Par Pharmaceutical

0000878088-09-000036.txt : 20090506 0000878088-09-000036.hdr.sgml : 20090506 20090506162153 ACCESSION NUMBER: 0000878088-09-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20090328 FILED AS OF DATE: 20090506 DATE AS OF CHANGE: 20090506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAR PHARMACEUTICAL COMPANIES, INC. CENTRAL INDEX KEY: 0000878088 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 223122182 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10827 FILM NUMBER: 09801774 BUSINESS ADDRESS: STREET 1: 300 TICE BOULEVARD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07677 BUSINESS PHONE: 201-802-4000 MAIL ADDRESS: STREET 1: 300 TICE BOULEVARD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07677 FORMER COMPANY: FORMER CONFORMED NAME: PHARMACEUTICAL RESOURCES INC DATE OF NAME CHANGE: 19940526 10-Q 1 prxedgar10q1stqtr09.htm FORM 10Q - MARCH 28, 2009 Par Pharmaceutical

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 28, 2009

Commission file number: 1-10827

PAR PHARMACEUTICAL COMPANIES, INC.

(Exact name of registrant as specified in its charter)


Delaware		22-3122182
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

300 Tice Boulevard, Woodcliff Lake, New Jersey 07677

(Address of principal executive offices)

Registrant’s telephone number, including area code: (201) 802-4000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

Large accelerated filer [X]

Accelerated filer [ ]

Non-accelerated filer [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X_

Number of shares of the Registrant’s common stock outstanding as of April 29, 2009: 34,782,965

TABLE OF CONTENTS

PAR PHARMACEUTICAL COMPANIES, INC.

FORM 10-Q

FOR THE FISCAL QUARTER ENDED MARCH 28, 2009

PAGE

PART I

FINANCIAL INFORMATION

Ite m 1.

Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of March 28, 2009 and

December 31, 2008

Condensed Consolidated Statements of Operations for the three months

ended March 28, 2009 and March 29, 2008

Condensed Consolidated Statements of Cash Flows for the three months

ended March 28, 2009 and March 29, 2008

Notes to Condensed Consolidated Financial Statements

Ite m 2.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

Exhibits

SIGNATURES

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

(Unaudited)


	March 28,	December 31,
	2009	2008
ASSETS
Current assets:
Cash and cash equivalents	$133,773	$170,629
Available for sale debt and marketable equity securities	70,813	93,097
Accounts receivable, net	131,658	83,408
Inventories	48,720	42,504
Prepaid expenses and other current assets	19,064	20,040
Deferred income tax assets	35,941	53,060
Income taxes receivable	39,856	35,397
Total current assets	479,825	498,135

Property, plant and equipment, at cost less accumulated depreciation and amortization	79,319	79,439
Available for sale debt and marketable equity securities	375	1,949
Intangible assets, net	28,956	35,208
Goodwill	63,729	63,729
Deferred financing costs and other assets	991	1,159
Non-current deferred income tax assets, net	68,030	68,618
Total assets	$721,225	$748,237

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$129,234	$130,141
Accounts payable	29,037	22,879
Payables due to distribution agreement partners	43,297	91,451
Accrued salaries and employee benefits	14,173	11,850
Accrued expenses and other current liabilities	36,250	38,352
Total current liabilities	251,991	294,673

Long-term debt, less current portion	-	-
Other long-term liabilities	40,786	41,581
Commitments and contingencies	-	-

Stockholders' equity
Common Stock, par value $0.01 per share, authorized 90,000,000 shares; issued 37,572,275 and 37,392,469 shares	375	374
	375	374
Additional paid-in capital	322,047	319,976
Retained earnings	175,549	159,470
Accumulated other comprehensive gain	92	122
Treasury stock, at cost 2,815,369 and 2,716,010 shares	(69,615)	(67,959)
Total stockholders' equity	428,448	411,983
Total liabilities and stockholders’ equity	$721,225	$748,237

The accompanying notes are an integral part of these condensed consolidated financial statements.

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended
	March 28,	March 29,
	2009	2008

Revenues:
Net product sales	$200,223	$151,237
Other product related revenues	3,812	3,691
Total revenues	204,035	154,928
Cost of goods sold	139,966	105,407
Gross margin	64,069	49,521
Operating expenses:
Research and development	7,172	17,158
Selling, general and administrative	32,960	31,346
Settlements and loss contingencies, net	(3,376)	-
Restructuring costs	1,401	-
Total operating expenses	38,157	48,504
Gain on sale of product rights and other	(1,100)	(1,625)
Operating income	27,012	2,642
Gain on extinguishment of senior subordinated convertible notes	245	-
Equity in loss of joint venture	-	(20)
Loss on marketable securities and other investments, net	(55)	-
Interest income	1,157	3,014
Interest expense	(2,567)	(3,510)
Income from continuing operations before provision for income taxes	25,792	2,126
Provision for income taxes	9,537	743
Income from continuing operations	16,255	1,383
Discontinued operations:
Gain from discontinued operations	-	505
Provision for income taxes	176	445
(Loss) gain from discontinued operations	(176)	60
Net income	$16,079	$1,443

Basic earnings per share of common stock:
Income from continuing operations	$0.48	$0.04
(Loss) gain from discontinued operations	0.00	0.00
Net income	$0.48	$0.04

Diluted earnings per share of common stock:
Income from continuing operations	$0.48	$0.04
(Loss) gain from discontinued operations	0.00	0.00
Net income	$0.48	$0.04

Weighted average number of common shares outstanding:
Basic	33,603	33,220
Diluted	33,772	33,587

The accompanying notes are an integral part of these condensed consolidated financial statements.

PAR PHARMACEUTICAL COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Three Months Ended
	March 28,	March 29,
	2009	2008
Cash flows from operating activities:
Net income	$16,079	$1,443
Deduct: (Loss) gain from discontinued operations, net of tax	(176)	60
Income from continuing operations	16,255	1,383
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Deferred income taxes	17,725	(700)
Non-cash interest expense	1,593	1,843
Depreciation and amortization	8,742	6,274
Allowances against accounts receivable	(13,106)	(18,924)
Share-based compensation expense	3,535	3,463
Loss on disposal of fixed assets	242	21
Gain on extinguishment of senior subordinated convertible notes	(245)	-
Other	(69)	(30)
Changes in assets and liabilities:
Increase in accounts receivable	(35,144)	(929)
(Increase) decrease in inventories	(6,216)	19,704
Decrease in prepaid expenses and other assets	2,760	1,006
Increase (decrease) in accounts payable, accrued expenses and other liabilities	6,711	(6,947)
(Decrease) increase in payables due to distribution agreement partners	(48,154)	8,774
(Increase) decrease in income taxes receivable/payable	(6,870)	3,541
Net cash (used in) provided by operating activities	(52,241)	18,479
Cash flows from investing activities:
Capital expenditures	(2,594)	(4,023)
Purchases of available for sale debt securities	-	(17,305)
Proceeds from maturity and sale of available for sale debt and marketable equity securities	21,772	34,995
Capital contributions to joint venture	-	(591)
Net cash provided by investing activities	19,178	13,076
Cash flows from financing activities:
Proceeds from issuances of common stock upon exercise of stock options	30	301
Proceeds from the issuance of common stock under the Employee Stock Purchase Program	59	75
Excess tax benefits on exercise of nonqualified stock options	12	194
Purchase of treasury stock	(1,656)	(1,064)
Principal payments under long-term and other borrowings	(2,238)	-
Net cash used in financing activities	(3,793)	(494)
Net (decrease) increase in cash and cash equivalents	(36,856)	31,061
Cash and cash equivalents at beginning of period	170,629	200,132
Cash and cash equivalents at end of period	$133,773	$231,193
Supplemental disclosure of cash flow information:
Cash (received) paid during the period for:
Income taxes, net	($1,400)	($2,291)
Interest	$2,037	$2,875
Non-cash transactions:
Capital expenditures incurred but not yet paid	$1,663	$1,916

The accompanying notes are an integral part of these condensed consolidated financial statements.

PAR PHARMACEUTICAL COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2009

(Unaudited)

Par Pharmaceutical Companies, Inc. operates primarily through its wholly owned subsidiary, Par Pharmaceutical, Inc. (collectively referred to herein as “Par,” “we,” “our,” or “us”), in two business segments, for the development, manufacture and distribution of generic pharmaceuticals and branded pharmaceuticals in the United States. In 2007, Par began operating the brand pharmaceutical segment under the name Strativa Pharmaceuticals. Marketed products are principally in the solid oral dosage form (tablet, caplet and two-piece hard-shell capsule). Par also distributes several oral suspension products and certain products in the semi-solid form of a cream.

Note 1 - Basis of Presentation:

The accompanying condensed consolidated financial statements at March 28, 2009 and for the three-month periods ended March 28, 2009 and March 29, 2008 are unaudited; in the opinion of Par’s management, however, such statements include all adjustments necessary to present fairly the information presented therein. The condensed consolidated balance sheet at December 31, 2008 was derived from Par’s audited consolidated financial statements included in Par’s 2008 Annual Report on Form 10-K.

Pursuant to accounting requirements of the Securities and Exchange Commission (the “SEC”) applicable to quarterly reports on Form 10-Q, the accompanying condensed consolidated financial statements and these Notes do not include all disclosures required by accounting principles generally accepted in the United States (“GAAP”) for audited financial statements. Accordingly, these statements should be read in conjunction with Par’s 2008 Annual Report on Form 10-K. Results of operations for interim periods are not necessarily indicative of those that may be achieved for full fiscal years.

Note 2 — Change in Accounting Principle and Related Adjustments to Previously Issued Financial Statements:

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). Under the new rules for convertible debt instruments that may be settled entirely or partially in cash upon conversion, an entity should separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. Previous guidance provided for accounting of this type of convertible debt instruments entirely as debt. Par’s senior subordinated convertible notes are subject to FSP APB 14-1. Upon conversion, Par has agreed to satisfy its conversion obligation in cash in an amount equal to the principal amount of the notes converted. The effect of the new rules for this type of convertible debt instruments is that the equity component would be included in the additional paid-in capital section of stockholders’ equity on Par’s condensed consolidated balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the convertible debt instruments. FSP APB 14-1 was effective as of January 1, 2009, with retrospective application required. For instruments subject to the scope of FSP APB 14-1, higher interest expense will result through the accretion of the discounted carrying value of the debt instruments to their face amount over their term. Prior period interest expense will also be higher than previously reported due to retrospective application. Par estimates that its original $200 million aggregate principal amount of 2.875% senior subordinated convertible notes due 2010 had an approximate initial measurement of a $169 million liability component and a $31 million equity component. Annual interest expense will be retroactively adjusted upward between $5.6 million to $7.0 million for the years 2008, 2007, 2006, and 2005.

The table below sets forth the effect of the adjustments on the applicable line items within Par’s condensed consolidated balance sheet as of December 31, 2008 ($ amounts in thousands):


	As previously reported	Adjustments	As adjusted
Assets:
Current assets:
Deferred income tax assets	$55,230	($2,170)	$53,060
Total current assets	$500,305	($2,170)	$498,135
Non-current deferred income tax assets, net	$70,954	($2,336)	$68,618
Total assets	$752,743	($4,506)	$748,237


	As previously reported	Adjustments	As adjusted
Liabilities and stockholders’ equity:
Current liabilities:
Current portion of long-term debt	$142,000	($11,859)	$130,141
Total current liabilities	$306,532	($11,859)	$294,673
Stockholders' equity:
Additional paid-in-capital	$289,666	$30,310	$319,976
Retained earnings	$182,427	($22,957)	$159,470
Total stockholders’ equity	$404,630	$7,353	$411,983
Total liabilities and stockholders' equity	$752,743	($4,506)	$748,237

The table below sets forth the effect of the adjustments on the applicable line items within Par’s condensed consolidated statement of operations for the period ending March 29, 2008 ($ amounts in thousands):


	As previously reported	Adjustments	As adjusted
Interest expense	($1,667)	($1,843)	($3,510)
Income from continuing operations before provision for income taxes	$3,969	($1,843)	$2,126
Provision for income taxes	$1,443	($700)	$743
Income from continuing operations	$2,526	($1,143)	$1,383
Net income	$2,586	($1,143)	$1,443

Basic earnings (loss) per share of common stock:
Income (loss) from continuing operations	$0.08	($0.04)	$0.04
Net (loss) income	$0.08	($0.04)	$0.04

Diluted earnings (loss) per share of common stock:
Income (loss) from continuing operations	$0.08	($0.04)	$0.04
Net (loss) income	$0.08	($0.04)	$0.04

The table below sets forth the effect of the adjustments on the applicable line items within Par’s condensed consolidated statements of cash flows for the period ending March 29, 2008 ($ amounts in thousands):


	As previously reported	Adjustments	As adjusted
Cash flows from operating activities:
Net income	$2,586	($1,143)	$1,443
Income from continuing operations	$2,526	($1,143)	$1,383
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	-	($700)	($700)
Non-cash interest expense	-	$1,843	$1,843
Net cash provided by operating activities	$18,479	-	$18,479

Note 3 - Share-Based Compensation:

Par adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”), effective January 1, 2006. SFAS 123R requires companies to recognize compensation expense in the amount equal to the fair value of all share-based payments granted to employees. Par elected the modified prospective transition method and, therefore, adjustments to prior periods were not required as a result of adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted after the date of adoption and to any unrecognized expense of non-vested awards at the date of adoption based on the grant date fair value. Under SFAS 123R, Par recognizes share-based compensation ratably over the service period applicable to the award. SFAS 123R also amended SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits that have been

reflected as operating cash flows be reflected as financing cash flows. In accordance with SFAS 123R, $0.01 million and $0.2 million of excess tax benefits for the three months ended March 28, 2009 and March 29, 2008, have been classified as both an operating cash outflow and financing cash inflow.

Par grants share-based awards under its various plans, which provide for the granting of non-qualified stock options, restricted stock (including restricted stock with market performance vesting conditions) and restricted stock units to our employees. Stock options, restricted stock and restricted stock units generally vest ratably over four years or sooner and stock options have a maximum term of ten years.

As of March 28, 2009, there were approximately 4.4 million shares of common stock available for future stock option grants. Par issues new shares of common stock when stock option awards are exercised. Stock option awards outstanding under our current plans have been granted at exercise prices that were equal to the market value of Par’s common stock on the date of grant. At March 28, 2009, approximately 0.7 million shares remain available for restricted stock (including restricted stock with market conditions described below) and restricted stock unit grants.

Stock Options

Par uses the Black-Scholes stock option pricing model to estimate the fair value of stock option awards with the following weighted average assumptions:


	For the three	For the three
	months ended	months ended
	March 28,	March 28,
	2009	2008
Risk-free interest rate	1.8%	3.0%
Expected life (in years)	6.3	6.3
Expected Volatility	43.7%	48.5%
Dividend	0%	0%

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Par compiled historical data on an employee-by-employee basis from the grant date through the settlement date. The results of analyzing the historical data showed that there were three distinct populations of optionees, the Executive Officers Group, the Outside Directors Group, and the All Others Group. The expected life of options represents the period of time that the options are expected to be outstanding and is based generally on historical trends. However, because none of Par’s existing options have reached their full 10-year term, and also because the majority of such options granted are out-of-the-money and the expected life of out-of-the-money options is uncertain, we opted to use the “simplified” method for “plain vanilla” options described in Staff Accounting Bulletin 107. The “simplified method” calculation is the average of the vesting term plus the original contractual term divided by 2. We will revisit this assumption at least annually or sooner if circumstances warrant. The risk-free rate is based on the yield on the Federal Reserve treasury rate with a maturity date corresponding to the expected term of the option granted. The expected volatility assumption is based on the historical volatility of Par’s common stock over a term equal to the expected term of the option granted. SFAS 123R also requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. It is assumed that no dividends will be paid during the entire term of the options. All option valuation models require input of highly subjective assumptions. Because Par's employee stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, the actual value realized at the time the options are exercised may differ from the estimated values computed above. The weighted average per share fair value of options granted in the three month periods ended March 28, 2009 and March 29, 2008 were $5.85 and $9.92.

Set forth below is the impact on Par’s results of operations of recording share-based compensation from its stock options for the three-month periods ended March 28, 2009 and March 29, 2008 ($ amounts in thousands):


	For the three months ended
	March 28,	March 29,
	2009	2008
Cost of goods sold	$125	$62
Research and development	-	156
Selling, general and administrative	1,126	560
Total, pre-tax	$1,251	$778
Tax effect of share-based compensation	(475)	(296)
Total, net of tax	$776	$482

The following is a summary of Par’s stock option activity (shares and aggregate intrinsic value in thousands):


	Shares	Weighted Average Exercise Price	Weighted Average Remaining Life	Aggregate Intrinsic Value
Balance at December 31, 2008	4,065	$31.88
Granted	1,108	13.04
Exercised	(5)	6.63
Forfeited	(545)	39.22
Balance at March 28, 2009	4,623	$26.55	6.3	$283
Exercisable at March 28, 2009	2,722	$35.00	4.1	$282
Vested and expected to vest at March 28, 2009	4,575	$26.66	5.3	$283

The total fair value of shares vested during the three-month period ended March 28, 2009 was $2.0 million and $5.3 million for the three-month period ended March 29, 2008. As of March 28, 2009, the total compensation cost related to all non-vested stock options granted to employees but not yet recognized was approximately $11.0 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over the remaining weighted average vesting period of 3.1 years.

Restricted Stock/Restricted Stock Units

Outstanding restricted stock and restricted stock units generally vest ratably over four years. The related share-based compensation expense is recorded over the requisite service period, which is the vesting period. The fair value of restricted stock is based on the market value of Par’s common stock on the date of grant.

The impact on Par’s results of operations of recording share-based compensation from restricted stock for the three-month periods ended March 28, 2009 and March 29, 2008 was as follows ($ amounts in thousands):


	For the three months ended
	March 28,	March 29,
	2009	2008
Cost of goods sold	$181	$164
Research and development	-	410
Selling, general and administrative	1,629	1,475
Total, pre-tax	$1,810	$2,049
Tax effect of stock-based compensation	(688)	(779)
Total, net of tax	$1,122	$1,270

The following is a summary of Par’s restricted stock activity (shares and aggregate intrinsic value in thousands):


	Shares	Weighted Average Grant Price	Aggregate Intrinsic Value
Non-vested balance at December 31, 2008	864	$20.84
Granted	209	13.06
Vested	(174)	27.75
Forfeited	(31)	14.87
Non-vested balance at March 28, 2009	868	$18.04	$8,545

The following is a summary of Par’s restricted stock unit activity (shares and aggregate intrinsic value in thousands):


	Shares	Weighted Average Grant Price	Aggregate Intrinsic Value
Unvested restricted stock unit balance at December 31, 2008	106	$23.72
Granted	50	13.09
Vested and shares issued	(41)	23.70
Forfeited	-	-
Unvested restricted stock unit balance at March 28, 2009	115	$18.87	$1,138
Vested awards not issued	94	$26.05	$924
Total restricted stock unit balance at March 28, 2009	209	$22.09	$2,062

As of March 28, 2009, the total compensation cost related to all non-vested restricted stock and restricted stock units (excluding restricted stock grants with market conditions described below) granted to employees but not yet recognized was approximately $15.1 million, net of estimated forfeitures; this cost will be amortized on a straight-line basis over the remaining weighted average vesting period of approximately 2 years.

Restricted Stock Grants With Market Performance Vesting Conditions

In 2008, Par issued restricted stock grants with market performance vesting conditions. The vesting of restricted stock grants issued to certain employees of Par is contingent upon multiple market conditions that are factored into the fair value of the restricted stock at grant date with cliff vesting after three years if the market conditions have been met. Vesting will occur if the applicable continued employment condition is satisfied and the Total Stockholder Return (“TSR”) on Par’s common stock exceeds a minimum TSR relative to Par’s stock price at the beginning of the three-year vesting period, the TSR meets or exceeds the median of a defined peer group of approximately 15 companies, and/or the TSR exceeds the Standard and Poor’s 400 Mid Cap Index (“S&P 400”) over the three-year measurement period beginning on January 1 in the year of grant and ending after three years on December 31. A maximum number of 466 thousand shares of common stock could be issued after the three-year vesting period depending on the achievement of the TSR goals. No shares of common stock will be issued if Par’s TSR is below 6% annualized return over the three-year vesting period, except by operation of the provisions of approximately 5 employment contracts for senior executives under specific termination conditions. Any shares earned will be distributed after the end of the three-year period, except by operation of the provisions of approximately 5 employment contracts under specific termination conditions. In all circumstances, restricted stock granted does not entitle the holder the right, or obligate Par, to settle the restricted stock in cash.

The effect of the market conditions on the restricted stock issued to certain employees of Par is reflected in the fair value on the grant date. The restricted stock grants with market conditions were valued using a Monte Carlo simulation. The Monte Carlo simulation estimates the fair value based on the expected term of the award, risk-free interest rate, expected dividends, and the expected volatility for Par, its peer group, and the S&P 400. The expected term was estimated based on the vesting period of the awards (3 years), the risk-free interest was based on the yield on the Federal Reserve treasury rate with a maturity matching the vesting period (2.6%). The expected dividends were assumed to be zero. Volatility was based on historical volatility over the expected term (40%). Restricted stock that included multiple market conditions had a grant date fair value per restricted share of $24.78.

The following table summarizes the components of Par’s stock-based compensation related to its restricted stock grants with market conditions recognized in our financial statements for the three-month periods ended March 28, 2009 and March 29, 2008 ($ amounts in thousands):


	For the three months ended
	March 28,	March 29,
	2009	2008
Cost of goods sold	$47	$51
Research and development	-	127
Selling, general and administrative	426	458
Total, pre-tax	$473	$636
Tax effect of stock-based compensation	(180)	(242)
Total, net of tax	$293	$394

As of March 28, 2009, $3.5 million of total unrecognized compensation cost, net of estimated forfeitures, related to restricted stock grants with market conditions, is expected to be recognized over a weighted average period of approximately 2 years.

The following is a summary of Par’s restricted stock grants with market conditions activity (shares and aggregate intrinsic value in thousands):


	Shares	Weighted Average Grant Date Fair Value Per Share	Aggregate Intrinsic Value
Non-vested balance at December 31, 2008	290	$24.78
Granted	-	-
Vested	-	-
Forfeited	(41)	24.78
Non-vested balance at March 28, 2009	249	$24.78	$2,449

Employee Stock Purchase Program:

Par maintains an Employee Stock Purchase Program (the “Program”). The Program is designed to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. It enables eligible employees to purchase shares of Par’s common stock at a 5% discount to the fair market value. An aggregate of 1 million shares of common stock has been reserved for sale to employees under the Program. Employees purchased 6 thousand shares during the three-month period ended March 28, 2009 and 4 thousand shares during the three-month period March 29, 2008.

Note 4 - Available for Sale Debt and Marketable Equity Securities:

At March 28, 2009 and December 31, 2008, all of Par’s investments in debt and marketable equity securities were classified as available for sale and, as a result, were reported at their estimated fair values on the condensed consolidated balance sheets. Refer to Note 5 - “Fair Value Measurements.” The following is a summary of amortized cost and estimated fair value of Par’s debt and marketable equity securities available for sale at March 28, 2009 ($ amounts in thousands):


				Estimated
		Unrealized		Fair
	Cost	Gain	(Loss)	Value
Securities issued by government agencies	$21,299	$129	$ -	$21,428
Debt securities issued by various state and local municipalities and agencies	28,109	263	-	28,372
Other debt securities	21,255	-	(242)	21,013
Available for sale debt securities	70,663	392	(242)	70,813

Marketable equity securities available for sale Hana Biosciences, Inc.	375	-	-	375

Total	$71,038	$392	($242)	$71,188

Of the $0.2 million of unrealized loss as of March 28, 2009, $0.02 million has been in an unrealized loss position for greater than one year. Par believes that these losses are not other-than-temporary in accordance with FASB Staff Position Nos. FAS 115-1 / 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, due to its assessment that all amounts due according to the contractual terms of the related debt securities will be collected and its ability and intent to hold all marketable debt securities for a reasonable period of time sufficient for a recovery of fair value up to (or beyond) the cost of the investments. All available for sale debt securities are classified as current on Par’s condensed consolidated balance sheet as of March 28, 2009.

Par sold its investment in a debt security issued by Ford Motor Credit Company for approximately $1.6 million during the three-month period ended March 28, 2009. Par recorded a pre-tax gain of $0.3 million in the condensed consolidated statement of operations. This item was included in Loss on marketable securities and other investments, net on the condensed consolidated statement of operations.

Par recorded a loss of $0.2 million in the condensed consolidated statement of operations during the three-month period ended March 28, 2009, which represented an other-than-temporary impairment of Par’s investment in Hana Biosciences, Inc. (“Hana”), triggered by the severity of the loss and the duration of the period that the investment has been in a loss position. This item was included in Loss on marketable securities and other investments, net on the condensed consolidated statement of operations. Par has classified its investment in Hana (at the revised cost of $0.4 million) as a non-current asset on its condensed consolidated balance sheet as of March 28, 2009 due to its intent to hold the investment for a period of time greater than 12 months.

The following is a summary of amortized cost and estimated fair value of Par’s investments in debt and marketable equity securities available for sale at December 31, 2008 ($ amounts in thousands):


				Estimated
		Unrealized		Fair
	Cost	Gain	(Loss)	Value
Securities issued by government agencies	$41,241	$300	$ -	$41,541
Debt securities issued by various state and local municipalities and agencies	28,309	276	-	28,585
Other debt securities	24,698	-	(378)	24,320
Available for sale debt securities	94,248	576	(378)	94,446

Marketable equity securities available for sale Hana Biosciences, Inc.	600	-	-	600

Total	$94,848	$576	($378)	$95,046

The following is a summary of the contractual maturities of Par’s available for sale debt securities at March 28, 2009 ($ amounts in thousands):


	March 28, 2009
		Estimated Fair
	Cost	Value
Less than one year	$49,733	$50,058
Due between 1-2 years	12,791	12,672
Due between 2-5 years	8,139	8,083
Total	$70,663	$70,813

Note 5 – Fair Value Measurements:

As described in Note 19 “Recent Accounting Pronouncements,” Par adopted SFAS 157 with respect to financial assets and liabilities as of January 1, 2008. SFAS 157 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets and liabilities. Active market means a market in which transactions for assets or liabilities occur with “sufficient frequency” and volume to provide pricing information on an ongoing unadjusted basis. Our Level 1 assets include Par’s investment in Hana Biosciences, Inc. that is traded in an active exchange market.

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Par’s Level 2 assets primarily include debt securities including governmental agency and municipal securities, and corporate bonds with quoted prices that are traded less frequently than exchange-traded instruments. All of Par’s Level 2 asset values are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. The pricing model information is provided by third party entities (e.g., banks or brokers). In some instances, these third party entities engage external pricing services to estimate the fair value of these securities. Par has a general understanding of the methodologies employed by the pricing services in their pricing models. Par corroborates the estimates of non-binding quotes from the third party entities’ pricing

services to an independent source that provides quoted market prices from broker or dealer quotations. Large differences, if any, are investigated by Par. Based on historical differences, Par has not been required to adjust quotes provided by the third party entities’ pricing services used in estimating the fair value of these securities.

Level 3: Unobservable inputs that are not corroborated by market data.

The fair value of Par’s financial assets and liabilities measured at fair value on a recurring basis were as follows ($ amounts in thousands):


	Estimated Fair Value at March 28, 2009	Level 1	Level 2	Level 3
Securities issued by government agencies (Note 4)	$21,428	$ -	$21,428	$ -
Debt securities issued by various state and local municipalities and agencies (Note 4)	28,372	-	28,372	-
Other debt securities (Note 4)	21,013	-	21,013	-
Marketable equity securities available for sale Hana Biosciences, Inc. (Note 4)	375	375	-	-
Total investments in debt and marketable equity securities	$71,188	$375	$70,813	$ -

Note 6 - Accounts Receivable:

Par recognizes revenue for product sales when title and risk of loss have transferred to its customers, when reliable estimates of rebates, chargebacks, returns and other adjustments can be made, and when collectibility is reasonably assured. This is generally at the time that products are received by the customers. Upon recognizing revenue from a sale, Par records estimates for chargebacks, rebates and incentive programs, product returns, cash discounts and other sales reserves that reduce accounts receivable.

The following tables summarize the impact of accounts receivable reserves and allowance for doubtful accounts on the gross trade accounts receivable balances at each balance sheet date ($ amounts in thousands):


	March 28,	December 31,
	2009	2008

Gross trade accounts receivable	$229,805	$194,661
Chargebacks	(21,174)	(32,738)
Rebates and incentive programs	(26,022)	(27,110)
Returns	(37,302)	(38,128)
Cash discounts and other	(13,647)	(13,273)
Allowance for doubtful accounts	(2)	(4)
Accounts receivable, net	$131,658	$83,408


Allowance for doubtful accounts	For the three-month period ended
	March 28,	March 29,
	2009	2008
Balance at beginning of period	($4)	($20)
Additions – charge to expense	-	-
Adjustments and/or deductions	2	-
Balance at end of period	($2)	($20)

The following tables summarize the activity for the three months ended March 28, 2009 and the three months ended March 29, 2008, in the accounts affected by the estimated provisions described below ($ amounts in thousands):


	For the Period Ended March 28, 2009
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	(Provision) reversal recorded for prior period sales		Credits processed	Ending balance
Chargebacks	($32,738)	($42,386)	($435)	(1)	$54,385	($21,174)
Rebates and incentive programs	(27,110)	(21,862)	157		22,793	(26,022)
Returns	(38,128)	(6,298)	(339)		7,463	(37,302)
Cash discounts and other	(13,273)	(11,329)	-		10,955	(13,647)
Total	($111,249)	($81,875)	($617)		$95,596	($98,145)

Accrued liabilities (2)	($21,912)	($6,042)	$ -		$2,955	($24,999)


	For the Period Ended March 29, 2008
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	(Provision) reversal recorded for prior period sales		Credits processed	Ending balance
Chargebacks	($46,006)	($107,639)	($539)	(1)	$110,197	($43,987)
Rebates and incentive programs	(42,859)	(23,086)	(1,571)	(3)	34,557	(32,959)
Returns	(47,102)	(4,904)	4,293	(4)	7,220	(40,493)
Cash discounts and other	(16,158)	(12,274)	349		12,321	(15,762)
Total	($152,125)	($147,903)	$2,532		$164,295	($133,201)

Accrued liabilities (2)	($17,684)	($8,482)	$805		$1,657	($23,704)

(1)

Unless specific in nature, the amount of provision or reversal of reserves related to prior periods for chargebacks is not determinable on a product or customer specific basis; however, based upon historical analysis and analysis of activity in subsequent periods, Par has determined that its chargeback estimates remain reasonable.

(2)

Includes amounts due to customers for which no underlying accounts receivable exists and is principally comprised of Medicaid rebates and rebates due under other U.S. Government pricing programs.

(3)

The changes in accounts receivable reserves recorded for prior period sales related to rebates and incentives programs are principally comprised of the finalization of contract negotiations with a certain customer(s) that resulted in an adjustment of ($2.3) million to our rebates and incentive programs for sales made to that customer in the fourth quarter of 2007. With the exception of the foregoing factor, there were no other factors that were deemed to be material individually or in the aggregate.

