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as the other Stockholder may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 6.11. Arbitration. Any disagreement or dispute among the Stockholders ----------- arising hereunder or in connection with the transactions hereunder shall be resolved by arbitration by a single arbitrator. The arbitration shall be held in Tel Aviv and shall be conducted in the English language, in accordance with the Israel Arbitration Law -1968; provided, however, that if the provisions of -------- ------- this Section 6.11 are in conflict with such law, the provisions hereof shall prevail. The arbitrator shall be selected by agreement of the parties, and, failing such agreement within ten (10) days after either party shall have requested such arbitration, the arbitrator shall be appointed by the then President of the Israel Bar Association. The arbitrator's award shall be final and binding upon the parties, and judgment upon the arbitral award may be entered by any court of competent jurisdiction. Unless the arbitrator shall otherwise determine, the parties shall bear equally the fees and expenses of the arbitrator. Each of the parties shall bear its own expenses in connection with the arbitration, but in the event that court proceedings are instituted in connection with this Agreement or in connection with any arbitration hereunder, the party prevailing in such proceedings shall be entitled to recover its reasonable attorneys' fees and expenses. This provision shall be deemed to be an arbitration agreement for the purposes of the Israel Arbitration Law. 6.12. Definitions. All capitalized terms used herein without ----------- definition shall have the meanings set forth in the Partnership Agreement. 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. C.T.P. RESEARCH AND DEVELOPMENT (1995) LTD. By /s/ Mony Ben Dor -------------------------------- By /s/ Zeev Zehavi -------------------------------- PHARMACEUTICAL RESOURCES, INC. By /s/ Kenneth I. Sawyer -------------------------------- CLAL PHARMACEUTICAL RESOURCES (1995) LTD. By /s/ Mair Laiser -------------------------------- By /s/ Kenneth I. Sawyer -------------------------------- 12 EX-10.7 8 SUPPLEMENTAL AGREEMENT Exhibit 10.7 SUPPLEMENTAL AGREEMENT SUPPLEMENTAL AGREEMENT, dated as of May 1, 1995, between PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation ("PRI"), CLAL PHARMACEUTICAL INDUSTRIES LTD., an Israeli private company limited by shares ("CPI") and CLAL PHARMACEUTICAL RESOURCES L.P., an Israeli limited liability partnership (the "Partnership"). WHEREAS, PRI and CPI entered into a Stock Purchase Agreement, dated March 25, 1995 (the "SPA"), pursuant to which, among other things, CPI agreed to purchase shares of common stock of PRI and PRI agreed to issue to CPI warrants to purchase shares of common stock of PRI; WHEREAS, CPI owns all but one of the 100 issued and outstanding shares of C.T.P. Research and Development (1995) Ltd., an Israeli private company limited by shares ("C.T.P."); WHEREAS, C.T.P., PRI-Research, Inc., a Delaware corporation and a wholly-owned subsidiary of PRI ("PRI-Research"), and Clal Pharmaceutical Resources (1995) Ltd., an Israeli private company limited by shares (the "General Partner"), are entering into, simultaneously with the execution and delivery of this Agreement, a Limited Partnership Agreement (the "LP Agreement"), providing for their respective rights, duties and obligations as partners in the Partnership; and WHEREAS, the parties hereto, in connection with the execution and delivery of the SPA and the LP Agreement, desire to set forth their mutual agreements with respect to certain matters relating to the parties hereto, including matters relating to the Partnership and its operations. NOW, THEREFORE, the parties hereto, in consideration of the premises and of the mutual covenants herein contained, hereby covenant and agree as follows: 1. Sale of Interests by C.T.P. --------------------------- 1.1 Third Party Transactions. If, at any time prior to the fifth ------------------------- anniversary of the date hereof, CPI shall have, but shall not have exercised, its right of first refusal under Section 10.1 of the SPA with respect to a Third Party Transaction (as defined in the SPA), then it shall have the irrevocable right, exercisable at any time prior to the second anniversary of the closing of such Third Party Transaction, to cause C.T.P. to sell to the purchaser in such Third Party Transaction (the "Third Party Purchaser") or to PRI (if it shall then be surviving) all 2 but not less than all of the following interests owned directly or indirectly by C.T.P. and its transferees and successors: (a) shares of capital stock in the General Partner and (b) interests in the Partnership (collectively, "Interests"). 1.2 Exercise of Right. CPI may exercise the right described in ------------------ Section 1.1 hereof by giving written notice to the Third Party Purchaser or PRI (if it shall then be surviving) prior to the second anniversary of the closing of the Third Party Transaction. Such notice shall also contain a statement of CPI's election under Section 2 hereof and the products of the Partnership to be covered by the License (as defined below). Upon delivery of such notice, the Third Party Purchaser or PRI (if it shall then be surviving) shall be obligated to purchase, and CPI together with its transferees and successors, shall be obligated to cause C.T.P. and its transferees and successors to sell, the Interests on the terms and conditions set forth in this Section 1. 1.3 Purchase Price. The total purchase price for the Interests (the --------------- "Purchase Price") shall equal the greater of (a) the amount of CPI Equity (as defined below) plus a 10% per annum return thereon compounded annually on each anniversary of the date hereof up to the Closing Date (as defined below) or (b) the Fair Market Value of such Interests computed in the manner set forth in Section 1.5 hereof; provided, that, in the event that the Third Party -------- ---- Transaction shall occur prior to the third anniversary of the date hereof, the Purchase Price shall be increased by (i) 25% and (ii) in the event the Purchase Price shall have been determined pursuant to clause (a) above, it shall also be increased by 25% of the outstanding principal balance on the Closing Date of any loans made by C.T.P. to the Partnership in accordance with the Partnership Agreement. "CPI Equity" shall mean the total amount of all equity contributions or equity investments in the General Partner or the Partnership by C.T.P. or its transferees and successors, excluding any loans or guarantees, minus the total ----- amount of cash and the fair market value of any property distributed to C.T.P. or its transferees or successors by the General Partner and the Partnership. 