Document:

Prepared by MERRILL CORPORATION

Exhibit

4.38

 

EXECUTION

COPY

FIFTH FORBEARANCE AGREEMENT

THIS FIFTH FORBEARANCE

AGREEMENT (this “Agreement”) is entered into as of December 14,

2001 among LEINER HEALTH PRODUCTS INC. (the “U.S. Borrower”), VITA

HEALTH PRODUCTS INC. (the “Canadian Borrower,” and together with the

U.S. Borrower, the “Borrowers”), THE BANK OF NOVA SCOTIA, as U.S. Agent

and as Canadian Agent, and the lenders party to the Credit Agreement referred

to below.

RECITALS

A.    Pursuant

to that certain Amended and Restated Credit Agreement, dated as of May 15,

1998 (as further amended, supplemented, amended and restated or otherwise

modified prior to the date hereof, the “Credit Agreement”; capitalized

terms used but not defined herein shall have the meanings given them in the

Credit Agreement), the Agents and the Lenders made Loans and other financial

accommodations to the Borrowers.

B.    The

following Defaults or Events of Default (the “Existing Defaults”) exist

under the Credit Agreement:

1.             The

failure of the Borrowers to comply with each of the financial covenants set

forth in Section 9.2.4 of the Credit Agreement as of or for the Fiscal

Quarters ending December 31, 2000, March 31, 2001, June 30,

2001, September 30, 2001 and December 31, 2001; and

2.             The

Borrowers’ breach of the representations, warranties and statements contained

in the Loan Documents in connection therewith.

C.    On or

about June 29, 2001, the Borrowers, the Agents and the Lenders entered

into a forbearance agreement (the “First Forbearance Agreement”)

pursuant to which the Agents and the Lenders agreed to forbear with respect to

their rights or remedies against the Borrowers based on the Existing Defaults

until September 1, 2001 and agreed that the forbearance period would be

automatically extended if the Borrowers met certain conditions set forth in

Section 1(b) of the First Forbearance Agreement.

D.    On or

about August 31, 2001, the Borrowers, the Agents and the Lenders entered

into a Second Forbearance Agreement pursuant to which the Agents and the

Lenders agreed to extend the Forbearance Period (as defined in the First

Forbearance Agreement) until September 28, 2001.

E.     On

or about September 28, 2001, the Borrowers, the Agents and the Lenders

entered into a Third Forbearance Agreement pursuant to which the Agents and the

Lenders agreed to further extend the Forbearance Period (as defined in the

First Forbearance Agreement) until November 2, 2001.

F.     On

or about November 2, 2001, the Borrowers, the Agents and the Lenders

entered into a Fourth Forbearance Agreement pursuant to which the Agents and

the Lenders agreed to further extend the Forbearance Period (as defined in the

First Forbearance Agreement) until December 14, 2001.

G.    The

Borrowers, the Agents and the undersigned Lenders have agreed in principle to a

restructuring of the Obligations on the terms and conditions set forth in the

Term Sheet for Restructuring of Senior Debt (the “Senior Debt Term Sheet”)

annexed as Exhibit A to the Fourth Forbearance Agreement, subject among

other things to the completion of the Agents’ and the Lenders’ due diligence

and all required internal credit approvals and definitive documentation

(including financial covenants satisfactory to the Lenders).

H.    The

U.S. Borrower intends to file a voluntary petition (the "Chapter 11

Case") for relief under chapter 11 of title 11 of the United States

Code (the "Bankruptcy Code") and in connection therewith

intends to file a plan of reorganization and a disclosure statement, each in

form and substance acceptable to the Agents in their sole discretion and

consistent, in all material respects, with the Senior Debt Term Sheet

(respectively, the "Plan" and the "Disclosure

Statement");

I.      The

Borrowers have requested that the Required Lenders extend their forbearance on

the terms and conditions set forth below to give the Borrowers sufficient time

to fully document the restructuring of the Obligations and the recapitalization

of the Borrowers.

J.     The

Required Lenders are willing to forbear from exercising their rights and

remedies in connection with the Existing Defaults on the terms and conditions

set forth herein.

AGREEMENT

In consideration of the

Recitals and of the mutual promises and covenants contained herein, the

Borrowers, the Agents and the Required Lenders agree as follows:

Section 1.  Agreement

to Forbear.

(a)           Forbearance.  During the period (the “Forbearance Period”) commencing on

the date hereof and ending on the date of any Forbearance Default (as defined

below), and subject to the satisfaction of the conditions set forth in

Section 2 hereof, the Agents and the Lenders will forbear from exercising

their rights and remedies under the Credit Agreement and the other Loan

Documents solely with respect to the Existing Defaults.  “Forbearance Default” shall mean:

(i) an Event of Default (other than the Existing Defaults), (ii) the

failure of either Borrower to keep or perform any of the covenants or

agreements contained herein providing for a payment or prepayment to the Agents

or the Lenders, (iii) the failure of either Borrower to keep or perform

any of the covenants or agreements contained herein (other than those referred

to in clause (ii) above) two Business Days after the date the Borrowers

receive written notice from an Agent of any such failure (the “Notice Period”),

provided that in the event any such failure is remedied within the

Notice Period, such failure shall not constitute a Forbearance Default,

(iv) any representation or warranty of either Borrower herein shall be

incorrect when made or deemed made in any material respect, (v) the U.S.