(4)

The changes in accounts receivable reserves recorded for prior period sales related to returns principally comprised of the successful resolution in the three-month period ended March 29, 2008 of a customer dispute over invalid customer deductions taken in prior periods of $1.5 million, and an update to management’s prior period returns estimates relating to the loss of a customer for certain products and new returns information that became available during the three-month period ended March 29, 2008, of $2.8 million.

Par sells its products directly to wholesalers, retail drug store chains, drug distributors, mail order pharmacies and other direct purchasers and customers that purchase its products indirectly through the wholesalers, including independent pharmacies, non-warehousing retail drug store chains, managed health care providers and other indirect purchasers. Par has entered into agreements at negotiated contract prices with those health care providers that purchase products through Par’s wholesale customers at those contract prices. Chargeback credits are issued to wholesalers for the difference between Par’s invoice price to the wholesaler and the contract price through which the product is resold to health care providers. Approximately 50% of our net product sales were derived from the wholesale distribution channel for the three months ended March 28, 2009 and 72% for the three months ended March 29, 2008. The information that Par considers when establishing its chargeback reserves includes contract and non-contract sales trends, average

historical contract pricing, actual price changes, processing time lags and customer inventory information from its three largest wholesale customers. Par’s chargeback provision and related reserve vary with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventory.

Customer rebates and incentive programs are generally provided to customers as an incentive for the customers to continue carrying Par’s products or replace competing products in their distribution channels with products sold by Par. Rebate programs are based on a customer’s dollar purchases made during an applicable monthly, quarterly or annual period. Par also provides indirect rebates, which are rebates paid to indirect customers that have purchased Par’s products from a wholesaler under a contract with Par. The incentive programs include stocking or trade show promotions where additional discounts may be given on a new product or certain existing products as an added incentive to stock Par’s products. Par may, from time to time, also provide price and/or volume incentives on new products that have multiple competitors and/or on existing products that confront new competition in order to attempt to secure or maintain a certain market share. The information that Par considers when establishing its rebate and incentive program reserves are rebate agreements with and purchases by each customer, tracking and analysis of promotional offers, projected annual sales for customers with annual incentive programs, actual rebates and incentive payments made, processing time lags, and for indirect rebates, the level of inventory in the distribution channel that will be subject to indirect rebates. Par does not provide incentives designed to increase shipments to its customers that it believes would result in out-of-the ordinary course of business inventory for them. Par regularly reviews and monitors estimated or actual customer inventory information at its three largest wholesale customers for its key products to ascertain whether customer inventories are in excess of ordinary course of business levels.

Pursuant to a drug rebate agreement with the Centers for Medicare and Medicaid Services, TriCare and similar supplemental agreements with various states, Par provides a rebate on drugs dispensed under such government programs. Par determines its estimate of Medicaid rebate accrual primarily based on historical experience of claims submitted by the various states and any new information regarding changes in the Medicaid program that might impact Par’s provision for Medicaid rebates. In determining the appropriate accrual amount Par considers historical payment rates; processing lag for outstanding claims and payments; and levels of inventory in the distribution channel. Par reviews the accrual and assumptions on a quarterly basis against actual claims data to help ensure that the estimates made are reliable. On January 28, 2008, the Fiscal Year 2008 National Defense Authorization Act was enacted, which expands TriCare to include prescription drugs dispensed by TriCare retail network pharmacies. TriCare rebate accruals reflect this program expansion and are based on actual and estimated rebates on Department of Defense eligible sales.

Par accepts returns of product according to the following criteria: (i) the product returns must be approved by authorized personnel with the lot number and expiration date accompanying any request and (ii) Par generally will accept returns of products from any customer and will provide the customer with a credit memo for such returns if such products are returned within six months prior to, and until 12 months following, such products’ expiration date. Par records a provision for product returns based on historical experience, including actual rate of expired and damaged in-transit returns, average remaining shelf-lives of products sold, which generally range from 12 to 48 months, and estimated return dates. Additionally, Par considers other factors when estimating its current period return provision, including levels of inventory in the distribution channel, significant market changes that may impact future expected returns, and actual product returns, and may record additional provisions for specific returns that it believes are not covered by the historical rates.

Par offers cash discounts to its customers, generally 2% of the sales price, as an incentive for paying within invoice terms, which generally range from 30 to 90 days. Par accounts for cash discounts by reducing accounts receivable by the full amount of the discounts that Par expects its customers to take. In addition to the significant gross-to-net sales adjustments described above, Par periodically makes other sales adjustments. Par generally accounts for these other gross-to-net adjustments by establishing an accrual in the amount equal to its estimate of the adjustments attributable to the sale.

Par may at its discretion provide price adjustments due to various competitive factors, through shelf-stock adjustments on customers’ existing inventory levels. There are circumstances under which Par may not provide price adjustments to certain customers as a matter of business strategy, and consequently may lose future sales volume to competitors and risk a greater level of sales returns on products that remain in the customer’s existing inventory.

As detailed above, Par has the experience and access to relevant information that it believes are necessary to reasonably estimate the amounts of such deductions from gross revenues. Some of the assumptions used by Par for certain of its estimates are based on information received from third parties, such as wholesale customer inventories and market data, or other market factors beyond Par’s control. The estimates that are most critical to the establishment of these reserves, and therefore, would have the largest impact if these estimates were not accurate, are estimates related to contract sales volumes, average contract pricing, customer inventories and return volumes. Par regularly reviews the information related to these estimates and adjusts its reserves accordingly, if and when actual experience differs from previous estimates. With the exception of the product returns allowance, the ending balances of accounts receivable reserves and allowances generally are processed during a two-month to four-month period.

Use of Estimates in Reserves

Par believes that its reserves, allowances and accruals for items that are deducted from gross revenues are reasonable and appropriate based on current facts and circumstances. It is possible, however, that other parties applying reasonable judgment to the

same facts and circumstances could develop different allowance and accrual amounts for items that are deducted from gross revenues. Additionally, changes in actual experience or changes in other qualitative factors could cause Par’s allowances and accruals to fluctuate, particularly with newly launched or acquired products. Par reviews the rates and amounts in its allowance and accrual estimates on a quarterly basis. If future rates and amounts are significantly greater than those reflected in its recorded reserves, the resulting adjustments to those reserves would decrease Par’s reported net revenues; conversely, if actual product returns, rebates and chargebacks are significantly less than those reflected in its recorded reserves, then the resulting adjustments to those reserves would increase its reported net revenues. If Par were to change its assumptions and estimates, its reserves would change, which would impact the net revenues that Par reports. Par regularly reviews the information related to these estimates and adjusts its reserves accordingly, if and when actual experience differs from previous estimates.

Major Customers – Gross Accounts Receivable


	March 28,	December 31,
	2009	2008
McKesson Corporation	24%	36%
AmerisourceBergen Corporation	16%	17%
CVS Caremark	15%	5%
Cardinal Health Inc.	8%	13%
Other customers	37%	29%
Total gross accounts receivable	100%	100%

During the three months ended March 28, 2009, Par shipped a greater percentage of metoprolol as compared to prior periods directly to retail customers such as CVS to help alleviate supply issues in the market.

Note 7 - Inventories:

($ amounts in thousands)


	March 28,	December 31,
	2009	2008
Raw materials and supplies	$15,220	$13,760
Work-in-process	4,270	4,495
Finished goods	29,230	24,249
	$48,720	$42,504

Inventory write-offs (inclusive of pre-launch inventories detailed below) were $2.5 million for the quarter ended March 28, 2009 and $3.1 million for the quarter ended March 29, 2008.

Par capitalizes inventory costs associated with certain products prior to regulatory approval and product launch, based on management's judgment of reasonably certain future commercial use and net realizable value, when it is reasonably certain that the pre-launch inventories will be saleable. The determination to capitalize is made once Par (or its third party development partners) has filed an Abbreviated New Drug Application (“ANDA”) that has been acknowledged by the FDA for containing sufficient information to allow the FDA to conduct their review in an efficient and timely manner and management is reasonably certain that all regulatory and legal hurdles will be cleared. This determination is based on the particular facts and circumstances relating to the expected FDA approval of the generic drug product being considered, and accordingly, the time frame within which the determination is made varies from product to product. Par could be required to write down previously capitalized costs related to pre-launch inventories upon a change in such judgment, or due to a denial or delay of approval by regulatory bodies, or a delay in commercialization, or other potential factors. As of March 28, 2009, Par had approximately $2.3 million in inventories related to products that were not yet available to be sold.

The amounts in the table below are also included in the total inventory balances presented above.

Pre-Launch Inventories

($ amounts in thousands)


	March 28,	December 31,
	2009	2008
Raw materials and supplies	$1,866	$577
Work-in-process	442	542
Finished goods	-	474
	$2,308	$1,593

Pre-launch inventories at December 31, 2008 were mainly comprised of in-house developed products. Since that time, Par increased the quantity of that inventory in preparation of anticipated launches later in 2009. Write offs of pre-launch inventories, net of partner allocation, were $0.4 million for the quarter ended March 28, 2009 and $0.9 million for the quarter ended March 29, 2008.

Note 8 – Property, Plant and Equipment, net:

($ amounts in thousands)


	March 28,	December 31,
	2009	2008
Land	$1,882	$1,882
Buildings	25,581	25,571
Machinery and equipment	47,373	44,027
Office equipment, furniture and fixtures	4,750	4,774
Computer software and hardware	30,461	29,179
Leasehold improvements	11,543	11,548
Construction in progress	15,960	16,462
	137,550	133,443
Less accumulated depreciation and amortization	58,231	54,004
	$79,319	$79,439

Depreciation and amortization expense related to property, plant and equipment was $2.5 million for the three months ended March 28, 2009 and $3.9 million for the three months ended March 29, 2008.

Note 9 - Intangible Assets, net:

($ amounts in thousands)


	March 28,	December 31,
	2009	2008
Trademark licensed from Bristol-Myers Squibb Company, net of accumulated amortization of $4,251 and $3,850	$5,750	$6,151
Paddock Licensing Agreement, net of accumulated amortization of $2,500 and $2,250	3,500	3,750
Spectrum Development and Marketing Agreement, net of accumulated amortization of $11,520 and $6,839	13,480	18,161
Genpharm, Inc. Distribution Agreement, net of accumulated amortization of $7,763 and $7,582	3,070	3,251
SVC Pharma LP License and Distribution Agreement, net of accumulated amortization of $1,430 and $1,106	2,254	2,578
Bristol-Myers Squibb Company Asset Purchase Agreement, net of accumulated amortization of $11,699 and $11,420	-	279
FSC Laboratories Agreement, net of accumulated amortization of $4,942 and $4,816	880	1,006
Other intangible assets, net of accumulated amortization of $5,226 and $5,216	22	32
	$28,956	$35,208

Par recorded amortization expense related to intangible assets of $6.3 million for the three-month period ended March 28, 2009 and $2.4 million for the three-month period ended March 29, 2008, and this amortization expense is included in cost of goods sold.

Amortization expense related to the intangible assets currently being amortized is expected to total approximately $9.5 million for the remainder of 2009, $8.3 million in 2010, $7.8 million in 2011, $2.8 million in 2012, and $0.6 million in 2013.

Par evaluates all intangible assets for impairment quarterly or whenever events or other changes in circumstances indicate that the carrying value of an asset may no longer be recoverable. As of March 28, 2009, Par believes its net intangible assets are recoverable.

Note 10 - Income Taxes:

Par reflects interest and penalties attributable to income taxes, to the extent they arise, as a component of its income tax provision or benefit.

The IRS is currently examining Par’s 2003-2007 federal income tax returns. Prior periods have either been audited or are no longer subject to IRS audit. Par is currently under audit by two state jurisdictions for the years 2003-2005. In most other state jurisdictions, Par is no longer subject to examination by tax authorities for years prior to 2004.

Current deferred income tax assets at March 28, 2009 consisted of temporary differences primarily related to accounts receivable reserves. Current deferred income tax assets at December 31, 2008 consisted of temporary differences primarily related to accounts receivable reserves and accrued expenses. Non-current deferred income tax assets at March 28, 2009 and December 31, 2008 consisted of the tax benefit related to purchased call options, acquired in-process research and development and timing differences primarily related to intangible assets and stock options.

Par’s effective tax rate for continuing operations for the three months ended March 28, 2009 was 37% and 35% for the three months ended March 29, 2008.

Note 11 - Long-Term Debt:

Long-Term Debt

($ amounts in thousands)


	March 28,	December 31,
	2009	2008
Senior subordinated convertible notes (a)	$129,234	$130,141
Less current portion	(129,234)	(130,141)
	$-	$-

(a)

On March 28, 2009, the senior subordinated convertible notes had a face value of $139.5 million and a quoted market value of approximately $130 million. On December 31, 2008, the senior subordinated convertible notes had a face value of $142 million and a quoted market value of approximately $112 million. The notes bear interest at an annual rate of 2.875%, payable semi-annually on March 30 and September 30 of each year. The notes are convertible into common stock at an initial conversion price of $88.76 per share, upon the occurrence of certain events. Upon conversion, Par has agreed to satisfy the conversion obligation in cash in an amount equal to the principal amount of the notes converted. The notes mature on September 30, 2010, unless earlier converted, accelerated or repurchased. Par may not redeem the notes prior to their maturity date.

See “Legal Proceedings” in Note 14, “Commitments, Contingencies and Other Matters” for discussion involving notices of default and acceleration Par received from the Trustee of Par’s 2.875% senior subordinated convertible notes due 2010 and the related litigation. Until the matter is resolved, Par is recording the payment obligations as a current liability as of March 28, 2009 because the Court in the matter could (i) rule against Par’s position and (ii) determine that the appropriate remedy would be the accelerated payment of the Notes. Accordingly, Par cannot consider the possibility of accelerated payment to be remote.

In March 2009, Par repurchased senior subordinated convertible notes in the aggregate principal (face) amount of $2.5 million, including accrued interest. Par recorded a gain of approximately $0.2 million in the first quarter of 2009 related to this debt extinguishment.

See Note 2, “Change in Accounting Principle and Related Adjustments to Previously Issued Financial Statements” for the impact of the adoption of FSP APB 14-1.

Note 12 - Changes in Stockholders’ Equity:

Changes in Par’s Common Stock, Additional Paid-In Capital and Accumulated Other Comprehensive Income/(Loss) accounts during the three-month period ended March 28, 2009 were as follows:


				Accumulated
			Additional	Other
	Common Stock		Paid-In	Comprehensive
	Shares	Amount	Capital	Income/(Loss)
Balance, December 31, 2008	37,392	$374	$319,976	$122
Unrealized loss on available for sale securities, net of tax	-	-	-	(30)
Exercise of stock options	5	-	30	-
Tax benefit from exercise of stock options	-	-	12	-
Tax deficiency related to vesting of restricted stock	-	-	(1,441)	-
Issuance of common stock under the Employee Stock Purchase Program	-	-	59	-
Forfeitures of restricted stock	(73)	(1)	1	-
Issuances of restricted stock	248	2	(2)	-
Compensatory arrangements	-	-	3,535	-
Other	-	-	(123)	-
Balance, March 28, 2009	37,572	$375	$322,047	$92


Comprehensive Income	Three months ended
	March 28,	March 29,
	2009	2008

Net income	$16,079	$1,443
Other comprehensive income:
Unrealized loss on marketable securities, net of tax	(64)	(318)
Less: reclassification adjustment for net losses included in net income, net of tax	34	-
Comprehensive income	$16,049	$1,125

In April 2004, Par’s Board of Directors authorized the repurchase of up to $50.0 million of Par’s common stock. The repurchases may be made, subject to compliance with applicable securities laws, from time to time in the open market or in privately negotiated transactions. Shares of common stock acquired through the repurchase program are and will be available for general corporate purposes. Par had repurchased 849 thousand shares of its common stock for approximately $32.2 million pursuant to the April 2004 authorization. On September 28, 2007, Par announced that its Board approved an expansion of its share repurchase program allowing for the repurchase of up to $75.0 million of Par’s common stock, inclusive of the $17.8 million remaining from the April 2004 authorization. Par repurchased 1,643 thousand shares of its common stock for approximately $31.4 million pursuant to the expanded program in 2007. The authorized amount remaining for stock repurchases under the repurchase program was $43.6 million, as of March 28, 2009. The repurchase program has no expiration date.

See Note 2, “Change in Accounting Principle and Related Adjustments to Previously Issued Financial Statements” for the impact of the adoption of FSP APB 14-1.

Note 13 - Earnings Per Share:

The following is a reconciliation of the amounts used to calculate basic and diluted earnings per share:


	Three months ended
	March 28,	March 29,
	2009	2008

Income from continuing operations	$16,255	$1,383

Gain from discontinued operations	-	505
Provision for income taxes	176	445
(Loss) gain from discontinued operations	(176)	60
Net income	$16,079	$1,443

Basic:
Weighted average number of common shares outstanding	33,603	33,220

Income from continuing operations	$0.48	$0.04
(Loss) gain from discontinued operations	0.00	0.00
Net income per share of common stock	$0.48	$0.04

Assuming dilution:
Weighted average number of common shares outstanding	33,603	33,220
Effect of dilutive securities	169	367
Weighted average number of common and common equivalent shares outstanding	33,772	33,587

Income from continuing operations	$0.48	$0.04
(Loss) gain from discontinued operations	0.00	0.00
Net income per share of common stock	$0.48	$0.04

Outstanding options of 4.1 million as of March 28, 2009 and 4.0 million as of March 29, 2008 were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common stock during the respective periods and their inclusion would, therefore, have been anti-dilutive. As of March 28, 2009, restricted stock grants with market conditions were not included in the calculation of diluted earnings per share because the Total Stockholder Return (“TSR”) on Par’s common stock did not exceed a minimum TSR relative to Par’s stock price at the beginning of the vesting period. In addition, outstanding warrants sold concurrently with the sale of the senior subordinated convertible notes in September 2003 and issued in conjunction with the acquisition of Kali in June 2004 were not included in the computation of diluted earnings per share as of March 28, 2009 and March 29, 2008. The warrants related to the notes are exercisable for an aggregate of 1,572 thousand shares of common stock at an exercise price of $105.20 per share and the warrants related to the Kali acquisition are exercisable for an aggregate of 150 thousand shares of common stock at an exercise price of $47.00 per share.

Note 14 - Commitments, Contingencies and Other Matters:

Legal Proceedings

Unless otherwise indicated in the details provided below, Par cannot predict with certainty the outcome or the effects on Par of the litigations described below. The outcome of these litigations could include substantial damages, the imposition of substantial fines, penalties, and injunctive or administrative remedies, however unless otherwise indicated, Par at this time is not able to estimate the possible loss or range of loss, if any, associated with these legal proceedings.

Contractual Matters

2009, in order to avoid any further costs, burdens or distractions of litigation, Par entered into a Settlement Agreement with Pentech pursuant to which Par paid Pentech an amount of approximately $66 million. Pursuant to the terms of the agreement, a stipulation dismissing the appeal of judgment and Pentech’s satisfaction of judgment was filed with the District Court.

Corporate Litigation

Par and certain of its former executive officers have been named as defendants in consolidated class action lawsuits filed on behalf of purchasers of common stock of Par between July 23, 2001 and July 5, 2006. The lawsuits followed Par’s July 5, 2006 announcement regarding the restatement of certain of its financial statements and allege that Par and certain members of its then management engaged in violations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by issuing false and misleading statements concerning Par’s financial condition and results of operations. The class actions are pending in the United States District Court, District of New Jersey. On June 24, 2008, the Court dismissed co-lead plaintiffs’ Consolidated Amended Complaint without prejudice with leave to re-file. On July 24, 2008, co-lead plaintiffs filed a Second Consolidated Amended Complaint. Par and the individual defendants have filed a motion to dismiss. The motion has been fully briefed but not yet scheduled for argument. Par and the individual defendants intend to vigorously defend the class action.

On September 1, 2006, Par received a notice of default from the American Stock Transfer & Trust Company, as trustee (the “Trustee”) of Par’s 2.875% Senior Subordinated Convertible Notes due 2010 (the “Notes”). The Trustee claims, in essence, that Par’s failure to include financial statements in its Quarterly Report on Form 10-Q for the second quarter of 2006 constituted a default under Section 6.2 of the Indenture, dated as of September 30, 2003 (the “Indenture”), between Par, as issuer, and the Trustee, relating to the Notes. Under the Indenture, Par is required only to provide the Trustee with copies of its annual and other reports (or copies of such portions of such reports as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act within 15 calendar days after it files such annual and other reports with the SEC. Moreover, Par’s Indenture specifically contemplates providing the Trustee with portions of reports. On August 24, 2006 (within 15 days of filing with the SEC), Par provided to the Trustee a copy of its Quarterly Report on Form 10-Q for the second quarter of 2006. Par’s Form 10-Q did not include Par’s financial statements for the second quarter of 2006 and related Management’s Discussion and Analysis due to Par’s work to restate certain of its past financial statements, and, therefore, in accordance with SEC rules, Par filed a Form 12b-25 Notification of Late Filing disclosing the omissions. Par’s Form 12b-25 also was provided to the Trustee on August 24, 2006. Accordingly, Par believes that it complied with the Indenture provision in question.

After Par communicated its position to the Trustee, the Trustee filed a lawsuit, on October 19, 2006, on behalf of the holders of the Notes in the Supreme Court of the State of New York, County of New York, alleging a breach of the Indenture and of an alleged covenant of good faith and fair dealing. The lawsuit demands, among other things, that Par pay the holders of the Notes either the principal, any accrued and unpaid interest and additional interest (as such term is defined in the Indenture), if any, or the difference between the fair market value of the Notes on October 2, 2006 and par, whichever the Trustee elects, or in the alternative, damages to be determined at trial, alleged by the Trustee to exceed $30.0 million. Par removed the lawsuit to the U.S. District Court for the Southern District of New York and has filed its answer to the complaint in that Court. On January 19, 2007, the Trustee filed a motion for summary judgment. On February 16, 2007, Par filed its response to the Trustee’s motion for summary judgment and cross-moved for summary judgment in its favor. The Court has not yet ruled on the motions. Until the matter is resolved, Par is recording the payment obligations as a current liability on the condensed consolidated balance sheets because the Court in the matter could rule against Par’s position and determine that the appropriate remedy would be the accelerated payment of the convertible notes.

Patent Related Matters

On April 28, 2006, CIMA Labs, Inc. (“CIMA”) and Schwarz Pharma, Inc. (“Schwarz Pharma”) filed separate lawsuits against Par in the United States District Court for the District of New Jersey. CIMA and Schwarz Pharma each have alleged that Par infringed U.S. Patent Nos. 6,024,981 (the “’981 patent”) and 6,221,392 (the “’392 patent”) by submitting a Paragraph IV certification to the FDA for approval of alprazolam orally disintegrating tablets. CIMA owns the ’981 and ’392 patents and Schwarz Pharma is CIMA’s exclusive licensee. The two lawsuits were consolidated on January 29, 2007. In response to the lawsuit, Par has answered and counterclaimed denying CIMA’s and Schwarz Pharma’s infringement allegations, asserting that the ’981 and ’392 patents are not infringed and are invalid and/or unenforceable. All 40 claims in the ’981 patent were rejected in two non-final office action in a reexamination proceeding at the United States Patent and Trademark Office (“PTO”) on February 24, 2006 and on February 24, 2007. The ‘392 patent is also the subject of a reexamination proceeding. As of July 10, 2008, the PTO has rejected with finality all claims pending in both the ‘392 and ‘981 patents. CIMA has moved to stay this lawsuit pending the outcome of the reexamination proceedings and to consolidate this lawsuit with another lawsuit in the same district involving the same patents (CIMA Labs, Inc. et al. v. Actavis Group hf et al.). Par intends to vigorously defend this lawsuit and pursue its counterclaims.

assignees of the patent-in-suit, filed a lawsuit against Paddock in the United States District Court for the Northern District of Georgia, alleging patent infringement on August 22, 2003. Par has an economic interest in the outcome of this litigation by virtue of its licensing agreement with Paddock. Unimed and Besins sought an injunction to prevent Paddock from manufacturing the generic product. On September 13, 2006, Par acquired from Paddock all rights to the ANDA for testosterone 1% gel, a generic version of Unimed’s product Androgel® for $6 million. The lawsuit was resolved by a settlement and license agreement that terminates all on-going litigation and permits Par to launch the generic version of the product no earlier than August 31, 2015 and no later than February 28, 2016, assuring Par’s ability to market a generic version of Androgel® well before the expiration of the patents at issue. On March 7, 2007, Par was issued a Civil Investigative Demand seeking information and documents in connection with the court-approved settlement in 2006 of the patent infringement case, Unimed v. Paddock, in the U.S. District Court for Northern District of Georgia. The Bureau of Competition for the Federal Trade Commission (“FTC”) is investigating whether the settlement of the litigation constituted unfair methods of competition in a potential violation of Section 5 of the FTC Act. On January 30, 2009, the FTC filed a lawsuit against the company in the U.S. District Court for the District of Central California alleging violations of antitrust laws stemming from Par’s court-approved settlement in the patent litigation. On February 2, 2009, Meijer Distribution, Inc. filed a class action complaint in the same district court alleging antitrust violations and seeking treble damages. On February 3, 2009, both Rochester Drug Co-Operative, Inc. and Louisiana Wholesale Drug Co., Inc. filed class action complaints in the same district court. On April 9, 2009, the U.S. District Court for Central California granted Par’s motion to transfer the FTC lawsuit, as well as the three aforementioned class action suits, to the U.S. District Court for Northern Georgia, the jurisdiction in which Par’s original consent judgment relating to the patent litigation settlement entered. On April 10, 2009, the cases were transferred. On April 17, 2009 the Fraternal Order of Police, Fort Lauderdale Lodge 31 Insurance Trust Fund filed a class action complaint naming Par in the U.S. District Court for the District of New Jersey and on April 21, 2009 Raymond Scurto on behalf of another class, filed a second class action complaint naming Par in the same court both alleging antitrust violations. Par believes it has complied with all applicable laws in connection with the court-approved settlement and intends to vigorously defend these actions.

On October 4, 2006, Novartis Corporation, Novartis Pharmaceuticals Corporation, and Novartis International AG (collectively “Novartis”) filed a lawsuit against Par in the United States District Court for the District of New Jersey. Novartis alleged that Par and Kali infringed U.S. Patent No. 6,162,802 (the “’802 patent”) by submitting a Paragraph IV certification to the FDA for approval of amlodipine and benazepril hydrochloride combination capsules. Par and its subsidiary denied Novartis’ allegation, asserting that the ’802 patent is not infringed and is invalid. Par submitted a claim construction brief on September 5, 2008 and its rebuttal brief on October 8, 2008. On December 11, 2008, the company entered into a settlement agreement with Novartis. On February 10, 2009, a stipulation of dismissal was entered by the judge, finally terminating the case.

On December 19, 2006, Reliant Pharmaceuticals, Inc. (“Reliant”) filed a lawsuit against Par in the United States District Court for the District of Delaware. Reliant alleged, in its Complaint, that Par infringed U.S. Patent No. 5,681,588 (the “’588 patent”) by submitting a Paragraph IV certification to the FDA for approval to market generic 325 mg Propafenone HCl SR capsules. On January 26, 2007, Reliant amended its complaint to add the additional allegation that Par infringed the ‘588 patent by submitting a Paragraph IV certification to the FDA for approval to market generic 225 mg and 425 mg—in addition to the 325 mg—Propafenone HCl SR capsules. Par has answered and counterclaimed denying Reliant’s infringement allegations, and asserting that the ’588 patent is invalid and unenforceable. On April 17, 2009, a dismissal with prejudice was entered in the case pursuant to a settlement agreement between the parties. In view of this agreement, Par will enter the market with generic Rythmol SR on January 1, 2011 or earlier depending on certain circumstances.

On May 9, 2007, Purdue Pharma Products L.P. (“Purdue”), Napp Pharmaceutical Group Ltd. (“Napp”), Biovail Laboratories International SRL (“Biovail”), and Ortho-McNeil, Inc. (“Ortho-McNeil”) filed a lawsuit against Par in the United States District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent No. 6,254,887 (the “’887 patent”) because Par submitted a Paragraph IV certification to the FDA for approval of 200 mg extended release tablets containing tramadol hydrochloride. On May 30, 2007, Par filed its answer and counterclaim to the Complaint seeking a declaration of noninfringement and invalidity of the '887 patent. A subsequent Complaint was served on July 2, 2007 in the same District Court. The new Complaint alleges that Par's 100 mg and 200 mg extended release tablets containing tramadol hydrochloride infringe the ‘887 patent. Par filed its Answer and Counterclaim on July 23, 2007 and will assert all available defenses in addition to seeking a declaration of noninfringement and invalidity of the '887 patent. On October 24, 2007, plaintiffs filed an amended complaint in the Delaware District Court in view of Par's amendment of its ANDA to include the 300 mg strength of extended release tramadol. Trial is currently set for April 16, 2009. Par intends to defend this action vigorously and pursue its counterclaims against the plaintiffs.

On July 6, 2007, Sanofi-Aventis and Debiopharm, S.A. filed a lawsuit against Par and its development partner, MN Pharmaceuticals ("MN"), in the United States District Court for the District of New Jersey. The complaint alleges infringement of U.S. Patent Nos. 5,338,874 and 5,716,988 because Par and MN submitted a Paragraph IV certification to the FDA for approval of 50 mg/10 ml, 100 mg/20 ml, and 200 mg/40 ml oxaliplatin by injection. Par and MN filed their Answer and Counterclaims on October 10, 2007 and an amendment to it on October 22, 2007. On January 14, 2008, following MN's amendment of its ANDA to include oxaliplatin injectable 5 mg/ml, 40 ml vial, Sanofi-Aventis filed a complaint asserting infringement of the '874 and the '998 patents. Par and MN filed their Answer and Counterclaim on February 20, 2008. The court has set an expert discovery deadline of June 9,

2009, with all motions due by June 15, 2009. Par and MN intend to defend these actions vigorously and pursue their counterclaims against Sanofi and Debiopharm.

On September 21, 2007, Sanofi-Aventis and Sanofi-Aventis U.S., LLC (“Sanofi-Aventis”) filed a lawsuit against Par and its development partner, Actavis South Atlantic LLC ("Actavis"), in the United States District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent Nos. 4,661,491 and 6,149,940 because Par and Actavis submitted a Paragraph IV certification to the FDA for approval of 10 mg alfuzosin hydrochloride extended release tablets. Par has filed an Answer to the Complaint and counterclaims that the patents asserted are not infringed and are invalid. On April 3, 2008, the judge ordered all actions in the case stayed pending the plaintiff’s motion for transfer and consolidation under the rules governing multi-district litigation. On June 9, 2008, the Multi-District Litigation Panel granted plaintiff’s motion for transfer and consolidation and lifted the stay of litigation. On December 24, 2008, Par agreed to terminate its collaboration agreement with Actavis and, with it, all obligations and all benefits related to Alfuzosin. Par has instructed its attorneys to move to withdraw the company from the litigation.