1.4 Closing. The closing for the purchase and sale of the Interests -------- shall be held at such place and time (the "Closing Date") as shall be mutually agreeable to CPI and the Third Party Purchaser or PRI (if it shall then be surviving); provided, that the closing shall occur no later than the fifteenth -------- ---- day following the delivery to the Third Party Purchaser or PRI of the report of the Appraiser (as defined below). The Third Party Purchaser or PRI shall have 3 the option to pay the Purchase Price by wire transfer of immediately available funds to an account designated by CPI or by delivery of securities which, in the case of the Third Party Purchaser, shall be the same securities issued by the Third Party Purchaser in the Third Party Transaction or which, in the case of PRI, shall be shares of its common stock. For purposes of the foregoing, any such securities to be delivered by PRI or the Third Party Purchaser in payment of the Purchase Price shall be valued at their closing sales prices on the trading date immediately preceding the Closing Date. Any such securities delivered at the closing shall be free and clear of all liens, charges and encumbrances of any kind ("Encumbrances"). CPI shall cause C.T.P. and all of its transferees and successors to deliver all of the Interests at the closing free and clear of all Encumbrances. 1.5 Fair Market Value Determination. (a) "Fair Market Value" shall -------------------------------- mean the value of the Interests as of the last day of the calendar quarter immediately preceding the closing of the Third Party Transaction as determined by an independent investment banker (the "Appraiser") in accordance with this Section 1.5. The Appraiser shall be selected by the Third Party Purchaser or PRI (if it shall then be surviving) and shall be reasonably acceptable to CPI. The fees and expenses of such Appraiser shall be borne equally by CPI and the Third Party Purchaser or PRI. The determination of the Fair Market Value of the Interests by the Appraiser shall be conclusive and binding upon all parties. (b) In determining the value of the Interests, the Appraiser shall discount the value of such Interests by giving effect to (i) the issuance of the License (as defined in Section 2.1 hereof) on the value of the Partnership if CPI shall exercise its rights under Section 2 hereof and (ii) the impact which the sale of the Interests would have upon the Partnership and the General Partner, including but not limited to the loss of governmental grants or incentives or bank loans obtained by the General Partner or the Partnership and the termination of other business relationships as a result of such sale. 2. License. -------- 2.1 License. (a) In the event that CPI shall exercise its rights -------- under Section 1.1 hereof, it shall have the right to an exclusive perpetual license (the "License") to manufacture and/or distribute outside of North America, South America, Central America and the Caribbean (the "Americas") all products of the Partnership which, at the time of exercise of CPI's rights under Section 1.1 hereof, 4 shall (i) have been or are being manufactured and distributed by the Partnership, (ii) have reached the development stage at which they have been submitted for a study ("Bio-Study") to determine the availability of the drug in the bloodstream over time comparing that availability to that of another drug, or (iii) have an identifiable formulation. (b) CPI shall exercise its right under this Section 2.1 by specifying in the notice delivered pursuant to Section 1.2 hereof the products to be covered by the License. CPI's right to the License shall terminate if CPI shall not exercise such right in the notice delivered pursuant to Section 1.2 hereof. The Third Party Purchaser or PRI (if it shall then be surviving) shall grant, or shall cause the Partnership to grant, the License to CPI if CPI shall so exercise its rights. For purposes hereof, the entity granting the License to CPI is hereinafter referred to as the "Licensor". 2.2 Royalty. If CPI shall exercise its right with respect to the -------- License, CPI shall pay to the Licensor a royalty fee of 3% of Net Sales (as defined in Section 5.2(c)(i) hereof) of the products subject to the License for a ten-year period commencing on the Closing Date. After such ten-year period, CPI shall pay no royalty fee for the License. In addition, CPI shall reimburse the Licensor for 50% of the Partnership's actual out-of-pocket costs incurred subsequent to the date CPI exercises its rights under Section 1 hereof, in researching or developing, or obtaining any necessary approvals with respect to, any products described in Section 2.1(a)(iii) hereof which shall be covered by the License, including a reasonable allocation of personnel hours, but exclusive of allocations of general overhead and administrative costs. Such reimbursements shall be made out of the first proceeds derived by CPI from sales of any products described in Section 2.1(a)(iii) hereof. The royalties and reimbursements payable to the Licensor pursuant to this Section 2.2 shall be calculated by CPI for each calendar quarter and shall be remitted to the Licensor within 45 days after the close of such calendar quarter. CPI shall provide the Licensor with a detailed accounting of the calculation of such royalties and reimbursements simultaneously with the payment thereof, and the Licensor may, within 30 days after receipt thereof, request that such accounting or CPI's books and records be audited by the Licensor's accountants. The cost of any such audit shall be shared equally by CPI and the Licensor. 