Borrower and LHPG shall not have filed the Disclosure Statement and Plan by

February 28, 2002, (vi) the U.S. Borrower and LHPG file, propound or

otherwise support any plan of reorganization other than the Plan or other

creditors of the U.S. Borrower or of LHPG file any plan of reorganization other

than the Plan in accordance with Section 1121(c) of the Bankruptcy Code,

(vii) the Plan is modified or replaced such that it (or any such

replacement) at any time is not consistent in all material respects with the

Senior Debt Term Sheet, (viii)  the definitive documentation for the Plan

and Disclosure Statement provides, or is modified to provide, for any terms

that are not consistent in all material respects with the Senior Debt Term Sheet,

(ix) the U.S. Borrower or LHPG shall withdraw or revoke the Plan or the

U.S. Borrower or LHPG shall publicly announce its intention not to pursue the

Plan, (x) an examiner with expanded powers or a trustee shall have been

appointed or elected in the Chapter 11 Case, the Chapter 11 Case shall

have been converted to a case under chapter 7 of the Bankruptcy Code, or the

Chapter 11 Case shall have been dismissed by order of the Bankruptcy Court

for the District of Delaware and (xi) any other event shall occur, the

effect or result of which, is the termination of any of the Forbearance and

Lock-Up Agreements dated as of November 19, 2001 among the U.S. Borrower, LHPG

and the “Consenting Holder” party thereto.

(b)           Nature of the Forbearance.  The forbearance set forth herein is limited

and shall not be deemed (i) a waiver of any Default or Event of Default,

including the Existing Defaults, which now exist or may hereafter arise,

(ii) a forbearance with respect to any term, condition or obligation of

the Borrowers in the Credit Agreement or any other Loan Document other than the

Existing Defaults, (iii) a waiver of any of the conditions precedent to

Credit Extensions contained in Section 7.2 of the Credit Agreement or

(iv) subject to the terms contained herein, to prejudice any right or

remedy which any Agent or any Lender may now or in the future have under or in

connection with the Credit Agreement or any other Loan Document.

Section

2.  Conditions Precedent to

Effectiveness of Agreement.  This Agreement shall not be effective unless and until each of

the following conditions shall have been satisfied in the sole discretion of

the Agents:

(a)           The

Agents shall have received (i) counterparts of this Agreement duly

executed by each of the Borrowers and the Required Lenders and (ii) an

Affirmation and Consent, in form and substance satisfactory to the Agents, duly

executed by each of the Guarantors.

(b)           The

Agents shall have been reimbursed for the unpaid fees and expenses incurred

through the date hereof of its professionals, including the unpaid fees and

expenses of Luskin, Stern & Eisler LLP, PricewaterhouseCoopers LLP, Casas,

Benjamin & White, LLC (“CBW”) and Hunton & Williams.

Section

3.  Representations and Warranties.  The Borrowers hereby represent and warrant

to the Agents and to the Lenders as follows:

(a)           Recitals.  The Recitals in this Agreement are true and correct in all

respects.

(b)           Incorporation of Representations and Statements.  All statements of the Borrowers contained in

Section 7.2.1 of the Credit Agreement, and all representations and

warranties of the Borrowers in the Credit Agreement and the other Loan

Documents, are incorporated herein in full by this reference and are, other

than with respect to the Existing Defaults, true and correct as of the date

hereof in all material respects.

(c)           Power; Authorization.  Each of the Borrowers has the corporate

power, and has been duly authorized by all requisite corporate action, to

execute and deliver this Agreement and to perform its obligations

hereunder.  This Agreement has been duly

executed and delivered by the Borrowers.

(d)           Enforceability.  This Agreement is the legal, valid and

binding obligation of each of the Borrowers, enforceable against them in

accordance with its terms.

(e)           No Violation.  The execution, delivery and performance of this Agreement does

not and will not (i) violate any law, rule, regulation or court order to which

either of the Borrowers is subject, (ii) conflict with or result in a breach of

any Organic Document of the Borrowers or any agreement or instrument to which

either of the Borrowers is party or by which it or its properties are bound, or

(iii) result in the creation or imposition of any Lien, security interest or

encumbrance on any property of either of the Borrowers, whether now owned or

hereafter acquired, other than liens in favor of the Agents.

(f)            Obligations.  As of the date hereof the outstanding principal balance of the

U.S. Revolving Loans is $89,265,615.83; U.S. Letter of Credit Outstandings is $11,902,372;

Term B Loans is $65,125,196.41; Term C Loans is $62,274,581.93;

Term D Loans is $29,254,342.26; Canadian Revolving Loans is Cdn.

