EXHIBIT 1
PHARMACEUTICAL RESOURCES, INC.
One Ram Ridge
Spring Valley, New York 10977
CONFIDENTIAL
March 25, 1998
Clal Pharmaceutical Industries Ltd. Merck KGaA
Clal House ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
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Tel Aviv 63143
ISRAEL
Gentlemen:
This letter agreement sets forth our agreement regarding a possible
transaction involving the purchase of shares of common stock, par value $.01 per
share (the "Common Stock"), of Pharmaceutical Resources, Inc. (the "Company")
owned by Clal Pharmaceutical Industries Ltd. ("Clal"). The Company is in
confidential negotiations regarding a possible investment in the Company by
Merck KGaA or one of its affiliates (collectively, "Merck"). No agreement
between the Company and Merck has been reached. with respect to such transaction
(the "Merck Transaction").
In connection with the possible investment in the Company by Merck, the
Company, Merck and Clal agree as follows:
1. Concurrently with, and subject to, the closing (the "Closing") of the
transactions contemplated by a definitive stock purchase agreement presently
being discussed to be entered into between the Company and Merck regarding an
investment by Merck in the Company (the "Purchase Agreement"):
(a) Clal shall sell to Merck, and Merck shall purchase from Clal, 1,313,272
shares of Common Stock (the "Tranche A Shares"). The per share purchase
price for the Tranche A Shares, which shall be payable at the Closing,
shall be the greater of (i) $2.00 and (ii) the per share purchase price to
be paid by Merck to the Company for the shares of Common Stock to be
acquired by Merck at the Closing (such greater price being the "Merck
Purchase Price").
(b) Clal shall sell to Merck, and Merck shall purchase from Clal, at the
Closing, 500,000 additional shares of Common Stock (the "Tranche B
Shares"). The per share purchase price for the Tranche B Shares, which
shall be payable at the Closing, shall be the Merck Purchase Price. On the
second anniversary of the Closing, Merck shall pay to Clal an amount in
respect of each Tranche B Share equal to the excess, if any, of (i) the
weighted average price of all trades in the shares of Common Stock on The
New York Stock Exchange ("Fair Market Value") during the thirty (30)
trading days immediately preceding the second anniversary of the date of
the Closing over (ii) the Merck Purchase Price.
(c) All payments to Clal pursuant to Paragraphs 1 and 2 hereof shall be by
wire transfer of immediately available funds or by certified or official
bank check.
(d) Merck hereby acknowledges that (i) all shares of Common Stock purchased
by Merck from Clal will be purchased for investment purposes only without a
view to the resale or distribution thereof and may not be resold or
transferred other than in compliance with all applicable securities laws
and (ii) in connection with such purchase, Clal is, subject to Paragraph
2(a) hereof, making no representations or warranties of any nature
whatsoever other than that Clal is conveying to Merck good and marketable
title to such shares which shall be duly authorized, validly issued, fully
paid and nonassessable, free and clear of any liens, claims or other
encumbrances, and that such conveyance will not conflict with any
agreement, law or obligation applicable to Clal.
2. (a) Subject to Paragraph 7 below, during the period commencing on the
Closing and ending three years and five U.S. business days thereafter (the
"Post-Closing Period"), Clal shall not, directly or indirectly, sell, assign,
pledge, transfer, create or purchase any option or warrant on or with respect
to, enter into any transaction shifting a substantial portion of the benefits
and burdens of ownership of, or otherwise dispose of (collectively, "Transfer"),
or enter into a contract or agreement (whether or not contingent) to Transfer,
any of the remaining shares of Common Stock beneficially owned by Clal (the
"Tranche C Shares"). Clal further represents and warrants that immediately
following the Closing, Clal will beneficially own 500,000 shares of Common
Stock, all of which shares are subject to the put and call options described in
Paragraphs 2(b)(i) and (ii) below. These 500,000 shares of Common Stock will
represent Clal's then entire remaining equity interest in the Company, including
the 186,000 shares of Common Stock delivered to Clal pursuant to the Third
Amendment to the Stock Purchase Agreement, dated July 28, 1997, between the
Company, Clal and PRI-Research, Inc., and Clal represents that it holds no
unexercised options, warrants or other rights with respect to any Common Stock
as of the date hereof.
(b)(i) During the five U.S. business day period commencing on the last day
of the Post-Closing Period, Clal shall have the right to cause Merck (or the
Company, if Merck and the Company shall agree) to purchase, and, if Clal so
elects, Merck and/or the Company shall purchase, the Tranche C Shares at a price
of $2.50 per share.
(ii) In the event that Clal shall not have exercised the right provided in
Paragraph 2(b)(i) hereof, Clal, Merck and/or the Company shall have the
right to exercise the option provided in this Paragraph 2(b)(ii), in each
case by providing written notice of such exercise to each of the other
parties hereto within five U.S. business days following the expiration of
the five U.S. business day period referred to in Paragraph 2(b) (i). Upon
the exercise of such option:
(A) Clal shall seek to sell any or all of the Tranche C Shares on The New
York Stock Exchange for a period of ninety trading days beginning on the
third trading day following exercise of the option; provided, however, that
Clal shall not effect any such sale without the prior consent of Merck and
the Company, and Clal shall use its best efforts to effect each sale which
Merck and the Company shall direct Clal to effect; and
(B) within five U.S. business days following the expiration of the 90
trading day period referred to above, Merck and/or the Company shall
purchase from Clal all of the Tranche C Shares not sold by Clal during such
90 trading day period (if any), and shall pay to Clal an amount equal to
the amount, if any, by which (I) the product of 500,000 multiplied by the
Fair Market Value during the 30 trading days immediately preceding the last
day of the Post-Closing Period exceeds (II) the aggregate proceeds realized
by Clal from sales of Tranche C Shares during the 90 trading day period
referred to herein.