5 3. Distribution Rights. -------------------- 3.1 CPI Distribution Rights. (a) Subject to the provisions of ------------------------ Sections 3.1(b) and 3.3 hereof, CPI shall have the following rights of distribution with respect to the following pharmaceutical products of PRI or its Affiliates: (i) CPI shall have the exclusive right to distribute in its established markets outside the Americas any generic pharmaceutical products (the "Generic Drugs") developed by PRI or its Affiliates (as defined below) in their ordinary development programs (or any Generic Drugs in which PRI or its Affiliates shall have any interest) to the extent developed (or to the extent such interest shall have been acquired) prior to the earlier of the date on which (A) CPI and its Affiliates shall cease to own an interest in the Partnership or (B) PRI and its Affiliates shall cease to own an interest in the Partnership (the "Termination Date"); (ii) CPI shall have the exclusive right to distribute in Israel any other pharmaceutical products developed by PRI or its Affiliates (or other pharmaceutical products in which PRI or its Affiliates shall have acquired any interest) prior to the Termination Date (the "Other PRI Products"); and (iii) CPI shall have the first consideration to distribute outside the Americas any one or more of the Other PRI Products in any markets in which CPI shall then be established and shall have proven market capabilities in the field of such Other PRI Products, but only to the extent that PRI and its Affiliates shall not elect to do so themselves. (b) CPI shall not be entitled to any rights of distribution for the Generic Drugs or the Other PRI Products hereunder if (i) PRI or its Affiliates, on the date CPI exercises its rights hereunder, shall have an agreement or arrangement with other distributors for such Generic Drugs or Other PRI Products, (ii) CPI shall not offer to distribute such Generic Drugs or Other PRI Products upon reasonable competitive market terms or (iii) PRI and its Affiliates shall not have the authority to grant such rights. In the event that CPI shall fail or refuse to elect to distribute any Generic Drug or Other PRI Product offered to it by PRI or its Affiliates pursuant to Section 3.1(a) hereof, CPI shall have no further rights with respect to the distribution of such Generic Drug or Other PRI Product, but 6 shall not forfeit its rights to distribute any other Generic Drugs or Other PRI Products. 3.2 PRI Distribution Rights. (a) Subject to the provisions of ------------------------ Sections 3.2(b) and 3.3 hereof, PRI shall have the following rights of distribution with respect to the following pharmaceutical products of CPI or its Affiliates: (i) PRI shall have the exclusive right to distribute in its established markets in the Americas any Generic Drugs developed by CPI or its Affiliates in their ordinary development programs (or any Generic Drugs in which CPI or its Affiliates shall have any interest) to the extent developed (or to the extent such interest shall have been acquired) prior to the Termination Date; and (ii) PRI shall have the first consideration to distribute in the Americas any one or more of any other pharmaceutical products developed by CPI or its Affiliates (or other pharmaceutical products in which CPI or its Affiliates shall have acquired any interest) prior to the Termination Date (the "Other CPI Products") in markets in which PRI shall then be established and shall have proven market capabilities in the field of such Other CPI Products, but only to the extent that CPI and its Affiliates shall not elect to do so themselves. (b) PRI shall not be entitled to any rights of distribution for the Generic Drugs or the Other CPI Products hereunder if (i) CPI or its Affiliates, on the date PRI exercises its rights hereunder, shall have an agreement or arrangement with other distributors for such Generic Drugs or Other CPI Products, (ii) PRI shall not offer to distribute such Generic Drugs or Other CPI Products upon reasonable competitive market terms or (iii) CPI and its Affiliates shall not have the authority to grant such rights. In the event that PRI shall fail or refuse to elect to distribute any Generic Drug or Other CPI Product offered to it by CPI or its Affiliates pursuant to Section 3.2(a) hereof, PRI shall have no further rights with respect to the distribution of such Generic Drug or Other CPI Product, but shall not forfeit its rights to distribute any other Generic Drugs or Other CPI Products. 3.3 Distribution Agreements. CPI and PRI shall negotiate in good ------------------------ faith to enter into definitive distribution agreements setting forth the agreements of CPI and PRI with respect to any distribution rights exercised by either party with respect to any of the products or markets covered by Sections 3.1 or 3.2 hereof. The distribution 7 rights with respect to any such products or markets shall continue until the expiration date of such agreements, notwithstanding any earlier termination of this Agreement, or any earlier dissolution and termination of the Partnership. 3.4 Non-Competition. During the term of the Partnership, CPI and its ---------------- Affiliates shall not distribute generic products and compounds of manufacturers other than PRI or its Affiliates if (a) such products and compounds are available through PRI or its Affiliates and can be offered by PRI or its Affiliates on reasonably competitive market terms and (b) CPI and its Affiliates, as of the date hereof, shall have no agreement or arrangement with the manufacturers of such products or compounds. 3.5 Affiliate Definition. "Affiliate" shall mean, with respect to --------------------- CPI, Clal Industries Ltd., an Israeli corporation, and any direct or indirect wholly-owned subsidiaries thereof or of CPI, and shall mean, with respect to PRI, any direct or indirect majority owned subsidiaries thereof. 4. Restrictions on Outside Activities; Transfer Restrictions. --------------------------------------------------------- 4.1 Restrictions on CPI. Notwithstanding the provisions of Section -------------------- 5.4(a) of the LP Agreement to the contrary, neither CPI nor any of its Affiliates shall, during the period in which any of them shall be a limited partner of the Partnership, acquire an ownership interest of more than 5% in any generic drug company (other than PRI) doing substantial business in the United States. 4.2 Restrictions on PRI. Notwithstanding the provisions of Section -------------------- 5.4(a) of the LP Agreement to the contrary, neither PRI nor any of its Affiliates shall, during the period in which any of them shall be a Limited Partner, form a joint venture with a third party other than CPI (or an Affiliate thereof) for the purpose of researching and developing generic solids, creams, ointments, suppositories, sustained released products or other types of products with respect to which the Partnership is then actively engaged in research and development, unless (i) PRI shall have first offered to CPI the right to participate in such joint venture on terms similar to the participation of such third party in a written offer setting forth all material terms of such joint venture, including its products and the terms of PRI's investment therein, and shall have furnished CPI all material, non-confidential information concerning such joint venture in the possession of PRI and (ii) CPI shall not have notified PRI of its intent to 8 participate therein within 30 days after receipt of such offer. In the event that CPI shall not exercise its rights under this Section 4.2 with respect to any proposed joint venture, PRI shall have 90 days from the expiration of the period described in clause (ii) of the preceding sentence to consummate such joint venture with such third party on substantially the same terms as set forth in its offer to CPI. If PRI shall not consummate such joint venture on such terms within such 90-day period, its right to participate in such joint venture shall once again become subject to the provisions of this Section 4.2. The provisions of this Section 4.2 shall not apply to any joint venture relating to the development of any products which have already been formulated as of the time PRI proposes to enter into such joint venture. 