EXHIBIT 3
EXECUTION COPY
PHARMACEUTICAL RESOURCES, INC.
Stock Option Agreement
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PHARMACEUTICAL RESOURCES, INC., a New Jersey corporation (the "Company"),
hereby grants Merck KGaA, a Kommanditgesellschaft auf Aktien organized under the
laws of Germany(the "Optionee"), a non-statutory stock option (the "Option") to
purchase from the Company up to 820,000 shares of common stock, par value $.01
per share, of the Company ("Option Shares") at a price and on the terms set
forth in this Option Agreement. The Option is granted by the Company to the
Optionee in consideration for Services (as such term is defined in the Services
Agreement) to be provided by the Optionee to the Company pursuant to the
Services Agreement, dated June 30, 1998, between the Company and the Optionee
(the "Services Agreement").
SECTION 1. Term of Option. The Option is granted as of the
date hereof (the "Grant Date") and shall be exercisable at any time beginning
three years and ten days after the date hereof; provided that, to the extent not
exercised, this Option shall terminate on April 30, 2003.
SECTION 2. Vesting. The Option shall vest on the following schedule:
Cumulative vested
Measured from Grant Date portion of Option Shares
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First anniversary one-third
Second anniversary two-thirds
Third anniversary entire amount
SECTION 3. Exercise of Option. Subject to the provisions hereof, this
Option may be exercised in whole or in part at any time, or from time to time,
to the extent vested, during its term, as set forth in Section 1 herein, by
presentation to the Company at its principal office of the Option Exercise Form
attached hereto, duly executed and accompanied by payment (either in cash or by
United States certified or official bank check payable to the order of the
Company) of the Exercise Price for the number of Option Shares specified in such
Form. Upon receipt of the Option Exercise Form and such payment, the Company
shall, within five (5) business days, cause to be delivered to the Optionee one
or more certificates representing the aggregate number of fully-paid and
nonassessable Option Shares issuable upon exercise as specified in the Form.
SECTION 4. Exercise Price. The exercise price ("Exercise Price") shall be
US $2.00 per share.
SECTION 5. Reservation of Shares. The Company will reserve for issuance and
delivery upon exercise of this Option all authorized but unissued Common Shares
or other shares of capital stock of the Company (and other securities and
property) from time to time receivable upon exercise of this Option.
SECTION 6. Restrictions on Transfer, Exercise and Registration.
6.1 Transferability. This Option may not be sold, transferred, pledged,
assigned or otherwise disposed of (collectively, "Transferred") by the Optionee.
6.2 Compliance with Securities Legislation. No Option Shares may be
transferred except in full compliance with all applicable provisions of the
Securities Act of 1933 and of applicable state securities laws.
6.3 Legend. Each certificate for the Option Shares shall be endorsed with
the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS UNDER APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND
STATE SECURITIES LAWS."
6.4 Registration. The Option Shares shall have the benefit of the
Registration Rights Agreement, dated March 25, 1998, between the Company, Lipha
Americas, Inc., Genpharm Inc. and the Optionee.
6.5 Restrictions on Exercise. The Option may not be exercised if the
issuance of the Option Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of the Option,
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the Company may require the Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
SECTION 7. Rights of the Optionee. The Optionee shall not be entitled to
any rights of a shareholder of the Company with respect to the Option Shares
solely as a result of the grant of the Option. Such rights shall exist only
after issuance of a stock certificate in accordance with Section 3 above
following the Optionee's exercise of the Option (or a portion thereof)
hereunder. The rights of the Optionee are limited to those expressly provided in
this Option.
SECTION 8. Termination of Services Agreement
(a) If the Services Agreement terminates other than as a result of the
Optionee's Breach and the Optionee thereby ceases to provide Services to the
Company, this Option may be exercised in full during the remaining balance of
the term of the Option (but not in any event before three years and ten days
have elapsed from the date hereof or beyond the expiration of the term of this
Option), notwithstanding anything to the contrary in this Option Agreement.
(b) If the Services Agreement terminates as a result of the Optionee's
Breach and the Optionee thereby ceases to provide Services to the Company, the
Optionee may exercise the Option, to the extent vested as of the date of such
termination, during the remaining balance of the term of the Option (but not in
any event before three years and ten days have elapsed from the date hereof or
beyond the expiration of the term of the Option).
(c) For purposes of this section, "Breach" means willful refusal of the
Optionee to provide Services to the Company in accordance with the Services
Agreement.
SECTION 9. Anti-Dilution Provisions.
9.1. Adjustments for Stock Dividends; Combinations, Etc. In case the
Company shall do any of the following (each, an "Event"):
(a) declare a dividend or other distribution on its common shares
payable in common shares of the Company;
(b) effect a subdivision of its outstanding common shares into a
greater number of common shares (by reclassification, stock split or
otherwise by payment of a dividend in common shares);
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(c) effect a combination of its outstanding common shares into a
lesser number of common shares (by reclassification, reverse split or
otherwise);
(d) issue by reclassification, exchange or substitution of its common
shares any shares of capital stock of the Company; or
(e) effect any other transaction having a similar effect, then the
Exercise Price in effect at the time of the record date for such Event
shall be adjusted to a price determined by multiplying such Exercise Price
by a fraction, the numerator of which shall be the number of shares of
common stock outstanding immediately prior to such Event and the
denominator of which shall be the number of Common Shares outstanding
immediately after such Event. Each such adjustment of the Exercise Price
shall be calculated to the nearest cent. No such adjustment shall be made
in an amount less than One Cent ($.01), but any such amount shall be
carried forward and shall be given effect in connection with the next
subsequent adjustment. Such adjustment shall be made successively whenever
any Event shall occur.