On October 1, 2007, Elan Corporation, PLC (“Elan”) filed a lawsuit against Par and its development partner, IntelliPharmaCeutics Corp., and IntelliPharmaCeutics Ltd. ("IPC") in the United States District Court for the District of Delaware. On October 5, 2007, Celgene Corporation (“Celgene”) and Novartis filed a lawsuit against IPC in the United States District Court for the District of New Jersey. The Complaint in the Delaware case alleged infringement of U.S. Patent Nos. 6,228,398 and 6,730,325 because Par submitted a Paragraph IV certification to the FDA for approval of 5, 10, 15, and 20 mg dexmethylphenidate hydrochloride extended release capsules. The original Complaint in the New Jersey case alleged infringement of U.S. Patent Nos. 6,228,398; 6,730,325; 5,908,850; 6,355,656; 6,528,530; 5,837,284; and 6,635,284 because Par and IPC submitted a Paragraph IV certification to the FDA for approval of 5, 10, 15, and 20 mg dexmethylphenidate extended release capsules. Par and IPC filed an Answer and Counterclaims in both the Delaware case and the New Jersey case. Elan filed a motion to consolidate the cases on January 2, 2008, and on February 20, 2008, the judge in the Delaware litigation consolidated all four related cases pending in Delaware and entered a scheduling order providing for April 15, 2009 as the deadline for all discovery, June 29, 2009 as the date for a Markman hearing, and August 17, 2009 as the date for a bench trial. The Delaware court has established a March 5, 2009 deadline for fact discovery and a June 15, 2009 deadline for expert discovery. A Rule 16 conference was held for the New Jersey litigation on March 4, 2008 setting a deadline of December 12, 2008 for all discovery with a Markman hearing scheduled for June 19, 2009. The New Jersey court has set a fact discovery deadline of March 1, 2009. Par intends to defend these actions vigorously and pursue its counterclaims against Elan, Celgene and Novartis.

On September 13, 2007, Santarus, Inc. (“Santarus”), and The Curators of the University of Missouri (“Missouri”) filed a lawsuit against Par in the United States District Court for the District of Delaware. The Complaint alleges infringement of U.S. Patent Nos. 6,699,885; 6,489,346; and 6,645,988 because Par submitted a Paragraph IV certification to the FDA for approval of 20 mg and 40 mg omeprazole/sodium bicarbonate capsules. Par filed its Answer and Counterclaims on October 17, 2007. A scheduling conference was held February 11, 2008, setting September 8, 2008 as the date for the claim construction hearing and July 13, 2009 as the first day of the bench trial. On December 20, 2007, Santarus, Inc., and Missouri filed a second lawsuit against Par in the United States District Court for the District of Delaware alleging infringement of U.S. Patent Nos. 6,699,885; 6,489,346; 6,780,882; and 6,645,988 because Par submitted a Paragraph IV certification to the FDA for approval of 20 mg and 40 mg omeprazole/sodium bicarbonate powders for oral suspension. Par filed an answer and counterclaims in this action as well. On March 4, 2008, the cases pertaining to Par’s ANDAs for omeprazole capsules and omeprazole oral suspension (see below) were consolidated for all purposes. Par filed its claim construction brief on August 22, 2008, and its answering brief on September 22, 2008, as the Court rescheduled the Markman hearing. The Court held a Markman hearing on November 5, 2008 and issued its claim construction order on the same day. Par intends to defend this action vigorously and pursue its counterclaims against Santarus and Missouri.

On December 11, 2007, AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR Pharmaceuticals, Inc. and Shionogi Seiyaku Kabushiki Kaisha filed a lawsuit against Par in the United States District Court for the District of Delaware. The Complaint alleges patent infringement because Par submitted a Paragraph IV certification to the FDA for approval of 5 mg, 10 mg, 20 mg and 40 mg rosuvastatin calcium tablets. Par filed an Answer and Counterclaims, and on April 11, 2008, the court held a scheduling conference setting the Markman hearing for March 10, 2009, the pretrial conference for January 11, 2010, and a bench trial for February 15, 2010. Par intends to defend these actions vigorously and pursue its counterclaims against AstraZeneca Pharmaceuticals, LP, AstraZeneca UK Ltd., IPR Pharmaceuticals, Inc. and Shionogi Seiyaku Kabushiki Kaisha.

On November 14, 2008, Pozen, Inc. filed a lawsuit against Par in the United States District Court for the Eastern District of Texas. The Complaint alleges infringement of U.S. Patent Nos. 6,060,499; 6,586,458; and 7,332,183 because Par submitted a Paragraph IV certification to the FDA for approval of 500 mg/85 mg naproxen sodium/sumatriptan succinate oral tablets. Par filed an Answer and Counterclaims on December 8, 2008 and the court has scheduled a Markman hearing for February 2010 and trial for October 2010. On March 17, 2009, Par filed an Amended Answer and Counterclaim in order to join GlaxoSmithKline as a counterclaim defendant in this litigation. Par intends to defend this action vigorously and pursue its counterclaims against Pozen and GlaxoSmithKline.

On April 15, 2009, Par filed a declaratory judgment Complaint against Novartis and Ajinomoto Co., Inc. in the United States District Court for the Eastern District of Pennsylvania. The complaint seeks declaratory judgment of invalidity and non-infringement of U.S. Patent Nos. 5,463,116; 5,488,150; 6,559,188; 6,641,841; 6,844,008; and 6,878,749 in view of Par’s December 22, 2004 submission of a Paragraph IV certification to the FDA for approval of 60 mg and 120 mg nateglinide oral tablets. Par intends to prosecute this action vigorously against Novartis and Ajinomoto.

Industry Related Matters

Beginning in September 2003, Par, along with numerous other pharmaceutical companies, has been named as a defendant in actions brought by state Attorneys General and a number of municipal bodies within the state of New York, as well as a federal qui tam action brought on behalf of the United States by the pharmacy Ven-A-Care of the Florida Keys, Inc. ("Ven-A-Care") alleging generally that the defendants defrauded the state Medicaid systems by purportedly reporting “Average Wholesale Prices” (“AWP”) and/or “Wholesale Acquisition Costs” that exceeded the actual selling price of the defendants’ prescription drugs. To date, Par has been named as a defendant in substantially similar civil law suits filed by the Attorneys General of Alabama, Alaska, Hawaii, Idaho, Illinois, Iowa, Kentucky, Massachusetts, Mississippi, South Carolina, Texas and Utah, and also by the city of New York, 46 counties across New York State and Ven-A-Care. These cases generally seek some combination of actual damages, and/or double damages, treble damages, compensatory damages, statutory damages, civil penalties, disgorgement of excessive profits, restitution, disbursements, counsel fees and costs, litigation expenses, investigative costs, injunctive relief, punitive damages, imposition of a constructive trust, accounting of profits or gains derived through the alleged conduct, expert fees, interest and other relief that the court deems proper. Several of these cases have been transferred to the AWP multi-district litigation proceedings pending in the U.S. District Court for the District of Massachusetts for pretrial proceedings. The case brought by the state of Mississippi will be litigated in the Chancery Court of Rankin County, Mississippi and the federal case brought by Ven-A-Care will be litigated in the United States District of Massachusetts. The other cases will likely be litigated in the state or federal courts in which they were filed. In the Utah suit, the time for responding to the Complaint has not yet elapsed. In each of the remainder of these matters, Par has either moved to dismiss the complaints or answered the complaints denying liability. Par intends to defend each of these actions vigorously.

In addition, at various times between 2006 and 2009, the Attorneys General of Florida, Indiana and Virginia and the United States Office of Personnel Management (the “USOPM”) issued subpoenas, and the Attorneys General of Michigan, Tennessee and Texas issued civil investigative demands, to Par. The demands generally request documents and information relating to sales and marketing practices that allegedly caused pharmacies to dispense higher priced drugs when presented with prescriptions for certain products. Par has provided, or is in the process of providing, the requested documents and information to the respective Attorneys General and the USOPM and will continue to cooperate with the Attorneys General and the USOPM in these investigations if it is called upon to do so.

Other

On March 19, 2009, Par was served with a subpoena by the Department of Justice requesting documents related to Strativa’s marketing of Megace® ES. The subpoena indicated that the Department of Justice is currently investigating promotional practices in the sales and marketing of Megace® ES. We intend to fully cooperate with the Department of Justice's inquiry.

Par is, from time to time, a party to certain other litigations, including product liability litigations. Par believes that these litigations are part of the ordinary course of its business and that their ultimate resolution will not have a material adverse effect on its financial condition, results of operations or liquidity. Par intends to defend or, in cases where Par is plaintiff, to prosecute these litigations vigorously.

Contingency

Par accrued for a loss contingency related to a routine post award contract review of Par’s Department of Veterans Affairs contract (the “VA Contingency”) for the periods 2004 to 2007 that is being conducted by the Office of Inspector General of the Department of Veterans Affairs. The regulations that govern the calculations used to generate the pricing-related information are complex and require the exercise of judgment. Should there be ambiguity with regard to how to interpret the regulations that govern the calculations, and report these calculations, and even in the absence of any such ambiguity, a governmental authority may take a position contrary to the position that Par has taken. In accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, Par accrues for contingencies by a charge to income when it is both probable that a loss will be incurred and the amount of the loss can be reasonably estimated. In the event that Par’s loss contingency is ultimately determined to be higher than originally accrued, the recording of the additional liability may result in a material impact on Par’s results of operations, liquidity or financial condition when such additional liability is accrued. Par’s estimate of the probable loss is approximately $4.4 million, including interest, which has been accrued as of March 28, 2009.

Note 15 – Discontinued Operations – Related Party Transaction:

In January 2006, Par announced the divestiture of FineTech Laboratories, Ltd (“FineTech”), effective December 31, 2005. Par transferred the business for no proceeds to Dr. Arie Gutman, president and chief executive officer of FineTech. Dr. Gutman also resigned from Par’s Board of Directors. The results of FineTech operations are classified as discontinued for all periods presented because Par has no continuing involvement in FineTech. In January 2008, Dr. Gutman sold FineTech to a third party. Under the terms of the divestiture, Par received $0.5 million which represents Par’s share of the net proceeds of the sale transaction. This $0.5 million has been classified as discontinued operations on the condensed consolidated statement of operations for the period ended March 29, 2008.

Note 16 - Segment Information:

Par operates in two reportable business segments: generic pharmaceuticals and branded pharmaceuticals. Branded products are marketed under brand names through marketing programs that are designed to generate physician and consumer loyalty. Branded products generally are patent protected, which provides a period of market exclusivity during which they are sold with little or no competition. Par operates the brand pharmaceutical segment under the name Strativa Pharmaceuticals. Generic pharmaceutical products are the chemical and therapeutic equivalents of reference brand drugs. The Drug Price Competition and Patent Term Restoration Act of 1984 provides that generic drugs may enter the market upon the approval of an ANDA and the expiration, invalidation or circumvention of any patents on corresponding brand drugs, or the expiration of any other market exclusivity periods related to the brand drugs.

The business segments of Par were determined based on management’s reporting and decision-making requirements in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Par believes that its generic products represent a single operating segment because the demand for these products is mainly driven by consumers seeking a lower cost alternative to brand name drugs. Par’s generic drugs are developed using similar methodologies, for the same purpose (e.g., seeking bioequivalence with a brand name drug nearing the end of its market exclusivity period for any reason discussed above). Par’s generic products are produced using similar processes and standards mandated by the FDA, and Par’s generic products are sold to similar customers. Based on the economic characteristics, production processes and customers of Par’s generic products, Par has determined that its generic pharmaceuticals are a single reportable business segment. Par’s chief operating decision maker does not review the generic segment in any more granularity, such as at the therapeutic or other classes or categories. Certain of Par’s expenses, such as the direct sales force and other sales and marketing expenses and specific research and development expenses, are charged directly to either of the two segments. Other expenses, such as general and administrative expenses and non-specific research and development expenses are allocated between the two segments based on assumptions determined by Par’s management.

The financial data for the two business segments are as follows:


	Three months ended
	March 28,	March 29,
	2009	2008
Revenues:
Generic	$188,081	$129,884
Strativa	15,954	25,044
Total revenues	$204,035	$154,928

Gross margin:
Generic	$52,031	$30,132
Strativa	12,038	19,389
Total gross margin	$64,069	$49,521

Operating income (loss):
Generic	$31,378	$1,679
Strativa	(4,366)	963
Total operating income	$27,012	$2,642
Gain on extinguishment of senior subordinated convertible notes	245	-
Equity in loss of joint venture	-	(20)
Loss on marketable securities and other investments, net	(55)	-
Interest income	1,157	3,014
Interest expense	(2,567)	(3,510)
Provision for income taxes	9,537	743
Income from continuing operations	$16,255	$1,383

Par’s chief operating decision maker does not review our assets, depreciation or amortization by business segment at this time as they are not material to its branded operations. Therefore, such allocations by segment are not provided.

Total revenues of Par’s top selling products were as follows:


	Three months ended
	March 28,	March 29,
Product	2009	2008
Generic

Metoprolol succinate ER (Toprol-XL®)	$112,214	$43,298
Sumatriptan succinate injection (Imitrex®)	16,020	-
Meclizine Hydrochloride (Antivert®)	9,820	6,513
Dronabinol (Marinol®)	7,001	-
Fluticasone (Flonase®)	4,157	17,762
Propranolol HCl ER (Inderal LA®)	4,001	5,455
Cabergoline (Dostinex®)	3,775	7,982
Ibuprofen Rx (Advil®, Nuprin®, Motrin®)	3,144	3,279
Megestrol oral suspension (Megace®)	2,883	2,065
Hydralazine Hydrochloride (Apresazide®)	2,622	2,586
Methimazole (Tapazole®)	2,375	3,019
Various amoxicillin products (Amoxil®)	123	5,588
Other product related revenues (2)	1,312	1,048
Other (1)	18,634	31,289
Total Generic Revenues	$188,081	$129,884

Strativa
Megace® ES	$13,454	$22,401
Other product related revenues (2)	2,500	2,643
Total Strativa Revenues	$15,954	$25,044

(1) The further detailing of revenues of the other approximately 60 generic drugs is impracticable due to the low volume of revenues associated with each of these generic products. No single product in the other category is in excess of 2% of total generic revenues for three-month periods ended March 28, 2009 or March 29, 2008.

(2) Other product related revenues represents licensing and royalty related revenues from profit sharing agreements related to products such as Nifedipine ER, the generic version of Procardia®, doxycycline monohydrate, the generic version of Adoxa®, and Nitrofurantoin, the generic version of Macrobid®. Other product related revenues included in the Strativa segment relate to a co-promotion arrangement with Solvay. On January 30, 2009, the FTC filed a lawsuit against the company in the U.S. District Court for the District of Central California alleging violations of antitrust laws stemming from Par’s court-approved settlement in the patent litigation with Solvay Pharmaceuticals. Par believes it has complied with all applicable laws in connection with the court-approved settlement and intends to vigorously defend this action.

During the three-month period ended March 28, 2009, Par recognized a gain on the sale of product rights of $1.1 million and $1.0 million during the three-month period ended March 29, 2008 related to the sale of multiple ANDAs. In November 2007, Par entered into an agreement to provide certain information and other deliverables related to Megace^®ESto enable the formal technology transfer to a third party seeking to commercialize Megace^®ESoutside of the U.S. Par recorded $0.6 million in the operating results of the first quarter of 2008 when Par’s obligations were fulfilled related to this agreement.

Note 17 - Research and Development Agreements:

In February 2009, Par executed an amendment to its development and supply agreement with Cipla Limited (“Cipla”) for the development of additional generic product(s). The total milestone payments could be up to $1.3 million under the agreement. Par is responsible for the clinical costs, API costs, stability testing and process validation. Par incurred $0.5 million as of March 2009 which was charged to research and development expense. The agreement is set for a ten year term from commercial launch of the product.

In July 2007, Par entered into an exclusive licensing agreement under which we received commercialization rights in the U.S. to BioAlliance Pharma's Loramyc^® (miconazole Lauriad^®), an antifungal therapy in development for the treatment of oropharyngeal candidiasis, an opportunistic infection commonly found in immunocompromised patients, including those with HIV and cancer. Under the terms of the agreement, Par paid BioAlliance an initial payment of $15.0 million. BioAlliance completed Phase III studies and on February 6, 2009 submitted a NDA for Loramyc^®. On April 9, 2009, we announced that the NDA was not accepted based on the lack of an imprint code on the tablet. BioAlliance had previously initiated the development of a debossed tablet and is planning to use that work to fulfill the FDA requirement and plans to resubmit the NDA. Par will pay BioAlliance $20.0 million upon FDA approval. In addition to royalties on sales, BioAlliance may receive milestone payments on future sales.

In June 2008, Par entered into an exclusive licensing agreement with MonoSol Rx (“MonoSol”) under which we acquired the commercialization rights in the United States and its territories to MonoSol’s thin film formulation of ondansetron. Through March 2009, we made payments of $3.5 million (charged to research and development expense) to MonoSol, consisting of an initial payment of $1.3 million for the delivery of product prototype, development milestones of $1.3 million for the delivery of pilot stability reports and $1.0 million for the successful completion of the final ondansetron thin film bioequivalence reports indicating successful completion of all clinical studies necessary to file the NDA for the product with the FDA, including meeting all applicable clinical end-points necessary for the approval of the NDA for the Product. On April 7, 2009, we submitted a NDA for the product. If the product receives FDA approval MonoSol will earn a milestone payment of $2.5 million. Upon FDA approval, MonoSol will supply commercial quantities of the product to us and we will commercialize the product in the United States and pay MonoSol royalties on net sales.

Note 18 – Restructuring Costs:

In October 2008, Par announced its plans to resize its generic products division as part of an ongoing strategic assessment of its businesses. In conjunction with this plan, Par has taken steps to reduce its research and development expenses by decreasing its internal generic research and development effort. Under this plan, Par is continuing to concentrate its efforts on completing a more focused portfolio of generic products and will continue to look for opportunities with external partners. In addition, during the fourth quarter of 2008, Par initiated actions to trim its generic product portfolio in an effort to retain only those marketed products that deliver acceptable profit to Par. These actions resulted in a workforce reduction of approximately 190 employees. Approximately 30% of the affected positions in manufacturing, research and development, and general and administrative were eliminated as of December 31, 2008 and the remaining positions are expected to be eliminated by the end of the first half of 2009. In connection with these actions, Par incurred expenses for severance and other employee-related costs. In addition, as part of its plans to resize its generic products division, Par made the determination to abandon or sell certain assets that resulted in asset impairments, and accelerated depreciation expense.

During the first quarter of 2009, Par incurred additional restructuring costs as it continued to execute this plan. The Company recognized pretax charges of approximately $1.4 million, ($0.9 million, after-tax) of one-time termination benefit costs. The pretax charges are reported in the “Restructuring costs” line in the condensed consolidated statements of operations for the three months ended March 28, 2009.

The following table summarizes the restructuring costs incurred by Par in the first quarter of 2009 and the remaining related restructuring liabilities balance (included in accrued expenses and other current liabilities on the condensed consolidated balance sheet) as of March 28, 2009 ($ amounts in thousands);


Restructuring Activities	Initial Charge	Liabilities at December 31, 2008	Cash Payments	Additional Charges	Reversals, Reclass or Transfers	Liabilities at March 28, 2009
Severance and employee benefits to be paid in cash	$6,254	$6,254	$1,738	$1,401	$ -	$5,917
Severance related to share-based compensation	3,291	-	-	-	-	-
Asset impairments and other	5,907	60	-	-	-	60
Total	$15,452	$6,314	$1,738	$1,401	$ -	$5,977

Par expects that approximately $6 million of the initial charge and $1.4 million of the additional charges will result in cash expenditures during 2009. The carrying amount of assets held for sale related to these actions was $2.0 million at March 28, 2009 and included in other current assets on the condensed consolidated balance sheet.

Par expects to record an additional $0.2 million of one-time termination benefit costs in the second quarter of 2009. Par previously disclosed that it had expected to record $4 million of accelerated depreciation related to assets that were held and used as of December 31, 2008 but were expected to be idled or sold in late 2009. In conjunction with its acquisition of Nascobal and the MDRNA facility (see Note #20 – “Subsequent Events”), Par has reevaluated its plan for these assets. Under its revised plans, these assets will be held and used for the life of the asset, and therefore Par has resumed depreciating these assets in the first quarter of 2009 in accordance with their expected useful life. Par accounted for these actions as a change in estimate in accordance with US GAAP.

Note 19 – Recent Accounting Pronouncements:

In April 2009, the FASB issued FASB Staff Position FAS 157-4, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, or FSP FAS 157-4; FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157. FSP FAS 157-4 provides additional authoritative guidance in determining whether a market is active or inactive, and whether a transaction is distressed, is applicable to all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced disclosures. This FASB Staff Position is effective for periods ending after June 15, 2009. We are evaluating the impact that this standard will have on our financial position, results of operation, or cash flows.

In April 2009, the FASB issued FASB Staff Position FAS 115-2, and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, or FSP FAS 115-2, and FAS 124-2; and FSP FAS 115-2, and FAS 124-2 provides additional guidance to provide greater clarity about the credit and noncredit component of an other-than-temporary impairment event and to more effectively communicate when an other-than-temporary impairment event has occurred. This FSP applies to debt securities. This FASB Staff Position is effective for periods ending after June 15, 2009. We are evaluating the impact that this standard will have on our financial position, results of operation, or cash flows.

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, or FSP FAS 107-1 and APB 28-1. FSP FAS 107-1 and APB 28-1, amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial statements. This FASB Staff Position is effective for periods ending after June 15, 2009. We are evaluating the impact that this standard will have on our financial position, results of operation, or cash flows.

In April 2009, the FASB issued FASB Staff Position FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, or FSP FAS 141(R)-1. FSP FAS 141(R)-1, amends FASB Statement No. 141 (R), Business Combinations, to state a contingency acquired in a business combination should be measured at fair value if the acquisition-date value of that asset or liability can be determined during the measurement period. This FASB Staff Position is effective as of January 1, 2009. Our acquisition of the worldwide rights to Nascobal® (Cyanocobalamin, USP) Nasal Spray from QOL Medical LLC and the related assets acquired and operating leases assumed from MDRNA (formerly Nastech Pharmaceutical) as part of the transaction in the second quarter of 2009 will be accounted for under SFAS 141R. Refer to Note 20 – “Subsequent Event.”

In June 2008, the FASB issued EITF 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock. EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. EITF 07-5 was effective as of the beginning of our 2009 fiscal year. The adoption of EITF 07-5 did not have a material impact on our financial position, results of operation, or cash flows.

In December 2007, the FASB ratified Emerging Issue Task Force Issue No. 07-1 (“EITF 07-1”), Accounting for Collaborative Arrangements. A contractual arrangement falls within the scope of EITF 07-1 if the arrangement requires the parties to be active participants and the arrangement exposes the parties to significant risks and rewards that are tied to the commercial success of the endeavor. Costs incurred and revenue generated on sales to third parties should be reported in the statement of operations based on the guidance in EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The equity method of accounting should not be applied to a collaborative arrangement within the scope of this issue without the creation of a separate legal entity for the arrangement. Payments between parties to the collaborative arrangement should be presented in the statement of operations based on the nature of the arrangement and each entity's business operations, the contractual terms of the arrangement as well as if existing GAAP is applicable. EITF 07-1 requires companies to disclose the nature and purpose of the arrangement, its rights and obligations under the arrangement, the accounting policy applied to the arrangement, and the amounts attributable to transactions between other participants to the collaborative arrangement and where in the statement of operations these amounts have been classified. EITF 07-1 requires that companies comply in its first fiscal year beginning after December 15, 2008 and transition to the guidance in this issue by retrospectively applying the guidance to all periods presented for all arrangements existing at the effective date, unless it is impracticable to do so. The impracticability assessment should be made on an arrangement-by-arrangement basis and certain disclosures would be required if a company utilizes the impracticability exception. The adoption of EITF 07-1 did not have a material impact on our financial position, results of operation, or cash flows.

In December 2007, the FASB issued FASB Statement No. 141 (Revised 2007) (“SFAS 141R”), Business Combinations. SFAS 141R will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including; acquisition costs will be generally expensed as incurred, minority interests will be valued at fair value at the acquisition date, acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies, in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption was prohibited. Our acquisition of the worldwide rights to Nascobal® (Cyanocobalamin, USP) Nasal Spray from QOL Medical LLC and the related assets acquired and operating leases assumed from MDRNA (formerly Nastech Pharmaceutical) as part of the transaction in the second quarter of 2009 will be accounted for under SFAS 141R. Refer to Note 20 – “Subsequent Event.”

In December 2007, SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (“SFAS 160”), was issued. SFAS 160 requires entities to report noncontrolling (minority) interests as a component of stockholders’ equity on the balance sheet; include all earnings of a consolidated subsidiary in consolidated results of operations; and treat all transactions between an entity and noncontrolling interest as equity transactions between the parties. SFAS 160 was effective for Par’s fiscal year beginning 2009 and adoption is prospective only; however, presentation and disclosure requirements described above must be applied retrospectively. The adoption of SFAS 160 did not have a material impact on our financial position, results of operation, or cash flows.

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements (“SFAS 157”). SFAS 157 establishes a common definition for fair value to be applied to GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 applies to fair value measurements that are already required or permitted by other accounting standards, except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value. The FASB has previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Par’s adoption of SFAS 157 with respect to financial assets and liabilities as of January 1, 2008 did not have a material impact on its consolidated financial statements. Refer to Note 5, “Fair Value Measurements.” The effective date of SFAS 157 with regard to non-financial assets and liabilities was January 1, 2009 for Par. These non-financial assets and liabilities include goodwill. The adoption of SFAS 157 for our nonfinancial assets and liabilities that are remeasured at fair value on a non-recurring basis did not impact our financial position or results of operations; however, could have an impact in future periods. In addition, we may have additional disclosure requirements in the event we complete an acquisition or incur impairment of our assets in future periods.

Note 20 – Subsequent Events:

On March 31, 2009, Par acquired the worldwide rights to Nascobal® (Cyanocobalamin, USP) Nasal Spray from QOL Medical LLC. Nascobal® Nasal Spray is an FDA approved prescription vitamin B12 supplement indicated to treat vitamin B12 deficiency. Under the terms of the all cash transaction, Par paid QOL Medical $54.5 million for the worldwide rights to Nascobal® Nasal Spray. Nascobal® Nasal Spray will be manufactured by Par with assets acquired and operating leases assumed on March 31, 2009 from MDRNA (formerly Nastech Pharmaceutical).

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

Certain statements in this Report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including those concerning management’s expectations with respect to future financial performance, trends and future events, particularly relating to sales of current products and the development, approval and introduction of new products. To the extent that any statements made in this Report contain information that is not historical, such statements are essentially forward-looking. These statements are often, but not always, made using words such as “estimates,” “plans,” “projects,” “anticipates,” “continuing,” “ongoing,” “expects,” “intends,” “believes,” “forecasts” or similar words and phrases. Such forward-looking statements are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond our control, which could cause actual results and outcomes to differ materially from those expressed in this Report. Risk factors that might affect such forward-looking statements include those set forth in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended December 31, 2008, in Item 1A of this and our subsequent Quarterly Reports on Form 10-Q, and from time to time in our other filings with the SEC, including Current Reports on Form 8-K, and on general industry and economic conditions. Any forward-looking statements included in this Report are made as of the date of this Report only, and, subject to any applicable law to the contrary, we assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion should be read in conjunction with Par’s Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements contained elsewhere in this Form 10-Q.

OVERVIEW

The introduction of new manufactured and distributed products at selling prices that generate adequate gross margins is critical to our ability to generate economic value and ultimately the creation of adequate returns for our stockholders. In late 2008 and in early 2009, we resized our generic products division as part of an ongoing strategic assessment of our businesses. This initiative is intended to enable us to optimize our current generic product portfolio and our pipeline of first-to-file/first-to-market generic products. As a result, we believe we are better positioned to compete in the generic marketplace over the long term. We significantly reduced our research and development expenses by decreased levels of internal research and development activities in an effort to focus on completing products currently in development. Also, we will continue seeking additional generic products for sale through new and existing distribution agreements or acquisitions of complementary products and businesses, additional first-to-file opportunities and unique dosage forms to differentiate our products in the marketplace. We pay a percentage of the gross or net profits or sales to our strategic partners on sales of products covered by our distribution agreements. Generally, products that Par had developed internally, and to which it is not required to split any profits with strategic partners, contribute higher gross margins than products covered by distribution agreements. To continue the development of our Strativa segment, on March 31, 2009, we acquired the worldwide rights to Nascobal® Nasal Spray. Nascobal® Nasal Spray is an FDA approved prescription vitamin B12 supplement indicated to treat vitamin B12 deficiency. It is the first and currently only once-weekly, self-administered alternative to B12 injections.

Sales and gross margins of our products depend principally on the: (i) introduction of other generic drug manufacturers’ products in direct competition with our significant products; (ii) ability of generic competitors to quickly enter the market after patent or exclusivity period expirations, or during exclusivity periods with authorized generic products, diminishing the amount and duration of significant profits to Par from any one product; (iii) pricing practices of competitors and the removal of competing products from the market; (iv) continuation of existing distribution agreements; (v) introduction of new distributed generic products and brand products; (vi) consolidation among distribution outlets through mergers, acquisitions and the formation of buying groups; (vii) willingness of generic drug customers, including wholesale and retail customers, to switch among generic pharmaceutical manufacturers; (viii) approval of ANDAs, introduction of new Par manufactured products, and future new product launches; (ix) granting of potential marketing exclusivity periods; (x) extent of market penetration for the existing product line; (xi) level, quality and amount of customer service; and (xii) market acceptance of our recently introduced branded product and the successful development to commercialization of our in-licensed branded product pipeline.

Net sales and gross margins derived from generic pharmaceutical products often follow a pattern based on regulatory and competitive factors that are believed by management to be unique to the generic pharmaceutical industry. As the patent(s) for a brand name product and the related exclusivity period(s) expire, the first generic manufacturer to receive regulatory approval from the FDA for a generic equivalent of the product is often able to capture a substantial share of the market. At that time, however, the branded company may license an authorized generic product to a competing generic company. As additional generic manufacturers receive regulatory approvals for competing products, the market share and the price of that product have typically declined, often significantly, depending on several factors, including the number of competitors, the price of the brand product and the pricing strategy of the new competitors.

GENERIC BUSINESS

Our strategy for our generic division is to continue to differentiate ourselves by carefully choosing opportunities with minimal competition (i.e., first-to-file and first-to-market products). By leveraging our expertise in research and development, manufacturing and distribution, we are able to effectively and efficiently pursue these opportunities and support our partners.

In the three-month period ending March 28, 2009, our generic business net revenues and gross margin were concentrated in a few products, including two products that were launched subsequent to the first quarter of 2008. The top 5 generic products that we plan to market throughout 2009 accounted for approximately 70% total revenues and approximately 60% of total gross margins in the first quarter of 2009.

Throughout the first quarter of 2009, we did not have competition for sales of metoprolol (sold pursuant to a supply and distribution agreement with AstraZeneca), which resulted in increased volume of units sold coupled with a price increase commensurate with being the sole distributor.

In November 2008, we launched generic versions of Imitrex^® (sumatriptan) injection 4mg and 6mg starter kits and 4mg and 6mg prefilled syringe cartridges pursuant to a supply and distribution agreement with GlaxoSmithKline plc. Throughout the first quarter of 2009, we remained the sole distributor of 3 SKUs (packaging sizes) with one competitor for a single SKU.