4.3 Transfer Restrictions. CPI shall not assign, transfer, sell, --------------------- encumber, pledge or otherwise dispose of (collectively, a "Transfer") all or any portion of the capital stock of C.T.P. or take any action which would allow C.T.P. to issue any additional shares of its capital stock or any options, warrants or other instruments which are exercisable for, or convertible into, such capital stock, without the prior written consent of PRI, which consent may be granted or withheld by PRI in its sole discretion. PRI shall not Transfer all or any portion of the capital stock of PRI-Research or take any action which would allow PRI-Research to issue any additional shares of its capital stock or any options, warrants or other instruments which are exercisable for, or convertible into, such capital stock, without the prior written consent of CPI, which consent may be granted or withheld by CPI in its sole discretion. Notwithstanding the foregoing, either CPI or PRI may Transfer all of its shares of the capital stock of C.T.P. or PRI-Research, respectively, in connection with a merger or consolidation involving such party or a sale of all or substantially all of such party's assets. 5. Product Development; Manufacturing and Distribution Rights. ----------------------------------------------------------- 5.1 Partnership Regulatory Approvals. (a) PRI and its Affiliates --------------------------------- will be responsible for obtaining all required regulatory approvals for the Partnership's products in the Americas, and CPI and its Affiliates will be responsible for obtaining all such approvals outside the Americas. PRI shall utilize its and its Affiliates' facilities and staff as necessary to perform the work needed to submit the Partnership's products to the United States Food and Drug Administration (the "FDA") for approval in the United States. PRI, CPI and their respective Affiliates shall use their reasonable efforts to obtain the approvals 9 for which they are responsible in each jurisdiction in which the Partnership intends to market its products. Except as otherwise provided in this Section 5.1, all expenses incurred by any party in seeking any regulatory approval for which it is responsible shall be reimbursed by the Partnership promptly upon receipt of an appropriate invoice with respect thereto. (b) The preparation of all batches of products required to be produced in order to demonstrate that a manufacturing process which was developed at a laboratory or a bench scale works properly when used at a larger scale ("Pilot and Exhibition Batches"), including all work to be completed up to the time of submission for any necessary regulatory approval, shall be performed by PRI and its Affiliates or the sub-manufacturers of PRI (as described in Section 5.2(a) hereof) with respect to the marketing of any products in the Americas, and by CPI, or its sub-manufacturers (as described in Section 5.2(a) hereof) with respect to all other markets. In connection therewith, each of PRI and CPI shall, promptly after submission of an appropriate invoice, be reimbursed by the Partnership for each of the following costs incurred by it, its Affiliates, or its sub-manufacturers: (i) the cost of any active and inactive raw materials, (ii) any direct expenses required to support the submission, including, without limitation, costs of patent attorneys or statisticians, (iii) the actual costs of any necessary Bio-Studies, and (iv) any other direct actual costs of such regulatory pre-approval, development or production, including a reasonable allocation of personnel-hours for the development and manufacturing of the products, but exclusive of allocations of general overhead and administrative costs. (c) All batches of a product which are produced to demonstrate that a manufacturing process consistently produces reproducible results ("Validation Batches") required to be produced by the United States Food and Drug Administration or any other regulatory authority shall be produced by PRI and its Affiliates, or their sub-manufacturers, with respect to the marketing of any products in the Americas, and by CPI and its Affiliates, or their sub- manufacturers, with respect to all other markets, in either case, at such party's own expense. Any such expenses, to the extent not recoverable from sales of such Validation Batches, shall be reimbursed to the party incurring such expense by deducting such expenses from any future royalties payable by such party to the Partnership pursuant to Section 5.2 hereof. If any such expenses shall not have been recovered from sales of Validation Batches or from deductions from royalties within eighteen (18) months after the completion date for such Validation Batches, the 10 party incurring such expense, upon notice to the Partnership, shall be reimbursed by the Partnership for 50% of its substantiated actual and direct unreimbursed costs (including, without limitation, costs of raw materials and packaging materials, but excluding indirect costs of personnel or overhead) attributable to the preparation of such Validation Batches. (d) All products developed by the Partnership and all applicable intellectual property rights shall be the exclusive property of the Partnership and shall be registered in all markets under the Partnership's name. Except as otherwise provided herein, the Partnership shall be the exclusive owner of all rights with respect to any products developed by it, including, without limitation, any manufacturing methods or intellectual property rights. The Abbreviated New Drug Applications pursuant to and under applicable FDA rules and regulations ("ANDAs") will be owned by the Partnership with the site being PRI's or its sub-manufacturer's in the Americas and the manufacturer's site elsewhere. All product labelling shall be at PRI's discretion in the Americas and at CPI's discretion elsewhere. 