$28,739,529.87; Canadian Swingline Loans is Cdn. $230,000; and Canadian Term

Loans is Cdn. $16,544,824.21.  Interest

and fees have accrued thereon as provided in the Credit Agreement and the other

Loan Documents.  The obligation of the

Borrowers to repay the Loans, together with all interest and fees accrued

thereon, and the other Obligations is absolute and unconditional, and there

exists no right of set off or recoupment, counterclaim or defense of any nature

whatsoever to payment of the Obligations.

Section 4.  Covenants

of Borrowers.  The

Borrowers agree as follows:

(a)           Forecasts.  By no later than 4:00 p.m. on the second Business Day of each

week, the Borrowers will deliver to the Agents updated weekly rolling cash flow

forecasts for the following twelve week period, together with an actual to

forecast variance analysis for the preceding week, which forecasts shall also

include a certification from an Authorized Officer of the U.S. Borrower

representing to the information required pursuant to paragraph (c) below.

(b)           U.S. Balance Sheets.  Within 30 days after the end of each month,

the Borrowers will deliver to the Agents consolidated and consolidating balance

sheets of the U.S. Borrower and its Subsidiaries (including consolidating

balance sheets of the Canadian Borrower and its Subsidiaries) as of the end of

such month, and consolidated and consolidating statements of earnings and cash

flow of the U.S. Borrower and its Subsidiaries (including consolidating

statements of earnings and cash flow of the Canadian Borrower and its

Subsidiaries) for such month and for the period commencing at the end of the

previous Fiscal Year and ending with the last day of such month.

(c)           Disbursements, etc.  The Borrowers will not permit cumulative

(from September 1, 2001) disbursements for all applicable months, as set forth

in the Borrowers’ September 18, 2001 rolling 13-week forecast, as may be

revised with the approval of CBW (the “Forecast”), to exceed 110% of the

cumulative (from September 1, 2001) amounts set forth therefor in the Forecast

and will not permit the cash balance at the end of any month to be less than

90% of the cash balance set forth in the Forecast for such month.  The Borrowers agree that all payments or

disbursements to an Affiliate or employee of a Borrower (including Severance

Payments (as defined below)) inconsistent with the Forecast or which are otherwise

outside of the ordinary course of business must be approved in advance by David

Coles or the CFO hired by the U.S. Borrower pursuant to Section (4)(p) below.

(d)           Cooperation.  The Borrowers agree to cooperate fully with the Agents, the

Lenders and their professionals, including in connection with any audit or

appraisal of the business, assets or financial condition of the Borrowers and

their Subsidiaries, in all cases at the Borrowers’ expense.

(e)           Payment of Fees.  In addition to and not in limitation of the

terms of Section 12.3 of the Credit Agreement, the Borrowers agree to pay

on demand all reasonable fees and expenses of (i) the Agents and all

professionals retained by the Agents or by Luskin, Stern & Eisler LLP

(including special counsel engaged to review various litigation issues), and

(ii) each Lender (other than the legal fees of each Lender expressly

excepted from payment under Section 12.3 of the Credit Agreement), in each

case incurred in connection with the Credit Agreement or this Agreement and the

matters contemplated hereby and the restructuring of the Obligations, and

whether incurred prior to or subsequent to the date hereof.

(f)            Bank Accounts.  Neither the Borrowers nor any of their

Subsidiaries will maintain any checking, savings or other account at any bank

or other financial institution, or any other account where money or securities

may be deposited or maintained, other than the accounts specified in the

Amended and Restated Perfection Certificate dated as of June 15, 2001 and the

Control Agreement and First Amendment to Concentration Bank Agreement, dated as

of August 20, 2001.

(g)           Suspension of Commitments.  The Commitments are suspended, except that

before the earlier of (x) the termination of the Forbearance Period or (y) the

occurrence of a Default (other than an Existing Default), the U.S. Borrower may

deliver a U.S. Issuance Request to the U.S. Issuer, and the U.S. Issuer shall

(subject to the receipt by the U.S. Issuer of proper documentation therefor)

issue a U.S. Letter of Credit in a stated amount of not more than $100,000, for

the benefit of American Express, in its capacity as the U.S. Borrower’s

corporate travel vendor (or another corporate travel vendor to the U.S.

Borrower), provided that contemporaneously with the issuance of such

U.S. Letter of Credit, the U.S. Borrower shall permanently repay U.S. Revolving

Loans to the U.S. Agent for the pro rata benefit of the U.S. Lenders in an

amount not less than the stated amount of the U.S. Letter of Credit issued by the

U.S. Agent.

(h)           LIBOR Restrictions.  The outstanding principal amount of the

Loans may not be continued as, or converted into, LIBO Rate Loans or Canadian

BAs, as applicable.

(i)            Increased Interest.  The Applicable Margin shall in each case be

maintained at a rate of 1% over that otherwise in effect in accordance with the

terms of the Credit Agreement.

(j)            Restrictions on Indebtedness, Etc.  The Borrowers and their Subsidiaries are

prohibited from incurring Indebtedness under clauses (d), (g), (h) or (l)

of Section 9.2.2 of the Credit Agreement; making Investments under

clauses (f), (i) or (j) of Section 9.2.5 of the Credit Agreement;

redeeming shares of Capital Stock under clause (iii) of the proviso to

Section 9.2.6 of the Credit Agreement; consummating acquisitions or

mergers under clauses (b), (c) or (d) of Section 9.2.10 of the Credit

Agreement; or paying any fees under clause (b) of Section 9.2.13 of

the Credit Agreement.