In thethird quarter of 2008, we launched dronabinol in 2.5mg, 5mg and 10mg strengths in soft gel capsules. We share net product margin, as contractually defined, on sales of dronabinol with SVC Pharma LP, an affiliate of Rhodes Technologies.

We marketed meclizine prior to an explosion at the manufacturing facility of our API supplier in February 2008. Subsequently, we qualified a new API source and received the appropriate approval of our abbreviated new drug application to manufacture and market meclizine utilizing our new supplier. We reintroduced meclizine HCl tablets in 12.5mg and 25mg strengths in the third quarter of 2008. Throughout the first quarter of 2009, we believe we were the exclusive supplier of this generic product.

In addition, our investments in generic development is expected to yield approximately 14 new product launches during the remainder of 2009 and 2010 based on one or more of the following: expiry of the relevant 30-month stay period; patent expiry date; expiry of regulatory exclusivity. However, such dates may change due to various circumstances, including extended litigation, outstanding citizens petitions, other regulatory requirements set forth by the FDA, and stays of litigation. These launches will be significant mileposts for Par as many of these products are first-to-file/first-to-market opportunities with gross margins in excess of our current portfolio.

STRATIVA

For Strativa, we will continue to invest in the marketing and sales of our promoted products and prepare for the commercialization of our licensed products. In addition, we will continue to seek new licenses and acquisitions that accelerate the growth of our branded business.

In July 2005, we received FDA approval for our first New Drug Application (“NDA”), filed pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, and immediately began marketing megestrol acetate oral suspension NanoCrystal® Dispersion (“Megace® ES”). Megace® ES is indicated for the treatment of anorexia, cachexia or any unexplained significant weight loss in patients with a diagnosis of AIDS and is utilizing the Megace® brand name that the company has licensed from Bristol-Myers Squibb Company. The net book value of the trademark was $5.8 million at March 28, 2009 and will be amortized over approximately 3.5 years. We have promoted Megace® ES as our primary brand product since 2005.

In September 2006, we entered into an extended-reach agreement with Solvay Pharmaceuticals, Inc. that provides for our branded sales force to co-promote Androgel®, as well as future versions of the product or other products that are mutually agreed upon, for a period of six years. As compensation for our marketing and sales efforts, we will receive up to $10 million annually, paid quarterly, for the six-year period. On January 30, 2009, the FTC filed a lawsuit against us in the U.S. District Court for the District of Central California alleging violations of antitrust laws stemming from our court-approved settlement in the patent litigation with Solvay Pharmaceuticals. On April 9, 2009, the U.S. District Court of Central California granted our motion to transfer the lawsuit, along with three class action lawsuits that had been filed in the same court, to the United States District Court for the Northern District of Georgia, the jurisdiction in which our consent judgment in connection with the original patent litigation had been entered. On April 17, 2009 and April 21, 2009, two additional class action plaintiffs filed complaints in the United States District Court for the District of New Jersey alleging antitrust law violations. We believe we have complied with all applicable laws in connection with the court-approved settlement and intend to vigorously defend these actions.

In July 2007, we entered into an exclusive licensing agreement under which we received commercialization rights in the U.S. to BioAlliance Pharma's Loramyc^® (miconazole Lauriad^®), an antifungal therapy in development for the treatment of oropharyngeal candidiasis, an opportunistic infection commonly found in immunocompromised patients, including those with HIV and cancer. BioAlliance completed Phase III studies and on February 6, 2009 submitted a NDA for Loramyc^®. On April 9, 2009, we announced that the NDA was not accepted based on the lack of an imprint code on the tablet. BioAlliance had previously initiated the development of a debossed tablet and is planning to use that work to fulfill the FDA requirement and plans to resubmit the NDA later this year.

In August 2007, we also acquired the North American commercial rights to Zensana^TM (ondansetron HCl) Oral Spray from Hana Biosciences, Inc. Ondansetron is used to prevent nausea and vomiting after chemotherapy, radiation and surgery. Assuming successful development and approval, Zensana^TM could be among the first in our class of 5-HT3 antagonist anti-emetic therapies to be available in an oral spray form. Par and its development partner in this program, NovaDel, are collaborating in the reformulation of Zensana^TM. In 2008, bioequivalence to the reference drug was achieved in certain studies and not achieved in others. We are working with NovaDel to further evaluate the results in order to determine the next steps for the Zensana^TM program.

In June 2008, we entered into an exclusive licensing agreement with MonoSol Rx (“MonoSol”) under which we acquired the commercialization rights in the United States and its territories to MonoSol’s thin film formulation of ondansetron. Through March 2009, we made payments of $3.5 million (charged to research and development expense) to MonoSol, consisting of an initial payment of $1.3 million for the delivery of product prototype, development milestones of $1.3 million for the delivery of pilot stability reports and $1.0 million for the successful completion of the final ondansetron thin film bioequivalence reports indicating successful completion of all clinical studies necessary to file the NDA for the product with the FDA, including meeting all applicable clinical end-points necessary for the approval of the NDA for the Product. On April 7, 2009, we submitted a NDA for the product. If the product receives FDA approval, MonoSol will earn a milestone payment of $2.5 million. Upon FDA approval, MonoSol will supply commercial quantities of the product to us and we will commercialize the product in the United States and pay MonoSol royalties on net sales.

In January 2008, we announced that we entered into an exclusive licensing agreement with Alfacell Corporation (“Alfacell”) to acquire the commercialization rights in the United States for Onconase® (ranpirnase), then in development for the treatment of unresectable malignant mesothelioma. In May 2008, Alfacell reported that the preliminary data from its Phase III clinical trial, which assessed treatment with Onconase® plus doxorubicin compared to treatment with doxorubicin alone, did not meet statistical significance for the primary endpoint of overall survival in unresectable malignant mesothelioma. However, based on the preliminary data from the Phase III study, statistically significant results were achieved in the subset of evaluable unresectable malignant mesothelioma patients who failed a prior chemotherapy regimen before entering this clinical trial. This subset of patients achieved a statistically significant increase in overall survival when treated with Onconase® plus doxorubicin compared to treatment with doxorubicin alone. On January 27, 2009, Alfacell reported that it has conducted a pre-NDA meeting with the FDA to discuss its planned submission of the final components of the Onconase® rolling New Drug Application for the treatment of unresectable malignant mesothelioma patients. At the pre-NDA meeting, the FDA provided guidance to Alfacell recommending that an additional clinical trial be conducted in unresectable malignant mesothelioma patients that have failed one prior chemotherapy regimen, prior to submitting an NDA. Alfacell’s current financial situation does not allow it to pursue an additional clinical trial, prior to submitting an NDA until other sources of capital are secured. Alfacell intends to continue to explore strategic alternatives and additional capital. Under our agreement, the next milestone payment to Alfacell is payable upon approval of Onconase® by the FDA for unresectable malignant mesothelioma. We do not have an obligation to provide Alfacell with any additional funding to conduct the FDA required additional clinical trial.

On March 31, 2009, we acquired the worldwide rights to Nascobal® (Cyanocobalamin, USP) Nasal Spray from QOL Medical LLC. Nascobal® Nasal Spray is an FDA approved prescription vitamin B12 supplement indicated to treat vitamin B12 deficiency. Under the terms of the all cash transaction, we paid QOL Medical $54.5 million for the worldwide rights to Nascobal® Nasal Spray. Nascobal® Nasal Spray will be manufactured by Par with assets acquired and operating leases assumed on March 31, 2009 from MDRNA (formerly Nastech Pharmaceutical).

OTHER CONSIDERATIONS

In addition to the substantial costs of product development, we may incur significant legal costs in bringing certain products to market. Litigation concerning patents and proprietary rights is often protracted and expensive. Pharmaceutical companies with patented brand products are increasingly suing companies that produce generic forms of their patented brand name products for alleged patent infringement or other violations of intellectual property rights, which could delay or prevent the entry of such generic products into the market. Generally, a generic drug may not be marketed until the applicable patent(s) on the brand name drug expires. When an ANDA is filed with the FDA for approval of a generic drug, the filing person may certify either that the patent listed by the FDA as covering the branded product is about to expire, in which case the ANDA will not become effective until the expiration of such patent, or that the patent listed as covering the branded drug is invalid or will not be infringed by the manufacture, sale or use of the new drug for which the ANDA is filed. In either case, there is a risk that a branded pharmaceutical company may sue the filing person for alleged patent infringement or other violations of intellectual property rights. Because a substantial portion of our current business involves the marketing and development of generic versions of brand products, the threat of litigation, the outcome of which is inherently uncertain, is always present. Such litigation is often costly and time-consuming, and could result in a substantial delay in, or prevent, the introduction and/or marketing of products, which could have a material adverse effect on our business, financial condition, prospects and results of operations.

RESULTS OF OPERATIONS

Revenues

Total revenues of our top selling products were as follows:


	Three months ended
	March 28,	March 29,
Product	2009	2008	$ Change
Generic

Metoprolol succinate ER (Toprol-XL®)	$112,214	$43,298	$68,916
Sumatriptan succinate injection (Imitrex®)	16,020	-	16,020
Meclizine Hydrochloride (Antivert®)	9,820	6,513	3,307
Dronabinol (Marinol®)	7,001	-	7,001
Fluticasone (Flonase®)	4,157	17,762	(13,605)
Propranolol HCl ER (Inderal LA®)	4,001	5,455	(1,454)
Cabergoline (Dostinex®)	3,775	7,982	(4,207)
Ibuprofen Rx (Advil®, Nuprin®, Motrin®)	3,144	3,279	(135)
Megestrol oral suspension (Megace®)	2,883	2,065	818
Hydralazine Hydrochloride (Apresazide®)	2,622	2,586	36
Other product related revenues	1,312	1,048	264
Other	19,123	37,888	(18,765)
Total Generic Revenues	$188,081	$129,884	$58,197

Strativa
Megace® ES	$13,454	$22,401	($8,947)
Other product related revenues	2,500	2,643	(143)
Total Strativa Revenues	$15,954	$25,044	($9,090)


	Three months ended
					Percentage of Total Revenues
	March 28,	March 29,			March 28,	March 29,
($ in thousands)	2009	2008	$ Change	% Change	2009	2008
Revenues:
Generic	$188,081	$129,884	$58,197	44.8%	92.2%	83.8%
Strativa	15,954	25,044	(9,090)	(36.3%)	7.8%	16.2%
Total revenues	$204,035	$154,928	$49,107	31.7%	100.0%	100.0%

The increase in generic segment revenues in the first quarter of 2009 was primarily due to the lack of competition for sales of metoprolol that resulted in increased volume of units sold coupled with a price increase commensurate with being the sole distributor of the generic product. We also launched various sumatriptan SKUs in the fourth quarter of 2008. Throughout the first quarter of 2009, we remained the sole distributor of 3 sumatriptan SKUs with one competitor for a single SKU. In thethird quarter of 2008, Par launched multiple strengths of dronabinol. We also commenced shipment of meclizine HCl tablets in 12.5mg and 25mg strengths in the third quarter of 2008. We believe we were the exclusive supplier of this generic product, throughout the first quarter of 2009. These gains were tempered by lower sales of fluticasone as the supply agreement with GlaxoSmithKline plc was not extended and we have substantially sold through all available inventories as of March 28, 2009. In addition, cabergoline sales were negatively impacted by the loss of key customers and pricing pressure due to additional competition. Products aggregated in “Other” also declined principally due to the generic segment’s resizing that included the trimming of the generic product portfolio to only retain those marketed products that deliver acceptable gross margins coupled with pricing pressures on the remaining products.

Net sales of distributed products, which consist of products manufactured under contract and licensed products, were $145.0 million or 72% of the Company’s total product revenues for the three month period ended March 28, 2009 and $87.0 million or 56% of our total product revenues for the three month period ended March 29, 2008. The increase in the percentage is primarily driven by higher sales of metoprolol, dronabinol, and sumatriptan. We are substantially dependent upon distributed products for our overall sales and any inability by our suppliers to meet demand could adversely affect our future sales.

The net sales decline of Megace^® ES in the first quarter of 2009 is primarily attributed to the timing of trade buying patterns. In December 2007, the trade delayed its Megace^® ES purchases until after the holidays to the benefit of the first quarter of 2008. In December 2008, the trade accelerated its Megace^® ES purchases before the holidays to the detriment of the first quarter of 2009.

Gross Revenues to Total Revenues Deductions

Generic drug pricing at the wholesale level can create significant differences between our invoice price and net selling price. Wholesale customers purchase product from us at invoice price, then resell the product to specific healthcare providers on the basis of prices negotiated between us and the providers, and the wholesaler submits a chargeback credit to us for the difference. We record estimates for these chargebacks, sales returns, rebates and incentive programs, and the sales allowances, for all our customers at the time of sale, as reductions to gross revenues, with corresponding adjustments to our accounts receivable reserves and allowances.

As detailed above, we have the experience and the access to relevant information that we believe necessary to reasonably estimate the amounts of such deductions from gross revenues. Some of the assumptions we use for certain of our estimates are based on information received from third parties, such as wholesale customer inventory data and market data, or other market factors beyond our control. The estimates that are most critical to the establishment of these reserves, and therefore would have the largest impact if these estimates were not accurate, are estimates related to expected contract sales volumes, average contract pricing, customer inventories and return levels. We regularly review the information related to these estimates and adjust our reserves accordingly if and when actual experience differs from previous estimates. With the exception of the product returns allowance, the ending balances of account receivable reserves and allowances generally are eliminated during a two- to four-month period, on average.

We recognize revenue for product sales when title and risk of loss have transferred to our customers and when collectibility is reasonably assured. This is generally at the time that products are received by the customers. Upon recognizing revenue from a sale, Par records estimates for chargebacks, rebates and incentives, returns, cash discounts and other sales reserves that reduce accounts receivable.

Our gross revenues before deductions for chargebacks, rebates and incentive programs (including rebates paid under federal and state government Medicaid drug reimbursement programs), sales returns and other sales allowances were as follows:


	March 28, 2009	Percentage of Gross Revenues	March 29, 2008	Percentage of Gross Revenues
	($ thousands)	Percentage of Gross Revenues	($ thousands)	Percentage of Gross Revenues
Gross revenues	$292,569		$307,976

Chargebacks	(42,821)	14.6%	(108,178)	35.1%
Rebates and incentive programs	(21,705)	7.4%	(24,657)	8.0%
Returns	(6,637)	2.3%	(611)	0.2%
Cash discounts and other	(11,329)	3.9%	(11,925)	3.9%
Medicaid rebates and rebates due under other US Government pricing programs	(6,042)	2.1%	(7,677)	2.5%
Total deductions	(88,534)	30.3%	(153,048)	49.7%

Total revenues	$204,035	69.7%	$154,928	50.3%

The total gross-to-net sales adjustments as a percentage of gross sales decreased for the three months ended March 28, 2009, compared to the three months ended March 29, 2008, primarily due to the significant reduction of chargebacks driven by lower overall volume of sales of products that carry higher than average chargeback rates, including lower fluticasone sales coupled with the discontinuation of other lower margin products. In addition, the chargeback rate benefited from new product launches of dronabinol and sumatriptan and the lack of competition for sales of metoprolol. Refer to the March 29, 2008 accounts receivable reserves activity table below for details of the prior period returns deduction amount.

The following tables summarize the activity for the three months ended March 28, 2009 and March 29, 2008 in the accounts affected by the estimated provisions described above:


	For the Period Ended March 28, 2009
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	(Provision) reversal recorded for prior period sales		Credits processed	Ending balance
Chargebacks	($32,738)	($42,386)	($435)	(1)	$54,385	($21,174)
Rebates and incentive programs	(27,110)	(21,862)	157		22,793	(26,022)
Returns	(38,128)	(6,298)	(339)		7,463	(37,302)
Cash discounts and other	(13,273)	(11,329)	-		10,955	(13,647)
Total	($111,249)	($81,875)	($617)		$95,596	($98,145)

Accrued liabilities (2)	($21,912)	($6,042)	$ -		$2,955	($24,999)


	For the Period Ended March 29, 2008
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	(Provision) reversal recorded for prior period sales		Credits processed	Ending balance
Chargebacks	($46,006)	($107,639)	($539)	(1)	$110,197	($43,987)
Rebates and incentive programs	(42,859)	(23,086)	(1,571)	(3)	34,557	(32,959)
Returns	(47,102)	(4,904)	4,293	(4)	7,220	(40,493)
Cash discounts and other	(16,158)	(12,274)	349		12,321	(15,762)
Total	($152,125)	($147,903)	$2,532		$164,295	($133,201)

Accrued liabilities (2)	($17,684)	($8,482)	$805		$1,657	($23,704)

(1)

Unless specific in nature, the amount of provision or reversal of reserves related to prior periods for chargebacks is not determinable on a product or customer specific basis; however, based upon historical analysis and analysis of activity in subsequent periods, we have determined that our chargeback estimates remain reasonable.

(2)

Includes amounts due to customers for which no underlying accounts receivable exists and is principally comprised of Medicaid rebates and rebates due under other U.S. Government pricing programs.

(3)

(4)

Use of Estimates in Reserves

We believe that our reserves, allowances and accruals for items that are deducted from gross revenues are reasonable and appropriate based on current facts and circumstances. It is possible, however, that other parties applying reasonable judgment to the same facts and circumstances could develop different allowance and accrual amounts for items that are deducted from gross revenues. Additionally, changes in actual experience or changes in other qualitative factors could cause Par’s allowances and accruals to fluctuate, particularly with newly launched or acquired products. We review the rates and amounts in our allowance and accrual estimates on a quarterly basis. If future estimated rates and amounts are significantly greater than those reflected in our recorded reserves, the resulting adjustments to those reserves would decrease our reported net revenues; conversely, if actual product returns, rebates and chargebacks are significantly less than those reflected in its recorded reserves, the resulting adjustments to those reserves would increase our reported net revenues. If we were to change its assumptions and estimates, our reserves would change, which

would impact the net revenues that we report. We regularly review the information related to these estimates and adjust our reserves accordingly, if and when actual experience differs from previous estimates.

Gross Margin

We consider gross margin to be a key performance indicator of our profitability.


	Three months ended
				Percentage of Total Revenues
	March 28,	March 29,		March 28,	March 29,
($ in thousands)	2009	2008	$ Change	2009	2008
Gross margin:
Generic	$52,031	$30,132	$21,899	27.7%	23.2%
Strativa	12,038	19,389	(7,351)	75.5%	77.4%
Total gross margin	$64,069	$49,521	$14,548	31.4%	32.0%

Our increase in gross margin dollars is primarily due to the launches of sumatriptan and dronabinol coupled with higher sales of metoprolol and meclizine. These 4 products with propranolol and cabergoline totaled approximately $35 million gross margin dollars and a margin percentage of approximately 23% for the first quarter of 2009. Gross margin related to all other revenues (approximately $17 million and a margin percentage of approximately 48%) benefited from the generic segment’s resizing begun in the fourth quarter of 2008 that included the trimming of the generic product portfolio to only retain those marketed products that deliver acceptable gross margins, royalties, and the first quarter launch of alprazolam that has a high gross margin percentage.

Strativa gross margin dollars decreased for the three months ended March 28, 2009, primarily due to lower sales of Megace® ES. Strativa’s gross margin percentage deteriorated due mainly to increased rebates.

Operating Expenses

Research and Development


	Three months ended
					Percentage of Total Revenues
	March 28,	March 29,			March 28,	March 29,
($ in thousands)	2009	2008	$ Change	% Change	2009	2008
Research and development:
Generic	$5,890	$11,700	($5,810)	(49.7%)	3.1%	9.0%
Strativa	1,282	5,458	(4,176)	(76.5%)	8.0%	21.8%
Total research and development	$7,172	$17,158	($9,986)	(58.2%)	3.5%	11.1%

Strativa:

In June 2008, Strativa acquired the commercialization rights in the United States and its territories to the orally dissolving thin film strips (ODFS) formulation of ondansetron from MonoSol Rx. In January 2009, MonoSol Rx triggered a $1.0 million dollar milestone payment upon successful completion of bioequivalence reports for ODFS which indicated successful completion of all clinical studies and all applicable clinical end-points necessary to file a NDA for the product with the FDA. Based upon these studies, on April 7, 2009, Strativa submitted a NDA for ODFS to the FDA seeking approval in 8 mg and 4 mg strengths for the prevention of chemotherapy and radiation-induced nausea and vomiting, and prevention of post-operative nausea and vomiting. Contract to date, Strativa has paid MonoSol Rx a total of $3.5 million for the completion of certain milestones; the next milestone payment is payable upon FDA approval of the NDA.

This expense was offset by the non-recurrence of a $5 million initial cash payment made to Alfacell Corporation in the first quarter of 2008 under an exclusive licensing agreement with Alfacell to acquire the commercialization rights to Onconase® in the United States. In January 2009, Alfacell reported that it conducted a pre-NDA meeting with the FDA to discuss its planned submission of the final components of the Onconase® rolling New Drug Application for the treatment of unresectable malignant mesothelioma. At the pre-NDA meeting, the FDA provided guidance to Alfacell recommending that an additional clinical trial be conducted in unresectable malignant mesothelioma patients that have failed one prior chemotherapy regimen, prior to submitting an NDA. Alfacell’s current financial situation does not allow it to pursue an additional clinical trial prior to submitting a NDA until other sources of capital are secured. Alfacell intends to continue to explore strategic alternatives and additional capital. Under our agreement, the next milestone payment to Alfacell is payable upon approval of Onconase® by the FDA for the treatment of unresectable malignant mesothelioma. We do not have an obligation to provide Alfacell with any additional funding to conduct the FDA required additional clinical trial.

Generic:

In October 2008, we announced plans to resize our generic unit as part of an ongoing strategic assessment of our businesses. In conjunction with this action, we significantly reduced our internal Generic research and development effort during the first quarter of 2009. Expenditures were reduced by $5.8 million driven by a $2.3 million reduction in employment related costs on headcount reductions of approximately 65 employees. The remainder of savings was achieved through lower development and biostudy costs as we concentrate our efforts on completing a more focused portfolio of generic products.

As a result of our product development program, we or our strategic partners currently have approximately 37 ANDAs pending with the FDA. No assurances can be given that we or any of our strategic partners will successfully complete the development of any of these products either under development or proposed for development, that regulatory approvals will be granted for any such product, that any approved product will be produced in commercial quantities or that any approved product will be sold profitably.

Although there can be no such assurance, research and development expenses for 2009, including payments to be made to unaffiliated companies, and expected milestone payments under currently executed brand licensing arrangements (refer to Notes to Consolidated Financial Statements – Note 17 – “Research and Development Agreements”) are expected to decrease by approximately 50% to 60% from 2008.

Selling, General and Administrative Expenses

Three months ended

Percentage of Total Revenues

March 28,

March 29,

March 28,

March 29,

($ in thousands)

2009

2008

$ Change

% Change

2009

2008

Selling, general and
administrative

$32,960

$31,346

$1,614

5.1%

16.2%

20.2%

The net increase in SG&A expenditures principally reflects:

an increase in employment costs of $0.7 million, driven by higher estimated bonus costs tempered by headcount reductions,

$0.7 million of increased allocations of stock based compensation costs driven by the significant downsizing of the R&D organization (total stock based compensation costs for Par are essentially flat versus prior year), and

higher legal fees of $0.5 million.

These increases were tempered by lower consulting fees of $0.4 million. Costs related to Par’s on-going investment behind Strativa sales and marketing were essentially flat as increased pre-launch costs behind products currently being developed were offset by the elimination of a contract sales force and lower product liability insurance premiums.

Settlements and Loss Contingencies, net


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008
Settlements and loss contingencies, net	($3,376)	$ -

Settlements and loss contingencies, net, of $3.4 million during the three months ended March 28, 2009, is principally comprised of a net $3.4 million gain related to the final resolution of our litigation with Pentech Pharmaceuticals, Inc. On February 9, 2009, following a bench trial, the United States District Court for the Northern District of Illinois entered a judgment in favor of Pentech and against Par in the amount of $70.0 million. This action had alleged that we breached our contract with Pentech relating to the supply and marketing of paroxetine (Paxil®) and that we breached fiduciary duties allegedly owed to Pentech. As a result of the court’s decision, we recorded (as a subsequent event) $45 million in settlements and loss contingencies, net, on the consolidated statements of operations for the year ended December 31, 2008. Subsequently, in March 2009, we and Pentech entered into a settlement agreement and release under which the parties fully resolved all disputes, claims, and issues in connection with this litigation for $66.1 million. We paid $66.1 million in cash and recorded a $3.9 million gain related to this settlement, net of $0.5 million of interest accrued from January 1, 2009.

Restructuring Costs


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008
Restructuring costs	$1,401	$ -

In October 2008, we announced our plans to resize our generic products division as part of an ongoing strategic assessment of our businesses. In conjunction with this plan, we have taken steps to reduce our research and development expenses by decreasing internal generic research and development effort. Under this plan, we are continuing to concentrate our efforts on completing a more focused portfolio of generic products and will continue to look for opportunities with external partners. In addition, during the fourth quarter of 2008, we initiated actions to trim our generic product portfolio in an effort to retain only those marketed products that deliver acceptable profit. These actions resulted in a workforce reduction of approximately 190 employees. Approximately 30% of the affected positions in manufacturing, research and development, and general and administrative were eliminated as of December 31, 2008 and the remaining positions are expected to be eliminated by the end of the first half of 2009. In connection with these actions, we incurred expenses for severance and other employee-related costs. In addition, as part of our plans to resize our generic products division, we determined to abandon or sell certain assets that resulted in asset impairments, and accelerated depreciation expense.

During the first quarter of 2009, we incurred additional restructuring costs as it continued to execute this plan. We recognized charges for one-time termination benefit costs.

The following table summarizes the restructuring costs in the first quarter of 2009 and the remaining related restructuring liabilities balance (included in accrued expenses and other current liabilities on the condensed consolidated balance sheet) as of March 28, 2009 ($ amounts in thousands):


Restructuring Activities	Initial Charge	Liabilities at December 31, 2008	Cash Payments	Additional Charges	Reversals, Reclass or Transfers	Liabilities at March 28, 2009
Severance and employee benefits to be paid in cash	$6,254	$6,254	$1,738	$1,401	$ -	$5,917
Severance related to share-based compensation	3,291	-	-	-	-	-
Asset impairments and other	5,907	60	-	-	-	60
Total	$15,452	$6,314	$1,738	$1,401	$ -	$5,977

We expect that approximately $6 million of the initial charge and $1.4 million of the additional charges will result in cash expenditures during 2009. We expect to record an additional $0.2 million of one-time termination benefit costs in the second quarter of 2009. We previously disclosed that we had expected to record $4 million of accelerated depreciation related to assets that were held and used as of December 31, 2008 but were expected to be idled or sold in late 2009. In conjunction with our acquisition of Nascobal and the MDRNA facility (see “Subsequent Events” below), we have reevaluated our plan for these assets. Under its revised plans, these assets will be held and used for the life of the asset, and therefore we have resumed depreciating these assets in the first quarter of 2009 in accordance with their expected useful life. We accounted for these actions as a change in estimate in accordance with U.S. GAAP.

Gain on Sales of Product Rights and other


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008
Gain on sale of product rights and other	($1,100)	($1,625)

During the three-month periods ended March 28, 2009 and March 29, 2008, we recognized a gain on the sale of product rights of $1.1 million and $1.0 million, related to the sale of multiple ANDAs.

& nbsp;

In November 2007, we entered into an agreement to provide certain information and other deliverables related to Megace^®ESto enable the formal technology transfer to a third party that is seeking to commercialize Megace^®ESoutside of the U.S. We recorded $0.6 million in the quarter ended March 29, 2008, when our obligations were fulfilled related to this agreement.

Operating Income


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008	$ Change
Operating income:
Generic	$31,378	$1,679	$29,699
Strativa	(4,366)	963	(5,329)
Total operating income	$27,012	$2,642	$24,370

Our increased operating income in the first quarter of 2009 was mainly due to the increase in gross margins for the generic segment as discussed above, coupled with the decrease in R&D expenditures.

Gain on Extinguishment of Senior Subordinated Convertible Notes


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008
Gain on extinguishment of senior subordinated convertible notes	$245	$ -

In March 2009, we repurchased senior subordinated convertible notes that were to mature on September 30, 2010 in the aggregate principal amount of $2.5 million for approximately $2.3 million, including accrued interest. The notes bore interest at an annual rate of 2.875%. The repurchase also resulted in the write-off of approximately $0.02 million of deferred financing costs in the fourth quarter of 2008. We recorded a gain of approximately $0.25 million, in the first quarter of 2009 related to this debt extinguishment.

Interest Income


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008
Interest income	$1,157	$3,014

Interest income principally includes interest income derived primarily from money market and other short-term investments. Our return on investments was negatively impacted by the overall decline in yields available on reinvested funds, coupled with a lower average portfolio balance principally due to the cash settlement to Pentech.

Interest Expense


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008
Interest expense	($2,567)	($3,510)

Interest expense principally includes interest payable on our senior subordinated convertible notes due 2010 and is lower primarily due to our repurchase of notes in the aggregate principal amount of $60.5 million during October 2008 and March 2009. As further detailed in Note 2 – “Change in Accounting Principle and Related Adjustments to Previously Issued Financial Statements” of the accompanying condensed consolidated financial statements, on January 1, 2009, Par adopted the provisions of FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”) and restated first quarter 2008 interest expense to $3.5 million.

Income Taxes


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008
Provision for income taxes	$9,537	$743
Effective tax rate	37%	35%

The provisions were based on the applicable federal and state tax rates for those periods (see Notes to condensed consolidated financials statements - Note 10 – “Income Taxes”).

Discontinued Operations


	Three months ended
	March 28,	March 29,
($ in thousands)	2009	2008
Gain from discontinued operations	$ -	$505
Provision for income taxes	176	445
(Loss) gain from discontinued operations	($176)	$60

In January 2006, we announced the divestiture of FineTech Laboratories, Ltd (“FineTech”), effective December 31, 2005. We transferred the business for no proceeds to Dr. Arie Gutman, president and chief executive officer of FineTech. Dr. Gutman also resigned from our Board of Directors. The results of FineTech operations have been classified as discontinued for all periods presented because we had no continuing involvement in FineTech. In January 2008, Dr. Gutman sold FineTech to a third party. Under the terms of the divestiture, we received $0.5 million during the period ended March 29, 2008 which represents our share of the net proceeds of the sale transaction. This $0.5 million has been classified as discontinued operations on the condensed consolidated statement of operations for the quarter ended March 29, 2008. In the three month period ended March 28, 2009, we recorded $0.2 million and $0.5 million in the three month period ended March 29, 2008 to discontinued operations related to tax contingencies.

