Exhibit 10.19.1
 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS

The parties hereby agree to settle and resolve their respective claims in the
Arbitration Genpharm Inc. v Par Pharmaceutical Companies, Inc., AAA Case No. 50
180 T 00007 06. By this Settlement Agreement, the parties intend to amend the
Par 40 Agreement (including the Par 8 Agreement) and the Par 11 Agreement
(collectively, the "Agreements") to implement the settlement terms provided
herein which the parties will further memorialize in a Restatement of the
Agreements consistent with terms of this Settlement Agreement. Terms used herein
which are defined in the Agreement (or any of them) and not otherwise defined in
this Settlement Agreement shall have the same meaning herein as in the
applicable Agreement(s):

1.
Terminated Products

 
(a)
 
The Agreements are terminated by mutual consent with respect to the Products
identified in Schedule "A" attached (collectively referred to as the "Terminated
Products");

 

 
(b)
 
From and after July 1, 2006, there will be no sharing of negative Gross Profits
earned or incurred by Par with respect to any Terminated Products; i.e. negative
Gross Profits earned or incurred by Par in relation to any one or more of the
Terminated Products will not be offset against positive Gross Profits earned
by Par on and after July 1, 2006 in relation to any other Product or Products
(whether another Terminated Product or otherwise);

 

 
(c)
 
All outstanding purchase orders issued by Par to Genpharm for undelivered
Terminated Products are cancelled without any liability of either party to the
other arising from such cancellation. Par shall have the right to return to
Genpharm within 20 days of the date hereof, at Genpharm's cost and without
payment by Par of the outstanding invoice related thereto, the following
shipments of Terminated Products received by Par:

***

(d)
To simplify and finalize the relationship of the parties with respect to the
Terminated Products, it is agreed that notwithstanding that the potential losses
of the parties may not be equal and that each party may be able
to mitigate/recover some of the losses it would otherwise incur through the sale
of its existing inventory of Products or otherwise, each party will be free to
dispose of its inventory of Terminated Products and raw materials related
thereto without accounting or reporting to the other any revenue it receives
therefrom and shall be solely responsible for all costs, expenses and losses
which it incurs in relation to the sale or other disposition or utilization of
such inventory or materials and that neither party shall have the right to
recover from the other any part of the losses or expenses which it incurs from
the sale of its inventory of Terminated Products or from the return of any
Terminated Product sold by Par on or after July 1, 2006 or otherwise;

 

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(e)
The parties acknowledge that the reporting and sharing of Gross Profits with
respect to those Terminated Products identified with an asterisk on Schedule
“D” hereto (the "Cash Products") has been calculated on the cash basis without
reserves or accruals for anticipated deductions to be made in calculating Net
Sales and that the Gross Profits for the balance of the Terminated Products
which Par has sold in the Territory (the "Accrual Products") have been
calculated on an accrual basis accruing reserves for estimates of such
deductions. Par represents and warrants that Schedule “D” hereto sets forth:

 
(i)
with respect to each Cash Product, Par's reasonable good faith estimate
(consistent with the accruals claimed by Par in the financial statements
prepared and reported by Par) of the unaccrued but anticipated deductions to be
made in calculating Net Sales in relation to the Cash Products which have not
been taken or recognized in previously reporting Gross Profits for such
Terminated Product to Genpharm for calendar quarters ended on or prior to June
30, 2006;

 

 
(ii)
with respect to each Accrual Product, the outstanding reserve claimed by Par in
calculating the Net Sales of such Terminated Product for the calendar quarter
ended June 30, 2006.

The parties agree that Par shall be entitled to recover from Genpharm
Genpharm's share (based on its sharing percentage under the applicable
Agreement) of permitted deductions from sales (as contemplated in the definition
"Net Sales") actually incurred by Par after June 30, 2006 with respect to sales
of the Terminated Products by Par prior to July 1, 2006 and shall account to
Genpharm for a true-up of reserves previously taken by Par with respect to
Accrual Products, it being the intention of the parties that, subject to the
limitation set forth below, Par recognize, recover and true-up actual Net Sales
with respect to Terminated Products sold prior to July 1, 2006; provided that
the aggregate amount of such deductions hereafter taken by Par with respect to
previous sales of the Terminated Products, net of credits arising out of the
reversal of accruals in relation to the Accrual Products, shall not exceed the
positive Gross Profits reported by Par for the June 30, 2006 calendar quarter so
that the net amount which Par may claim from Genpharm will not exceed ***.
 