(k)           Monthly Payment of Interest and Fees.  All interest for Base Rate Loans and

Canadian Prime Rate Loans, and all Letter of Credit fees payable under

Section 5.3.3 of the Credit Agreement, shall be payable in arrears on the

fifteenth day of each month (instead of the Quarterly Payment Dates).

(l)            Canadian Balance Sheets.  Within 21 days after the end of each month,

the Canadian Borrower will deliver to the Canadian Agent consolidated and

consolidating balance sheets of the Canadian Borrower and its Subsidiaries as

of the end of such month and consolidated statements of earnings and cash flow

of the Canadian Borrower and its Subsidiaries for such month and for the period

commencing at the end of the previous Fiscal Year and ending with the last day

of such month.

(m)          Intercompany Dispositions.  The U.S. Borrower and its U.S. Subsidiaries

will not, directly or indirectly, make any Investments (including intercompany

loans or capital contributions) in or to the Canadian Borrower or any of the

Canadian Borrower’s Subsidiaries, or sell, transfer, lease, contribute or

otherwise convey (including by way of merger), or grant options, warrants or

other rights (all collectively referred to as a “Disposition”) with

respect to all or any part of their assets to the Canadian Borrower or any of

the Canadian Borrower’s Subsidiaries other than in the ordinary course of

business consistent with past practices. 

The Canadian Borrower and its Subsidiaries will not, directly or

indirectly, make any Investments (including intercompany loans or capital contributions)

in or to (or pay dividends or make distributions to) the U.S. Borrower or any

of the U.S. Borrower’s U.S. Subsidiaries, or make any Disposition with respect

to all or any part of their assets to the U.S. Borrower or any of the U.S.

Borrower’s U.S. Subsidiaries, other than in the ordinary course of business

consistent with past practices.

(n)           Restrictions on Reallocation of Commitments.  The Borrowers’ right to reallocate the

unused Canadian Revolving Loan Commitment Amount and the unused U.S. Revolving

Loan Commitment Amount pursuant to, respectively, Sections 2.2.3 and 3.2.2

of the Credit Agreement is suspended.

(o)           Antitrust Proceeds.  Unless otherwise agreed to by the Required

Lenders, including as to amount and application, concurrently with the receipt

by either of the Borrowers or any of their Affiliates of any judgment,

settlement or other proceeds or amounts, however characterized (with all of the

foregoing collectively referred to as the “Proceeds”), arising from or

in connection with any antitrust claims (the “Claims”) (including claims

pending in (i) the United States District Court for the Central District

of California styled Leiner Health Products Inc. v. F. Hoffman-LaRoche Ltd.,

et al., Case No. 99-09832-JSL and (ii) the United States District

Court for the District of Columbia entitled In Re Vitamins Antitrust

Litigation, MDL No. 1285, Misc. No. 99-0197, and all facts and

circumstances at issue therein), the U.S. Borrower shall make, or cause to be

made, a mandatory prepayment of the Loans in the amount of such Proceeds (with

such prepayment being applied to the remaining Term Loan amortization payments pro

rata in accordance with the amount of each such remaining Term Loan

amortization payment) and the cash collateralization of all Letters of Credit

and a corresponding reduction of each Revolving Loan Commitment Amount.  The Borrowers reaffirm and ratify the

perfected security interest in the Claims and Proceeds of the Agents and the

Lenders.

(p)           Chief Financial Officer.  The U.S. Borrower agrees to hire a chief

financial officer of the U.S. Borrower (the “CFO”) who shall be

reasonably satisfactory to the Agents and use good faith efforts to complete

such hiring on or before February 28, 2002.  The Borrowers shall provide the Agents and CBW with access to the

executive search firm retained in connection with the CFO search process and

will direct such firm to fully cooperate with the Agents and CBW regarding all

reasonable requests for information or documentation in connection therewith.  The Borrowers will continue to work in good

faith with the Agents and their professionals to refine the description of the

required qualifications, capabilities, role and authority of the CFO

position.  The U.S. Borrower further

agrees that David Coles' employment shall not be terminated until at least

30 days following the commencement of employment of the CFO.

(q)           Severance Agreements.  The Borrowers shall not enter into any

severance agreement (a “Severance Agreement”) with, or similar

arrangement providing for the payment of money or other consideration (a “Severance

Payment”) to, any current or former employee in connection with the

termination (under any circumstances) of such employee’s employment with a

Borrower without the Agents’ prior written consent, which shall not be unreasonably

withheld or delayed, provided that a Borrower may enter into a Severance

and Release Agreement (a “Release”) which is contemplated by and

executed in connection with a Severance Agreement existing on the date hereof,

so long as such Release does not expand the rights of any employee under the

related Severance Agreement.  The

Borrowers will promptly deliver to the Agents copies of all Releases reasonably

requested by the Agents or CBW and will not make any Severance Payments or

enter into any Release without first providing 5 Business Days’ prior

written notice to the Agents.  The

Borrowers will not make any discretionary non-contractual Severance Payments

without the Agents’ prior written consent.