FINANCIAL CONDITION

Liquidity and Capital Resources


		Three months ended
		March 28,
($ in thousands)		2009
Cash and cash equivalents at beginning of period		$170,629
Net cash used in operating activities		(52,241)
Net cash provided by investing activities		19,178
Net cash used in financing activities		(3,793)
Net decrease in cash and cash equivalents		($36,856)
Cash and cash equivalents at end of period		$133,773

Cash and cash equivalents at March 28, 2009 decreased from December 31, 2008. Cash used in operations for the three months ended March 28, 2009, reflects the cash paid to Pentech in connection with the unfavorable court decision of approximately $66 million partially offset by cash generated by operations. Cash flows provided by investing activities were driven by the liquidation of net investments in available for sale debt securities to fund the payment of the unfavorable court decision related to Pentech. Cash used in financing activities in the three-month period ended March 28, 2009 mainly represented the repurchase of $2.5 million (face value) of senior subordinated convertible notes.

Our working capital, current assets minus current liabilities, of $228 million at March 28, 2009 increased approximately $25 million from $203 million at December 31, 2008. The working capital ratio, which is calculated by dividing current assets by current liabilities, was 1.90x at March 28, 2009 compared to 1.69x at December 31, 2008. We believe that our working capital ratio indicates the ability to meet our ongoing and foreseeable obligations for the next 12 fiscal months.

Sources of Liquidity

Our primary source of liquidity is cash received from customers. In the first quarter of 2009, we collected approximately $161 million with respect to net product sales as compared to approximately $140 million in the first quarter of 2008. The increase can be

attributed to our improved sales performance in the first quarter of 2009 as compared to the prior year quarter. Our ability to continue to generate cash from operations is predicated on our ability to monetize our current product portfolio, product pipeline, and future products acquired. Our generic product pipeline included 13 first-to-file ANDAs and our Strativa pipeline had 3 brand drugs in active development as of March 28, 2009. Our future profitability depends, to a significant extent, upon our ability to introduce, on a timely basis, new generic products that are either the first to market (or among the first to market) or otherwise can gain significant market share. Commercializing brand pharmaceutical products is more costly than generic products. We cannot be certain that our expenditures will result in the successful development or launch of brand products that will prove to be commercially successful or will improve the long-term profitability of its business.

Uses of Liquidity

Our uses of liquidity and future and potential uses of liquidity include the following:

Cash paid to Pentech in connection with the unfavorable court decision of approximately $66 million in the first quarter of 2009.

Cash paid for inventory purchases was approximately $37 million for the first quarter of 2009 as compared to approximately $31 million for prior year quarter. The increase is mainly due to our 2009 sales performance improvement, which resulted in improved inventory turns.

Cash paid to all other suppliers and third parties was approximately $103 million for the first quarter of 2009 as compared to approximately $57 million for the prior year quarter. The increase is mainly due to our 2009 sales performance improvement that resulted in higher amounts paid to partners.

Cash compensation paid to employees was approximately $20 million for the first quarter of 2009 as compared to approximately $28 million for the prior year quarter. The decrease is mainly due to the resizing of our generic products division begun in October 2008, which resulted in a workforce reduction of approximately 190 employees coupled with lower bonus payments in the first quarter of 2009.

The payment of the senior subordinated convertible notes with a face amount of $139.5 million by September 2010 or sooner.

Potential liabilities related to the outcomes of audits by regulatory agencies like the IRS or the Office of Inspector General of the Department of Veterans Affairs. We accrued for a loss contingency estimated at approximately $4.4 million, including interest, as of March 28, 2009 related to a routine post award contract review of our Department of Veterans Affairs contract for the periods 2004 to 2007 that is being conducted by the Office of Inspector General of the Department of Veterans Affairs. In the event that our loss contingency is ultimately determined to be higher than originally accrued, the recording of the additional liability may result in a material impact on our liquidity or financial condition when such additional liability is paid.

2009 capital expenditures are expected to total approximately $7 million.

Expenditures related to current business development and product acquisition activities. As of March 28, 2009, the total potential future payments that ultimately could be due under existing agreements related to products in various stages of development were approximately $52 million. This amount is exclusive of contingencies tied to the achievement of sales milestones, which will be funded through future revenue streams.

Normal course payables due to distribution agreement partners of $43.3 million as of March 28, 2009 related primarily to amounts due under profit sharing agreements. We expect to pay substantially all of the $43.3 million during the first two months of the second quarter of 2009.

We believe that we will be able to monetize our current product portfolio, our product pipeline, and future product acquisitions and generate sufficient operating cash flows and that along with existing cash, cash equivalents and available for sale securities will allow us to meet our financial obligations over the foreseeable future. We expect to continue to fund our operations, including our research and development activities, capital projects, in-licensing product activity and obligations under our existing distribution and development arrangements discussed herein, out of our working capital. Our future product acquisitions may require additional debt and/or equity financing; there can be no assurance that we will be able to obtain any such additional financing when needed on terms acceptable or favorable to it.

In 2004, our Board authorized the repurchase of up to $50 million of our common stock. Repurchases are made, subject to compliance with applicable securities laws, from time to time in the open market or in privately negotiated transactions. Shares of common stock acquired through the repurchase program are available for general corporate purposes. On September 28, 2007, we announced that our Board approved an expansion of our share repurchase program allowing for the repurchase of up to $75 million of our common stock, inclusive of the $17.8 million remaining from the April 2004 authorization. We repurchased 1.6 million shares of our common stock for approximately $31.4 million pursuant to the expanded program in the fourth quarter of 2007. The authorized

amount remaining for stock repurchases under the repurchase program was approximately $43.6 million, as of March 28, 2009. We do not currently anticipate utilizing additional available authorization under the repurchase program.

In addition to our cash and cash equivalents, we had $70.8 million of available for sale debt securities classified as current assets on the condensed consolidated balance sheet as of March 28, 2009. These available for sale debt securities were all available for immediate sale. We intend to continue to use our current liquidity to support the expansion of our Strativa business, enter into product license arrangements, potentially acquire other complementary businesses and products, and for general corporate purposes.

Contractual Obligations as of March 28, 2009

The dollar values of our material contractual obligations and commercial commitments as of March 28, 2009 were as follows, in $ thousands:


		Amounts Due by Period
Obligation	Total Monetary	2009	2010 to	2012 to	2014 and
Obligation	Obligations	2009	2011	2013	thereafter	Other
Operating leases	$12,023	$3,653	$6,681	$1,336	$353	$ -
Convertible notes (1)	139,500	139,500	-	-	-	-
Interest payments (2)	6,065	3,060	3,005	-	-	-
Purchase obligations (3)	69,086	69,086	-	-	-	-
Long-term tax liability (4)	40,786	-	-	-	-	40,786
Severance payments	4,153	4,153	-	-	-	-
Other	1,663	1,663	-	-	-	-
Total obligations	$273,276	$221,115	$9,686	$1,336	$353	$40,786

(1)

The Notes mature on September 30, 2010, unless earlier converted, accelerated or repurchased. See “Legal Proceedings” in Note 14 to condensed consolidated financial statements, “Commitments, Contingencies and Other Matters” for discussion involving notices of default and acceleration we received from the Trustee of our 2.875% Senior Subordinated Convertible Notes due 2010 and related litigation. Until the matter is resolved, we are recording the payment obligations as a current liability as of March 28, 2009 because the Court in the matter could rule against our position and determine that the appropriate remedy would be the accelerated payment of the Notes.

(2)

Interest payments represent the total interest due under the Notes until their contractual maturity on September 30, 2010. A portion of these amounts would not be payable if the Notes are earlier converted, accelerated or repurchased.

(3)

Purchase obligations consist of both cancelable and non-cancelable inventory and non-inventory items.

(4)

The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to FIN 48 represents an unrecognized tax benefit. An unrecognized tax benefit is a liability that represents a potential future obligation to the taxing authorities. As of March 28, 2009, the amount represents unrecognized tax benefits, interest and penalties based on evaluation of tax positions and concession on tax issues challenged by the IRS. We do not expect to make a significant tax payment related to these long-term liabilities within the next year; however, we cannot estimate in which period thereafter such tax payments may occur. For presentation on the table above, we included the related long-term liability in the “Other” column.

Financing

At March 28, 2009, our total outstanding short and long-term debt, including the current portion, had a face value of $139.5 million. The amount consisted of Senior Subordinated Convertible Notes that we sold in 2003 pursuant to Rule 144A under the Securities Act of 1933, as amended. The Notes bear interest at an annual rate of 2.875%, payable semi-annually on March 30 and September 30 of each year. The Notes are convertible into shares of common stock at an initial conversion price of $88.76 per share, only upon the occurrence of certain events. Upon redemption, we have agreed to satisfy the conversion obligation in cash in an amount equal to the principal amount of the Notes converted. The Notes mature on September 30, 2010, unless earlier converted, accelerated or repurchased. We may not redeem the Notes prior to the maturity date. The Trustee under the Indenture governing the Notes has alleged that we have defaulted in the performance of our obligations under the Indenture and has instituted a lawsuit in connection therewith. Accordingly, until the matter is resolved, we are recording the payment obligations under the Notes as a current liability on our condensed consolidated balance sheet as of March 28, 2009. Refer to Notes to condensed consolidated financial statements – Note 14 – “Commitments, Contingencies and Other Matters.”

In conjunction with the adoption of FSP APB 14-1, we allocated a portion of the Senior Subordinated Convertible Notes between liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. Previous

guidance provided for accounting of our type of convertible debt instruments entirely as debt. The effect of FSP APB 14-1 for our type of convertible debt instrument is that the equity component is included in the additional paid-in capital section of stockholders’ equity on Par’s condensed consolidated balance sheet and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the convertible debt instruments. FSP APB 14-1 was effective as of January 1, 2009, with retrospective application required. Higher interest expense will result through the accretion of the discounted carrying value of the debt instruments to their face amount over their term. Prior period interest expense will also be higher than previously reported due to retrospective application. As of March 28, 2009, our condensed consolidated balance sheet reflects the debt amount of $129.2 million, a related deferred tax liability amount of $3.9 million and an equity component of $6.4 million.

Critical Accounting Policies and Use of Estimates

Our critical accounting policies are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. There has been no change, update or revision to our critical accounting policies subsequent to the filing of Par’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Subsequent Events

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Available for sale debt securities

The primary objectives for our investment portfolio are liquidity and safety of principal. Investments are made with the intention to achieve the best available rate of return on traditionally low risk investments. Our investment policy limits investments to certain types of instruments issued by institutions with investment-grade credit ratings, the U.S. government and U.S. governmental agencies. We are subject to market risk primarily from changes in the fair values of our investments in debt securities including governmental agency and municipal securities, and corporate bonds. These instruments are classified as available for sale securities for financial reporting purposes. A ten percent increase in interest rates on March 28, 2009 would have caused the fair value of our investments in available for sale debt securities to decline by approximately $0.2 million as of that date. Additional investments are made in overnight deposits and money market funds. These instruments are classified as cash and cash equivalents for financial reporting purposes, generally also have lower interest rate risk relative to its investments in debt securities and changes in interest rates generally have little or no impact on their fair values. For cash, cash equivalents and available for sale debt securities, a ten percent decrease in interest rates would decrease the interest income we earned by approximately $0.3 million on an annual basis.

The following table summarizes the carrying value of available for sale securities that subject Par to market risk at March 28, 2009 and December 31, 2008 ($ amounts in thousands):


	March 28,	December 31,
	2009	2008
Securities issued by government agencies	$21,428	$41,541
Debt securities issued by various state and local municipalities and agencies	28,372	28,585
Other debt securities	21,013	24,320
Marketable equity securities available for sale	375	600
Total	$71,188	$95,046

Senior Subordinated Convertible Notes

The outstanding face value of our Senior Subordinated Convertible Notes was $139.5 million and they bear fixed interest at an annual rate of 2.875% as of March 28, 2009. The Notes mature on September 30, 2010, unless earlier converted, accelerated or repurchased. On March 28, 2009, the Senior Subordinated Convertible Notes had a quoted market value of approximately $130 million, which was higher than the quoted market value as of December 31, 2008.

We do not have any financial obligations exposed to significant variability in interest rates.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings with the SEC is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating disclosure controls and procedures, we have recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating our controls and procedures. An evaluation was performed under the supervision and with the participation of Company management, including the CEO and the CFO, to assess the effectiveness of the design and operation of its disclosure controls and procedures (as defined under the Exchange Act) as of March 28, 2009. Based on that evaluation, our management, including our CEO and the CFO, concluded that our disclosure controls and procedures were effective as of March 28, 2009.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal control over financial reporting identified during the quarter ended March 28, 2009.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Contractual Matters

On May 3, 2004, Pentech Pharmaceuticals, Inc. (“Pentech”) filed an action against Par in the United States District Court for the Northern District of Illinois. This action alleged that Par breached its contract with Pentech relating to the supply and marketing of paroxetine (Paxil®) and that Par breached fiduciary duties allegedly owed to Pentech. On February 9, 2009, following a bench trial, the district court entered a judgment in favor of Pentech and against Par in the amount of $70 million. Subsequently, on March 5, 2009, in order to avoid any further costs, burdens or distractions of litigation, Par entered into a Settlement Agreement with Pentech pursuant to which Par paid Pentech an amount of approximately $66 million. Pursuant to the terms of the agreement, a stipulation dismissing the appeal of judgment and Pentech’s satisfaction of judgment was filed with the District Court.

Corporate Litigation

Patent Related Matters

Par entered into a licensing agreement with developer Paddock Laboratories, Inc. (“Paddock”) to market testosterone 1% gel, a generic version of Unimed Pharmaceuticals, Inc.’s (“Unimed”) product Androgel®. Pursuant to this agreement, Par is responsible for management of any litigation and payment of all legal fees associated with this product. The product, if successfully brought to market, would be manufactured by Paddock and marketed by Par. Paddock has filed an ANDA (that is pending with the FDA) for the testosterone 1% gel product. As a result of the filing of the ANDA, Unimed and Laboratories Besins Iscovesco (“Besins”), co-assignees of the patent-in-suit, filed a lawsuit against Paddock in the United States District Court for the Northern District of Georgia, alleging patent infringement on August 22, 2003. Par has an economic interest in the outcome of this litigation by virtue of its licensing agreement with Paddock. Unimed and Besins sought an injunction to prevent Paddock from manufacturing the generic product. On September 13, 2006, Par acquired from Paddock all rights to the ANDA for testosterone 1% gel, a generic version of Unimed’s product Androgel® for $6 million. The lawsuit was resolved by a settlement and license agreement that terminates all on-going litigation and permits Par to launch the generic version of the product no earlier than August 31, 2015 and no later than February 28, 2016, assuring Par’s ability to market a generic version of Androgel® well before the expiration of the patents at issue. On March 7, 2007, Par was issued a Civil Investigative Demand seeking information and documents in connection with the court-approved settlement in 2006 of the patent infringement case, Unimed v. Paddock, in the U.S. District Court for Northern District of Georgia. The Bureau of Competition for the Federal Trade Commission (“FTC”) is investigating whether the settlement of the litigation constituted unfair methods of competition in a potential violation of Section 5 of the FTC Act. On January 30, 2009, the FTC filed a lawsuit against the company in the U.S. District Court for the District of Central California alleging violations of antitrust laws stemming from Par’s court-approved settlement in the patent litigation. On February 2, 2009, Meijer Distribution, Inc. filed a class action complaint in the same district court alleging antitrust violations and seeking treble damages. On February 3, 2009, both Rochester Drug Co-Operative, Inc. and Louisiana Wholesale Drug Co., Inc. filed class action complaints in the same district court. On April 9, 2009, the U.S. District Court for Central California granted Par’s motion to transfer the FTC lawsuit, as well as the three aforementioned class action suits, to the U.S. District Court for Northern Georgia, the jurisdiction in which Par’s original consent judgment relating to the patent litigation settlement entered. On April 10, 2009, the cases were transferred. On April 17, 2009 the Fraternal Order of Police, Fort Lauderdale Lodge 31 Insurance Trust Fund filed a class action complaint naming Par in the U.S. District Court for the District of New Jersey and on April 21, 2009 Raymond Scurto on behalf of another class, filed a second class action complaint naming Par in the same court both alleging antitrust violations. Par believes it has complied with all applicable laws in connection with the court-approved settlement and intends to vigorously defend these actions.

On October 4, 2006, Novartis Corporation, Novartis Pharmaceuticals Corporation, and Novartis International AG (collectively “Novartis”) filed a lawsuit against Par in the United States District Court for the District of New Jersey. Novartis alleged that Par and Kali infringed U.S. Patent No. 6,162,802 (the “’802 patent”) by submitting a Paragraph IV certification to the FDA for approval of amlodipine and benazepril hydrochloride combination capsules. Par and its subsidiary enied Novartis’ allegation, asserting that the ’802 patent is not infringed and is invalid. Par submitted a claim construction brief on September 5, 2008 and its rebuttal brief on October 8, 2008. On December 11, 2008, the company entered into a settlement agreement with Novartis. On February 10, 2009, a

stipulation of dismissal was entered by the judge, finally terminating the case.

Industry Related Matters

General and the USOPM and will continue to cooperate with the Attorneys General and the USOPM in these investigations if it is called upon to do so.

Other

Contingency

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, results of operations, financial condition or liquidity. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2008 have not materially changed. The risks described in our Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently believe are immaterial, also may materially adversely affect our business, results of operations, financial condition or liquidity.

ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities⁽¹⁾

Quarter Ending March 28, 2009


Period	Total Number of Shares of Common Stock Purchased ⁽²⁾	Average Price Paid per Share of Common Stock	Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares of Common Stock that May Yet Be Purchased Under the Plans or Programs ⁽³⁾
January 1, 2009 through January 31, 2009	106,504	N/A	-	-
February 1, 2009 through February 28, 2009	1,279	N/A	-	-
March 1, 2009 through March 28, 2009	21,067	N/A	-	4,422,245
Total	128,850	N/A	-

(1)

In April 2004, the Board authorized the repurchase of up to $50.0 million of Par’s common stock. Repurchases are made, subject to compliance with applicable securities laws, from time to time in the open market or in privately negotiated transactions, whenever it appears prudent to do so. Shares of common stock acquired through the repurchase program are available for reissuance for general corporate purposes. On September 28, 2007, we announced that our Board approved an expansion of its share repurchase program allowing for the repurchase of up to $75 million of our common stock, inclusive of the $17.8 million remaining from the April 2004 authorization. The authorized amount remaining for stock repurchases under the repurchase program was $43.6 million, as of March 28, 2009. The repurchase program has no expiration date.

(2)

The total number of shares purchased represents 128,850 shares surrendered to Par to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and issuance of common shares in connection with the vesting of restricted stock units issued to employees.

(3)

Based on the closing price of our common stock on the New York Stock Exchange of $9.85 at March 27, 2009.

ITEM 6. EXHIBITS

10.1

Separation Agreement and Release by and between Par Pharmaceutical, Inc. and Veronica Lubatkin dated as of March 6, 2009 (filed herewith).

10.2

Asset Purchase Agreement by and among Par Pharmaceutical, Inc., QOL Medical, LLC and, solely with respect to certain provisions, the members of QOL, dated as of March 31, 2009 (filed herewith). *

31.1

Certification of the Principal Executive Officer (filed herewith).

31.2

Certification of the Principal Financial Officer (filed herewith).

32.1

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto).

32.2

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto).

Indicates that portions of this agreement have been omitted and filed separately with the SEC in a confidential treatment request pursuant to Rule 24b-2 of the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PAR PHARMACEUTICAL COMPANIES, INC.

(Registrant)

Date: May 6, 2009

/s/ Patrick G. LePore

Patrick G. LePore

Chairman, President and Chief Executive Officer

Date: May 6, 2009

/s/ Lawrence A. Kenyon

Lawrence A. Kenyon

Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number

Description

10.1

Separation Agreement and Release by and between Par Pharmaceutical, Inc. and Veronica Lubatkin dated as of March 6, 2009 (filed herewith).

10.2

Asset Purchase Agreement by and among Par Pharmaceutical, Inc., QOL Medical, LLC and, solely with respect to certain provisions, the members of QOL, dated as of March 31, 2009 (filed herewith). *

31.1

Certification of the Principal Executive Officer (filed herewith).

31.2

Certification of the Principal Financial Officer (filed herewith).

32.1

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto).

32.2

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto).

Indicates that portions of this agreement have been omitted and filed separately with the SEC in a confidential treatment request pursuant to Rule 24b-2 of the Exchange Act.

EX-10.1 2 exhibittoq12009lubatkinsepar.htm SEPARATION AGREEMENT AND RELEASE SEPARATION AGREEMENT AND RELEASE

EXHIBIT 10.1

SEPARATION AGREEMENT AND RELEASE

THIS SEPARATION AGREEMENT AND RELEASE (“Release”), dated March 6, 2009 is given by Veronica Lubatkin (“EMPLOYEE”) to PAR PHARMACEUTICAL, INC., and each and any of its parent and subsidiary corporations, affiliates, departments and divisions (“THE COMPANY”). The Effective Date of this Release shall be as set forth in Section 6 herein.

RECITALS

WHEREAS, EMPLOYEE has been employed by THE COMPANY as Chief Financial Officer;

WHEREAS, EMPLOYEE signed an Employment Agreement with THE COMPANY on March 3, 2008 in which EMPLOYEE agreed to sign a Separation Agreement and Release against THE COMPANY within thirty (30) days after the date of her separation from THE COMPANY;

WHEREAS, EMPLOYEE signed a Letter Agreement with THE COMPANY on December 23, 2008, which set forth the terms and conditions of EMPLOYEE’s employment from that date through March 6, 2009; contained a Release of claims in exchange for sufficient consideration; and also set forth the terms and conditions under which EMPLOYEE’s separation as a separation from employment without cause pursuant to Section 3.2.5 of the Employment Agreement; and

WHEREAS, as a result of EMPLOYEE’s separation from THE COMPANY, the parties wish to fully and finally resolve all issues concerning EMPLOYEE’s employment relationship with THE COMPANY and to reiterate certain terms contained in EMPLOYEE’s Employment Agreement and the Letter Agreement.

NOW, IN CONSIDERATION of the mutual promises and covenants in the Employment Agreement, the Letter Agreement and this Release, the sufficiency of which EMPLOYEE acknowledges, the parties agree as follows:

OPERATIVE PROVISIONS

Separation of Employment. THE COMPANY and EMPLOYEE agree that EMPLOYEE’s employment shall terminate effective March 6, 2009. (“Separation Date”), such separation from employment with THE COMPANY occurring pursuant to Section 3.2.5 of the Employment Agreement by and between the parties.

Pay, Benefits and Stock Options Upon Separation.

(a)

Separation Pay. On account of EMPLOYEE’s separation from THE COMPANY, THE COMPANY shall pay EMPLOYEE such severance payment in the amount and manner detailed in Section 3.3.2 of the Employment Agreement and the payment schedule attached as Exhibit A to this Separation and Release Agreement. Such severance payment shall amount to the sum of the product of two (2) times the EMPLOYEE’s Base Salary in effect on the Separation Date, and EMPLOYEE’s last annual cash bonus. In addition, on March 6, 2009, EMPLOYEE will be paid a payment of two (2) months her base salary, in accordance with Section 1a of the Letter Agreement, as a stay bonus. All the foregoing payment(s) shall be subject to all appropriate federal and state withholding and employment taxes.

(b)

Benefits/Termination. In accordance with the terms of the Employment Agreement, EMPLOYEE will have the opportunity and responsibility to elect COBRA continuation coverage pursuant to the terms of that law and will thus be responsible for the execution of the continuation of coverage forms upon termination of her insurance coverage. As set forth in Section 3.3.6, THE COMPANY shall pay EMPLOYEE’s COBRA premiums, except that the payment of COBRA premiums shall commence on April 20, 2009.

(c)

Equity Awards. Any equity awards granted to EMPLOYEE during her employment shall vest in accordance with and subject to the terms of the Employment Agreement and the applicable equity plans.

(d)

Unused Vacation. THE COMPANY shall, in a single lump-sum within forty-five (45) days of the Separation Date, pay EMPLOYEE for her unused vacation days, which THE COMPANY and EMPLOYEE agree total fifteen (15) days.

(e)

Reimbursement of Expenses. THE COMPANY and EMPLOYEE agree that there are no unpaid expense due and owing to EMPLOYEE.

(f)

No Other Payments. EMPLOYEE acknowledges and agrees that subject to and including those payments referenced herein, she has been paid in full for all work performed, and has received reimbursement for all business expenses, and is entitled to no further payments or bonuses from THE COMPANY whatsoever for services rendered or any other reason, except as set forth herein.

(g)

Payment Terms. In accordance with and subject to the covenants contained in the Employment Agreement and Letter Agreement, the payments and benefits contained in this Section 2 are contingent upon the EMPLOYEE’s continued compliance the terms of the Employment Agreement and Letter Agreement, as referenced in Sections 7 and 8 herein and her confidentiality obligations contained in Section 9.

Consideration.

(a)

No Disparagement. EMPLOYEE agrees to refrain from any publication or any type of communication, oral or written, of a defamatory or disparaging statement pertaining to THE COMPANY, its past, present and future officers, directors, agents, employees or representatives. THE COMPANY agrees to refrain from any publication or any type of communication, oral or written, of a defamatory or disparaging statement pertaining to EMPLOYEE. Nothing in this Section shall be construed as prohibiting THE COMPANY from making any disclosures as required by law or statute, including the release of such information as is required to be disclosed by THE COMPANY in connection with any legal proceeding, filing with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, or as otherwise required by law.

(b)

Sufficiency of Consideration. No Admission of Liability. The parties agree that the consideration paid to EMPLOYEE by the terms of this Release is good and sufficient consideration for this Release. EMPLOYEE acknowledges that neither this Release, nor any of the payments or benefits tendered in conjunction herewith, shall be taken or construed to be an admission or concession of any kind with respect to alleged liability or alleged wrongdoing by THE COMPANY.

General Release and Waiver of Claims.

(a)

Solely in connection with EMPLOYEE’s employment relationship with THE COMPANY, in accordance with the terms of the Employment Agreement and Letter Agreement, and in consideration of the additional promises and covenants made by THE COMPANY in this Release, EMPLOYEE hereby knowingly and voluntarily compromises, settles and releases THE COMPANY from any and all past, present, or future claims, demands, obligations, or causes of action, whether based on tort, contract, statutory or other theories of recovery for anything that has occurred up to and including the date of EMPLOYEE’s execution of this Release. The released claims include those EMPLOYEE may have or has against THE COMPANY, or which may later accrue to or be acquired by EMPLOYEE against THE COMPANY and its predecessors, successors in interest, assigns, parent and subsidiary organizations, affiliates, and partners, and its past, present, and future officers, directors, shareholders, agents, and employees, and their heirs and assigns.

(b)

By way of specification, but not of limitation, EMPLOYEE specifically agrees to release and waive all claims for wrongful termination any claim for retaliation or discrimination in employment under federal or state law or regulation including, but not limited to, discrimination based on age, sex, race, disability, handicap, national origin or any claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, as amended by the Older Workers’ Benefits Protection Act (ADEA), the Americans with Disabilities Act of 1990 (ADA), the New Jersey Law Against Discrimination (LAD), the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Employee Retirement Income Security Act (ERISA), the Immigration Reform and Control Act (IRCA), the Fair Labor Standards Act (FLSA), the Conscientious Employee Protection Act (CEPA), the

Family Medical Leave Act (FMLA), the New Jersey Family Leave Act (NJFLA), the New Jersey Wage and Hour Law, and any other claims under New Jersey or federal law.

Covenant Not to Sue.

(a)

EMPLOYEE represents and agrees that EMPLOYEE has not filed any lawsuits or arbitrations against THE COMPANY, or filed or caused to be filed any charges or complaints against THE COMPANY with any municipal, state or federal agency charged with the enforcement of any law or any self-regulatory organization.

(b)

EMPLOYEE agrees, not inconsistent with EEOC Enforcement Guidance on Non-Waivable Employee Rights Under EEOC-Enforced Statutes dated April 11, 1997, and to the fullest extent permitted by law, not to sue or file a charge, complaint, grievance or demand for arbitration against THE COMPANY in any claim, arbitration, suit, action, investigation or other proceeding of any kind which relates to any matter that involved THE COMPANY, and that occurred up, to and including the date of EMPLOYEE’s execution of this Release, other than those non-employment-related counterclaims that EMPLOYEE might assert against THE COMPANY if THE COMPANY were to sue EMPLOYEE, unless required to do so by court order, subpoena or other directive by a court, administrative agency, arbitration panel or legislative body, or unless required to enforce this Release.|

(c)

Nothing in this Release shall prevent EMPLOYEE from (i) commencing an action or proceeding to enforce this Release, or (ii) exercising EMPLOYEE’s right under the Older Workers Benefit Protection Act of 1990 to challenge the validity of EMPLOYEE’s waiver of ADEA claims set forth in this Release.

Consideration and Revocation Periods: Effective Date. EMPLOYEE understands and acknowledges that the ADEA requires THE COMPANY to provide EMPLOYEE with at least twenty one (21) calendar days to consider this Release (“Consideration Period”) prior to its execution. EMPLOYEE also understands that she is entitled to revoke this Release at any time during the seven (7) days following EMPLOYEE’s execution of this Release (“Revocation Period”) by notifying THE COMPANY in writing of her revocation. This Release shall become effective on the day after the seven-day Revocation Period has expired unless timely notice of EMPLOYEE’s revocation has been delivered to THE COMPANY (the “Effective Date”).

Confidential Information. EMPLOYEE acknowledges that during EMPLOYEE’s employment with THE COMPANY, EMPLOYEE has had access to Confidential Information, as defined in the Employment Agreement. In accordance with and subject to the covenants contained in the Employment Agreement, EMPLOYEE shall not at any time, other than as may be required in connection with the performance by her of any remaining duties or obligations under the Employment Agreement, directly or indirectly, use, communicate, disclose or disseminate any Confidential Information in any manner whatsoever (except as may be required under legal process by subpoena or other court order).

Covenants Not to Solicit. In accordance with and subject to the covenants contained in the Employment Agreement, for a period of one year following the Separation Date, EMPLOYEE shall not, directly or indirectly, hire, offer to hire, entice away or in any other manner persuade or attempt to persuade any officer, employee, agent, lessor, lessee, licensor, licensee, customer, prospective customer, or supplier of THE COMPANY or any of its subsidiaries to discontinue or alter her or its relationship with THE COMPANY or any of its subsidiaries. This provision also shall not apply if not otherwise provided under the terms of the Employment Agreement.

Confidentiality. EMPLOYEE agrees to keep both the existence and the terms of this Release completely confidential, except that EMPLOYEE may discuss this Release with EMPLOYEE’s attorney, accountant, or other professional person who may assist EMPLOYEE in evaluating, reviewing, or negotiating this Release, and as otherwise permitted or required under applicable law. EMPLOYEE understands and agrees that her disclosure of the terms of this Release contrary to the terms set forth herein will constitute a breach of this Release; provided that EMPLOYEE may disclose the existence of her covenants not to solicit or disclose confidential information to a successor employer or potential successor employer.

10.

Non-Compete: THE COMPANY agrees that EMPLOYEE shall not be bound by the non-competition clause contained in Section 4.4 of the Employment Agreement.

11.

No Public Statements. EMPLOYEE and THE COMPANY represent and warrant that they will refrain from making any public statement regarding EMPLOYEE’s separation from THE COMPANY absent written approval from the other, except that THE COMPANY is permitted to make any disclosures regarding EMPLOYEE’s status or this Release as required by law or regulations, including release of such information or that is required to be disclosed by THE COMPANY in its filings under the Securities Exchange Act of 1934 with the SEC.

