Placement Agency Agreement

PHARMACEUTICAL RESOURCES, INC.


13,634,012 SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE


PLACEMENT AGENCY AGREEMENT
--------------------------


August 21, 2001


BEAR, STEARNS & CO. INC. As Placement Agent 245 Park Avenue New York, New York 10167


Dear Sir or Madam:


You have approached EMD, Inc., a Delaware corporation, Genpharm Inc., a corporation organized under the laws of Ontario, and Merck KGaA, a Kommanditgesellschaft auf Aktein organized under the laws of Germany (each, a "Selling Stockholder," and collectively, the "Selling Stockholders"), to determine whether the Selling Stockholders would be interested in selling 13,634,012 shares (the "Shares") of common stock, par value $0.01 per share (the "Common Stock"), of Pharmaceutical Resources, Inc., a New Jersey corporation (the "Company"), beneficially owned by the Selling Stockholders, to certain Investors (as defined below). The Selling Stockholders have informed you that no decision has been made by them to sell the Shares, but that if the Selling Stockholders were to receive offers to purchase the Shares on terms and conditions, including price, deemed acceptable to the Selling Stockholders, the Selling Stockholders may determine to sell the Shares, subject to obtaining necessary internal corporate approvals by the Selling Stockholders. You have provided the Selling Stockholders with offers from Investors to purchase the Shares on terms and conditions that the Selling Stockholders are considering accepting. The Selling Stockholders desire to engage you, and any sub-agent designated by you, as their placement agent (the "Placement Agent") in connection with the possible sale of the Shares to the Investors. The Shares are more fully described in the Registration Statement (as hereinafter defined).


The Company and the Selling Stockholders hereby confirm as follows their agreements with the Placement Agent.


1. Scope of Engagement. The Selling Stockholders hereby engage the Placement Agent as their agent, acting on a reasonable best efforts basis, in the private placement of the Shares of the Company beneficially owned by the Selling Stockholders (a "Transaction") to one or more accredited investors (collectively, the "Investors"). The number and price of the Shares that each Selling Stockholder may ultimately agree to sell, pursuant to the Purchase Agreements (as defined below), are entirely within its discretion.


2. Offering Process. The Placement Agent hereby accepts the engagement and in that connection agrees to:


(a) assist the Company in the preparation of a Private Placement Memorandum, as such may be amended or supplemented (the "Memorandum"), describing the Company, the Selling Stockholders and the Common Stock; the Memorandum will not be made available to potential Investors until such Memorandum and its use shall be approved by the Company, the Selling Stockholders, the Placement Agent and their respective counsel;


(b) prepare and provide to the Company and the Selling Stockholders the list of the Investors to be contacted by the Placement Agent in connection with a Transaction (the "Investor Contact List");


(c) if appropriate, assist the Company and the Selling Stockholders with the preparation of any other communications to be used in placing the Shares, whether in the form of letter, circular, notice or otherwise; and


(d) assist with the negotiation of the final terms and conditions for the sale of the Shares to the Investors.


3. Company's and Selling Stockholders' Responsibilities, Representations and Warranties.


(a) In connection with the engagement of the Placement Agent, the Company will furnish the Placement Agent with all information concerning the Company that the Placement Agent and its counsel shall reasonably request and will provide the Placement Agent and its counsel with reasonable access to the Company's officers, directors, accountants, counsel and other advisors. The Company represents and warrants to the Placement Agent that: (i) the Memorandum, including any documents attached as exhibits to the Memorandum and/or incorporated by reference therein, and, when delivered, any communications .prepared pursuant to Section 2(c) above, is and will be true and accurate in all material respects and the Memorandum does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (ii) any projected financial information or other forward-looking information which the Company provides to the Placement Agent will be provided by the Company in good faith and will represent management's reasonable estimates. The Company and each Selling Stockholder acknowledges and agrees that the Placement Agent will be using and relying upon such information supplied by the Company and its officers, agents and others and any other publicly available information concerning the Company without any independent investigation or verification thereof or independent appraisal by the Placement Agent of the Company or its business or assets.


(b) The Company and the Selling Stockholders shall keep the Memorandum confidential and shall not distribute it or any other materials related to the Transaction contemplated hereby, or otherwise advertise to or solicit purchasers of Shares, without the consent of the Placement Agent.


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(c) In connection with the engagement of the Placement Agent, the Selling Stockholders will furnish the Placement Agent with all information concerning the Selling Stockholders that the Placement Agent and its counsel shall reasonably request. The Selling Stockholders represent and warrant to the Placement Agent that all such information is and will be true and accurate in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading.


(d) The sale of Shares to any Investor will be evidenced by a purchase agreement ("Purchase Agreement") among the Selling Stockholders, the Company and such Investor. Prior to the execution of any Purchase Agreement, the Company will make its management, including officers with responsibility for financial affairs, reasonably available to the Investors to address inquiries by the Investors regarding the Company. Subject to the Selling Stockholders' approval, the selling price of the Shares to be sold by the Selling Stockholders to the Investors pursuant to the Purchase Agreements will be specified in writing by the Placement Agent on behalf of the Selling Stockholders (by fax, letter or otherwise) to the Investors prior to the execution of the Purchase Agreements.