(r)            Net Disposition Proceeds.  The Borrowers agree that notwithstanding

anything to the contrary contained in the second sentence of the definition of

“Net Disposition Proceeds” in the Credit Agreement, Net Disposition Proceeds

shall exclude only an aggregate amount equal to $500,000 of proceeds of Permitted

Dispositions received on or after July 1, 2001 through and until the

termination of the Forbearance Period, provided that the proceeds of (i)

any Permitted Disposition resulting in proceeds of less than $50,000 and

(ii) the sale of Obsolete Inventory (as defined below), shall also be

excluded from Net Disposition Proceeds and shall not be counted toward the

$500,000 basket.  “Obsolete Inventory”

shall mean inventory for which the U.S. Borrower took an inventory reserve for

Fiscal Year 2001 or which comprises part of a discontinued product line, other

than inventory transferred in connection with a sale of all of the stock, all

or substantially all of the assets, or a division or other similar operating or

administrative unit of a Borrower or a Subsidiary or Affiliate of a

Borrower.  As part of the second weekly

rolling cash flow forecast and the actual to forecast variance report for any

month, the U.S. Borrower shall deliver to the Agents, with respect to the prior

month, a report certified by David Coles or the CFO hired by the U.S. Borrower

pursuant to Section 4(p) above, of the sales value, standard cost and

inventory reserve associated with the Obsolete Inventory sold in such month.

(s)           Continued Compliance with Loan Documents.  Each of the Borrowers will continue to

comply with all of its covenants and other obligations under the Credit

Agreement and the other Loan Documents.

(t)            Disclosure Statement and Plan.  The U.S. Borrower shall use commercially

reasonable efforts to complete each of the Disclosure Statement and the Plan by

December 21, 2001.

The provisions contained in

paragraphs (a), (c), (d), (f), (i), (o), (q), (r) and (t) above shall

continue to and including the date of termination of the Forbearance Period

(and shall terminate on such date) and the provisions contained in

paragraphs (b), (e), (g), (h), (j), (k), (l), (m), (n), (p) and (s) shall

survive termination of the Forbearance Period. 

Nothing in this Agreement, including paragraph 4(r) or the

termination thereof, shall prejudice or otherwise affect the right of any party

to argue that the sale of Obsolete Inventory by a Borrower does or does not

constitute a Permitted Disposition or that the proceeds of any such sale do or

do not constitute Net Disposition Proceeds, and no party shall assert in any

proceeding or other context that terms of paragraph 4(r) or the

termination thereof are relevant to any such argument.

 

Section

5.  Effect and Construction of

Agreement.  Except as

expressly provided herein, the Credit Agreement and the other Loan Documents

shall remain in full force and effect in accordance with their respective

terms, and this Agreement shall not be construed to:

(a)           impair

the validity, perfection or priority of any Lien or security interest securing

the Obligations;

(b)           waive

or impair any rights, powers or remedies of any Agent or any Lender under the

Credit Agreement or any other Loan Document upon termination of the Forbearance

Period, with respect to the Existing Defaults or otherwise;

(c)           constitute

an agreement by any Agent or any Lender or to require any Agent or any Lender

to extend the Forbearance Period, or grant additional forbearance periods, or

extend the term of the Credit Agreement or the time for payment of any of the

Obligations; or

(d)           require

any Lender to make any Loans or other extensions of credit to the Borrower.

In the event of any inconsistency between the

terms of this Agreement and the Credit Agreement or any of the other Loan

Documents, this Agreement shall govern. 

The Borrowers acknowledge that they have consulted with counsel and with

such other experts and advisors as they have deemed necessary in connection

with the negotiation, execution and delivery of this Agreement.  This Agreement shall be construed without

regard to any presumption or rule requiring that it be construed against the

party causing this Agreement or any part hereof to be drafted.

 

Section 6.  Reference

to and Effect on the Loan Documents.

(a)           Upon

the effectiveness hereof, each reference in the Credit Agreement to “this

Agreement,” “hereunder,” “hereof” or words of like import referring to the

Credit Agreement, and each reference in the other Loan Documents to the Credit

Agreement, “thereunder,” “thereof” or words of like import referring to the

Credit Agreement, shall mean and be a reference to the Credit Agreement, as

amended hereby.

(b)           This

Agreement shall be a Loan Document.

Section 7.  Miscellaneous.

(a)           Further Assurances.  The Borrowers agree to execute such other

and further documents and instruments as the Agents may request to implement

the provisions of this Agreement.

(b)           Benefit of Agreement.  This Agreement shall be binding upon and

inure to the benefit of and be enforceable by the parties hereto and their

respective successors and assigns.  No

other person or entity shall be entitled to claim any right or benefit

hereunder, including, without limitation, the status of a third-party

beneficiary of this Agreement.