12.

Disclosure of Information. EMPLOYEE represents and warrants that she is not aware of any material non-public information concerning THE COMPANY, its business or its affiliates that she has not disclosed to the Board of Directors of THE COMPANY prior to the date of this Release or that is required to be disclosed by THE COMPANY in its filings under the Securities Exchange Act of 1934 with the SEC and that has not been so disclosed.

13.

Return of Company Property. On the Separation Date, EMPLOYEE agrees to deliver forthwith to THE COMPANY all of THE COMPANY’s property in her possession or under her custody and control, including but not limited to all keys, and tangible items, notebooks, documents, records and other data relating to research or experiments conducted by any person relating to the products, formulas, formulations, processes or methods of manufacture of THE COMPANY, and to its customers and pricing of products.

14.

Continued Availability and Cooperation.

(a)

EMPLOYEE will make himself/herself reasonably available to THE COMPANY either by telephone or, if reasonably necessary, in person upon reasonable advance notice, to assist THE COMPANY in connection with any matter relating to services performed by her on behalf of THE COMPANY prior to the Separation Date.

(b)

EMPLOYEE further agrees that she will take reasonable actions to cooperate fully with THE COMPANY in relation to any investigation or hearing with the SEC or any other governmental agency, as well as in the defense or prosecution of any claims or actions now in existence, including but not limited to ongoing commercial litigation matters, shareholder derivative actions, and class action law suits, or which may be brought or threatened in the future against or on behalf of THE COMPANY, its directors, shareholders, officers, or employees.

(c)

EMPLOYEE will take reasonable actions to cooperate in connection with such claims or actions referred to above including, without limitation, her being available to meet with THE COMPANY to prepare for any proceeding (including depositions, fact-findings, arbitrations or trials), to provide affidavits, to assist with any audit, inspection, proceeding or other inquiry, and to act as a witness in connection with any litigation or other legal proceeding affecting THE COMPANY.

(d)

EMPLOYEE further agrees that should she be contacted (directly or indirectly) by any individual or any person representing an individual or entity that is or may be legally or competitively adverse to THE COMPANY in connection with any claims or legal proceedings against THE COMPANY, she will promptly notify THE COMPANY of that fact in writing. Such notification shall include a reasonable description of the content of the communication with the legally or competitively adverse individual or entity.

(e)

Notwithstanding the provisions herein, EMPLOYEE acknowledges that her cooperation obligation requires her to participate truthfully and accurately in all matters contemplated under this Section.

15.

Injunctive Relief. In accordance with the terms of the Employment Agreement, EMPLOYEE acknowledges that her failure to abide by Sections 7 and 8 of this Release will result in immediate and irreparable damage to THE COMPANY and will entitle THE COMPANY to injunctive relief from a court having appropriate jurisdiction.

16.

Representation by Attorney. EMPLOYEE acknowledges that she has been given the opportunity to be represented by independent counsel in reviewing this Release, whether at the time of execution or in conjunction with execution of her Employment Agreement, and that EMPLOYEE understands the provisions of this Release and knowingly and voluntarily agrees to be bound by them.

17.

No Reliance Upon Representations. EMPLOYEE hereby represents and acknowledges that in executing this Release, EMPLOYEE does not rely and has not relied upon

any representation or statement made by THE COMPANY or by any of THE COMPANY’s past or present agents, representatives, employees or attorneys with regard to the subject matter, basis or effect of this Release other than as set forth in this Release.

18.

Tax Advice.

(a)

THE COMPANY makes no representations regarding the federal or state tax consequences of the payments or benefits referred to above and provided for herein, and shall not be responsible for any tax liability, interest or penalty including but not limited to those which may arise under Internal Revenue Code Section 409A, incurred by EMPLOYEE which in any way arises out of or is related to said payments or benefits. With the exception of the regular payroll deductions for federal and state withholding and employment taxes, EMPLOYEE agrees that it shall be her sole responsibility to pay any amount that may be due and owing as federal or state taxes, interest and penalties, including but not limited to those which may arise under Internal Revenue Code Section 409A, arising out of the payments or benefits provided for herein.

(b)

EMPLOYEE agrees and understands that she is not relying upon THE COMPANY or its counsel for any tax advice regarding the tax treatment of the payments made or benefits received pursuant to this Release, and EMPLOYEE agrees that she is responsible for determining the tax consequences of all such payments and benefits hereunder, including but not limited to those which may arise under Internal Revenue Code Section 409A, and for paying taxes, if any, that she may owe with respect to such payments or benefits.

(c)

EMPLOYEE further agrees to (i) hold harmless THE COMPANY and its attorneys against, and indemnify THE COMPANY and its attorneys for, any and all losses and/or damages arising from claims by the Internal Revenue Service (“IRS”), or any other taxing authority or other governmental agency (whether federal, state or local), which may be made against THE COMPANY and its attorneys arising out of or relating to the payments or benefits hereunder as a result of EMPLOYEE’s reporting of such payments or benefits and (ii) reimburse THE COMPANY and its attorneys for any resulting payment, including without limitation, all penalties and interest payable to the IRS, or any other taxing authority or governmental agency.

(d)

EMPLOYEE and THE COMPANY further agree that they and their attorneys will give mutual notice of any such claims. EMPLOYEE agrees that she will cooperate in the defense of all claims arising out of or relating to EMPLOYEE’s reporting of the payments made or benefits received hereunder. In any action commenced against EMPLOYEE to enforce the provisions of this paragraph, THE COMPANY and its attorneys shall be entitled to recover their attorneys’ fees, costs, disbursements, and the like incurred in prosecuting the action.

19.

Employment Agreement and Letter Agreement. The parties acknowledge and agree that all pertinent terms of the Employment Agreement and Letter Agreement (each as amended herein) shall remain in full force and effect and are enforceable, to the extent any such

terms therein survive or govern the period after the employment term set forth in that Employment Agreement. The event of revocation of this Release in accordance with Section 6 herein in no way affects the validity or enforceability of the Employment Agreement and Letter Agreement; and in the event of revocation, to the extent any pertinent terms of this Release reiterate or confirm the terms of the Employment Agreement and Letter Agreement (except as and to the extent each are amended herein), the Employment Agreement and Letter Agreement shall govern.

20.

Entire Agreement. When read in conjunction with the Employment Agreement and Letter Agreement, this Release constitutes the entire agreement between the parties relating to EMPLOYEE’s separation from and release of employment-related claims against THE COMPANY, and it shall not be modified except in writing signed by the party to be bound.

21.

Severability. If a court finds any provision of this Release invalid or unenforceable as applied to any circumstance, the remainder of this Release and the application of such provision shall be interpreted so as best to effect the intent of the parties hereto. The parties further agree to replace any such void or unenforceable provision of this Release with a valid and enforceable provision that will achieve, to the extent possible, the economic, business, or other purposes of the void or unenforceable provision.

22.

Execution in Counterparts. This Release may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same Release (and all signatures need not appear on any one counterpart), and this Release shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto.

23.

Governing Law and Jurisdiction. Notwithstanding any agreement to the contrary, this Release shall be governed by the laws of the State of New Jersey and any claims hereunder shall be pursued in the state or federal courts located in the State of New Jersey.

24.

Survival of Terms. EMPLOYEE understands and agrees that the terms set out in this Release, including the confidentiality and non-solicitation provisions, shall survive the signing of this Release and the receipt of benefits thereunder.

25.

Construction. The terms and language of this Release are the result of arm’s length negotiations between both parties hereto and their attorneys. Consequently, there shall be no presumption that any ambiguity in this Release should be resolved in favor of one party and against another. Any controversy concerning the construction of this Release shall be decided neutrally without regard to authorship.

26.

Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Release.

27.

Binding Effect; Successors and Assigns. EMPLOYEE may not delegate any of her duties or assign her rights hereunder. This Release shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. THE COMPANY shall require any successor (whether direct or indirect and whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of THE COMPANY, by an agreement in form and substance reasonably satisfactory to EMPLOYEE, to expressly assume and agree to perform this Release in the same manner and to the same extent that THE COMPANY would be required to perform if no such succession had taken place.

28.

Waiver. The failure of either of the parties hereto to at any time enforce any of the provisions of this Release shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Release or any provision hereof or the right of either of the parties hereto thereafter to enforce each and every provision of this Release. No waiver of any breach of any of the provisions of this Release shall be effective unless set forth in a written instrument executed by the party against whom or which enforcement of such waiver is sought, and no waiver of any such breach shall be construed or deemed to be a waiver of any other or subsequent breach.

29.

Capacity. EMPLOYEE and THE COMPANY hereby represent and warrant to the other that, as the case may be: (a) she or it has full power, authority and capacity to execute and deliver this Release, and to perform her or its obligations hereunder; (b) such execution, delivery and performance shall not (and with the giving of notice or lapse of time or both would not) result in the breach of any agreements or other obligations to which she or it is a party or she or it is otherwise bound; and (c) this Release is her or its valid and binding obligation in accordance with its terms.

[SIGNATURE LINES CONTAINED ON NEXT PAGE]

EMPLOYEE AGREES THAT: (1) SHE HAS FULLY READ THIS RELEASE; (2) SHE HAS TAKEN THE TIME NECESSARY TO REVIEW COMPLETELY AND FULLY UNDERSTAND THIS RELEASE; AND (3) SHE FULLY UNDERSTANDS THIS RELEASE, ACCEPTS IT, AGREES TO IT, AND AGREES THAT IT IS FULLY BINDING UPON HER FOR ALL PURPOSES.

EMPLOYEE

Date:

March 6, 2009

/s/ Veronica Lubatkin

VERONICA LUBATKIN

THE COMPANY

Date:

March 6, 2009

/s/ Stephen Montalto

STEPHEN MONTALTO

Senior Vice President, Human Resources

EX-10.2 3 qolaparedactedforedgar.htm ASSET PURCHASE AGREEMENT Converted by EDGARwiz

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EXECUTION VERSION

EXHIBIT 10.2

ASSET PURCHASE AGREEMENT

by and among

PAR PHARMACEUTICAL, INC.

QOL MEDICAL, LLC

and, solely with respect to certain provisions,

THE MEMBERS OF QOL

dated as of March 31, 2009

NY663381v.16

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TABLE OF CONTENTS

Page

Purchase and Sale of Assets

1.1

Purchase and Sale of Assets.

1.2

Grant of License.

1.3

Grant of Sublicense.

1.4

Retention of Excluded Assets; Certain Documentation.

Assumption of Liabilities

2.1

Assumption of Assumed Liabilities.

2.2

Excluded Liabilities.

Purchase Price and Payment.

3.1

Purchase Price.

3.2

Allocation of Purchase Price.

3.3

Payment of Sales, Use and Other Taxes.

Closing

4.1

Time and Place.

4.2

Deliveries at Closing.

Representations and Warranties of Seller.

5.1

Organization, Etc.

5.2

Authority of Seller.

5.3

Consents and Approvals.

5.4

Non-Contravention.

5.5

Litigation; Compliance with Applicable Laws.

5.6

Financial Information.

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5.7

Contracts.

5.8

Title to Acquired Assets.

5.9

Regulatory Issues.

5.10

Product Intellectual Property.

5.11

Tax Matters.

5.12

No Material Adverse Effect.

5.13

Brokers.

5.14

Disclaimer of Other Representations and Warranties.

Representations and Warranties of Buyer.

6.1

Corporate Organization.

6.2

Authority of Buyer.

6.3

Consents and Approvals.

6.4

Non-Contravention.

6.5

Brokers.

Covenants of the Parties

7.1

Conduct of the Business.

7.2

Continued Due Diligence.

7.3

Notices of Certain Events; Continuing Disclosure.

7.4

Exclusive Dealings.

7.5

Reasonable Best Efforts.

7.6

Cooperation and Transition.

7.7

Public Announcements.

7.8

Bulk Sales.

7.9

NDC Numbers; Marketing Materials.

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7.10

Regulatory Matters.

7.11

Post-Closing Orders and Payments.

7.12

Rebates; Government Price Reporting Obligations.

7.13

Insurance.

7.14

Sales Tax Certificate.

7.15

Further Assurances.

7.16

Product Returns.

7.17

Cooperation relating to Non-Indemnifiable Claims.

7.18

Release of Liens of Company Creditors.

Conditions to the Obligations of Seller.

8.1

Agreements and Conditions.

8.2

Representations and Warranties.

8.3

No Legal Proceedings.

8.4

Officer’s Certificate.

8.5

Secretary’s Certificate.

8.6

Purchase Price.

8.7

Ancillary Agreements.

8.8

Sales Tax Certificate.

Conditions to the Obligations of Buyer.

9.1

Agreements and Conditions.

9.2

Representations and Warranties.

9.3

No Legal Proceedings.

9.4

Officer’s Certificate.

9.5

Secretary’s Certificate.

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9.6

Ancillary Agreements.

9.7

Certificates of Status.

9.8

Consents.

9.9

Liens.

9.10

Restrictive Contracts.

9.11

Standstill Agreement.

9.12

Consummation of MDRNA Transaction.

9.13

Authorization Letters from DMF Holders.

9.14

Wholesaler Inventories.

9.15

Returns Report.

10.

Indemnification.

10.1

Termination of Representations and Warranties.

10.2

Indemnification Obligations of Seller.

10.3

Indemnification Obligations of Buyer.

10.4

Procedures for Indemnification; Defense.

10.5

Limitations.

11.

Termination and Abandonment.

11.1

Methods of Termination.

11.2

Procedure upon and Effect of Termination.

12.

Non-Competition; Confidentiality.

12.1

Non-Competition.

12.2

No-Competing Interests.

12.3

Non-Disruption.

12.4

Confidentiality.

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12.5

Remedies for Breach.

13.

Miscellaneous

13.1

Notices.

13.2

Entire Agreement.

13.3

Waiver.

13.4

Amendment.

13.5

Third Party Beneficiaries.

13.6

Assignment; Binding Effect.

13.7

Headings.

13.8

Severability.

13.9

Governing Law.

13.10

Consent to Jurisdiction and Forum Selection.

13.11

Expenses.

13.12

Counterparts.

14.

Definitions.

14.1

Defined Terms.

14.2

Construction of Certain Terms and Phrases.

14.3

Disclosure Schedules.

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ANNEXES

Annex 1 – Non-Competition Provisions

Annex 2 – Certain Provisions Applicable to QOL Members

EXHIBITS

Exhibit A – Form of Seller Letter to FDA

Exhibit B – Form of Buyer Letter to FDA

Exhibit C – Form of Assignment and Assumption Agreement

Exhibit D – Form of Escrow Agreement

Exhibit E – Form of Patent Assignment

Exhibit F – Form of Trademark Assignment

SCHEDULES


Schedule 1.3	Sublicense
Schedule 5.3(a)	Seller Governmental Consents
Schedule 5.3(b)	Seller Third Party Consents
Schedule 5.4	Non-Contravention
Schedule 5.5(a)	Litigation
Schedule 5.6	Financial Information
Schedule 5.7(b)(i)	Restrictive Contracts
Schedule 5.7(b)(ii)	Assumed Contracts
Schedule 5.8	Liens
Schedule 5.9(b)	Regulatory Issues
Schedule 5.9(c)	Improvements to Manufacturing Process
Schedule 5.10(c)	Trademarks
Schedule 5.10(d)	Annuities, Maintenance Fees and Renewals
Schedule 6.3	Buyer Governmental Consents
Schedule 7.6(c)(i)	Restrictive Contracts to Amend or Terminated Before Closing
Schedule 7.6(c)(ii)	Restrictive Contracts to Amend or Terminated After Closing
Schedule 9.9	Liens, Etc. to be Released at Closing
Schedule 14.1(a)	Inventory
Schedule 14.1(b)	Certain Product Intellectual Property

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ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “Agreement”) is made and entered into as of March 31, 2009, by and among Par Pharmaceutical, Inc., a Delaware corporation (“Buyer”), QOL Medical, LLC, a Delaware limited liability company (“Seller”), and the members of Seller who are signatories to this Agreement (each, a “QOL Member”), it being understood that Trevor Blake and Edwin Hernandez have entered into this Agreement only with respect to Annex 1 and Annex 2 and the other QOL Members have entered into this Agreement only with respect to Annex 2. Buyer, Seller and the QOL Members are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties”.

RECITALS

WHEREAS, Seller is the holder of certain Regulatory Approvals relating to Nascobal™ (cyanocobalamin, USP), both nasal spray and gel forms (as further defined herein, the “Product”); and

WHEREAS, Seller desires to sell the Regulatory Approvals and certain related assets and rights related to the Product to Buyer, and Buyer desires to purchase the such assets and rights from Seller.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

Purchase and Sale of Assets

1.1

Purchase and Sale of Assets.

Subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell, transfer, convey, assign and deliver, or cause to be sold, transferred, conveyed, assigned and delivered, to Buyer, and Buyer shall purchase, acquire and accept from Seller, all of Seller’s right, title and interest in and to the Acquired Assets for the consideration set forth in Section 3. At and subsequent to the Closing, the Seller shall perform all obligations required of Seller under this Agreement.

1.2

Grant of License.

(a)

Effective upon the Closing, Seller hereby grants to Buyer and its Affiliates a royalty-free, fully paid-up, perpetual, exclusive, transferable (only to a transferee of ownership of the Product), sub-licensable, world-wide and irrevocable license to

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use in connection with the making, having made, selling, having sold, using, and importing the Product and any component thereof, any and all intellectual property rights currently existing as of the Closing and owned by Seller to the extent not included in Product Intellectual Property (including tooling and equipment specifications) that are necessary for Buyer’s making, having made, selling, having sold, using and importing of the Product and any component thereof as it is being done currently or currently contemplated by or on behalf of Seller (the “Other IP”). The Parties hereby acknowledge and agree that (i) no license rights, other than those explicitly granted by Seller under this Section 1.2(a), are implicitly granted to Buyer with respect to the Other IP, and (ii) Seller expressly reserves all of its other rights with respect to the Other IP.

(b)

Subject to license granted in Section 1.2(a), all Other IP and the confidential information therein are and will remain the exclusive property or rights of the Seller, whether or not specifically recognized or perfected under the laws of the jurisdiction in which the Product is being made, sold, used or imported. Buyer shall treat the confidential information embodied therein in the same manner it treats it own confidential information.

1.3

Grant of Sublicense.

Effective upon the Closing, Seller hereby grants a sublicense to Buyer and its Affiliates on terms and conditions set forth on Schedule 1.3.

1.4

Retention of Excluded Assets; Certain Documentation.

From and after the Closing, Seller shall retain all of its right, title and interest in and to the Excluded Assets and Seller may retain, for legal and regulatory purposes only, an archival copy of all Assumed Contracts, Books and Records, Marketing Materials and other documents or materials conveyed hereunder.

Assumption of Liabilities

2.1

Assumption of Assumed Liabilities.

Subject to the terms and conditions of this Agreement, as of the Closing Date, Buyer agrees to assume, satisfy, perform, pay and discharge the Assumed Liabilities.

2.2

Excluded Liabilities.

Seller shall retain and remain solely responsible for, and shall satisfy, perform, pay and discharge when due, any and all Excluded Liabilities.

Purchase Price and Payment.

3.1

Purchase Price.

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(a)

Purchase Price. Buyer shall pay Fifty-Four Million Five Hundred Thousand Dollars ($54,500,000.00), subject to adjustment as set forth herein (the “Purchase Price”) and assume the Assumed Liabilities at Closing.

(b)

Payments of Purchase Price. At the Closing, Buyer shall make the following payments:

(i)

the Final Payoff Amount to the Company Creditors in accordance with the Payoff Letter;

(ii)

Two Million Dollars ($2,000,000.00) (the “Escrow Amount”) deposited by Buyer in an escrow account designated by the Escrow Agent (the “Escrow Account”) to be held in and disbursed from the Escrow Account in accordance with the terms of the Escrow Agreement, which amount shall be subject to reduction for indemnity claims in accordance with Section 10.2 and the Escrow Agreement; and

(iii)

Fifty-Two Million, Five Hundred Thousand Dollars ($52,500,000.00) minus the Final Payoff Amount, to Seller.

(c)

Escrow Release Date. On the date one day after the date that is twenty-four (24) months following the Closing Date (such date, the “Escrow Release Date”), the Escrow Agent shall disburse to the Seller the amounts remaining in the Escrow Account, including any interest earned on the Escrow Amount, subject to any claim notice pursuant to Section 10.4 delivered to the Seller prior to 5:00 P.M. Eastern Standard Time on the Escrow Release Date (and any subsequent resolution of any disputes as provided in Section 10).

(d)

Payment of Funds. All payments due to Seller pursuant to this Section 3.1 shall be paid by wire transfer of immediately available funds to accounts designated in writing by Seller at least two (2) Business Days prior to the Closing Date.

3.2

Allocation of Purchase Price.

Within sixty (60) days after the Closing Date, Seller and Buyer shall agree in good faith on an allocation of the Purchase Price and all other capitalized costs among the Acquired Assets in accordance Section 1060 of the Code and the Treasury Regulations thereunder (and any state, local or foreign law, as applicable) (the “Tax Allocation”); provided, that Buyer and Seller agree that the Inventory and the non-compete provisions contained herein shall be valued at no more than $2,000,000 in the aggregate. Each of the Parties agrees to report (and to cause its Affiliates to report) the transactions contemplated by this Agreement in a manner consistent with Section 1060 of the Code and the Treasury Regulations thereunder (and any state, local or foreign law, as applicable) and with the terms of this Agreement, including the Tax Allocation, and agrees not to take any position inconsistent therewith in any Tax Return (including IRS Form 8594), in any Tax refund claim, in any litigation or otherwise.

3.3

Payment of Sales, Use and Other Taxes.

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Seller shall be solely responsible for all sales, use, transfer, value added, gross receipts and other similar Taxes, if any, arising out of the sale by Seller of the Acquired Assets to Buyer pursuant to this Agreement, except for any recording fees due at the time of recording the assignments of any of the Acquired Assets. Seller, as required by applicable Law, shall timely file or cause to be filed all necessary documents with respect to Taxes that are the Seller’s obligation. Buyer shall be responsible for all recording fees due in connection with recording the assignment of any of the Acquired Assets from Seller to Buyer. In addition, all personal property, ad valorem or other similar Taxes (other than and excluding income Taxes) levied with respect to the Acquired Assets for a taxable period which includes (but does not end on) the Closing Date shall be apportioned between Buyer and Seller based on the number of days included in such period through (and which includes) the Closing Date and the number of days included in such period after the Closing Date, and Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns with respect to Taxes addressed in this Section 3.3.

Closing

4.1

Time and Place.

The closing of the sale and transfer of the Acquired Assets, to be effective at 12:01 A.M. Eastern Standard Time on the Closing Date (the “Closing”), will take place at the offices of Buyer’s special counsel, K&L Gates LLP, located at 599 Lexington Avenue, New York, NY 10022, or at another place designated by Buyer, on the second (2^nd) Business Day following the date on which all of the conditions to each Party’s obligations under Sections 8 and 9 have been satisfied or (if permitted) waived, or at such other time, date and/or place as mutually agreed to by the Parties hereto (such date of the Closing being hereinafter referred to as the “Closing Date”).

4.2

Deliveries at Closing.

(a)

Closing Deliveries by Seller. At the Closing, Seller shall deliver or cause to be delivered: (i) immediately following the Closing to the FDA, a letter duly executed by Seller notifying the FDA of transfer of Seller’s rights to the Regulatory Approvals to Buyer, the form of which is attached hereto as Exhibit A; (ii) to Buyer, (A) physical possession of the Inventory by means of instruction to the third party in possession of the Inventory to ship the Inventory to the location designated by Buyer; (B) an electronic copy of the Seller NDA’s; (C) the Assumed Contracts; (D) the Assignment and Assumption Agreement and other instruments of assignment, conveyance and transfer as are necessary to effect and confirm the sale, transfer, conveyance, and assignment of the Acquired Assets and the assumption of the Assumed Liabilities, and the other Ancillary Agreements, each duly executed by Seller; and (E) correct and complete reports as set forth in Sections 9.14 and 9.15. On or before the Closing Date, Seller shall commence shipment, to be received by Buyer no later than seven (7) Business Days after the Closing Date, of the Regulatory Approvals, Marketing Materials and the Books and Records to the location selected by Buyer.

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(b)

Closing Deliveries by Buyer. At the Closing, Buyer shall deliver or cause to be delivered to Seller, the Assignment and Assumption Agreement and other instruments of assignment, conveyance and transfer as are necessary to effect and confirm the sale, transfer, conveyance, and assignment of the Acquired Assets and the assumption of the Assumed Liabilities, and the other Ancillary Agreements to which the Buyer will become party, each duly executed by Buyer. Upon receipt of the Seller NDAs in hardcopy form from Seller, Buyer shall deliver to the FDA a letter duly executed by Buyer notifying the FDA of the assumption by Buyer of the Regulatory Approvals, the form of which is attached hereto as Exhibit B.

Representations and Warranties of Seller.

Seller represents and warrants to Buyer as of the date of this Agreement and as of the Closing Date, subject to such exceptions as are specifically disclosed in the Disclosure Schedules supplied by Seller to Buyer and dated as of the date of this Agreement, as follows:

5.1

Organization, Etc.

Seller is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware and has all requisite power and authority to own its assets and carry on its business as currently conducted by it. Seller has full limited liability company power and authority to conduct its business and is duly qualified and in good standing in each jurisdiction where such qualification is required, except for any jurisdiction where failure to be so qualified and/or in good standing would not reasonably be expected to materially impair or delay Seller’s ability to perform its obligations hereunder.

5.2

Authority of Seller.

Seller has all necessary entity power and authority to enter into this Agreement and the Ancillary Agreements to which it shall become a party and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance by Seller of its obligations under this Agreement and the Ancillary Agreements to which it shall become a party have been duly and validly authorized and no additional limited liability company or member authorization or consent is required in connection with the execution, delivery and performance by Seller of this Agreement or the Ancillary Agreements to which it shall become a party. This Agreement and the Ancillary Agreements to which it shall become a party have been (or will be) duly and validly executed and delivered by Seller and, when executed and delivered by the QOL Members and the Buyer, will constitute a legal, valid and binding obligation of Seller enforceable against it in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, and (b) as limited by general principles of equity.

5.3

Consents and Approvals.

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(a)

Except as set forth on Schedule 5.3(a), no consents, waivers, approvals, Orders or authorizations of, or registrations, declarations or filings with, any Governmental or Regulatory Authority (“Seller Governmental Consents”) are required by or with respect to Seller in connection with the execution and delivery by Seller of this Agreement or the Ancillary Agreements to which it shall become a party or the performance of its obligations hereunder or thereunder.

(b)

Except as set forth on Schedule 5.3(b), no consents, waivers, approvals, or authorizations of, or notices to, any third party (other than a Governmental or Regulatory Authority) (“Seller Third Party Consents”, and together with Seller Governmental Consents, the “Seller Consents”) are required by or with respect to Seller in connection with the execution and delivery by Seller of this Agreement or the Ancillary Agreements to which it shall become a party or the performance of its obligations hereunder or thereunder.

5.4

Non-Contravention.

Except as set forth on Schedule 5.4, the execution and delivery by Seller of this Agreement and the Ancillary Agreements to which it shall become a party does not, and the performance by Seller of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby will not:

(a)

conflict with or violate any provisions of the organizational documents of Seller;

(b)

assuming the receipt of the Seller Consents, conflict with or result in a violation or breach of any term or provision of any Law applicable to Seller or the Acquired Assets; or

(c)

assuming the receipt of the Seller Consents, conflict with or result in a breach or default (or an event that, with notice or lapse of time or both, would constitute a breach or default) under, or termination of, any Assumed Contract.

5.5

Litigation; Compliance with Applicable Laws.

(a)

Except as set forth on Schedule 5.5(a), there is no claim, action, suit, investigation or proceeding pending against (or to the Knowledge of Seller any basis therefor), or to the Knowledge of Seller, threatened against or affecting, any Acquired Asset, or the transactions contemplated hereby before any court or arbitrator or any governmental body, agency, official or authority.

(b)

Except as set forth on Schedule 5.5(b), (i) Seller has not received any notice from any other Person challenging its ownership of or right to use any Product Intellectual Property and (ii) there has not been any, and there are no, product liability suits, claims, actions, proceedings or, to the Knowledge of Seller, investigations pending or, to the Knowledge of Seller, threatened against Seller, relating to the Product.

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(c)

Except as set forth on Schedule 5.5(c), Seller is and has been in compliance in all material respects with all Laws applicable to the Acquired Assets (excluding the Legacy IP). The foregoing shall not apply to matters concerning infringement or misappropriation of intellectual property rights, which are the subject of Section 5.10.

5.6

Financial Information.

Schedule 5.6 sets forth for the unaudited 2008 calendar year and the unaudited two (2)-month period ending on February 28, 2009, Seller’s gross sales of the Product and related Rebates (by category) and returns received and reserved for, all of which, except as noted on Schedule 5.6, were prepared in accordance with United States generally accepted accounting principles (“GAAP”), applied on a basis consistent with Seller’s past practices, subject to routine year-end adjustments (such as routine cutoff adjustments) and provided, that Rebates are estimated by period (as the actual amounts are not known until some time after the ends of the respective periods) in accordance with GAAP applied on a basis consistent with Seller’s past practices. Also included on Schedule 5.6 are monthly reports generated by Seller’s service provider, Integrated Commercialization Solutions, Inc. (“ICS”), which reports reflect correct and complete Product returns data (detailing number of units and dollar amounts) for October 2008 through February 2009; provided, that inaccuracies in such reports that in the aggregate amount to less than $10,000 shall not constitute a breach of this representation and warranty.

5.7

Contracts.

(a)

For purposes of this Agreement, “Restrictive Contract” means the following, other than Assumed Contracts:

(i)

any material customer, client, licensing or supply Contract related to any of the Acquired Assets;

(ii)

any Contract containing any covenant or provision that materially limits, curtails or restricts the ability of Seller to make use of or transfer any Acquired Assets;

(iii)

any non-competition agreement or any other agreement or obligation that limits or purports to limit in any respect the manner in which, or the geographic areas in which, the Product may be developed, manufactured or sold;

(iv)

any partnership, joint venture or strategic alliance (or any contract substantially similar to any of the foregoing) to which any Acquired Asset is subject;

(v)

any Contract pursuant to which any third party has any material right with respect to any Acquired Asset or the Product; or

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(vi)

any commitment or agreement to enter into any of the foregoing.

(b)

Schedule 5.7(b)(i) sets forth a correct and complete list of the Restrictive Contracts and Schedule 5.7(b)(ii) sets forth a correct and complete list of Assumed Contracts. Seller has heretofore delivered or made available (via Seller’s online data room) to Buyer a correct and complete copy of each contract required to be listed on Schedule 5.7(b)(i) and Schedule 5.7(b)(ii), together with any and all amendments and supplements thereto.