2

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
 

Par shall report to Genpharm quarterly, at the same time as Par reports to
Genpharm on a quarterly basis under the applicable Agreement with respect to
deductions hereafter taken from Net Sales of the Terminated Products and, to the
extent Par is entitled to be paid an amount by Genpharm pursuant to the
foregoing, it shall be entitled to deduct such amount from the Gross Profits
otherwise payable to Genpharm in respect of a calendar quarter under the
applicable Agreement provided that Par shall provide its report to Genpharm
prior to making any such deduction and shall notify Genpharm in writing of the
amount that it is deducting from any such payment pursuant thereto. Genpharm
will have the right to audit Par's and its Affiliates' books and records to
verify and confirm the claims made and adjustments which should have been made
by Par pursuant to this Paragraph (e) and the audit provisions contained in the
Agreements (as amended hereby) shall apply thereto.

 
(f)
Genpharm (and its Affiliates) will possess the exclusive right to the Product
Information for each Terminated Product, will have the exclusive right to
manufacture, promote, market, sell and distribute such Terminated Products (and
to licence Third Parties to do so) and will have the right to manufacture,
promote, market, sell and distribute any Competing Products thereto, in the
Territory or elsewhere, without accounting for, or sharing with Par any profits
or revenue from such Terminated Product or Competing Product;

 
(g)
Par will be free to manufacture, promote, market and sell a Competing Product
(in relation to a Terminated Product) in the Territory or elsewhere without
accounting for, or sharing with Genpharm any profit or revenue from such
Competing Product, provided that the Competing Product does not use, incorporate
or rely on the Product Information or Genpharm's Confidential Information;

 
(h)
Par shall promptly transfer the ANDA for the Product *** tablets to Genpharm and
shall execute and deliver all directions and authorizations to the FDA to do so
and shall deliver to Genpharm a complete copy of the ANDA including all
supplements and records required to be kept applicable to *** (to the extent not
already in the possession of Genpharm) and Par's validation reports related
thereto to enable Genpharm to tech-transfer the manufacture of such products to
its own facilities or to those of a third party selected by it. Par shall
reasonably cooperate with Genpharm and shall, at the request of Genpharm,
provide reasonable advice and assistance in connection with regulatory filings
allowing Genpharm to manufacture such Terminated Products.

 
3

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

2.
Continuing Product

Other than Terminated Product and Future Product (as defined below), Par will
remain the exclusive distributor of the remaining Products (collectively, the
"Continuing Products" which, for purposes of clarification are identified on
Schedule "C" hereto), subject to the terms of the applicable Agreement (as
amended hereby).

3.
Future Products

 
(a)
Par will be the semi-exclusive distributor of those Products identified on
Schedule "'B" annexed hereto (collectively the "Future Products"), under the
terms of the applicable Agreement (as amended hereby) and, with respect to
which:

 
(i)
Par will continue to be obligated to report and share Gross Profits with
Genpharm in accordance with the applicable Agreement;

(ii)
Genpharm (or its Affiliate) will be permitted to manufacture, sell, promote,
market, sell and distribute each Future Product (or any Competing Product
thereto) in the Territory, (or elsewhere) without any obligation to report or
share any revenue or profits earned therefrom to or with Par.

 
(b)
With respect to each Future Product (other than ***):

(i)
Genpharm will, at least 12 months prior to the anticipated launch of such Future
Product (as reasonably estimated by Genpharm) give to Par an initial notice of:

(A) its estimated Transfer Price;

(B) the estimated launch date of each strength of such Future Product (which may
or may not be the same date for each strength);

(C) the proposed packaging configurations for each such strength;

Par will have 30 days within which to notify Genpharm in writing whether it is
electing to terminate the applicable Agreement with respect to such Future
Product. If the proposed launch date precedes the expiry of any patents
applicable to such Future Product Genpharm shall consult with Par prior to
delivering the notice of its estimated launch date. In this regard, the parties
shall, within 10 days of a request therefor by Genpharm, meet (in person or
telephonically) and shall in good faith discuss all matters reasonably relevant
to the selection of the estimated launch date including the patent strategy
being utilized by Genpharm in relation to such unexpired patents (subject to Par
entering into a joint defence and confidentiality agreement reasonably
acceptable to Genpharm). Such scheduled meeting shall occur reasonably in
advance of the date by which the initial notice must be delivered, each such
estimate and proposal to be made in good faith and based upon reasonable
documentation in support thereof (where applicable).
 