(c)           Integration.  This Agreement, together with the Credit Agreement and the other

Loan Documents, constitutes the entire agreement and understanding among the

parties relating to the subject matter hereof, and supersedes all prior

proposals, negotiations, agreements and understandings relating to such subject

matter.  In entering into this

Agreement, the Borrowers acknowledge that they are relying on no statement,

representation, warranty, covenant or agreement of any kind made by any Agent,

any Lender or any employee or agent of any Agent or any Lender, except for the

agreements of the Agents and the Lenders set forth herein.

(d)           Severability.  The provisions of this Agreement are intended to be

severable.  If any provision of this

Agreement shall be held invalid or unenforceable in whole or in part in any

jurisdiction, such provision shall, as to such jurisdiction, be ineffective to

the extent of such invalidity or enforceability without in any manner affecting

the validity or enforceability of such provision in any other jurisdiction or

the remaining provisions of this Agreement in any jurisdiction.

(e)           Counterparts; Telecopied Signatures.  This Agreement may be executed in any number

of counterparts and by different parties to this Agreement on separate

counterparts, each of which, when so executed, shall be deemed an original, but

all such counterparts shall constitute one and the same agreement.  Any signature delivered by a party by

facsimile transmission shall be deemed to be, and effective as, an original

signature hereto.

(f)            Notices.  Any notices with respect to this Agreement shall be given in the

manner provided for in Section 12.2 of the Credit Agreement.

(g)           Survival.  Except as otherwise provided herein, all representations,

warranties, covenants, agreements, undertakings, waivers and releases of the

Borrowers contained herein shall survive the termination of the Forbearance

Period.

(h)           Amendment.  No amendment, modification, rescission, waiver or release of any

provision of this Agreement shall be effective unless the same shall be in

writing and signed by the Borrowers, the Agents and the Required Lenders.

Section

8.  RELEASE OF CLAIMS.  EACH OF THE BORROWERS HEREBY ACKNOWLEDGES

AND AGREES THAT IT DOES NOT HAVE ANY DEFENSES, COUNTERCLAIMS, OFFSETS,

CROSS-CLAIMS, CLAIMS OR DEMANDS OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE

ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF THE LIABILITY OF THE

BORROWERS TO REPAY ANY AGENT OR ANY LENDER AS PROVIDED IN THE CREDIT AGREEMENT

AND THE OTHER LOAN DOCUMENTS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY

KIND OR NATURE FROM ANY AGENT OR ANY LENDER. 

EACH OF THE BORROWERS HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND

FOREVER DISCHARGES THE AGENTS AND THE LENDERS, AND EACH AGENT’S AND LENDER’S

PREDECESSORS, AGENTS, EMPLOYEES, CONSULTANTS, ADVISORS, ATTORNEYS, SUCCESSORS

AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION,

DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,

ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR

CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE

THE DATE THIS AGREEMENT IS EXECUTED, WHICH THE BORROWERS MAY NOW OR HEREAFTER

HAVE AGAINST ANY SUCH AGENT OR LENDER, AND SUCH AGENT’S OR LENDER’S

PREDECESSORS, AGENTS, EMPLOYEES, CONSULTANTS, ADVISORS, ATTORNEYS, SUCCESSORS

AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF

CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING,

WITHOUT LIMITATION, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE CREDIT

AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION AND EXECUTION OF THIS

AGREEMENT.

Each of the Borrowers

acknowledges and agrees that it understands the meaning and effect of Section

1542 of the California Civil Code which provides:

“A general release does not

extend to claims which the creditor does not know or suspect to exist in his

favor at the time of executing the release, which if known by him must have

materially affected his settlement with the debtor.”

EACH OF THE BORROWERS AGREES

TO ASSUME THE RISK OF ANY AND ALL UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD

DEFENSES, CLAIMS, CONTRACTS, LIABILITIES, INDEBTEDNESS AND OBLIGATIONS WHICH

ARE RELEASED, WAIVED AND DISCHARGED BY THIS AGREEMENT.  EACH OF THE BORROWERS HEREBY WAIVES AND

RELINQUISHES ALL RIGHTS AND BENEFITS WHICH IT MIGHT OTHERWISE HAVE UNDER THE

AFOREMENTIONED SECTION 1542 OF THE CALIFORNIA CIVIL CODE OR ANY SIMILAR LAW, TO

THE EXTENT SUCH LAW MAY BE APPLICABLE, WITH REGARD TO THE RELEASE OF SUCH

UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD DEFENSES, CLAIMS, CONTRACTS,

LIABILITIES, INDEBTEDNESS AND OBLIGATIONS. 

TO THE EXTENT THAT SUCH LAWS MAY BE APPLICABLE, EACH OF THE BORROWERS

WAIVES AND RELEASES ANY RIGHT OR DEFENSE WHICH IT MIGHT OTHERWISE HAVE UNDER

ANY OTHER LAW OF ANY APPLICABLE JURISDICTION WHICH MIGHT LIMIT OR RESTRICT THE

EFFECTIVENESS OR SCOPE OF ANY OF THEIR WAIVERS OR RELEASES HEREUNDER.