3. All shares of Common Stock sold by Clal pursuant to this agreement shall be
duly authorized, validly issued, fully paid and nonassessable and shall be free
and clear from all liens, pledges, claims and other agreements, including
warrants, options and voting agreements.
4. Except as otherwise contemplated in Paragraph 1 hereof, and in addition to
the restrictions set forth in Paragraph 2(a) hereof, from the date hereof
through the occurrence of the first to occur of (i) the termination of this
agreement in accordance with Paragraph 7 hereof and (ii) the end of the
Post-Closing Period, neither Clal nor
any person under Clal's control, shall (w) purchase or otherwise acquire
any additional shares of Common Stock, options, warrants or other securities of
the Company, (x) Transfer any shares of Common Stock beneficially owned,
directly or indirectly, by Clal, (y) enter into any agreement or arrangement
with any person or entity (other than the Company) concerning the voting,
holding or transferring of any shares of the Company, or initiate, propose or
participate in any transaction involving the Company or (z) recommend any person
to engage in the activities in (w), (x) or (y) above.
5. Effective upon the Closing: (i) the Stock Purchase Agreement, between the
Company and Clal, dated March 25, 1995, as amended (the "Clal Agreement"), shall
be terminated in its entirety with no further obligations, liabilities or rights
on the part of the parties thereunder, and (ii) the Registration Rights
Agreement, between the Company and Clal, dated May 1, 1995, shall be amended
hereby and shall provide that Clal shall not be entitled to exercise any of its
rights thereunder during the Post-Closing Period. Clal hereby agrees to,
notwithstanding any other agreement that it may have with the Company or others,
vote all shares of Common Stock which it owns (beneficially and/or of record) in
favor of the Merck Transaction (and all related matters) if such Transaction is
approved by the Company's Board of Directors. In the event of any conflict
between the terms of this agreement and the Clal Agreement, the terms of this
agreement shall govern.
6. The execution and delivery of this agreement and the consummation of the
transactions contemplated hereby shall in no way affect or modify the
obligations of (i) P.R.I. Research, Inc. ("PRI Research") under the Non-Recourse
Promissory Note, dated July 28, 1997, (ii) the Company, PRI Research, Clal,
C.T.P. Research and Development (1995) Ltd., Clal Pharmaceutical Resources
(1995) Ltd. or Clal Pharmaceutical Resources L.P. under the letter agreement,
dated July 28, 1997, with respect to the purchase of interests by PRI Research
in the joint venture of the Company and Clal and any and all documents executed
in connection therewith, or (iii) the transactions contemplated thereby.
7. Each of Clal, the Company and Merck shall have the right to terminate this
agreement without further obligation to any of the parties hereto (except for
Paragraphs 8, 9, 10 and 11 below) by written notice to the other parties hereto
(i) after March 27, 1998, unless a definitive Purchase Agreement with respect to
the Merck Transaction has theretofore been executed by each party thereto, (ii)
after July 15, 1998, unless the Closing has theretofore occurred and (iii) after
April 3, 1998, unless the board of directors of Merck has theretofore approved
the Purchase Agreement.
8. The Company, Merck and Clal agree to keep strictly confidential the contents
of this agreement, the fact that discussions between the Company and Merck have
occurred, the terms of such discussions and all of the other matters discussed
herein,
until after such time as the Company has disclosed such matters under
applicable securities laws or the rules of the stock exchanges on which the
Common Stock is traded; provided, however, that, notwithstanding the foregoing,
Clal may disclose such matters at such time, and to such extent, as required
under applicable securities laws.
9. All notices hereunder shall be in writing and shall be given:
(a) if to the Company,
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Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
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with a copy to,
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Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Esq.
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
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(b) if to Merck,
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with a copy to,
Coudert Brothers
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Fax number: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to Clal,
Clal Pharmaceutical Industries Ltd.
Clal House
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Attention: ▇▇▇ ▇▇▇▇, General Counsel
Fax number: ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
With a copy to,
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Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax number: (212) 310 - 8007
Any notice shall be deemed to have been given, if personally delivered or sent
by express commercial courier or delivery service or by telegram, telefax,
telefax or facsimile transmission. Any notice given in any other manner shall be
deemed given when actually received.
10. This agreement shall be governed in accordance with the laws of the State of
New York, without regard to its conflicts of laws principles. For the purpose of
this letter agreement, "U.S. Business Day" shall mean any day except Saturday,
Sunday and any other day on which commercial banks in New York City are
authorized by law to close.
11. This agreement shall not be amended or (subject to Paragraph 7 above)
terminated, and no provision hereof may be waived, except pursuant to a written
instrument executed by each of the parties hereto.
Sincerely,
PHARMACEUTICAL RESOURCES, INC.
By:
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Name:
Title:
ACCEPTED AND AGREED TO:
CLAL PHARMACEUTICAL INDUSTRIES LTD.
By:
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Name: ▇▇▇ ▇▇▇▇
Title: General Counsel
DATED: March 25, 1998
ACCEPTED AND AGREED TO:
MERCK KGaA
By:
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Name:
Title:
DATED: March 25, 1998