5.2 Manufacturing and Distribution Rights. (a) PRI shall have the -------------------------------------- exclusive option to manufacture and/or distribute in the Americas any products developed by the Partnership and CPI shall have the exclusive option to manufacture and/or distribute any such products elsewhere, in either case on the terms set forth in this Section 5.2. Either PRI or CPI shall have the right to appoint another Person, which may or may not be an Affiliate, to act as a sub- manufacturer and/or sub-distributor on its behalf in any market in which PRI or CPI shall have elected to both manufacture and distribute the Partnership's products, and to compensate any such sub-manufacturer or sub-distributor in any manner, but at no additional cost to the Partnership. In the event that either (i) PRI shall not elect to exercise its exclusive option to manufacture and/or distribute any product developed by the Partnership in any particular market within 60 days after CPI shall have notified it that a third-party manufacturer and/or distributor should be appointed, or (ii) CPI shall not elect to exercise its exclusive option to manufacture and/or distribute any product developed by the Partnership in any particular market within 60 days after PRI shall have notified it that a third-party manufacturer and/or distributor should be appointed, the Partnership shall appoint a third-party manufacturer and/or distributor with respect thereto, who shall manufacture and/or distribute such product in such market on terms acceptable to the Partnership and such third party. 11 (b) In the event either PRI or CPI shall elect to exercise its exclusive option to both manufacture and distribute any product developed by the Partnership, in any applicable market, it may retain (i) its Standard Cost, (ii) its Distribution Allowance, and (iii) its Manufacturing Allowance, out of any Net Sales derived with respect to such product, and shall remit the remainder of such Net Sales to the Partnership as a royalty. The royalties payable to the Partnership pursuant to this Section 5.2(b) shall be calculated on a product by product basis, annually for each fiscal year of the Partnership; provided, -------- however, that such royalties shall be calculated on an interim basis for each - - - - ------- quarter (other than the last quarter) of such fiscal year and shall be remitted to the Partnership within 45 days after the close of each such quarter. In the event that the annual royalties for all of the products a party shall have elected to both manufacture and distribute shall exceed the amounts paid by such party as interim royalties, such excess shall be paid by such party to the Partnership within 60 days after the close of the Partnership's fiscal year. In the event that the amounts paid by any party as interim royalties shall exceed the annual royalties payable by such party for all such products, the Partnership shall refund such excess to such party within such 60-day period; provided, however, that if such excess shall be less than $250,000, the - - - - -------- ------- Partnership may elect to have such excess applied as a credit against future royalties owed to it by such party, and; provided, further, that if any portion -------- ------- of such credit shall not have been utilized within the next fiscal year of the Partnership, such unused portion shall be refunded to the party entitled thereto. The party electing to manufacture and distribute products of the Partnership in one or more jurisdictions (the "Manufacturer/Distributor") shall provide the Partnership with a detailed accounting of the calculation of such royalties simultaneously with the payment thereof and any other party may, within 30 days after receipt thereof, request that such accounting or the books and records of the Manufacturer/Distributor be audited by the Partnership's accountants at the Partnership's expense. An example of the calculation of the Manufacturing Allowance is annexed hereto as Schedule A. (c) For purposes hereof, the following terms shall have the following meaning: (i) "Net Sales" shall have the meaning specified under United States generally accepted accounting principles and shall include invoiced amounts less returns, allowances, rebates and price adjustments. (ii) The "Standard Cost" for any product shall consist of the cost of making such product on a per 12 unit basis, including, without limitation, materials, labor and manufacturing overhead. The Manufacturer/Distributor shall submit its calculation of such Standard Cost to the Partnership for each product of the Partnership on an annual basis, within 30 days after the commencement of the Manufacturer/Distributor's fiscal year or, if later, within 30 days after it shall commence manufacturing with respect to such product. Such calculation shall be presumptively correct, but any other party may object to such calculation on any reasonable grounds (including, without limitation, that such cost is excessive or is based upon a change in accounting principles). In the event of such an objection, the parties shall seek to agree on such Standard Cost and, if they are unable to do so, such Standard Cost shall be determined by an independent appraiser, mutually acceptable to both PRI and CPI, at the Partnership's expense. The Standard Cost of a product, once determined in the manner set forth above, shall be effective retroactive to the commencement of the Manufacturer/Distributor's fiscal year and shall not be adjusted during any such fiscal year; provided, however, that such Standard Cost shall be -------- ------- redetermined, on a prospective basis, at any time there shall be an increase or decrease in the cost of materials that shall result in an increase or decrease in Standard Cost of at least 5% of the amount originally determined. (iii) The "Distribution Allowance" for any product which a Manufacturer/Distributor shall elect to manufacture and distribute during any relevant period shall equal 12% of any Net Sales derived with respect thereto during such period. (iv) The "Manufacturing Allowance" for any product which a Manufacturer/Distributor shall elect to manufacture and distribute during any relevant period shall equal the lesser of (A) 8% of any Net Sales derived with respect to such product during such period, or (B) 50% of any Net Profit derived with respect to such product during such period. For purposes hereof, "Net Profit" for a product shall equal such product's Net Sales, reduced by the Standard Cost and the Distribution Allowance for such product. In the event that Net Profit for any product shall be negative, such deficit shall be borne by the Manufacturer/Distributor. (d) In the event