 

Section

9.  GOVERNING LAW; JURISDICTION;

WAIVER OF JURY TRIAL.  THIS

AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL

LAWS OF THE STATE OF NEW YORK.  THE

JURISDICTIONAL, VENUE AND SERVICE OF PROCESS PROVISIONS IN SECTION 12.14

OF THE CREDIT AGREEMENT AND THE JURY TRIAL WAIVER IN SECTION 12.15 OF THE

CREDIT AGREEMENT SHALL APPLY TO ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS

AGREEMENT.

IN WITNESS WHEREOF, the parties hereto have

executed this Agreement as of the date first above written.

LEINER HEALTH PRODUCTS INC.

 

 

 

By:                                                                                                      

Name: 

Title:

VITA HEALTH PRODUCTS INC.

 

 

 

By:                                                                                                      

Name: 

Title:

AGREED TO AND ACCEPTED

AS OF THE DATE FIRST 

ABOVE WRITTEN:

 

 

THE BANK OF NOVA SCOTIA,

As Canadian Agent and a Lender

By:                                                                                          

Name:

Title:

 

 

AGREED TO AND ACCEPTED

AS OF THE DATE FIRST 

ABOVE WRITTEN:

 

 

THE BANK OF NOVA SCOTIA,

as the U.S. Agent and a Lender

By:                                                                                          

Name:

Title:Prepared by MERRILL CORPORATION

Exhibit 10.76

 

RESTRUCTURING AND

OFFSET AGREEMENT

 

                This

RESTRUCTURING AND OFFSET AGREEMENT (the "Agreement") is

entered into by and among AP Pharma, Inc. (formerly Advanced Polymer Systems,

Inc.), a Delaware corporation ("AP"), Premier Consumer

Products, Inc., a Delaware Corporation ("Premier") and Lee

Pharmaceuticals, Inc., a California company ("Lee") as of this

__ day of July 23, 2001.

 

R

E C I T A L S

 

                A.            WHEREAS, AP, Premier and Lee entered

into that certain Asset Purchase and Sale Agreement, dated as of June 29, 1999

(the "Purchase Agreement"), pursuant to which Lee purchased

certain assets of Premier (the "Asset Sale"); and

 

                B.            WHEREAS, pursuant to the Purchase

Agreement, payment due upon the closing of the Asset Sale was evidenced by

promissory notes in an amount of $500,000 in favor of AP (the "AP Note")

and $300,000 in favor of Premier (the "Premier Note"), each

dated as of June 29, 1999, and with a specified maturity date of September 15,

2001 (collectively the "Old Notes"); and

 

                C.            WHEREAS, there remains an

outstanding principal balance on the AP Note of $320,000 and an outstanding

principal balance on the Premier Note of $192,000, the combined monthly

payments of principal of which equals $32,000; and

 

                D.            WHEREAS, pursuant to that certain

Letter Agreement, by and between AP and Premier, dated as of June 30, 1999 (the

"Letter Agreement") Premier is entitled to offset, against

minimum royalties payable to AP, any payments of principal under the Premier

Note which are not paid by Lee; and

 

                E.             WHEREAS, no payments have been made

by Lee under the Old Notes since May 25, 2000; and

 

                F.             WHEREAS, pursuant to that certain

Modification Agreement, by and between AP and Premier, dated as of January 1,

1999 (the " Modification Agreement") Premier has an outstanding

obligation which is due and payable to AP, in the amount of $174,312; and

 

                G.            WHEREAS, AP, Lee and Premier desire

to restructure the obligations of Lee to AP and Premier by restructuring those

payments due under the Old Notes and to offset the amount which is due and

payable by Lee to Premier with the amount which is due and payable by Premier

to AP, all upon the terms and conditions hereinafter set forth.

                NOW,

THEREFORE, in consideration of the premises and the mutual covenants,

representations and warranties herein contained, and other good and valuable

consideration, the receipt and sufficiency of which is hereby acknowledged, the

parties hereto intending to be bound hereby agree as follows:

 

SECTION I

OFFSET OF OBLIGATIONS

 

                1.1           Offset of Obligations. AP hereby

agrees that, as consideration for Premier's restructuring of the amount due and

payable by Lee to Premier under the Premier Note, to be an amount payable to AP

pursuant to Section 2.1, AP hereby agrees that the minimum royalties due and

payable by Premier to AP through July 25, 2000, pursuant to the Modification

Agreement, shall be deemed paid.

 

                1.2           Premier Release of Claims.

Premier hereby agrees that, as consideration for the offsetting of obligations

as described in Section 1.1 herein, Premier releases, discharges and

relinquishes any and all claims and actions, both known and unknown, that now

exist, that Premier may have against Lee under the Premier Note and all

liabilities, damages, losses, costs and expenses related thereto (the "Premier

Release").

 

                1.3           AP Release of Claims. AP

hereby agrees that, as consideration for the offsetting of obligations as

described in Section 1.1 herein, AP releases, discharges and relinquishes any

and all claims and actions, both known and unknown, that now exist that AP may

have against Premier under the Modification Agreement and all liabilities,

damages, losses, costs and expenses related thereto (the "AP Release").