(c)

Each of the Assumed Contracts is valid, binding and in full force and effect and is enforceable in all respects in accordance with its terms by Seller, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by general principles of equity. Except as set forth on Schedule 5.3(a) or Schedule 5.3(b), no approval, consent or waiver of any Person is needed in order that any Assumed Contract continue in full force and effect following the consummation of the transactions contemplated by this Agreement. Seller is not in material default under any Assumed Contract, nor does any condition exist that, with notice or lapse of time or both, would constitute a material default thereunder by Seller. To the Knowledge of Seller, no other party to any Assumed Contract is in material default thereunder, nor does any condition exist that with notice or lapse of time, or both, would constitute a material default by any such other party thereunder. Seller has not received any notice of breach or default with respect to any Assumed Contract, which breach has not been cured, or granted to any third party any rights, adverse or otherwise, that would constitute a material breach of any Assumed Contract, and Seller has not received any notice of termination or cancellation under any Assumed Contract.

5.8

Title to Acquired Assets.

Subject to the disclosures provided in Schedule 5.8, Seller has good and marketable title to, or a valid, enforceable and transferable interest in, the Acquired Assets (except that with respect to Product Intellectual Property other than the Patents and Trademarks, Seller has a valid and enforceable right to use such Product Intellectual Property), free and clear of all mortgages, security interests, charges, encumbrances, liens, assessments, title defects, pledges, licenses and encroachments (“Liens”); provided, that the representations and warranties in this Section 5.8 shall not apply to Legacy IP that Seller has not used in connection with the Product. The foregoing representations shall not apply to matters concerning infringement or misappropriation of intellectual property rights, which are the subject of Section 5.10.

5.9

Regulatory Issues.

(a)

Since October 17, 2005, Seller has filed or caused to be filed all notices and reports required by a Governmental or Regulatory Authority in connection with the Regulatory Approvals (other than those not yet due), including any such annual reports filed in accordance with FDA regulations; provided, that the foregoing representation and warranty shall not be interpreted as a representation and warranty that Seller’s raw material

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suppliers have filed all notices and reports required to be made by such suppliers. Since October 17, 2005, Seller has not received: (i) any FDA Form 483’s relating to the Product; (ii) any FDA Notices of Adverse Findings relating to the Product; or (iii) any warning letters from the FDA concerning the Product. Since October 17, 2005, the Product has not been the subject of a product recall, market withdrawal or replacement required by any Governmental or Regulatory Authority or initiated by the Seller (other than routine replacements or refunds with respect to expired product and the voluntary discontinuation of sales of Nascobal Gel in 2006).

(b)

Schedule 5.9(b) sets forth a true and complete list of all (i) adverse drug experiences, (ii) material events and matters concerning or affecting safety of the Product brought to the attention of Seller and (iii) complaints brought to the attention of Seller with respect to the Product, whether related to safety, manufacturing, stability or otherwise, in each case, since October 17, 2005.

(c)

Except as set forth on Schedule 5.9(c), Seller has not, during the twelve (12)-month period prior to the date hereof, designed, and, to the Knowledge of Seller, has no immediate intention of designing, any material improvements to the manufacturing process related to the Product.

(d)

Since October 17, 2005, Seller has complied with all obligations arising from or related to any commitments to or requirements of any Governmental or Regulatory Authority pursuant to any agreement entered into between Seller and such Governmental or Regulatory Authority and involving the Product.

5.10

Product Intellectual Property.

(a)

Other than as alleged in connection with the Litigation Matter, to the Knowledge of Seller, no third party is infringing the Patents or Trademarks or misappropriating the trade secrets within the Product Intellectual Property (excluding the Legacy IP).

(b)

Seller’s development, manufacture and sale of the Product and its use of the Product Intellectual Property in connection therewith within the United States and South Korea as of the date hereof and as of the Closing Date has not and does not infringe, nor is such development, manufacture or sale of the Product or use of the Product Intellectual Property as of the date hereof and as of the Closing Date the result of any misappropriation of, any intellectual property rights of any other Person. Except as disclosed on Schedule 5.10(b), there have been no claims asserted against Seller alleging that Seller’s development, manufacture or sale of the Product or Seller’s use of the Product Intellectual Property in such countries infringes or is the result of any misappropriation of any intellectual property rights of any other Person.

(c)

Schedule 5.10(c) sets forth a correct and complete list of all Trademarks (including registration numbers and jurisdictions of registrations), domain names

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and a scanned copy of the Trade Dress used in the marketing of the Product, other than “QOL” and any derivation thereof.

(d)

Since October 17, 2005 with respect to the Trademarks and since June 12, 2007 with respect to the Patents, (i) Seller has paid all annuities and maintenance fees and filed all renewals due as of the date hereof and Schedule 5.10(d) sets forth such annuities, maintenance fees and renewals due before May 31, 2009 in respect of the issued Patents and the Trademarks, and (ii) except as set forth on Schedule 5.10(d), in no instance has the eligibility of any issued Patent or Trademark, or any application that has been filed by Seller with respect to any Patent or Trademark, for protection under applicable Law been forfeited to the public domain by omission of any required notice or any other action or inaction of Seller.

5.11

Tax Matters.

(a)

Seller has filed or caused to be filed on a timely basis all Tax Returns that it was required to file. All such Tax Returns are true, correct and complete in all material respects. All Taxes relating to the Acquired Assets that are due and payable have been timely paid in full. There is no Tax deficiency that could result in any lien on the Product or any of the Acquired Assets or in a claim against Buyer as transferee or owner of the Acquired Assets. There are no “bulk sales” provisions relating to Taxes that Buyer or Seller must comply with that could result in a Lien on the Acquired Assets or could result in the imposition of a Tax liability on Buyer. Seller has collected and remitted (or shall remit) all sales and use Taxes as required by Law in each local jurisdiction in which it does business.

(b)

Seller has not waived (and is not subject to a waiver of) any statute of limitations in respect of the payment or assessment of Taxes and has not agreed to any extension of time with respect to any Tax assessment or deficiency (other than with respect to limitation periods that have since expired).

(c)

Seller is not a party to any agreement extending the time within which to file any Tax Return. There is no dispute or claim concerning any Tax Liability of Seller relating to any Acquired Asset either (i) claimed or raised by any taxing authority or (ii) otherwise known to Seller. No claim has been made by a jurisdiction in which Seller does not file Tax Returns that Seller is or may be subject to Tax relating to any Acquired Asset by that jurisdiction and no taxing authority in such a jurisdiction has made any inquiry regarding such matters.

(d)

Seller is not obligated in connection with the Acquired Assets to pay the Taxes of another person by contract, as transferee, as successor, or otherwise.

(e)

Seller is not a “retailer” in accordance with the Laws of Kentucky, and Buyer will not be subject to successor liability for any Tax resulting from the purchase of the Acquired Assets located in Kentucky.

5.12

No Material Adverse Effect.

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There has been no Material Adverse Effect since December 1, 2008.

5.13

Brokers.

Seller has not retained any broker in connection with the transactions contemplated hereunder. Buyer has no, and will have no, obligation to pay any brokers, finders, investment bankers, financial advisors or similar fees in connection with this Agreement or the transactions contemplated hereby by reason of any action taken by or on behalf of Seller.

5.14

Disclaimer of Other Representations and Warranties.

Except as expressly set forth in this Article 5, Seller makes no representation or warranty, express or implied, at law or in equity, in respect of any of its assets (including the Acquired Assets and the Assumed Liabilities), liabilities or operations, including with respect to merchantability or fitness for any particular purpose, and any such other representations or warranties are hereby expressly disclaimed.

Representations and Warranties of Buyer.

Buyer represents and warrants to Seller as of the date of this Agreement and as of the Closing Date, subject to such exceptions as are specifically disclosed in the Disclosure Schedules supplied by Buyer to Seller and dated as of the date of this Agreement, as follows:

6.1

Corporate Organization.

Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite power and authority to own its assets and carry on its business as currently conducted by it. Buyer is duly authorized to conduct its business and is in good standing in each jurisdiction where such qualification is required, except for any jurisdiction where failure to so qualify could not reasonably be expected to materially impair or delay Buyer’s ability to perform its obligations hereunder.

6.2

Authority of Buyer.

Buyer has all necessary power and authority to enter into this Agreement and the Ancillary Agreements to which it shall become a party and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance by Buyer of this Agreement and the Ancillary Agreements to which it shall become a party have been duly and validly authorized and no additional corporate authorization or consent is required in connection with the execution, delivery and performance by Buyer of this Agreement or the Ancillary Agreements to which it shall become a party. This Agreement and the Ancillary Agreements to which it shall become a party have been (or will be) duly and validly executed and delivered by Buyer and, when executed and delivered by Seller and the QOL Members, will constitute a legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws

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of general application affecting enforcement of creditors’ rights generally, and (b) as limited by general principles of equity.

6.3

Consents and Approvals.

Except as set forth on Schedule 6.3, no consents, waivers, approvals, Orders or authorizations of, or registrations, declarations or filings with, any Governmental or Regulatory Authority are required by Buyer (“Buyer Governmental Consents”) in connection with the execution and delivery by Buyer of this Agreement or the Ancillary Agreements to which it shall become a party or the performance of its obligations hereunder or thereunder.

6.4

Non-Contravention.

The execution and delivery by Buyer of this Agreement and the Ancillary Agreements to which it shall become a party does not, and the performance by it of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby will not:

(a)

conflict with or violate any provision of the organizational documents of Buyer; or

(b)

assuming the receipt of all Buyer Governmental Consents, conflict with or result in a violation or breach of any term or provision of any Law applicable to Buyer.

6.5

Brokers.

Buyer has not retained any broker in connection with the transactions contemplated hereunder. Neither Seller nor any QOL Member has, and will not have, any obligation to pay any brokers, finders, investment bankers, financial advisors or similar fees in connection with this Agreement or the transactions contemplated hereby by reason of any action taken by or on behalf of Buyer.

Covenants of the Parties

7.1

Conduct of the Business.

From the date hereof until the Closing Date, (a) Seller shall (i) conduct its business with respect to the Product and the Acquired Assets only in the ordinary course, consistent with past practices and reasonable industry standards, (ii) continue to conduct the Litigation Matter in a diligent manner and (iii) maintain all Regulatory Documentation as current and timely, as required by the FDA or other Governmental or Regulatory Authority, and (b) Seller shall not without the consent of the Buyer (which consent shall not be unreasonably withheld, delayed or conditioned):

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(i)

sell, lease, license or otherwise dispose of the Acquired Assets except (A) pursuant to existing contracts or commitments and (B) the sale of the inventory in the ordinary course of business consistent with past practices;

(ii)

terminate or amend any agreement set forth on Schedule 5.7(b)(i) or Schedule 5.7(b)(ii) other than as contemplated by Section 7.6(c) or enter into any agreement or arrangement that would, if in effect as of the date hereof, otherwise be required to be set forth on such Schedule other than purchase orders in the ordinary course of business;

(iii)

engage in any special promotional activities and/or special discounts with respect to the Product;

(iv)

(A) take or agree or commit to take any action that would make any representation and warranty made by Seller under this Agreement on the date hereof inaccurate in any respect at, or as of any time prior to, the Closing Date or (B) omit or agree or commit to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time; or

(v)

settle or agree to settle any claim, suit, action or other proceeding relating to the Product or the Acquired Assets or file any motions or serve or respond to any discovery requests in the Litigation Matter; or

(vi)

agree or commit to do any of the foregoing.

7.2

Continued Due Diligence.

From the date hereof until the Closing Date, Seller shall (a) give Buyer, its counsel, financial advisors, financing sources, auditors and other authorized representatives full access to the offices, properties, books and records of Seller related to the Product and the Acquired Assets, (b) furnish to Buyer, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information relating to the Product and the Acquired Assets as such Persons may reasonably request and (c) instruct the employees, counsel and financial advisors of Seller to cooperate with Buyer in its investigation of the Product and the Acquired Assets. No investigation by Buyer pursuant to this Section 7.2 shall affect any representation or warranty given by Seller hereunder or any of Buyer’s rights under this Agreement.

7.3

Notices of Certain Events; Continuing Disclosure.

(a)

Seller shall promptly notify Buyer of:

(i)

any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions

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contemplated by this Agreement or otherwise asserting or claiming any rights with respect to the Product or the Acquired Assets;

(ii)

any notice or other communication from any Governmental or Regulatory Authority relating to the Product or the Acquired Assets; and

(iii)

any actions, suits, claims, investigations or proceedings commenced or, to the Knowledge of Seller, threatened against, or relating to or involving or otherwise against or affecting the Product or the Acquired Assets or that relate to the consummation of the transactions contemplated by this Agreement.

(b)

Until the Closing Date, Seller and Buyer shall have the continuing obligation promptly to advise the other party with respect to any matter hereafter arising or discovered that, if existing or known at the date of this Agreement, would have been required to be set forth or described in a Disclosure Schedule to this Agreement (including adding new Disclosure Schedules to include the matters that are an exception to a representation or warranty but for which no Schedule is currently provided), or that constitutes a breach or prospective breach of this Agreement; provided, that except as indicated in this Section 7.3(b), no such supplemental disclosure will be deemed to cure any breach as of the date of this Agreement of any representation or warranty contained herein. If Seller supplements its Disclosure Schedules between the date hereof and the Closing Date pursuant to this Section 7.3(b) and such matters so disclosed would cause the condition set forth in Section 9.2 not to be met, then, notwithstanding anything herein to the contrary, Buyer shall have the option to elect either: (i) to terminate this Agreement in accordance with Section 11.1; or (ii) to proceed to close the transactions contemplated by this Agreement, in which event Seller shall have no liability whatsoever with respect to such matters and such disclosure shall be deemed to cure any misrepresentation or breach of warranty that might have otherwise existed under this Agreement by reason of the failure to have disclosed such items as of the date hereof.

7.4

Exclusive Dealings.

From the date hereof until the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, Seller and each QOL Member shall not, and shall cause Seller’s directors, officers, employees, agents, Affiliates not to, directly or indirectly, solicit or initiate the submission of proposals from, or solicit, encourage, entertain or enter into any arrangement, agreement, letter of intent or understanding with, or engage in any negotiations with, or furnish any information to, any Person, other than Buyer or any representative(s) or agent(s) thereof, with respect to any encumbrance or the direct or indirect acquisition of the Acquired Assets or any material portion thereof (including any proposed acquisition of Seller), except in connection with the sale of inventory in the ordinary course consistent with Seller’s past practice. Should Seller, any QOL Member or any of their respective Affiliates or representatives, during such period, receive any offer or inquiry relating to any such encumbrance or acquisition, or obtain information that such an offer is likely to be made, Seller shall provide the Buyer with immediate written notice thereof.

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7.5

Reasonable Best Efforts.

Each Party shall use its Reasonable Best Efforts to take, or cause to be taken, all action, or to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate and make effective the transactions contemplated by this Agreement and to cause the conditions to the obligations of the Parties to consummate the transactions contemplated hereby to be satisfied (but not waived), including obtaining all consents and approvals of all Persons and Governmental or Regulatory Authorities and removing any injunctions or other impairments or delays that are necessary, proper or advisable to the consummation of the transactions contemplated by this Agreement.

7.6

Cooperation and Transition.

(a)

Subject to Section 7.10, each Party shall cooperate with the other in preparing and filing all notices, applications, submissions, reports and other instruments and documents (including post-Closing new drug application supplements or annual reports necessary for Buyer to manufacture, market, distribute and sell the Product in the United States and South Korea) that are necessary, proper or advisable under applicable Laws to consummate and make effective the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Seller shall use commercially reasonable efforts to cooperate with Buyer in respect of Buyer’s efforts to obtain any consents and approvals of any Governmental or Regulatory Authority required for Buyer to be able to own and operate the Acquired Assets in the United States and South Korea, including providing data and information related to the Regulatory Approvals, Regulatory Documentation and the Product upon request of any Governmental or Regulatory Authority in the United States and South Korea.

(b)

The Parties shall cooperate to complete the transition of any applicable support services from Seller and its service providers to Buyer and its service providers at or as soon as practicable following the Closing Date. Notwithstanding the foregoing, the Parties shall cooperate to agree upon terms for the provision by Seller and/or its service providers of any transition services required by Buyer until such services have been transitioned to Buyer and its service providers, including, if and as applicable, product supply provisions.

(c)

Seller shall cause (i) all Restrictive Contracts listed on Schedule 7.6(c)(i) to be terminated or amended to remove any application or effect with respect to the Acquired Assets at no cost to Buyer prior to the Closing Date and (ii) all Restrictive Contracts listed on Schedule 7.6(c)(ii) to be terminated or amended to remove any application or effect with respect to the Acquired Assets at no cost to Buyer as soon as reasonably practicable after the Closing Date.

(d)

Seller shall cause Ventiv Commercial Services, LLC to cease detailing the Product as of the Closing Date and thereafter. Upon receipt of the acknowledgement of the filing of the renewal application for the Nascobal trademark registered in Japan as Registration # 4190179 and issued on March 18, 1998, Seller shall cause the

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assignment of such trademark by MDRNA Inc. (formerly Nastech Pharmaceutical Company, Inc.) to Seller to be filed with the appropriate Governmental and Regulatory Authority in Japan.

7.7

Public Announcements.

Buyer and Seller each agrees that, prior and subsequent to the Closing, it and its representatives and members shall keep the terms of this Agreement confidential and shall not disclose such information to any other Person (except as necessary to carry out the express terms of this Agreement or to the extent such information becomes public information or generally available to the public through no fault of such Party or its Affiliates) without the prior written consent of the other Party (which shall not be unreasonably withheld), unless such Party reasonably believes that disclosure is required to be made under applicable Law or the requirements of a national securities exchange or another similar regulatory body (in which event such Party shall, upon request of any non-disclosing Party, exercise its Reasonable Best Efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded to the information so disclosed).

7.8

Bulk Sales.

Buyer hereby waives compliance by Seller with the provisions of any so-called “bulk transfer law” of any jurisdiction in connection with the sale of the Acquired Assets to Buyer. Seller will indemnify Buyer against, and pay and reimburse Buyer for, any and all costs, Liabilities and obligations that may be asserted by third parties against Buyer as a result of noncompliance with any such bulk transfer law.

7.9

NDC Numbers; Marketing Materials.

(a)

Buyer may use Seller’s labeling, including Seller’s National Drug Code number (“NDC Number”) for the Product existing as of the date hereof (the “Current NDC Number”) and Corporate Names, to sell or sample any lots of the Product in Inventory. Buyer shall apply for and initiate applicable processes to obtain and establish its own NDC Number for the Product.

(b)

Buyer shall notify Seller reasonably in advance of the date it expects to cease sales of Product using the Current NDC Number (the “NDC Number Termination Date”). Seller shall not discontinue the Current NDC Number prior to the NDC Number Termination Date. Following the NDC Number Termination Date, Seller shall discontinue the use of the Current NDC Number other than with respect to Rebates, allowances and adjustments for Product sold prior to the Closing Date; provided, however, that Seller shall (i) not seek from any customer any type of cross-referencing of Buyer’s NDC Numbers with any of Seller’s products and (ii) provide Buyer with draft notifications to any of Seller’s customers regarding the use or discontinued use of such numbers by Seller prior to such notifications being disseminated to the customers.

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(c)

Buyer may use any Marketing Materials included in the Acquired Assets following Closing; provided that Buyer uses its own name on such materials and completely removes all Corporate Names from, or completely covers all Corporate Names on, such materials (except as provided in Section 7.9(a) above).

7.10

Regulatory Matters.

(a)

On the Closing Date, Seller shall transfer the Regulatory Documentation to Buyer.

(b)

Subject to Section 7.10(a), from and after the Closing, Buyer, at its cost, shall be solely responsible and liable for (i) taking all actions, paying all fees and conducting all communication with the appropriate Governmental or Regulatory Authority required by Law in respect of the Regulatory Approvals or the Regulatory Documentation, including preparing and filing all reports (including adverse drug experience reports) with the appropriate Governmental or Regulatory Authority, (ii) taking all actions and conducting all communication with third parties in respect of the Product (whether sold before or after Closing), including responding to (A) complaints in respect thereof, including complaints related to tampering or contamination, and (B) all medical information requests, and (iii) investigating all complaints and adverse drug experiences in respect of the Product (whether sold before or after Closing). From the Closing Date and for three (3) years thereafter, Buyer shall (1) provide a copy of any annual report with respect to the Product and filed with the FDA by Buyer and (2) provide Seller with a copy of any 15-day reportable adverse drug experience reports that are identified with a lot number for Product sold by Seller before the Closing Date within two (2) Business Days after Buyer’s submission thereof to the FDA. From and after the Closing Date, Seller shall provide Buyer with prompt written notice (within two Business Days) in the that event Seller becomes aware of any complaints, medical information requests, investigations or adverse drug experiences in respect of the Product and shall cooperate with Buyer in investigating and responding thereto.

(c)

Seller shall prepare the annual report in respect of the Product due April 1, 2009 (the “Filing Deadline”) and shall use commercially reasonably efforts to file such report prior to the Closing Date, but in all events shall file such report no later than the Filing Deadline, and shall provide Buyer with copies of the same; provided, however, that if the Closing occurs prior to the Filing Deadline and Seller has not filed the report prior to Closing, Seller shall provide such report to Buyer at the Closing.

7.11

Post-Closing Orders and Payments.

From and after 12:01 A.M. Eastern Daylight Savings Time on the day of the Closing Date, (a) Seller will promptly deliver to Buyer any payments received by Seller from third parties for Product purchased by the third parties from Buyer on or after the Closing Date, and refer all inquiries it receives with respect to the Product, to Buyer or its designee and (b) Buyer will promptly deliver to Seller any payments received by Buyer from third parties for the Products purchased by third parties from Seller or its Affiliates prior to the Closing Date. To the

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extent Seller receives any collections of amounts due Buyer resulting from sales of Product by Buyer on or after the Closing Date, Seller shall promptly (but in no event beyond 10 days) forward such payments to Buyer (and in the event any of such receipts are inadvertently deposited by Seller, Seller shall promptly pay all such amounts over to Buyer). To the extent Buyer receives any collections of amounts resulting from sales of Product by Seller prior to the Closing Date, Buyer shall promptly (but in no event beyond ten (10) days) forward such payments to Seller (and in the event any of such receipts are inadvertently deposited by Buyer, Buyer shall promptly (but in no event beyond ten (10) days) pay all such amounts over to Seller).

7.12

Rebates; Government Price Reporting Obligations.

(a)

Seller shall be responsible for and pay all Rebates relating to Product sold by Seller before the Closing. Buyer shall be responsible for and pay all Rebates relating to Product sold by Buyer after the Closing.

(b)

Buyer and Seller shall provide each other with all information relating to the Product and the prices thereof that the other Party reasonably requires in order to comply with the foregoing and the applicable rules and regulations relating to Medicaid rebates, including State supplemental Medicaid rebates and will cooperate with each other in settlement (and reimbursement to each other if applicable) of any Rebates owed by one party that were set off against accounts receivable of the other party in error by a customer or other third party.

7.13

Insurance.

On or prior to the Closing Date, Seller shall obtain product liability “tail” or “continuum” insurance policy that covers the Product for a four-year period with coverage levels not less than $10 million. Seller shall cause Buyer to be named as an additional insured thereunder and shall provide Buyer with written proof of such insurance to Buyer at the Closing and upon request. Buyer agrees to maintain its own insurance policies with respect to the Buyer’s ownership, development, manufacture, sale and distribution of the Product and any other uses of the Acquired Assets. Buyer and Seller shall cooperate in seeking insurance coverage with respect to any matter for which such coverage may be available.

7.14

Sales Tax Certificate.

On or prior to the Closing Date, Buyer shall deliver to Seller either (a) the Multistate Tax Commissions “Uniform Sales & Use Tax Certificate – Multijurisdiction,” or (b) a Kentucky “Resale Certificate,” Form 51A105 (either (a) or (b) the “Sales Tax Certificate”).

7.15

Further Assurances.

(a)

On and after the Closing, Seller shall from time to time, at the request of Buyer, execute and deliver, or cause to be executed and delivered, such other instruments of conveyance and transfer and take such other actions as Buyer may reasonably

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request, in order to more effectively consummate the transactions contemplated hereby and to vest in Buyer good and marketable title to the Acquired Assets (including assistance in the acquiring possession or control of any of the Acquired Assets).

(b)

On and after the Closing, Buyer shall from time to time, at the request of Seller, take such actions as Seller may reasonably request, in order to more effectively consummate the transactions contemplated hereby, including Buyer’s assumption of the Assumed Liabilities.

7.16

Product Returns.

(a)

The Seller and Buyer have negotiated regarding responsibility for returns received following the Closing with respect to Product sold by Seller prior to the Closing Date and Seller and Buyer have resolved all issues relating to responsibility for returns through an agreed-upon reduction in the Purchase Price (which adjustment has been taken into account in the Purchase Price contained herein). In exchange for such Purchase Price reduction, Buyer has agreed to accept all responsibility for the handling, processing and payment of all returns of Product received on or after the Closing Date, but excluding Product returns received by or on behalf of Seller before the Closing Date but not yet fully processed, irrespective of whether such Product was sold by Seller prior to the Closing or by Buyer after the Closing. Seller shall forward to Buyer any claims or notices it receives on or after the Closing Date from third parties regarding Product returns. As Seller and Buyer have each made their own estimates of the potential returns for Product sold prior to the Closing that will ultimately be returned after the Closing, Buyer shall not have any obligation to Seller if actual returns are less than the Purchase Price adjustment agreed upon by the parties and Seller shall not have any obligation to Buyer if actual returns are greater than the Purchase Price adjustment agreed upon by the parties. On the Closing Date, Buyer and Seller shall jointly instruct, in writing, (a) McKesson Corp. (“McKesson”) and Cardinal Health Inc. (“Cardinal”) and other customers identified by the Parties (collectively, the “Wholesalers”) to send all future Product returns to a third party designated by Buyer and (b) ICS to return to each Wholesaler all Product returns sent on or after the Closing Date by such Wholesaler. In the event any amounts relating to returns of Product made after the Closing are deducted from amounts due Seller from third parties within thirty (30) days of the Closing Date, Seller shall bill Buyer for such amounts, accompanied by an accounting, and the reimbursement from Buyer shall be due within ten (10) days of receipt of such billings. On the Closing Date, Seller shall obtain from ICS and deliver to Buyer in Microsoft Excel format (i) a full lot expiration file relating to Product sold prior to the Closing Date and (ii) a full shipping history of Product sold prior to the Closing Date, including invoice date (i.e., shipping date), NDC Number, lot number, customer, quantity and price.

7.17

Cooperation relating to Non-Indemnifiable Claims.

In the event that Seller or Buyer (“Defending Party”) becomes party to any suit, claim, action or proceeding initiated by a third party that relates to any Acquired Asset and Damages (if any) relating to such matter would not be indemnifiable under Section 10, the other party shall cooperate in connection therewith to the extent that it possesses records and information relating

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to such Acquired Asset and shall use commercially reasonable efforts to make available personnel and provide such testimony and access to such records and information as may be reasonably requested by Defending Party in connection therewith at the sole cost of the Defending Party. In the event that Buyer requests Seller to remain a party to the Litigation Matter or the court requires Seller remain a party to the Litigation Matter, (a) Buyer shall pay all of Seller’s fees, costs and expenses incurred in connection with the Litigation Matter, provided, that Seller uses Buyer’s legal counsel and Buyer controls the Litigation Matter, and (b) Seller shall cooperate with Buyer in connection with the Litigation Matter.

7.18

Release of Liens of Company Creditors.

Prior to the Closing, Seller shall cause to be delivered to Buyer a payoff letter (the “Payoff Letter”) from the Company Creditors, which letter shall specify the aggregate amount required to be paid in order to obtain the release of the security interests of the Company Creditors in all of the Acquired Assets and payment instructions on the projected Closing Date. The Payoff Letter shall be in a form reasonably satisfactory to Buyer and will include customary undertakings to release in full, upon receipt of payment the amounts reflected in such Payoff Letter, any and all Liens securing the Company Indebtedness related to such Payoff Letter and to authorize Seller and Buyer to terminate all UCC financing statements filed by the Company Creditors against Seller without signature of the Company Creditors. Within two (2) Business Days after the Closing, Seller shall file all UCC termination statements that are necessary to terminate such UCC financing statements.

Conditions to the Obligations of Seller.

The obligation of Seller to effect the transactions contemplated hereby is subject to the satisfaction (or waiver by Seller), at or before the Closing, of each of the following conditions:

8.1

Agreements and Conditions.

On or before the Closing Date, Buyer shall have complied with and duly performed, in all material respects, all agreements and covenants on its part to be complied with and performed pursuant to or in connection with this Agreement on or before the Closing Date.

8.2

Representations and Warranties.

The representations and warranties of Buyer contained in this Agreement qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, as of the Closing Date (except that any representation and warranty made as of a specified date shall continue to be true and correct on and as of such date).

8.3

No Legal Proceedings.

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No court or governmental suit, action or proceeding shall have been instituted or overtly threatened to restrain or prohibit the transactions contemplated hereby.

8.4

Officer’s Certificate.

Seller shall have received a certificate dated the Closing Date and executed by an authorized officer of Buyer to the effect that the conditions set forth in Sections 8.1, 8.2 and 8.3 shall have been satisfied.

8.5

Secretary’s Certificate.

Seller shall have received a certificate, dated the Closing Date and executed by the Secretary of Buyer, certifying the incumbency and signatures of the officers of Buyer authorized to act on behalf of Buyer in connection with the transactions contemplated hereby and attaching and certifying as true and complete copies of the resolutions duly adopted by the Board of Directors of Buyer authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

8.6

Purchase Price.

Buyer shall have delivered the Purchase Price in accordance with Section 3.1.

8.7

Ancillary Agreements.

Seller shall have received the Ancillary Agreements, duly executed and delivered by Buyer.

8.8

Sales Tax Certificate.

Seller shall have received a copy of the Sales Tax Certificate.

Conditions to the Obligations of Buyer.

The obligation of Buyer to effect the transactions contemplated hereby is subject to the satisfaction (or waiver by Buyer), at or before the Closing, of the following conditions:

9.1

Agreements and Conditions.

On or before the Closing Date, Seller shall have complied with and duly performed, in all material respects, all agreements and covenants on their part to be complied with and performed pursuant to or in connection with this Agreement on or before the Closing Date.

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9.2

Representations and Warranties.

The representations and warranties of Seller and the QOL Members contained in this Agreement qualified as to materiality or Material Adverse Effect and those contained in Section 5.9 shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, as of the Closing Date (except that any representation and warranty made as of a specified date shall continue to be true and correct on and as of such date).

9.3

No Legal Proceedings.

No court or governmental suit, action or proceeding shall have been instituted or overtly threatened to restrain or prohibit the transactions contemplated hereby and, as of the Closing Date, there will be no court or governmental action or proceeding pending or threatened against or affecting Seller, the Product or the Acquired Assets that involves a demand for any judgment or Liability, whether or not covered by insurance, that could reasonably be expected to have a Material Adverse Effect.

9.4

Officer’s Certificate.

Buyer shall have received a certificate dated the Closing Date and executed by a duly elected officer of Seller to the effect that the conditions set forth in Sections 9.1, 9.2 and 9.3 shall have been satisfied.

9.5

Secretary’s Certificate.