that either CPI or PRI shall exercise its exclusive option to manufacture, but not to 13 distribute, or to distribute, but not to manufacture, any product in any market, the royalty provisions of Section 5.2(b) hereof shall be inapplicable. In such event, the Partnership shall determine the amount payable to such party for its manufacturing or distributing services in accordance with arm's-length standards mutually acceptable to PRI and CPI. (e) (i) Each Manufacturer/Distributor agrees to indemnify the Partnership, each partner thereof, each other party hereto and any Affiliates, officers, directors or employees of any of the foregoing (each, an "Indemnified Person") against all losses, liabilities, claims, damages and expenses (including, but not limited to, reasonable counsel fees and expenses) relating to claims of third parties ("Third Party Damages") for property damage or personal injury to the extent that the Third Party Damages awarded or incurred relate to or arise out of acts or omissions of the Manufacturer/Distributor or its designees in the manufacturing, packaging, labelling, storing, transporting, handling or selling of the Partnership's products. (ii) The Partnership agrees to indemnify each of its partners and their Affiliates, and any officers, directors or employees thereof against all Third Party Damages for property damage or personal injury to the extent that the Third Party Damages awarded or incurred relate to or arise out of acts or omissions of the Partnership in the formulation, design, research or development of any of the Partnership's products, except to the extent that such Third Party Damages were caused by acts or omissions of such partner or its Affiliates, or any of their officers, directors or employees, in which event such partner (and its Affiliates) shall indemnify the Partnership and the other partners and their Affiliates, officers, directors and employees against all Third Party Damages to the extent that such Third Party Damages were caused by such acts or omissions. 5.3 Manufacturing and Distribution Rights Subsequent to a Closing ------------------------------------------------------------- Under the Buy/Sell Procedure. (a) Subsequent to the closing under the Buy/Sell - - - - ----------------------------- Procedure, as defined in the LP Agreement, the Purchaser (as hereinafter defined) and the Partnership shall allow the Seller (as hereinafter defined) and its Affiliates to manufacture and/or distribute in the Seller's respective markets (which, in the case of PRI shall mean the Americas, and, in the case of CPI, shall mean all other markets), in perpetuity, any products as to which, as of the date of such closing (i) any manufacturing or distribution shall have been undertaken by the Seller, (ii) any Bio-Studies shall have been commenced 14 by the Partnership, or (iii) any research or development activity shall have been initiated by the Partnership. Any manufacture and/or distribution of the Partnership's products described in clause (i) by the Seller shall be on the terms set forth in Sections 5.1(d) and 5.2 hereof, and the manufacture and/or distribution of the Partnership's products described in clauses (ii) and (iii) by the Seller shall be on the terms set forth in Section 5.3(b) hereof. (b) Subsequent to the closing under the Buy/Sell Procedure, the Seller shall be entitled to retain, as compensation for both manufacturing and distributing any products described in clause (ii) or (iii) (but not clause (i)) of Section 5.3(a) hereof, the amount of its Standard Cost for such product (determined in the manner specified in Section 5.2(c)(ii) hereof) plus 50% of the Standard Margin for each of such products. For purposes hereof "Standard Margin" shall equal the excess, if any, of Net Sales (as determined pursuant to Section 5.2(c)(i) hereof) over Standard Cost for each product. Notwithstanding the foregoing, the Partnership and the Purchaser shall each be reimbursed, on a pro rata basis, for 50% of their actual out-of-pocket costs incurred subsequent to the closing under the Buy/Sell Procedure, including a reasonable allocation of personnel-hours, but exclusive of allocations of general overhead and administrative costs, in researching or developing a product or obtaining any necessary approvals with respect thereto, out of any Standard Margin derived with respect to such product, before such Standard Margin shall be divided 50% to the Seller and 50% to the Partnership pursuant to the first sentence of this Section 5.3(b). In the event that the Seller shall elect to manufacture, but not distribute, or to distribute, but not manufacture, any products described in clause (ii) or (iii) of Section 5.3(a) hereof in any markets, the amount payable to the Seller for such services shall be determined in the manner set forth in Section 5.2(d) hereof. (c) On the date of closing under the Buy/Sell Procedure, the Purchaser shall notify the Seller of any products described in Section 5.3(a) hereof which the Purchaser and the Partnership do not intend to research and develop or do not intend to seek regulatory approval in the Seller's markets, and shall furnish the Seller with all information possessed or obtained by the Purchaser or the Partnership with respect to any such products in order to enable the Seller to develop such products and/or seek such approval. No royalties or other fees shall be payable by the Seller to the Purchaser or the Partnership with respect to any such products which are developed, manufactured or marketed by the Seller. 15 (d) The Seller shall, upon receipt of a written request from the Purchaser within 90 days after the closing under the Buy/Sell Procedure, be required to manufacture, but not to distribute, for a period of three years from the date of such closing, any products of the Partnership at the time (i) manufactured by the Seller, (ii) submitted by the Seller for regulatory approval, or (iii) transferred by the Seller for scale up and submission for regulatory approval. The Seller shall be compensated for such manufacturing on the terms specified in Sections 5.1 and 5.2 hereof; provided, however, that if -------- ------- the Seller shall not serve as the distributor of the products, it shall instead be entitled to retain its Standard Cost plus a manufacturing allowance of 33- 1/3% of such Standard Cost. (e) For purposes hereof, the "Seller" shall mean PRI if PRI-Research and/or its Affiliates shall be the "Seller" under Section 7.2(d) of the LP Agreement and shall mean CPI if C.T.P. and/or its Affiliates shall be the "Seller" under such Section, and the "Purchaser" shall mean PRI if PRI-Research and/or its Affiliates shall be the "Purchaser" under Section 7.2(d) of the LP Agreement and shall mean CPI if C.T.P. and/or its Affiliates shall be the "Purchaser" under such Section. 