4

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
 

(ii)
Genpharm will provide a subsequent notice of its actual Transfer Price at least
6 months prior to the anticipated launch of such Future Product (which actual
Transfer Price shall apply to Par's Launch Quantities [as defined below] as well
as to the Future Product supplied by Genpharm to Par during the first 12 month
period following receipt of the Product Approval for such Future Product
provided that Genpharm may increase the Transfer Price of such Product from time
to time after the 3rd month of such 12 month period, but only to reflect (1)
aggregate increases over the Transfer Price at launch of *** in the cost to
Genpharm [or its Affiliate] to manufacture or acquire such Future Product
(excluding increases in Genpharm or its Affiliate's labour or overhead costs)
and/or (2) applicable foreign currency fluctuations, in which event Par may by
written notice (to be given within 30 days of the receipt of notice of the
actual Transfer Price):

(A) terminate the applicable Agreement with respect to such Future Product if
the actual Transfer Price is *** initial estimated Transfer Price and in such
event the Initial Forecast (as defined below) and all purchase orders delivered
by Par pursuant thereto will be cancelled without any liability of Par arising
out of such cancellation;

(B) revoke any prior notice of termination delivered by Par with respect to such
Future Product (and reinstate the applicable Agreement with respect to such
Future Product) if the actual Transfer Price is ***.

(iii)
If the initial estimated Transfer Price is *** than the actual Transfer Price
with respect to a Future Product in respect of which Par has previously elected
to terminate the Agreement, Par may request to audit the actual Transfer Price
to confirm same. If the audit determines that the initial estimated Transfer
Price is *** than the actual Transfer Price Par will have the right to revoke
its prior termination and to reinstate the Agreement with respect to such Future
Product.

(iv)
if Par terminates the applicable Agreement with respect to a Future Product
pursuant to (i) or (ii)(A) above, Par will not be responsible for Development
Costs and Legal Expenses thereafter incurred, unless it revokes such termination
as contemplated above. However, Par will continue to be responsible for the
Development Costs and Legal Expenses incurred prior to the date of termination
to the extent it would otherwise be liable herefor under the applicable
Agreement and, provided Par is not otherwise in breach of the applicable
Agreement, Par will not be subject to a non-compete with respect to such
terminated Future Product as a result of its exercise of its right to terminate
the applicable Agreement pursuant to this Paragraph (b) or Paragraph (c) below.
If Par does not so terminate the applicable Agreement with respect to such
Future Product, Par will, subject to Paragraph (c) below, be obligated to Launch
and promote; market and distribute such Future Product in accordance with the
applicable Agreement.

 
5

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(v)
If Genpharm (i) has delivered a good faith estimate of the Transfer Price, the
launch date and the proposed packaging configurations contemplated in (b)(i)
above, and (ii) has determined (acting reasonably and in good faith) that it
must place an order for the API in preparation of the Launch of such Future
Product, then Genpharm may make a written demand for an initial forecast (an
"Initial Forecast") to initiate the Launch of such Future Product by Par.
Par has 30 days to deliver such Initial Forecast, which forecast will, subject
to (ii) above and to extent accepted by Genpharm as contemplated below,
represent a binding commitment of Par to purchase the quantities of such Future
Product contemplated therein (the "Launch Quantities").

(vi)
If Par fails to deliver the Initial Forecast with respect to the Future Product
within 30 days, Genpharm may give priority to its own requirements and those of
its Affiliates for the such Future Product (and is only obligated to use only
commercially reasonable efforts to supply Par with its Launch Quantity of such
Future Product after satisfaction of its and its Affiliate own requirements for
same).

(vii)
If Par fails to deliver the Initial Forecast within 60 days, Genpharm may, at
any time prior to receipt of an Initial Forecast, terminate the Agreement with
respect to such Future Product on written notice to Par (in which event Genpharm
shall also be free to licence any third party to sell and distribute such Future
Product in the Territory).

(c)
Genpharm may terminate the applicable Agreement with respect to a Future Product
if Par fails to launch such Future Product within 45 days of (A) notice from
Genpharm that the Launch Quantities (or such lesser amount as Par shall accept)
of Future Product is available for pick-up at its or its Affiliate's facility
(if Genpharm or its Affiliate is the manufacturer), (B) receipt of Product
Approval for such Future Product (if Par is the manufacturer); and (C) the
expiry of the period contemplated in (c)(i) below within which Par may delay the
launch of such Future Product; provided that:

 
6

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(i)
Par may delay the launch of such Future Product if and only for so long as (X)
the sale or distribution of such Future Product in the Territory may give rise
to patent infringement claim, (Y) there are regulatory issues relating to such
Future Product which are likely to result in the suspension or cancellation of
the Product Approval of such Future Product or a recall of Future Product
released in the Territory or (Z) where Genpharm has indicated to Par that all
strengths of the Future Product as contemplated in the Agreement would be
launched on the same date and Genpharm has not obtained a Product Approval for
all applicable strengths of such Future Product.