9.2 Adjustment in the Number of Option Shares. Whenever the Exercise Price
shall be adjusted pursuant to Section 9.1 hereof, the number of Option Shares
which the Optionee may purchase upon exercise of the Service Option shall be
adjusted, to the nearest full share, by multiplying such number of Option Shares
immediately prior to such adjustment by a fraction, the numerator of which shall
be the Exercise Price immediately prior to such adjustment and the denominator
of which shall be the Exercise Price immediately thereafter.
9.3 Adjustment for Consolidation or Merger. In case of any consolidation or
merger to which the Company shall be a party, other than a consolidation or
merger in which the Company shall be the surviving or continuing corporation, or
in case of any sale or conveyance to another entity of all or substantially all
of the property of the Company, or in the case of any statutory exchange of
securities with another entity (including any exchange effected in connection
with a merger of any other corporation with the Company), the Optionee shall
have the right thereafter to receive from the Company upon exercise of the
Option the kind and amount of securities, cash or other property which it would
have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had this Option
been exercised immediately prior to the effective
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date of such transaction and, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section 9 with
respect to the rights and interests thereafter of the Optionee to the end that
the provisions set forth in this Section 9 shall thereafter correspondingly be
made applicable, as nearly as then may reasonably be, in relation to any shares
of stock or other securities or property thereafter deliverable upon the
exercise of this Option. Notice of any such consolidation, merger, statutory
exchange, sale or conveyance, and of the provisions proposed to be adjusted,
shall, to the extent reasonably practicable, be mailed to the Optionee not less
than thirty (30) days prior to such event.
SECTION 10. Fully Paid Shares; Taxes. The Company agrees that the common
shares of the Company represented by each and every certificate for the Option
Shares delivered on the exercise of this Option in accordance with the terms
hereof shall, at the time of such delivery, be validly issued, fully-paid and
nonassessable, free and clear of all liens, pledges, options, claims or other
encumbrances. The Company further covenants and agrees that it will pay, when
due and payable, any and all Federal and state stamp, original issue or similar
taxes (but specifically not including any income taxes) which may be payable in
respect of the issue of any Option Shares or certificates therefor.
SECTION 11. Notices. All notices hereunder shall be in writing and shall be
given: (a) if to the Company, at Xxx Xxx Xxxxx Xxxx, Xxxxxx Xxxxxx, Xxx Xxxx
00000 (attention: Xxxxxxx X. Xxxxxx), fax number: (000) 000-0000, with a copy to
Xxxxxxx, Calamari & Xxxxxxx, at 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
(attention: Xxxxxxx Xxxxxxxxxx, Esq., and Xxxxxxx X. Xxxxxxx, Esq.), fax number:
(000) 000-0000, or (b) if to the Optionee, at Merck KGaA, Xxxxxxxxxxx Xxxxxxx
000, 00000 Xxxxxxxxx, Xxxxxxx, (attention: Professor Xx. Xxxxxxxx Xxxxxxxx), fax
number: 000 00-0000-00-0000, with a copy to Coudert Brothers, at 0000 Xxxxxx xx
xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (attention: Xxxxx X. Xxxxxxxx, Xx.), fax
number: (000) 000-0000. Any notice shall be deemed to have been given if
personally delivered or sent by express commercial courier or delivery service
or by telegram, telefax, telex or facsimile transmission. Any notice given in
any other manner shall be deemed given when actually received.
SECTION 12. Amendments; Waiver. This Option may not be amended, and no
provision hereof may be waived, without the prior written consent of at least a
majority of the Company Designees (as defined in the Stock Purchase
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Agreement, dated March 25, 1998, between the Company and Alpha Americas,
Inc.) on behalf of the Company and except pursuant to a written instrument
executed by the Company and the Optionee.
SECTION 13. Headings. The headings of the Sections of this Option have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Option.
SECTION 14. Governing Law. This Option is issued under, and shall be
governed by and construed in accordance with, the laws of the State of New York
applicable to contracts made and to be performed wholly within such State.
IN WITNESS WHEREOF, the Company has caused this Option to be signed on its
behalf, in its corporate name, by its duly authorized officer, on June 30, 1998.
PHARMACEUTICAL RESOURCES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
President
Attest:
/s/ Xxxxxx X. X'Xxxxxx
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Xxxxxx X. X'Xxxxxx
Secretary
MERCK KGaA
By: /s/ Xxxxxxxx
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Name: Prof. Xx. Xxxxxxxx
Xxxxxxxx
Title: Member of the Executive
Board
By: /s/ Xxxxx-Xxxxx Xxxxxxx
Name: Xxxxx-Xxxxx Xxxxxxx
Title: Head of Legal
Department
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PHARMACEUTICAL RESOURCES, INC.
STOCK OPTION EXERCISE FORM
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For services performed, the undersigned hereby irrevocably elects to
exercise the attached Option to purchase ______ shares of common stock of
Pharmaceutical Resources, Inc. at the Exercise Price of $2.00 per share, in
accordance with the Option Agreement.
Attached hereto is cash or a U.S. certified or official bank check payable
to the order of the Company in the amount of the total Exercise Price set forth
above.
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Name of Optionee
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Signature of Optionee
or Authorized Representative
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Name and Title of Authorized
Representative
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Address of Optionee
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Date
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