6. Representations and Indemnification. ----------------------------------- 6.1 Representations. PRI and CPI each hereby represent and warrant --------------- to the other and to the Partnership as follows: (a) It is a corporation duly organized, validly existing, and in good standing under the laws of the state of its formation. It has all requisite corporate power and authority to conduct its business and to enter into and perform its obligations under this Agreement in accordance with the terms hereof. (b) It has taken all required corporate actions to approve and adopt this Agreement. This Agreement constitutes a duly authorized, valid and binding agreement on it and enforceable against it in accordance with its terms. Each person executing this Agreement on its behalf is duly authorized and empowered to do so. (c) The execution and delivery of this Agreement and the consummation of the transactions as contemplated hereunder (i) do not, and will not, violate or conflict with any statute, regulation, judgment, order, writ, decree or injunction currently applicable to it or any of its property or assets; and (ii) do not, and will not, violate or conflict with its charter or By-laws and/or Memorandum and 16 Articles of Association, or any existing mortgage, indenture, contract, licensing agreement, financing statement or other agreement binding on it. (d) All required consents and approvals, as well as any approvals or consents of any governmental authorities or any other third parties in connection with the execution and delivery of this Agreement or the performance of the transactions contemplated hereunder, have been obtained by it, except for such filings or approvals required to be obtained from the Bank of Israel authorizing the exchange of New Israeli Shekels for United States Dollars and the transfer of such funds to the United States. No contract or agreement binding upon it restricts its ability to fulfill its obligations and responsibilities under this Agreement or to carry out the activities contemplated herein. (e) It is not a party to or, to the best of its knowledge, threatened with any litigation or judicial or administrative proceeding that, if decided adversely to it, would delay or preclude the consummation of the transactions contemplated in this Agreement or have a material adverse effect upon the transactions contemplated hereby. 6.2 Additional Representations. PRI hereby represents and warrants -------------------------- to CPI and the Partnership that it owns all of the issued and outstanding shares of capital stock of PRI-Research and that no options, warrants or other instruments which are exercisable for, or convertible into, such shares have been issued to any person. CPI hereby represents and warrants to PRI and the Partnership that it owns all of the 100 issued and outstanding shares of C.T.P.'s capital stock, except for one share which is owned by Clal Industries Ltd., and that no options, warrants or other instruments which are exercisable for, or convertible into, any shares of C.T.P.'s capital stock have been issued to any person. 6.3 Indemnification. PRI and CPI each agree to indemnify and hold --------------- harmless the other and the Partnership and their respective employees, agents and Affiliates against all losses, liabilities, claims, damages, and expenses (including, but not limited to, reasonable counsel fees) resulting from or arising out of any actual or alleged misrepresentation or breach by it of any representation or warranty set forth in Section 6.1 or Section 6.2 hereof or otherwise set forth in this Agreement. 17 7. Miscellaneous. -------------- 7.1 Assignment. All terms and provisions of this Agreement shall be ----------- binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party hereto without the prior written consent of the other party. 7.2 Entire Agreement. This Agreement contains the entire agreement ----------------- among the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous arrangements or understandings with respect thereto. 7.3 Notices. All notices hereunder shall be in writing and shall -------- be given: (a) if to PRI, at One Ram Ridge Road, Spring Valley, New York 10977 (attention: Kenneth I. Sawyer), fax number: (914) 425-5097, or such other address or fax number as PRI shall have designated in writing to the other parties, (b) if to CPI at Clal House, 5 Druyanov Street, Tel Aviv 63143, Israel (attention: Zeev Zehavi), fax number: (011-972-3) 293633, with a copy to Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036 (attention: Jeffrey A. Horwitz, Esq.), fax number: (212) 969-2900, or such other address or fax number as CPI shall have designated in writing to the other parties, or (c) if to the Partnership, at its principal office, as specified in Section 2.3 of the Partnership Agreement, or at such other address designated in writing to the other parties. Any notice shall be deemed to have been given if personally delivered or sent by express commercial courier or delivery service or by telegram, telefax, telex or facsimile transmission. Any notice given in any other manner shall be deemed given when actually received. Any notice delivered to the Partnership shall be simultaneously delivered to the other parties in the manner set forth in this Section 7.3. 7.4 Amendments; Waiver. This Agreement may not be amended or ------------------- terminated, and no provision hereof may be waived, except pursuant to a written instrument executed by each of the parties hereto. 7.5 Counterparts. This Agreement may be executed in any number of ------------- counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 18 7.6 Headings. The headings of the Sections of this Agreement have --------- been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 7.7 Governing Law. This Agreement shall be governed by and -------------- construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly therein. 7.8 Severability. If any term or provision hereof shall be invalid ------------- or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, (b) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction and (c) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision as determined by a court to be valid and enforceable and to express the intention of the parties with respect to the invalid or unenforceable term or provision. 