(ii)
Par may terminate the applicable Agreement with respect to a Future Product if:

(A) without the consent of Par or unless required by the FDA, Genpharm removes
or attempts to remove prior to launch any packaging configuration for any
strength of such Future Product as provided by Genpharm to Par pursuant to
Paragraph (b)(i) above, provided that Par may only exercise its right of
termination pursuant hereto within 30 days of being notified in writing of a
removal of a packaging configuration, failing which Par shall be deemed to have
consented to such change;

(B) Genpharm fails to obtain its final Product Approval for any of the strengths
of such Future Product on the estimated date therefor, other than by reason of
(i) the granting of a period of generic exclusivity to the manufacturer or
supplier of a Competing Product by the FDA or a court (but only for the period
of such exclusivity); or (ii) acts, failures to act, omissions or delays on the
part of Par in connection with its development or regulatory activities with
respect to such Future Product; provided that Par may only exercise its right of
termination pursuant hereto within 30 days of such estimated date so missed; or

(C) a potentially enforceable patent infringement claim relating to the Future
Product is outstanding at the time the final Product Approval for such Future
Product has been obtained which requires Par to launch at risk; provided that
Par may only terminate this Agreement with respect to such Future Product within
6 months of the receipt of such Product Approval and while such claim remains
unsettled.

(d)
If Genpharm so terminates, Par must pay for (i) the Launch Quantities and (ii)
the landed cost of all raw materials acquired for the purpose of manufacturing
the Launch Quantities (in each case, to the extent the Launch Quantities or raw
materials are not otherwise utilized) (collectively, the "Launch Termination
Costs''). If Par so terminates Par shall pay to Genpharm *** of the Launch
Termination Costs.

 
7

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(e)
Par will pay for *** of the Transfer Price of Future Products that become short
dated, are unsaleable or are otherwise wasted because of (i) delays in receiving
Product Approval (unless due to the gross negligence or willful misconduct of
Genpharm), (ii) changes to the Specifications mutually agreed upon by the
parties in order to obtain or expedite Product Approval or (iii) a good faith
decision by Genpharm or by Par (as contemplated above) not to launch such Future
Product in the circumstances contemplated in (c)(i)(X), (Y) or (Z)above.

(f)
If, with respect to a Future Product which is being distributed by both Par and
Genpharm (or its Affiliate) in the Territory, there is a shortage of supply of
such Future Product or of the active pharmaceutical ingredients or other
components necessary to manufacture such Future Product for the Territory to
satisfy Genpharm's obligations to Par and Genpharm's or its Affiliate's own
requirements of such Future Product, then, subject to Paragraph 3(b)(vi) above,
Genpharm will allocate its available supply of such Future Product for the
Territory to satisfy its obligations to Par prior to meeting its own or its
Affiliate's requirements for such Future Product for the Territory.

4.
Kali Competing Products

(a)
Par represents and warrants that the only Products that are or were under
development by Kali Laboratories Inc. ("Kali") at the time Par acquired control
of Kali or thereafter and which are Competing Products under the Agreement are
set forth below:

***

(b)
Par further represents and warrants that with respect to those products (vii)
through (xiv) above, as of the date of this Settlement Agreement, Kali has
terminated the development of such products prior to completion thereof and that
neither Kali, Par nor any of their respective Affiliates are directly or
indirectly developing, manufacturing, promoting, marketing or selling such
products in the Territory. Par covenants and agrees that Kali will not hereafter
develop, nor will any Affiliate of Par hereafter develop utilizing the Kali
product information, any such Terminated Product for a period of 2 years;

(c)
Par hereby further represents and warrants that:

(i)
Par and its Affiliate have earned profits to the date hereof (determined in
accordance with US generally accepted accounting principles but excluding costs
and expenses incurred in relation to the development or regulatory approval of
such product) from the manufacture and\or commercialization of *** of not more
than *** in the aggregate for or in the Territory; and

 
8

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(ii)
Par and its Affiliates have divested themselves of Kali's *** product and no
longer have any interest therein (financial or otherwise) and will terminate all
outstanding agreements relating to Kali's *** product by December 31, 2006,
failing which Par will pay to Genpharm *** of the Gross Profits or other revenue
realized by Par from and after the date hereof from the manufacture or
commercialization of *** (but Genpharm shall not be required to share any losses
incurred by Par or its Affiliates from such commercialization, Par to be
entitled to carry forward such losses in the same manner as contemplated in
Paragraph 5(d) below) and will, at Genpharm's request, enter into an agreement
with Genpharm to give effect thereto, which agreement shall provide Genpharm
with rights of audit and other rights similar to the parties' arrangements with
respect to ***.

