TRANSITION SERVICES
AGREEMENT
THIS
TRANSITION SERVICES AGREEMENT (the "Agreement") is made and entered
into as of September 9, 2005 by and between PHARMACEUTICAL
FORMULATIONS, INC., a Delaware corporation ("PFI") and LEINER
HEALTH PRODUCTS L.L.C., a Delaware limited liability company
("Leiner").
W I T N E S S E T H
:
WHEREAS, Leiner and PFI entered into that certain Asset Purchase
and Sale Agreement dated July 8, 2005 (the "Purchase Agreement")
pursuant to which Leiner agreed to purchase certain assets used in
or required for the PFI Business; and
WHEREAS, Leiner desires that PFI provide, and PFI has agreed to
provide, certain Transition Services (as hereinafter defined) to
the PFI Business on behalf of Leiner during the Transition Period
(as hereinafter defined) under the terms and conditions set forth
in this Agreement.
NOW,
THEREFORE, in consideration of the premises and mutual agreements
and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Leiner and PFI agree as follows:
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1.
Definitions . All capitalized terms used but not defined in
this Agreement shall have the meaning ascribed to such terms in the
Purchase Agreement.
2.
Transition Period . The term of this Agreement shall
commence on the later of the first day following Closing and
September 24, 2005 and end on October 28, 2005 (the "Transition
Period"). Upon the expiration of the Transition Period, all
necessary and appropriate documentation required by the FDA and
maintained by PFI in performing the Transition Services shall be
transferred to Leiner in a timely manner. During normal business
hours during the Transition Period, PFI personnel shall be
available to Leiner to address any questions or issues with respect
to such documentation.
3.
Transition Services . During the Transition Period, PFI
shall perform all services necessary to produce the quantities of
Products set forth in Exhibit A hereto (the "Transitional
Products"). In connection with the production of the Transitional
Products, PFI shall perform and provide such administrative,
processing, and other services as reasonably required by Leiner to
operate the PFI Business, including, without limitation, the
production, testing, and packaging in bulk of the Transitional
Products (collectively, "Transition Services"). PFI shall provide
and bear the cost of all personnel and operating expenses necessary
to continue the operation of the PFI Business during the Transition
Period. Leiner shall be obligated to compensate PFI for
Transitional Products delivered by PFI during the Transition Period
in accordance with the terms hereof.
4.
Raw Materials . Except for raw materials listed in Exhibit B
hereto, PFI shall acquire, or use its best efforts to acquire,
prior to the Closing Date the raw materials required to
manufacture, test, and package the Transitional Products and those
raw materials shall constitute part of the PFI Inventory. PFI shall
utilize the PFI Inventory in providing the Transition Services
during the Transition Period as provided herein. In the event that
the PFI Inventory is depleted prior to the end of the Transition
Period, Leiner may purchase or arrange to have purchased all
additional materials (the "Leiner Materials") required to provide
the Transition Services contemplated hereunder. Leiner further
agrees to provide or arrange to have provided to PFI those raw
materials set forth on Exhibit B hereto.
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a)
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If raw materials ordered in a timely manner by
PFI for the purposes of fulfilling the Transition Services arrive
after the Closing Date, such raw materials shall constitute part of
the Leiner Materials.
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b)
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The parties explicitly acknowledge that PFI
Inventory on-hand at the Closing Date, all Leiner Materials, and
all raw materials set forth on Exhibit B hereto will be owned by
Leiner during the Transition Period.
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5.
Payment . In exchange for PFI providing the Transition
Services, Leiner agrees to pay to PFI up to two million two hundred
and fifty thousand dollars ($2,250,000.00) plus payment for Excess
Production (as defined below) via wire transfer as follows:
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a)
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On the first Friday of the Transition Period,
$450,000.00.
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b)
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Delivery of Transitional Product shall be
deemed to have occurred when Transitional Products have been: (i)
released by PFI's Quality Control Department; (ii) palletized; and
(iii) available for pick-up by a common carrier.
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c)
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On the second, third, and fourth Fridays of
the Transition Period, $5.625 for every 1,000 pills of conforming
Transitional Product delivered in the prior applicable week,
provided that the total quantity of each type of pill delivered in
the Transition Period does not exceed the quantity for such pill
listed in Exhibit A hereto.
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d)
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Subject to Section 5.1, on November 18, 2005,
$5.625 for every 1,000 pills of conforming Transitional Product
delivered in the fifth week of the Transition Period (such
aggregate amount, the "Fifth Week Payment"), provided that the
total quantity of each type of pill delivered in the Transition
Period does not exceed the quantity for such pill listed in Exhibit
A hereto.
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5.1. The Fifth Week Payment shall be adjusted
to reconcile all payments already made for Transitional Products
with actual quantities of Transitional Products delivered by PFI,
using the prices defined in this Agreement.
5.2. Each Friday of the Transition Period PFI will provide to
Leiner an invoice detailing the quantity and types of Transitional
Product delivered.
5.3. In the event that PFI produces and delivers more Transitional
Product of a certain pill type than is called for in Exhibit A
hereto, Leiner shall be obligated to purchase up to an additional
20% of the volume for such pill type called for in Exhibit A
("Excess Production") at prices listed in Exhibit C hereto. Payment
for such Excess Production will be made simultaneously with the
Fifth Week Payment.
5.4. In the event that Leiner does not provide the raw materials
listed in Exhibit B and such failure is the direct cause of PFI
being unable to produce Transitional Products in a given week as a
result, then Leiner shall pay PFI in accordance with Section 5(b)
or 5(c) as applicable for the quantity of pills not produced, up to
20% of the Exhibit A volume of such Transitional Product not
produced, provided that if the event that causes Leiner not to
prov
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