7.9 CONSENT TO JURISDICTION. IN CONNECTION WITH ANY DISPUTE WHICH MAY ------------------------ ARISE UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT REFERRED TO HEREIN, EACH OF THE PARTIES HEREBY IRREVOCABLY SUBMITS TO, CONSENTS TO, AND WAIVES ANY OBJECTION TO, THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND WAIVES ANY OBJECTION TO THE LAYING OF VENUE IN SUCH COURTS. EACH SUCH PARTY ADMITS THAT ANY SUCH DISPUTE MAY BE RESOLVED AT LEAST AS CONVENIENTLY IN SUCH A COURT AS IN ANY OTHER COURT, AND SHALL NOT SEEK DISMISSAL OR A CHANGE OF VENUE ON THE GROUND THAT RESOLUTION OF SUCH A DISPUTE IN ANY SUCH COURT SHALL NOT BE CONVENIENT OR IN THE INTERESTS OF JUSTICE. CPI HEREBY APPOINTS PROSKAUER ROSE GOETZ & MENDELSOHN LLP AS ITS AGENT UPON WHOM SERVICE OF PROCESS MAY BE MADE WITH THE SAME FORCE AND EFFECT AS IF SUCH SERVICE SHALL HAVE BEEN MADE PERSONALLY UPON CPI. PRI AND THE PARTNERSHIP EACH HEREBY APPOINT HERTZOG, CALAMARI & GLEASON AS ITS AGENT UPON WHOM SERVICE OF PROCESS MAY BE MADE WITH THE SAME FORCE AND EFFECT AS IF SUCH SERVICE SHALL HAVE BEEN MADE PERSONALLY UPON PRI OR THE PARTNERSHIP. 19 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed as of the date first written above. PHARMACEUTICAL RESOURCES, INC. By: /s/ Kenneth I. Sawyer ---------------------------- CLAL PHARMACEUTICAL INDUSTRIES LTD. By /s/ Mony Ben Dor ----------------------------- By /s/ Zeev Zehavi ----------------------------- CLAL PHARMACEUTICAL RESOURCES L.P. By: Clal Pharmaceutical Resources (1995) Ltd., General Partner By /s/ Mair Laiser ----------------------------- By /s/ Kenneth I. Sawyer ----------------------------- SCHEDULE A Calculation of Manufacturing Allowance --------------------------------------
MARGIN DISTRIBUTION ------------------------------------------------------- NET STANDARD STANDARD DISTRIBUTION NET MANUFACTURING ROYALTY TO SALES COST MARGIN ALLOWANCE PROFIT ALLOWANCE PARTNERSHIP - - - - ----- --------- -------- ------------ ------ ------------- ----------- 100% 30% 70% 12% 58% 8% 50% 100% 40% 60% 12% 48% 8% 40% 100% 50% 50% 12% 38% 8% 30% 100% 60% 40% 12% 28% 8% 20% 100% 70% 30% 12% 18% 8% 10% 100% 80% 20% 12% 8% 4% 4% 100% 85% 15% 12% 3% 1.5% 1.5% 100% 87% 13% 12% 1% 0.5% 0.5% 100% 88% 12% 12% 0% 0% 0% 100% 90% 10% 12% (2%) (2%) 0%
EX-10.8 9 GUARANTEE OF THE REGISTRANT Exhibit 10.8 PHARMACEUTICAL RESOURCES, INC. Guarantee --------- The undersigned, being directly or indirectly, the beneficial owner of PRI-Research, Inc., a Delaware corporation ("PRI-Research"), in order to induce C.T.P. Research and Development (1995) Ltd., an Israeli private company limited by shares ("C.T.P."), to enter into that certain Limited Partnership Agreement (the "Agreement") of Clal Pharmaceutical Resources L.P. (the "Partnership"), dated May 1, 1995, among Clal Pharmaceutical Resources (1995) Ltd. (the "General Partner"), C.T.P. and PRI-Research, does hereby unconditionally guarantee the full and timely performance of PRI-Research's obligations to the Partnership, the General Partner and C.T.P. under the Agreement, if, and only to the extent to which, PRI-Research shall be required to perform such obligations. In connection herewith, the undersigned shall be entitled to avail itself of and to assert any rights, claims or defenses otherwise available to PRI-Research with respect to such obligations. This Guarantee is being delivered by the undersigned to the Partnership, the General Partner and C.T.P. in connection with the execution and delivery of the Agreement. The undersigned hereby represents and warrants that it is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. The undersigned hereby further represents and warrants that it has all necessary corporate power and authority to execute, deliver and perform this Guarantee, that the execution, delivery and performance by the undersigned of this Guarantee has been duly authorized by all necessary corporate or other action by or on behalf of the undersigned and that this Guarantee constitutes a valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York without regard to the choice-of-law provisions thereof. Dated: May 1, 1995 PHARMACEUTICAL RESOURCES, INC. By: /s/ Kenneth I. Sawyer --------------------------- EX-10.9 10 GUARANTEE OF CLAL PHARMACEUTICAL INDUSTRIES LTD. Exhibit 10.9 CLAL PHARMACEUTICAL INDUSTRIES LTD. Guarantee --------- The undersigned, being directly or indirectly, the beneficial owner of all but one share of the capital stock of C.T.P. Research and Development (1995) Ltd., an Israeli private company limited by shares ("C.T.P."), in order to induce (a) PRI-Research, Inc., a Delaware corporation ("PRI-Research"), to enter into that certain Limited Partnership Agreement (the "LP Agreement") of Clal Pharmaceutical Resources L.P. (the "Partnership"), dated May 1, 1995, among Clal Pharmaceutical Resources (1995) Ltd. (the "General Partner"), C.T.P. and PRI- Research, and (b) Pharmaceutical Resources, Inc., a New Jersey corporation ("PRI"), to enter into that certain Stockholders Agreement dated May 1, 1995, among C.T.P., PRI and the General Partner (the "Stockholders Agreement"), does hereby unconditionally guarantee the full and timely performance of (i) C.T.P.'s obligations to the Partnership, the General Partner and PRI-Research under the LP Agreement, and (ii) C.T.P.'s obligations to PRI and the General Partner under the Stockholders Agreement, if, and only to the extent to which, C.T.P. shall be required to perform such obligations. In connection herewith, the undersigned shall be entitled to avail itself of and to assert any rights, claims or defenses otherwise available to C.T.P. with respect to such obligations. This Guarantee is being delivered by the undersigned to the Partnership, the General Partner, PRI-Research and PRI in connection with the execution and delivery of the LP Agreement and the Stockholders Agreement. The undersigned hereby represents and warrants that it is a private company limited by shares duly organized, validly existing and in good standing under the laws of the State of Israel. The undersigned hereby further represents and warrants that it has all necessary corporate power and authority to execute, deliver and perform this Guarantee, that the execution, delivery and performance by the undersigned of this Guarantee has been duly authorized by all necessary corporate or other action by or on behalf of the undersigned and that this Guarantee constitutes a valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms. This Guarantee shall be governed by and construed in accordance with the laws of the State of Israel without regard to the choice-of-law provisions thereof. Dated: May 1, 1995 CLAL PHARMACEUTICAL INDUSTRIES LTD. By /s/ Mony Ben-Dor -------------------------------- By /s/ Zeev Zehavi -------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----