Based and relying upon such representations and warranties Genpharm hereby
waives any claim to share in any profit or revenue arising out of the
manufacture or Par's (Kali’s) *** to the date hereof.

5.
Accounting and Insufficient Gross Profits

(a)
The parties agree that the Gross Profits and Net Sales of Future Products will
be determined on an accrual basis in accordance with generally accepted
accounting principles, and not on a cash basis as now provided in the Agreement;
provided that in calculating Gross Profits and Net Sales Par is stil1 restricted
to those deductions currently permitted under Net Sales and Gross Profits
(except that it may claim reasonable reserves for reasonably anticipated
deductions based on generally accepted accounting principles applied in a manner
consistent with Par's reporting of its financial results and taking into account
Par's prior experience with respect to its customers and the Products in
question). Par will continue to report Gross Profits and Net Sales of Continuing
Products on a cash basis (except where Genpharm has already expressly permitted
Par to accrue deductions in respect of certain of the Continuing Products).

(b)
With respect to those Continuing Products to be reported on a cash basis, Par
will provide to Genpharm, at the same time as it is required to provide its
quarterly report under the applicable Agreement a report indicating the
difference between the Net Sales and Gross Profits reported and the Net Sales
and Gross Profit that would have been reported had the same been calculated on
an accrual basis to enable Genpharm to keep track of potential deductions and
charges to Net Sales and Gross Profits in future periods (the difference between
Gross Profits actually reported to Genpharm and the Gross Profits determined on
an accrual basis as contemplated herein is hereafter referred to as the
"Unrecorded Accruals"). With respect to the Future Products and those Continuing
Products being reported on an accrual basis, Par shall provide to Genpharm a
reconciliation of reserves and accruals on a quarterly basis (within 45 days of
the close of each calendar quarter) with respect to each Continuing Product and
Future Product whose Gross Sales in the prior calendar year was at least *** or
if Genpharm otherwise requests and otherwise on an annual basis (within 45 days
of the expiry of each calendar year).

 
9

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(c)
Either party may terminate the applicable Agreement with respect to a Continuing
Product or a Future Product if the Gross Profit arising out of Net Sales of such
Product is *** of the aggregate Transfer Price of such Product included in such
calculation of Gross Profits for 2 consecutive calendar quarters. For purposes
of this Paragraph (c), where, in respect of a Continuing Product which is
reported on a cash basis, the reported Gross Profits for a calendar quarter
exceeds the threshold herein contemplated but would fail to do so if the
Unrecorded Accruals applicable to such Product for the calendar quarter in
question was deducted from the reported Gross Profits, such Product shall be
deemed to have Gross Profits for such calendar quarter which is less than the
threshold amount contemplated herein.

(d)
From and after April 1, 2006, Par may not offset any negative Gross Profit from
any of the Continuing Products or Future Products against the positive Gross
Profits of any other Product or Products Par may, however, offset the negative
Gross Profits of a particular Product against positive Gross Profits from such
Product, but only for the two consecutive calendar quarters immediately
following the calendar quarter in which such negative Gross Profit was incurred
and, provided further, the losses which may be carried forward from a prior
calendar quarter and applied to a subsequent calendar quarter cannot exceed the
Gross Profits of such Product in such subsequent calendar quarter otherwise
determined (ie. can not be carried forward to create a loss in the subsequent
calendar quarter).

(e)
If the Agreement is terminated in respect of a Product (other than as a result
of a breach by Par), the losses incurred in the calendar quarter in which the
Agreement terminates and the losses in the immediately prior 2 calendar quarters
which are still eligible to be carried forward will be shared by Genpharm and
Par in accordance with the respective sharing percentages with respect to the
Product in question under the applicable Agreement. In addition, the parties
will share, in proportion to the applicable sharing percentages, the loss on
their respective inventory of saleable Product and related raw materials that
cannot otherwise be used which would arise as if such inventory and raw
materials were destroyed and, within 30 days of such termination, the parties
will determine, each acting reasonably and in good faith, how to deal with the
then aggregate existing inventory of finished products, work in progress and raw
materials to mitigate and minimize such losses and to share any revenue earned
in mitigating such losses. As well, Product returns, subject to the limitations
contemplated below, will similarly be shared by the parties.

 
10

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

6.
Payments

(a)
Par will pay to Genpharm the following amounts on or before August 31, 2006:

 
(i) ***;
 
(ii)  ***;

(iii) ***

***

7.
Additional Amendments to the Agreements

(a)
Par may deduct prompt payment discounts (also referred to as cash or term
discounts), ***of sales.