(e) The form of Purchase Agreement shall be reasonably satisfactory to the Placement Agent. The Company and the Selling Stockholders will perform the covenants set forth in the Purchase Agreements. The Purchase Agreements will require the Company to file, promptly after execution and delivery of such Purchase Agreements by all parties thereto, a registration statement with the Securities and Exchange Commission (the "SEC") for the resale from time to time of the Shares to be sold to the Investors pursuant to such Purchase Agreements (the "Registration Statement"). Neither the Company nor the Selling Stockholders will modify any such Purchase Agreements, nor will they execute and deliver any additional Purchase Agreements after the time the Company has filed the Registration Statement with the SEC. The closing of the sale of the Shares contemplated by the Purchase Agreements (the "Closing") shall be held promptly following the receipt by the Company of confirmation by the SEC of its willingness to declare effective the Registration Statement (or on such other later date as the Placement Agent and the Selling Stockholders both agree) and the satisfaction of the other conditions set forth in such Purchase Agreements.


(f) The Company agrees that the Placement Agent shall be entitled to rely on the representations and warranties of the Company contained in the Purchase Agreements as if they were made directly to the Placement Agent. Each Selling Stockholder, jointly and severally, (i) represents and warrants that the representations and warranties of such Selling Stockholder contained in the Purchase Agreements will be true and correct in all respects on the date of such Purchase Agreements and on the Closing Date and (ii) agrees that the Placement Agent shall be entitled to rely on such representations and warranties as if they were made directly to the Placement Agent.


(g) Neither the Company nor any Selling Stockholder shall take or permit its respective directors, officers, employees, agents, affiliates controlled by it or associates to take any action that would cause the sale of Shares contemplated by this


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Agreement to fail to qualify for an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act").


(h) The Company will cause its independent public accountants to address and deliver to the Company and the Placement Agent a letter or letters (which letters are frequently referred to as "Comfort Letters") dated as of the Closing, which letter or letters shall be in the form reasonably requested by the Placement Agent.


(i) The Company will cause its counsel to address and deliver to the Company and the Placement Agent opinions dated, respectively, as of the date of the Closing and as of the date of effectiveness of the Registration Statement, which opinions shall be in the form reasonably requested by the Placement Agent.


(j) The Company will cause its outside intellectual property and/or regulatory counsel to address and deliver to the Placement Agent one or more opinions, dated as of the Closing, which opinions shall be in the form reasonably requested by the Placement Agent.


(k) The Company acknowledges that the Purchase Agreements will require the Company's counsel, its intellectual property counsel and/or its regulatory counsel to deliver one or more opinions to the Investors. The Company agrees that the Placement Agent shall be entitled to rely on any opinions delivered to the Investors in connection with the Transaction and resale of the Shares under the Registration Statement.


(l) For a period of ninety (90) days from the effective date of the Registration Statement, neither the Company nor any Selling Stockholder will, without the prior written consent of the Placement Agent, sell, contract to sell or otherwise dispose of or issue any securities of the Company, except pursuant to previously issued options, any agreements providing for anti-dilution or other share issuance rights in existence on the date hereof, any employee benefit or similar plan of the Company in existence on the date hereof, or any strategic investment and/or alliance transactions, acquisition or joint venture the Company may enter into.


(m) During the time the Registration Statement is effective covering the resale of any Shares sold to Investors, the Company will furnish to the Placement Agent:


(i) as soon as practicable (but in the case of the annual
report of the Company to its stockholders, within 150 days after the end of
each fiscal year of the Company), one copy of: (A) its annual report to its
stockholders (which annual report shall contain financial statements
audited in accordance with generally accepted accounting principles in the
United States of America by a firm of certified public accountants of
recognized standing), (B) if not included in substance in its annual report
to stockholders, its annual report on Form 10-K, (C) each of its quarterly
reports to its stockholders and, if not included in substance in its
quarterly report to stockholders, its quarterly report on Form 10-Q and any
other document or agreement that is


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incorporated by reference into the Registration Statement, and (D) a copy
of the full Registration Statement (the foregoing in each case, excluding
exhibits), and


(ii) upon reasonable request, all exhibits excluded by the
parenthetical to clause (D) of the immediately preceding subsection (i) and
all other information that is generally available to the public,


and the Company, upon reasonable request, will meet with the Placement Agent or its representatives to discuss all information relevant for disclosure in the Memorandum and will reasonably cooperate in any investigation undertaken by the Placement Agent thereof, including any document included or incorporated by reference therein.


4. Compensation. As compensation for the services rendered by the Placement Agent hereunder, the Selling Stockholders shall pay the Placement Agent a fee equal to 4.5% of the gross proceeds paid by the Purchasers for the Shares pursuant to the Purchase Agreements. The fees set forth in this Section 4 shall be payable with respect to any private placement or similar transaction involving the sale of Shares that occurs either (a) during the term of the Placement Agent's engagement hereunder regardless of whether the Investor is on the Investor Contact List or (b) at any time during a period of six months following the effective date of termination of the Placement Agent's engagement hereunder if such transaction includes a sale of Shares to an Investor who is named on the Investor Contact List, or any parent, subsidiary or other affiliate thereof.


5. Reimbursable Expenses. The Selling Stockholders shall reimburse the Placement Agent (up to a maximum of $175,000) for its out-of-pocket and incidental expenses incurred in connection with any Transaction (whether or not consummated), including the reasonable fees and expenses of its legal counsel and those of any advisor retained by the Placement Agent. Such expenses are to be paid in cash upon the Selling Stockholders' receipt of a bill from the Placement Agent from time to time and in all events upon the closing of a Transaction.


6. Indemnification.


(a) Company Indemnification.


(i) The Company agrees to indemnify and hold harmless the
Placement Agent and its affiliates, their respective directors, officers,
controlling persons (within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act), if any, agents and employees of the
Placement Agent or any of the Placement Agent's affiliates (collectively,
"Indemnified Persons" and individually, an "Indemnified Person") from and
against any and all actions, claims, suits, proceeding ...