 

                1.4           New Claims. Notwithstanding

anything herein to the contrary, neither the Premier Release nor the AP release

shall apply to any claims, actions, liabilities, damage, losses, costs and

expenses based on breaches of this Agreement that occur after the date hereof.

 

SECTION 2

RESTRUCTURING OF OBLIGATIONS

 

                2.1           Restructuring of Old Notes.

Lee hereby agrees that, in consideration for the restructuring of the

obligation as provided in Section 1.1 and for AP's agreement to extend the

repayment of the obligation due by Lee under the Old Notes, the indebtedness

represented by the Old Notes shall be amended and restated to be an amount

payable by Lee to AP and represented by a secured promissory note in the

principal amount of Five Hundred and Twelve Thousand dollars ($512,000) in

substantially the form of Exhibit A hereto (the "New Note").

 

                2.2           Cancellation of Old Notes.

Upon execution and delivery of this Agreement and the New Note by Lee, AP and

Premier agree that the indebtedness previously represented by the Old Notes

shall be replaced by the New Note and that they shall surrender the Old Notes

to Lee.

 

SECTION 3

REPRESENTATIONS AND WARRANTIES

 

                3.1           Representations and Warranties of

Lee. Lee hereby represents and warrants to AP and Premier that:

 

                All

corporate action on the part of Lee, its officers, directors and shareholders

necessary for the authorization, execution, delivery and performance of all

obligations under this Agreement, has been taken.

 

                3.2           Representations and Warranties of

Premier. Premier hereby represents and warrants to Lee and AP that:

 

                All

corporate action on the part of Premier and its officers, directors and

shareholders necessary for the authorization, execution, delivery and

performance of all obligations under this Agreement, has been taken.

 

                3.3           Representations and Warranties of

AP. AP hereby represents and warrants to Lee and Premier that:

 

                All

corporate action on the part of the AP, its officers, directors and

shareholders necessary for the authorization, execution, delivery and

performance of all obligations under this Agreement, has been taken.

 

SECTION 4

MISCELLANEOUS

 

                4.1           Modification. Neither this

Agreement nor any provisions hereof shall be modified, discharged or terminated

except by an instrument in writing signed by the party against whom any

modification, discharge or termination is sought.

 

                4.2.          Notices. Any notice, demand or

other communication that any party hereto may be required, or may elect, to

give to anyone interested hereunder shall be sufficiently given if deposited,

postage prepaid, in a United States mail letter box, registered or certified

mail, return receipt requested, addressed to the address set forth for notice

to the appropriate party in this Agreement.

 

                4.3           Binding Effect. Except as

otherwise provided herein, this Agreement shall be binding upon and inure to

the benefit of the parties and their heirs, executors, administrators,

successors, legal representatives and assigns.

 

                4.4           Entire Agreement; Successors and

Assigns. This Agreement, including Exhibit A hereto, which is incorporated

herein by reference, constitutes the entire agreement among and between the

parties with respect to the specific subject matter hereof, superseding in

their entirety all prior and contemporaneous agreements, discussions,

understandings or correspondences between or among the parties regarding the specific

subject matter hereof and there are no representations, covenants or other

agreements except as stated or referred to herein.

 

                4.5           Assignability. This Agreement

is not transferable or assignable except as may be provided herein.

 

                4.6           Governing Law. This Agreement

will be governed by, and construed in accordance with, the laws of the State of

California excluding those laws that direct the application of the laws of

another jurisdiction.

 

                4.7           Severability. If any provision

hereof is held to be invalid, illegal or unenforceable, such provision will be

enforced to the maximum extent legally possible, and the validity, legality and

enforceability of the remaining provisions will not in any way be affected or

impaired thereby.

 

                4.8           Counterparts. This Agreement

may be executed in two or more counterparts, each of which will be deemed an

original, but all of which together will constitute one and the same

instrument.

 

                4.9           Headings. The headings of the

Sections hereof are for convenience and will not by themselves determine the

interpretation of this Agreement.

 

                4.10.        Expenses. Each party to this

Agreement shall bear its own costs and expenses related to the preparation of

this Agreement.

 

                IN

WITNESS WHEREOF, the parties have executed this Loan Restructuring and Offset

Agreement as of the date and year first set forth above.

 

	

  AP PHARMA, INC.

  
	

   

  	

   

  
	

  By:

  	

  /s/ Gordon Sangster

  
	

  Name:

  	

  Gordon Sangster

  
	

  Title:

  	

  Chief Financial

  Officer

  
	

   

  	

   

  
	

  PREMIER CONSUMER

  PRODUCTS, INC.

  
	

   

  	

   

  
	

  By:

  	

  /s/ John P. Boylen

  
	

  Name:

  	

  John P. Boylen

  
	

  Title:

  	

  Treasurer

  
	

   

  	

   

  
	

  LEE PHARMACEUTICALS,

  INC

  
	

   

  	

   

  
	

  By:

  	

  /s/ Ronald G. Lee

  
	

  Name:

  	

  Ronald G. Lee

  
	

  Title:

  	

  Chairman

  

 

EXHIBIT A

 

NEW NOTE

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00032-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00032-of-00352.parquet"}]]