(b)
Section 10.8 of the Par 40 Agreement will be deleted.

(c)
Par will promptly transfer to Genpharm its ANDA for *** included in such ANDA by
way of amendment) and shall execute and deliver all directions and
authorizations to the FDA to implement same. Genpharm and Par shall co-operate
to ensure that Par remains a site of manufacture for the *** Product under such
transferred ANDA. Par acknowledges and agrees that notwithstanding the prior
registration of the *** ANDA in Par's name the *** Product Information
(including the Product Information relating to the ***) is proprietary and
Confidential Information of Genpharm. Genpharm hereby grants to Par a license
(exclusive for the Territory only to August 1, 2011 and non-exclusive for the
Territory thereafter) to use such *** Confidential Information manufacture and
commercialize the *** Product in the Territory, it being understood and agreed
that the *** is not a Product under the Par 40 Agreement and that the licence of
Genpharm to Par contemplated herein with respect to the *** is a royalty free
licence in perpetuity. Par shall indemnify and hold harmless Genpharm, its
Affiliates and their respective directors, officers, employees and agents from
and against any and all claims, demands, actions, proceedings, regulatory
enforcement, damages, costs, losses, penalties, fines and expenses (including
legal fees and disbursements and other defence costs) relating to, arising out
of or in any way connected with the direct or indirect manufacture, promote,
marketing, sale, distribution or use of the *** by, on behalf of or through Par
including, without limitation, any claim made against Genpharm with respect to
such product by reason of its being the holder of the ANDA for such strength so
that as between Par and Genpharm, Par shall be deemed to have the responsibility
and liability of the ANDA holder (including any issues relating to product
safety and design). The parties will co-operate with each other in good faith in
relation to other regulatory filings and reporting with respect to the ***. The
indemnities contained herein shall survive the expiration or other termination
of the Par 40 Agreement.

 
11

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(d)
Upon termination of the Par 40 Agreement with respect to *** Agreement (each a
"Par Manufactured Product")

(i)
Par shall deliver to Genpharm a complete copy of its Product Dossier including a
copy of the ANDA and validation reports applicable thereto to enable Genpharm to
tech-transfer the manufacture of such product to its own facilities or to those
of a third party selected by it. Par shall reasonably cooperate with Genpharm
and shall, at the request of Genpharm, provide reasonable advice and assistance
in connection with regulatory filings allowing Genpharm to manufacture such Par
Manufactured Product.

(ii)
if terminated by Genpharm (other than by reason of a breach of the applicable
Agreement by Par) and Par is not otherwise in breach of such Agreement Genpharm
will grant to Par a licence to use its Product Information to manufacture such
Par Manufactured Product for sale in the Territory only (but not elsewhere)
subject to Par paying to Genpharm a Royalty (the "Royalty") equal to *** of the
Cost of Goods ("COG", being the fully burdened manufacturing cost [determined in
the same manner as Manufacturing Cost] if manufactured by Par or its Affiliate
or the landed cost to Par if acquired from a third party manufacturer) of such
Par Manufactured Product sold in the Territory. Par will maintain appropriate,
complete and accurate records of its and its Affiliate's sales of the Par
Manufactured Products in the Territory and of the applicable COG'S thereof. Par
shall report its sales and COG'S and shall pay the applicable Royalty
quarterly (within 30 days of the end of each calendar quarter). Genpharm to have
the right to audit Par's and its Affiliate's books and records to confirm
accuracy of reporting and payment of such Royalty. The obligations of Par to
report and pay and the rights of Genpharm to audit herein contemplated shall
survive the expiration or termination of the applicable Agreement. Par will not
sub-license the Product Information relating to a Par Manufactured Product to
any Person or grant to any Person the right to manufacturer, sell or distribute
the Par Manufactured Product without the prior written consent of Genpharm (to
be granted or withheld in Genpharm's absolute discretion), provided that with
Genpharm's consent, not to be unreasonably withheld. Par may sub-contract the
manufacture of the Par Manufactured Product to a third party if such third party
enters into a confidentiality agreement with Genpharm (satisfactory to Genpharm)
restricting its use of Genpharm's Product Information to the manufacturer of the
Par Manufactured Product exclusively for Par (and for Genpharm where Par is
under an obligation to supply such Product to Genpharm).

 
12

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 
In the circumstance contemplated in Paragraph (d)(ii) above, the parties shall
do all things reasonably necessary to enable each of Genpharm and Par to
independently sell, market and distribute the Par Manufactured Product
(hereafter sometimes referred to as "Parallel Product'') in the Territory under
Genpharm's ANDA (which in the case of *** is currently registered in Par's
name). Par will promptly following termination deliver to Genpharm a complete
copy of its Product Dossier including a copy of the ANDA and validation reports
applicable thereto to enable Genpharm to tech-transfer the manufacture of such
product to its own facilities or to those of a third party so that there are at
least 2 sites of manufacture for such product under the ANDA (the Genpharm site
and Par's site of manufacture). Until the tech transfer is completed and
Genpharm is able to produce commercial quantities of such Parallel Product, Par
will, upon request of Genpharm, manufacture and supply such product to Genpharm
for sale and distribution in the Territory. Par will supply the product in
question to Genpharm at *** of the Manufacturing Cost hereof to Par and the
provision of the Par 40 Agreement (as amended hereby) relating to forecasting,
purchase orders, supply problems, delivery. inspection, rejection and returns
and indemnification shall apply to the supply of such product by Par to
Genpharm, mutatis mutandis, unless the parties otherwise agree.

Each party will be solely financially responsible for the sale and use of the
Parallel Product which it releases in the Territory, and each party shall
indemnify the other arising out of the manufacture (if such party is the
manufacturer), sale or distribution by it of its Parallel Product or the use
thereof in the Territory (unless the claim relates to or arises out of the
manufacture of such Product by the other parties). Genpharm will not make any
change to the Specifications for the Par Manufactured Product or otherwise amend
or supplement the ANDA which would adversely affect the ability of Par to sell,
release, or distribute such product in the Territory during the term of such
licence. Genpharm will co-operate with Par in amending or supplementing the ANDA
as regards the Parallel Product manufactured at Par's site upon written request
of Par (Par to be responsible for any applicable FDA fees and charges relating
thereto). The parties will co-operate with each other in good faith in relation
to other regulatory filings and reporting with respect to the Parallel Products.

(e)
Non-compete provisions applicable to a party in each Agreement will only apply
where such Agreement has been terminated or terminated in respect of a Product
for a breach by such party or, in the case of Par, where Genpharm has terminated
the Agreement with respect to a Future Product as a result of Par's breach of
its obligations to launch (provided that a party cannot rely on another
termination provision to avoid the non-compete if it is in breach of its
obligations under the Agreement at that time). Notwithstanding the foregoing, if
Par terminates an Agreement (or terminates such Agreement with respect to a
Product or Products only) as a result of a breach by Genpharm to supply such
Product or Products the Non-Compete provisions otherwise applicable will not
apply to Genpharm unless such breach was a bad-faith, willful and intentional
breach.

 
13

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(f)
Notwithstanding any provision of the Agreements, Par, in calculating Net Sales,
shall not be entitled to deduct any amount in respect of a direct or indirect
return of a Product from its customers where Par is or will be selling a
Competing Product to such customer to replace the returned Product [i.e. if Par
is selling a Competing Product it cannot accept a return of a Genpharm Product
and replace same with the Competing Product.]

(g)
Neither party may audit the other in respect of the period prior to April 1,
2006 (except to the extent necessary to audit a period subsequent to March 31,
2006). 

(h)
The auditing provisions of each Agreement will be amended to clarify that:

(i)
"independent" means external accountants;

 

(ii)
the determination of the accountant may still be disputed by the audited party
and be subject to arbitration;

 

(iii)
the audited party to provide full co-operation with accountant with a view to
expediting the audit including, in the case where Par is being audited, access
to customer contracts and commitments to verify compliance with Section 7.3 of
the Par 40 Agreement (or equivalent provision in the Par 11 Agreement).

(i)
The parties will engage as soon as reasonably practicable (having regard to
vacation schedules of the parties who will be participating therein) in good
faith discussions with a view to amending the Agreements to address, in a manner
mutually satisfactory to both parties, issues relating to among other things
forecasting, supply and delivery provisions and shall use reasonable commercial
efforts to conclude such discussions and negotiations and enter into an
agreement implementing any changes mutually agreed to by the parties on or
before October 30, 2006.

8.
Mutual Releases

(a)
Par Release to Genpharm

In consideration of the terms of this Settlement Agreement, and other good and
valuable consideration furnished, the receipt and sufficiency of which is hereby
acknowledged, Par, on its behalf and on behalf of its present or former parents,
subsidiaries, members, Affiliates, directors, officers, employees, contractors,
stockholders, successors and assigns, attorneys, insurers and agents, and any
person acting by, through or under any of them, hereby releases and forever
discharges Genpharm. and its present or former parents, subsidiaries, members,
Affiliates, directors, officers, employees, stockholders, successors and
assigns, attorneys, insurers and agents, or any person acting by, through or
under any of them, and including in their respective individual capacities, for
any and all claims, demands, obligations, actions, causes of action, rights,
damages, costs, losses of service, expenses and compensation of any nature
whatsoever, and without exception, whether based on statute, tort, contract.
equity or law, or other theory of recovery, by reason of any and all known acts,
omissions, events or facts occurring prior to the date hereof, except that this
release does not apply to claims based on:
 
14

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
 

(i)
the Transfer Price and Gross Profit Payment owing;

(ii)
Product Development Costs and legal expenses payable under the Agreements; and

(iii)
the parties' obligations pursuant to this Settlement Agreement.

***

(b)
Genpharm Release to Par

In consideration of the terms of this Settlement Agreement, and other good and
valuable consideration furnished, the receipt and sufficiency of which is hereby
acknowledged, Genpharm, on its behalf and on behalf of its present or former
parents, subsidiaries, members, Affiliates, directors, officers, employees,
contractors, stockholders, successors and assigns, attorneys, insurers and
agents, and any person acting by, through or under any of them, hereby releases
and forever discharges Par, and its present or former parents, subsidiaries,
members, Affiliates, directors, officers, employees, stockholders, successors
and assigns, attorneys, insurers and agents, or any person acting by, through or
under any of them, and including in their respective individual capacities, for
any and all claims, demands, obligations, actions, causes of action! rights,
damages, costs, losses of service, expenses and compensation of any nature
whatsoever, and without exception, whether based on statute, tort, contract,
equity or law, or other theory of recovery, by reason of any and all known acts,
omissions, events or facts occurring prior to the date hereof, except that this
release does not apply to claims based on:

(i)
the Transfer Price and Gross Profit Payment owing:

 
15

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

 

(ii)
Product Development Costs and legal expenses payable under the Agreements; and

(iii)
the parties’ obligations pursuant to this Settlement Agreement.

9.
Dismissal of Arbitration

Upon execution of this Settlement Agreement, the Parties shall dismiss with
prejudice all of their respective claims in the Arbitration which either were or
could have been brought or assessed, and concurrent with their dismissal of such
claims, shall notify the AAA and the Arbitrator of this Agreement.

10.
Binding Nature

The terms of this Settlement Agreement are binding and the parties will attempt
in good faith to further amend the Agreements to incorporate the provisions
hereof and any additional amendments the parties deem necessary.

11.
Choice of Law

This Settlement Agreement shall be interpreted in accordance with and governed
by the laws of the State of New York, applicable to contracts executed and
performed entirely within New York, without reference to any choice of law
principles in New York.

12.
Arbitration

Any controversy or claim arising out of, or relating to, this Settlement
Agreement or the breach thereof shall be referred for decision forthwith to a
senior executive of each party not involved in the dispute. If no agreement is
reached within 30 days of the request by one party to the other to refer the
same to such senior executive, then such controversy or claim shall be settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, such arbitration to be held in New York, New
York on an expedited basis. Judgment upon the award rendered by the
Arbitrator(s) shall be entered in the United States District Court for the
Southern District of New York.

13.
Execution by Counterpart

This Settlement Agreement may be executed in one or more counterparts, each of
which when so executed and delivered shall be deemed to be an original, and all
of which when taken together shall be deemed to be one and the same instrument.
A copy of this Settlement Agreement delivered by facsimile or other electronic
means, or a photocopy of this Settlement Agreement, executed by a party in
counterparts or otherwise, shall a constitute a properly executed, delivered and
binding document or counterpart of the executing party.

[the next page is the signing page]
 
16

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

DATED this 14th day of August, 2006.
 

        GENPHARM lNC.  
   
   
    Per:   /s/ Su Cooke  

--------------------------------------------------------------------------------

Name: Su Cooke   Title: Chief Financial Officer

 

        Per:   /s/ C. B. Gray  

--------------------------------------------------------------------------------

Name: C. B. Gray   Title: VP, Legal and General Counsel

 

        PAR PHARMACEUTICAL COMPANIES, INC.  
   
   
    Per:   /s/ Scott Tarriff  

--------------------------------------------------------------------------------

Name: Scott Tarriff   Title: President &CEO

 

        Per:   /s/ Michael Graves  

--------------------------------------------------------------------------------

Name: Michael Graves   Title: President, Generic Product Division

 
17

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
 

SCHEDULE “A”
TERMINATING PRODUCTS

***
 
18

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

SCHEDULE “B”
FUTURE PRODUCTS

***
 
19

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

SCHEDULE “C”
CONTINUING PRODUCTS

***
 
20

--------------------------------------------------------------------------------

 
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION

SCHEDULE “D”
LOSSES & TRUE-UPS

***
 
21

--------------------------------------------------------------------------------