Buyer shall have received a certificate, dated the Closing Date and executed by the Secretary of Seller, certifying the incumbency and signatures of the officers of Seller authorized to act on behalf of Seller in connection with the transactions contemplated hereby and attaching and certifying as true and complete copies of (a) the resolutions duly adopted by the Members of Seller authorizing and approving the execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby and (b) Seller’s organizational documents, all as may have been amended up through the Closing Date.

9.6

Ancillary Agreements.

Buyer shall have received the Ancillary Agreements, duly executed and delivered by the Parties thereto (other than Buyer).

9.7

Certificates of Status.

Buyer shall have received a certificate from the Secretary of State of the State of Delaware, stating that Seller has filed its most recent annual reports, has not filed a certificate of dissolution or withdrawal and is in good standing in such jurisdiction.

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9.8

Consents.

All Seller Consents set forth on Schedule 5.3(a) and Schedule 5.3(b) shall have been obtained and delivered to the Buyer.

9.9

Liens.

Seller shall have delivered satisfactory evidence that all Liens set forth on Schedule 9.9 shall be discharged at or prior to Closing.

9.10

Restrictive Contracts.

Buyer shall have received evidence reasonably satisfactory to it that all Restrictive Contracts set forth on Schedule 7.6(c)(i) have been, at no cost to Buyer, either irrevocably terminated or amended to remove any application or effect with respect to the Product or the Acquired Assets.

9.11

Standstill Agreement.

Buyer, Seller, Velos Global Limited (“Velos”) and ANU Global Limited (“ANU”) shall have entered into the Standstill Agreement.

9.12

Consummation of MDRNA Transaction.

All conditions to the Closing of the MDRNA Transaction shall have been satisfied or waived and the parties to the MDRNA Transaction shall be prepared to close such transaction concurrently with the Closing under this Agreement.

9.13

Authorization Letters from DMF Holders.

Buyer shall have received (a) a copy of the revised Letters of Access from the holders of the Drug Master Files relating to the Product, which letters authorize Buyer to incorporate by reference into the Seller NDAs the specific information contained in such Drug Master Files or (b) evidence reasonably satisfactory to Buyer that each holder of a Drug Master File relating to the Product does not object to providing such revised Letter of Access.

9.14

Wholesaler Inventories.

Buyer shall have received evidence reasonably satisfactory to it that the inventory levels of the Product held by each of McKesson and Cardinal and on behalf of Seller do not exceed a twenty-one (21)-day supply on hand as of a date no more than five (5) Business Days prior to the Closing Date.

9.15

Returns Report.

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Buyer shall have received a report dated as of the day before the Closing Date showing Product returns received by or on behalf of Seller, as reported by ICS, (detailing number of units and dollar amounts) for the month that includes the Closing Date for the portion of such month up to the Business Day before the Closing Date.

10.

Indemnification.

10.1

Termination of Representations and Warranties.

All representations, warranties and covenants (other the covenant in Section 12.4) of Seller and Buyer contained herein or made pursuant hereto shall survive the Closing Date and shall remain operative and in full force and effect for a period of thirty-six (36) months following the Closing Date and shall then terminate and be of no further effect; provided, however, that any indemnity claim with respect to such representations, warranties and covenants shall survive the time(s) that they would otherwise terminate with respect to claims of which written notice in reasonable specificity has been given as provided in this Agreement prior to such termination. Subject to Section 14.3, any limitation or qualification set forth in any one representation and warranty contained in Sections 5 and 6 and Annexes 1 and 2 shall not limit or qualify any other representation and warranty contained in such Section or Annex. Each representation and warranty included in this Agreement is independent and shall be interpreted without regard to any other representation or warranty contained herein (including any more inclusive representation or warranty).

10.2

Indemnification Obligations of Seller.

Subject to the exclusions and limitations in Sections 10.1 and 10.5, from and after the Closing, Seller shall indemnify, reimburse, defend and hold harmless Buyer, its Affiliates, and their respective officers, directors, employees, agents, successors and assigns (the “Buyer Indemnified Parties”) from and against any and all costs, losses, Liabilities, damages, lawsuits, deficiencies, claims, fines, penalties, interest and expenses (including fees and disbursements of attorneys actually incurred) (collectively, “Damages”), incurred by a Buyer Indemnified Party arising out of, or resulting from (a) any breach of any covenant or agreement of Seller in this Agreement, (b) the breach of any representation or warranty made by Seller in this Agreement, (c) the failure of Seller to pay, perform and discharge any Excluded Liabilities, and (d) the enforcement by the Buyer Indemnified Parties of their rights under this Section 10.2.

10.3

Indemnification Obligations of Buyer.

From and after the Closing, Buyer shall indemnify, defend and hold harmless Seller, its Affiliates and their respective officers, directors, employees, agents, successors and assigns (the “Seller Indemnified Parties”) from and against any and all Damages incurred by a Seller Indemnified Party arising out of, or resulting from (a) any breach of any covenant or agreement of Buyer herein, (b) the breach of any representation or warranty made by Buyer in this Agreement, (c) the failure of Buyer to assume, pay, perform and discharge any

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Assumed Liabilities and (d) the enforcement by the Seller Indemnified Parties of their rights under this Section 10.3.

10.4

Procedures for Indemnification; Defense.

(a)

If any Party (the “Indemnitee”) receives notice of any claim or the commencement of any action or proceeding with respect to which any other Party (or Parties) is obligated to provide indemnification (the “Indemnifying Party”) pursuant to Sections 10.2 or 10.3, the Indemnitee shall give the Indemnifying Party written notice thereof promptly following the Indemnitee’s receipt of such notice. Such notice shall describe the claim in reasonable detail and shall indicate the amount (estimated if appropriate) of the Damages that have been or may be sustained by the Indemnitee. The failure to so provide such notice shall not affect the Indemnifying Party’s obligations hereunder, unless to the extent such Party is materially prejudiced as a result thereof.

(b)

Provided that the Indemnitee undertakes and pursues such conduct and control in a reasonable and diligent manner, the Indemnitee shall have the right to conduct and control, through counsel of its choosing, the defense, compromise or settlement of any third party claim, action or suit against such Indemnitee as to which indemnification will be sought by such Indemnitee hereunder, and in any such case the Indemnifying Party shall cooperate in connection therewith and shall furnish such records, information and testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested by the Indemnitee in connection therewith. The Indemnifying Party may participate, through counsel chosen by it and at its own expense, in the defense of any such claim, action or suit as to which the Indemnitee has so elected to conduct and control the defense thereof. The Indemnitee shall be entitled to pay, compromise or settle any such claim, action or suit, with or without the consent of the Indemnifying Party, unless the Indemnitee is acting unreasonably or in bad faith (reasonableness with respect to a settlement or compromise shall be based upon all the facts and circumstances of the third party claim). Notwithstanding the foregoing, (i) if the Indemnitee fails to conduct and control the defense, compromise or settlement of any such matter in a reasonable and diligent matter, the Indemnifying Parties shall have the right, upon written notice to the Indemnitee, to take control of such defense at its sole cost and (ii) on or before the date that is six (6) months from the date that the Indemnitee gave notice to the Indemnifying Party of a claim or commencement of an action or proceeding under Section 10.4(a), the Indemnifying Party shall give written notice to the Indemnitee either (A) acknowledging that such claim, action or proceeding is indemnifiable under this Agreement, in which case, subject to the limitations set forth in Section 10.5, it shall pay to the Indemnitee within two (2) Business Days all Damages previously incurred by the Indemnitee in respect of such claim, action or proceeding and shall directly pay all other Damages of the Indemnitee in connection with such claim, action or proceeding within the time period that such payment is due or (B) denying or reserving its right to deny that such claim, action or proceeding is indemnifiable under this Agreement, in which case the Indemnifying Party shall no longer be entitled to participate in the defense of any such claim, action or proceeding; provided, that the foregoing shall not in any way limit the Indemnitee’s right to commence an action or proceeding

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against the Indemnifying Party seeking indemnification under this Agreement. Seller’s failure to give written notice in accordance with the previous sentence shall be deemed a notice denying or reserving its rights to deny that such claim, action or proceeding is indemnifiable under this Agreement.

10.5

Limitations.

(a)

Subject to Section 10.4, notwithstanding any provision contained in this Agreement or in any Ancillary Agreement (other than the Escrow Agreement), or in any schedule, certificate, instrument, agreement or document delivered in connection herewith or therewith to the contrary, in no event shall the Seller be liable for (i) any claim for Damages under this Agreement or under any Ancillary Agreement (other than the Escrow Agreement), or in any schedule, certificate, instrument, agreement or document delivered in connection herewith or therewith until such time as all Damages suffered by all Buyer Indemnified Parties hereunder that are otherwise indemnifiable under this Agreement or under any Ancillary Agreement (other than the Escrow Agreement), or in any schedule, certificate, instrument, agreement or document delivered in connection herewith or therewith shall exceed a threshold of * * * * in the aggregate (the “Deductible”), after which point only claims in excess of the Deductible shall be recoverable and (ii) all indemnification obligations of Seller in respect of Damages under this Agreement or under any Ancillary Agreement (other than the Escrow Agreement), or in any schedule, certificate, instrument, agreement or document delivered in connection herewith or therewith shall not in the aggregate exceed * * * * (the “Claims Limitation”), which amounts shall be paid first from the Escrow Account; provided, however, that the Deductible and the Claims Limitation shall not apply * * * * *. For purposes of clarity, the Deductible shall not reduce Seller’s indemnification obligation hereunder to less than * * * *.

(b)

The amount of any Damages for which indemnification is provided under this Article X shall be (i) reduced by any amounts actually received by the Indemnitee under insurance policies with respect to such Damages and (ii) deemed adjustments to the Purchase Price.

(c)

Seller agrees that its and all Seller Indemnified Parties’ sole and exclusive remedies at law or in equity for Damages for any matters arising from this Agreement, the Ancillary Agreements (other than the Escrow Agreement) and any schedule, certificate, instrument, agreement or document delivered pursuant hereto or thereto shall be the rights to indemnification set forth in this Article X. Buyer agrees that its and all Buyer Indemnified Parties’ sole and exclusive remedies at law and in equity for Damages for any matters relating to or arising from this Agreement (other than injunctive relief under Section 12 and Annexes 1 and 2) the Ancillary Agreements (other than the Escrow Agreement) and any schedule, certificate, instrument, agreement or document delivered pursuant hereto or thereto shall be the rights to indemnification set forth in this Article X.

(d)

Buyer shall look first to the Escrow Account for recovery for Damages subject to indemnification hereunder until such time as the Escrow Amount is exhausted by claims or distributed to the Seller.

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(e)

Neither Buyer nor Seller shall be liable to the other for punitive damages in connection with direct claims against the other (i.e., claims other than those asserted by a third party). Buyer and Seller acknowledge and agree that punitive damages awarded in connection with a third party claim that is indemnifiable hereunder are direct damages of the Indemnitee and are fully recoverable hereunder subject to the limitations above.

11.

Termination and Abandonment.

11.1

Methods of Termination.

The transactions contemplated herein may be terminated or abandoned at any time prior to the Closing:

(a)

by mutual written agreement of Seller and Buyer;

(b)

by Seller if any of the conditions set forth in Section 8 shall have become incapable of fulfillment and shall not have been waived by Seller;

(c)

by Buyer if any of the conditions set forth in Section 9 shall have become incapable of fulfillment and shall not have been waived by Buyer; or

(d)

by either Seller or Buyer if the Closing shall not have occurred by April 10, 2009; provided that the terminating Party is not then in material breach of its representations, warranties, or obligations hereunder.

11.2

Procedure upon and Effect of Termination.

In the event of termination and abandonment under Section 11.1, written notice thereof shall forthwith be given to the other Party and the transactions, conveyances, and other actions contemplated by this Agreement shall be terminated and abandoned, without further action by the Parties; provided, that no Party shall be relieved of any Damages occurring or sustained as a result of a breach of any of such Party’s representations, warranties, covenants or agreements contained herein. Notwithstanding any termination of this Agreement, the provisions of Section 7.7 and 13 and this Section 11.2 shall survive.

12.

Non-Competition; Confidentiality.

12.1

Non-Competition.

Seller acknowledges that (a) Buyer would not have entered into this Agreement but for the agreements and covenants contained in this Section 12 and (b) the agreements and covenants contained in this Section 12 are essential to protect the value and goodwill of the Acquired Assets. To induce Buyer to enter into this Agreement, Seller hereby agrees that, following the Closing Date and for a period of three (3) years thereafter (the “Restricted Period”), without the prior consent of Buyer, it shall not, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control

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of, or be employed or retained by, render services to, provide financing (equity or debt) or advice to, or otherwise be connected in any manner with any business that at any time markets, sells, commercializes or develops or manufactures for sale or distribution (or takes any other action related to any of the foregoing) any pharmaceutical product that contains vitamin B12 to treat B12 deficiencies or maintain B12 levels, anywhere in the world; provided, however, that nothing contained herein shall prevent the purchase or ownership by Seller of less than three (3%) percent of the outstanding equity securities of any class of securities of a company registered under Section 12 of the Securities and Exchange Act of 1934, as amended.

12.2

No-Competing Interests.

Seller hereby represents and warrants to Buyer that it does not have any ownership or other interest in any business that markets, sells, commercializes or develops or manufactures for sale or distribution (or takes any other action related to any of the foregoing) any pharmaceutical product that contains vitamin B12 to treat B12 deficiencies or maintain B12 levels, anywhere in the world. Seller hereby represents and warrants to Buyer that, from and after the Closing, neither it nor any of its Affiliates has or shares with Seller any ownership or other interest in any Acquired Asset.

12.3

Non-Disruption.

During the Restricted Period, neither Seller nor Buyer shall intentionally, directly or indirectly, interfere with, disrupt or attempt to disrupt any present (including the relationships included in the Acquired Assets) relationship, contractual or otherwise, between the other Party, on the one hand, and any of such other Party’s customers, contractees, suppliers or employees, on the other hand. For clarification purposes, the selling of competitive products by Seller (if permitted by Section 12.1) or Buyer shall not constitute a violation of the provisions of this Section 12.3.

12.4

Confidentiality.

From and after the Closing Date, Seller shall not, at any time, directly or indirectly, communicate, disclose or disseminate any Confidential Information to a third party in any manner whatsoever, except disclosure to its personal financial, tax or legal advisors, lenders and members, and as may be required under legal process by subpoena or other court order; provided, that Seller takes reasonable steps to provide Buyer with sufficient prior written notice in order to contest such requirement or order.

12.5

Remedies for Breach.

Seller and Buyer each acknowledges and agrees that: (a) the other Party would be irreparably injured in the event of its breach of any of the obligations under Section 1.2 or this Article 12; (b) monetary damages would not be an adequate remedy for such breach; (c) the other Party shall be entitled (without the need to post any bond) to injunctive relief, in addition to any other remedy that it may have, in the event of any such breach; and (d) the

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existence of any claims that it may have against the other Party, whether under this Agreement, any Ancillary Agreement or otherwise, shall not be a defense to (or reason for the delay of) the enforcement by the other Party of any of its rights or remedies under Section 1.2 or this Article 12.

13.

Miscellaneous

13.1

Notices.

All notices, requests, demands and other communications that are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be delivered personally, sent by facsimile transmission, delivered by a recognized overnight courier or express mail service for next Business Day delivery (and requiring proof or delivery or receipt) or posted in the United States mail by registered or certified mail, with postage pre-paid, return receipt requested, and shall be deemed given when so delivered personally, sent by facsimile transmission with electronic confirmation of receipt (if receipt is before 5:00 p.m. local time on a Business Day, and otherwise it shall be deemed given on the subsequent Business Day), the next day after delivered to such overnight courier or express mail service or three (3) Business Days after the date of mailing, as follows:

If to Buyer to:

Par Pharmaceutical, Inc
300 Tice Boulevard
Woodcliff Lake, NJ 07677
Attn: General Counsel
* * * *

With copies to (which shall not constitute notice):

K&L Gates LLP
599 Lexington Avenue
New York, NY 10022
Attn: Whitney John Smith, Esq.
* * * *

If to Seller or to a QOL Member, to:

QOL Medical, LLC
5400 Carillon Point
Kirkland, WA 98033
Attn: Edwin Hernandez
* * * *

With copies to (which shall not constitute notice):

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William Bryant

325 Five Acre Road

Alpharetta, GA 30004

* * * *

And to:

Jones Day

1420 Peachtree Street, N. E.

Suite 800,

Atlanta, GA 30309

Attn: Milford B. Hatcher, Jr. Esq.

* * * *

And to:

PELICAN MEDICAL, LLC
P.O. Box 6359
Vero Beach, FL 32961
Attn: Derick Cooper
* * * *

And to:

Ballast Point Ventures, L.P.

880 Carillon Parkway

St. Petersburg, FL 33716

Attn: Drew Graham

* * * *

Any Party may, by notice given in accordance with the provisions of this Section 13.2 to the other Parties, designate another address or individual for receipt of notices hereunder.

13.2

Entire Agreement.

This Agreement (and all annexes, exhibits and schedules attached hereto and the Ancillary Agreements and all other documents delivered in connection herewith) contains the sole and entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior discussions and agreements between the Parties with respect to the subject matter hereof.

13.3

Waiver.

Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set

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forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by either Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative.

13.4

Amendment.

This Agreement may be amended, supplemented or modified only by a written instrument duly executed by each Party.

13.5

Third Party Beneficiaries.

The terms and provisions of this Agreement are intended solely for the benefit of each Party and its respective successors or permitted assigns and it is not the intention of the Parties to confer third party beneficiary rights upon any other Person, except as provided in Sections 10.2 and 10.3 and Annex 2.

13.6

Assignment; Binding Effect.

This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and assigns. This Agreement may not be assigned or transferred (by merger or otherwise) by Seller or any QOL Member without the prior written consent of Buyer. Any transfer in violation of this Section 13.6 shall be null and void. Buyer may assign or delegate any or all rights or obligations hereunder without the consent of Seller or any QOL Member; provided that Buyer shall remain liable for any such obligations assigned.

13.7

Headings.

The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

13.8

Severability.

If in any jurisdiction any term or provision hereof is determined to be invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, (b) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and (c) the invalid or unenforceable term or provision shall, for purposes of such jurisdiction, be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.

13.9

Governing Law.

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This Agreement and the legal relations among the parties shall be governed by and construed in accordance with the laws of the State of New York (without giving effect to the conflict of laws thereof other than Section 5-1401 of the New York General Obligations Law).

13.10

Consent to Jurisdiction and Forum Selection.

The Parties hereby consent to the jurisdiction of the federal and New York State courts located in Manhattan (NYC) and agree that service of process by certified mail, return receipt requested, shall, in addition to any other methods permitted by applicable Law, constitute personal service for all purposes.

EACH OF THE PARTIES IRREVOCABLY WAIVES ANY OBJECTION THAT SUCH PARTY MAY HAVE BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE ANCILLARY AGREEMENTS.

13.11

Expenses.

Except as otherwise expressly provided in this Agreement, each Party shall pay its own expenses and costs incidental to the preparation of this Agreement and to the consummation of the transactions contemplated hereby.

13.12

Counterparts.

This Agreement may be executed in any number of counterparts and by facsimile or other electronic transmission, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

14.

Definitions.

14.1

Defined Terms.

As used in this Agreement, the following defined terms have the meanings described below:

“Acquired Assets” means all properties, assets and rights owned, licensed or leased by Seller of whatever kind and nature, tangible or intangible, primarily related to the Product, including the following:

(a)

the Regulatory Approvals;

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(b)

the Books and Records;

(c)

the Marketing Materials;

(d)

the Product Intellectual Property;

(e)

the Assumed Contracts;

(f)

all causes of action arising out of or related to the Product or any Acquired Asset or infringement thereof, including the Litigation Matter;

(g)

all prepayments made to third parties with respect to the Product, including any unused prepayments to Patheon, Inc. in connection with the contemplated technology transfer of Product manufacturing to Patheon, Inc.;

(h)

the Inventory; and

(i)

any and all tooling specific to the manufacture of the Product that is owned by Seller;

provided, however, that Acquired Assets do not include licenses or continuing contractual rights pursuant to (A) that certain Asset Purchase Agreement, dated as of October 14, 2005, by and between Seller and Questcor Pharmaceuticals, Inc. (“Questcor”), (B) that certain Clarification Agreement, dated as of September 23, 2005, by and between MDRNA Inc. (formerly Nastech Pharmaceutical Company, Inc.) (“MDRNA”) and Seller, (C) that certain Asset Purchase Agreement, dated as of June 16, 2003, by and between MDRNA and Questcor, together with the Assignment Agreement, dated as of October 14, 2005, by and between Questcor and Seller, or (D) that certain Amended and Restated Supply Agreement, dated as of October 14, 2005, by and between MDRNA and Seller.

“Affiliate” means, with respect to any Person, any Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified.

“Agreement” has the meaning set forth in the preamble to this Agreement.

“Ancillary Agreements” means the Escrow Agreement, the Assignment and Assumption Agreement, the Trademark Assignment Agreement, the Patent Assignment Agreement, the Standstill Agreement and any other agreement, certificate or document between the Parties and executed or delivered pursuant to or in connection with the Closing hereunder.

“ANU” has the meaning set forth in Section 9.11.

“Assets and Properties” of any Person means all assets and properties of any kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated),

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including the goodwill related thereto, operated, owned or leased by such Person, including cash, cash equivalents, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and intellectual property.

“Assignment and Assumption Agreement” means the Bill of Sale and Assignment and Assumption Agreement, dated the Closing Date, between Seller and Buyer, substantially in the form of Exhibit C.

“Assumed Contract” means each Contract designated as an Assumed Contract on the list of Contracts set forth on Schedule 5.7(b)(ii), excluding any Excluded Rights under any such Contract.

“Assumed Liabilities” means (a) all Liabilities and obligations under or pursuant to the Assumed Contracts arising or relating to periods after the Closing Date, (b) all Liabilities and obligations relating to recalls or product liability claims or threatened claims or injuries caused by Product manufactured, marketed, sold or delivered by Buyer after the Closing, except to the extent that such Product was included in Inventory and was defective when delivered by Seller to Buyer hereunder, (c) Product returns for sales of Product made by Seller prior to, or by Buyer after, the Closing in accordance with Section 7.16, and (d) all costs, expenses and claims associated with the continuation of the Litigation Matter after the Closing, but excluding the costs and expenses incurred by Seller after the Closing Date associated with a prompt dismissal of Seller from the Litigation Matter; provided, however, if either the court does not permit Seller to be dismissed promptly from such matter or Buyer requests Seller to continue as a party to such matter, Assumed Liabilities shall include all attorney’s fees and all other costs and expenses of Seller thereafter related to the Litigation Matter, provided, that Seller uses Buyer’s legal counsel and Buyer controls the Litigation Matter.

“Books and Records” means all files, documents, instruments, papers, books and records (including all technological, scientific, chemical, biological, pharmacological, toxicological, developmental, distribution, marketing, regulatory or other materials and information) owned by Seller and relating primarily to the Product, including any pricing lists, customer lists, vendor lists, financial data, items set forth on Schedule 5.9(b), Regulatory Documentation, clinical data, safety data, litigation materials, adverse claims or demands, investigation information or files, Trademark registration certificates, Trademark renewal certificates, and other documentation relating primarily to the Product or any Acquired Asset, but excluding any such items (a) to the extent that any applicable Law prohibits their transfer and (b) to the extent such items are included in the definition of “Marketing Materials”. The Parties acknowledge and agree that (i) to the extent that any books and records contain information of the above nature that relates primarily to the Product but also relates secondarily to any product other than the Product, Seller shall provide to Buyer the originals of such books and records and keep a copy; provided, however, that some or all of the information therein relating to any product other than the Product may be redacted to delete such information and (ii) to the extent that any books and records contain information of the above nature that relates primarily to any product other than the Product relates secondarily to the Product, Seller shall provide to Buyer

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copies of such books and records; provided, however, that some or all of the information therein relating to any product other than the Product may be redacted to delete such information.

“Business Day” means a calendar day other than Saturday, Sunday or any other calendar day on which banks located in New York are authorized or obligated to close.

“Buyer” has the meaning set forth in the preamble to this Agreement.

“Buyer Governmental Consents” has the meaning set forth in Section 6.3.

“Buyer Indemnified Parties” has the meaning set forth in Section 10.2(a).

“Cardinal” has the meaning set forth in Section 7.16.

“Claims Limitation” has the meaning set forth in Section 10.5(b).

“Closing” has the meaning set forth in Section 4.1.

“Closing Date” means the date that the Closing actually occurs as provided in Section 4.1.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company Creditors” means FCC, LLC and Full Circle Partners, LP.

“Company Indebtedness” means the indebtedness and other obligations of the Company for amounts owing under that certain Loan and Security Agreement, by and among Seller and the Company Creditors, dated November 30, 2007, and the other Loan Documents (as defined therein).

“Confidential Information” means any and all information (oral or written) relating exclusively to the Product or any Acquired Asset including to the extent exclusively related to the Product, the terms of this Agreement, information relating to the Product Intellectual Property, the Marketing Materials, the Regulatory Documentation, pricing techniques, procurement and sales activities and procedures, proprietary information, business methods and strategies (including acquisition strategies), customer and supplier lists, data processing reports, customer sales analyses, invoice, price lists or information, and information pertaining to any lawsuits or governmental investigation, except such information that is in the public domain (such information not being deemed to be in the public domain merely because it is embraced by more general information that is in the public domain) other than as a result of a breach of any of the provisions.

“Contract” means any and all legally binding commitments, contracts, purchase orders, leases, licenses, security agreements or other agreements, whether written or oral.

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“Corporate Names” means all NDC numbers of Seller and all Trademarks owned by, licensed to, controlled by or used by Seller, whether or not registered, including the name “QOL”, but excluding the Trademarks of the Product.

“Current NDC Number” has the meaning set forth in Section 7.9(a).

“Damages” has the meaning set forth in Section 10.2(a).

“Deductible” has the meaning set forth in Section 10.5(a).

“Defending Party” has the meaning set forth in Section 7.17.

“Escrow Account” has the meaning set forth in Section 3.1(b)(i).

“Escrow Agent” means TD Bank, National Association.

“Escrow Agreement” means the Escrow Agreement by and among Buyer, Seller and the Escrow Agent, substantially in the form attached as Exhibit D.

“Escrow Amount” has the meaning set forth in Section 3.1(b)(i).

“Escrow Release Date” has the meaning set forth in Section 3.1(c).

“Excluded Assets” means all Assets and Properties of Seller other than the Acquired Assets. It is specifically noted that Seller’s accounts receivable and cash collected by Seller with respect to Products (or any other products of Seller) sold prior to Closing and, subject to Section 7.13, any prepayments with respect to Seller’s insurance policies are Excluded Assets.

“Excluded Liabilities” means all Liabilities of Seller other than the Assumed Liabilities.

“Excluded Rights” means, with respect to any Assumed Contract, any rights of any Seller Indemnified Party to seek and obtain defense and indemnification thereunder from any indemnifying party pursuant to the terms and conditions of the applicable Assumed Contract based on any Damages incurred by any Seller Indemnified Party, whether prior to, on or after the Closing Date, that (a) are attributable to occurrences and circumstances arising prior to the Closing, and (b) are otherwise subject, prior to the Closing, to an obligation of defense or indemnity by any indemnifying party.

“FDA” means the United States Food and Drug Administration and any successor agency thereto.

“Filing Deadline” has the meaning set forth in Section 5.10(c).

“Final Payoff Amount” means the amounts necessary to obtain the release of the Liens of the Company Creditors in the Acquired Assets as provided in the Payoff Letter.

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“GAAP” has the meaning set forth in Section 5.6.

“Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States or South Korea, or any supra-national organization, state, county, city or other political subdivision thereof.

“ICS” has the meaning set forth in Section 5.6

“Indemnifying Party” has the meaning set forth in Section 10.4(a).

“Indemnitee” has the meaning set forth in Section 10.4(a).

“Inventory” means all finished, work in progress and raw material inventory of Product owned as of the Closing by Seller, whether held at a location or facility of Seller (or of any other Person on behalf of Seller), or in transit to or from Seller (or any such other Person), as all set forth on Schedule 14.1(a), which shall be updated by Seller as of the Closing Date, excluding lot numbers 8002, 8003 and 8004.

“Knowledge of Seller” means facts or other information actually known by either of the two senior managers of Seller or which a prudent individual in such position could be expected to discover in the course of conducting a reasonably comprehensive investigation of the relevant subject matter.

“Law” means any federal, state or local law, statute or ordinance, or any rule, regulation, or published guidelines or pronouncements having the effect of law promulgated by any Governmental or Regulatory Authority.

“Legacy IP” means, to the extent not included on Schedule 14.1(b), (a) all data, information and methods associated at any time with the Product and its ingredients but not found in the Regulatory Documentation, (b) all data and methods associated at any time with testing of the Product and its ingredients but not found in the Regulatory Documentation, (c) all formulations of the Product that in the past have been used in the manufacture of the Product, and (d) all methods of manufacturing that in the past have been used in manufacturing the Product, in each case, to the extent owned or controlled by Seller.

“Liability” means any liability (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and due or to become due), including any liability for Taxes.

“Liens” has the meaning set forth in Section 5.8.

“Litigation Matter” means the suit styled QOL Medical, LLC v. Fleming & Company, Pharmaceuticals, Case No. 3:2009cv00001, filed on January 2, 2009 in the Southern District Court of California.

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“Marketing Materials” means all market research, marketing plans and strategies, media plans, advertising, branding, messages, form letters, sales force training materials, advertising, promotional and marketing data, advertising and promotional materials and literature, in each case developed by or on behalf of Seller with respect solely to the Product; provided, that “Marketing Materials” shall exclude the labeling of the Product, which shall be deemed part of the Regulatory Approvals.

“Material Adverse Effect” means a material development with respect to the Product and the Acquired Assets that, taken as a whole, materially threatens the ability of Buyer to manufacture, market or sell the Product or have the Product manufactured (other than the financial condition of MDRNA Inc. (formerly Nastech Pharmaceutical Company, Inc.)), marketed or sold or otherwise threatens the commercial viability of the Product; provided, that none of the following shall be deemed to constitute a Material Adverse Effect: any adverse change, event, development, or effect arising from or relating to (a) general business or economic conditions, including such conditions related to the business of Seller, (b) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (c) financial, banking, or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (d) changes in United States generally accepted accounting principles or (e) the taking of any action expressly required by this Agreement and Ancillary Agreements, in each case, so long as the Product and the Acquired Assets, taken as a whole, are not disproportionately affected thereby.

“McKesson” has the meaning set forth in Section 7.16.

“MDRNA Transaction” means the transactions described in that certain Asset Purchase Agreement by and between MDRNA Inc. (formerly Nastech Pharmaceutical Company, Inc.) and Buyer, dated as of the date hereof.

“McKesson” has the meaning set forth in Section 7.16.

“NDC” means the unique identifying number assigned to a drug product, including the labeler code, product code and package code, in connection with the drug listing requirements of section 510(j) of the Federal Food, Drug, and Cosmetic Act and applicable FDA rules and regulations.

“NDC Number” has the meaning set forth in Section 7.9(a).

“NDC Number Termination Date” has the meaning set forth in Section 8.9(b).

“Order” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

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“Party” or “Parties” has the meaning set forth in the preamble.

“Patents” means United States Patents Nos. 7,229,636 and 7,404,489, United States Patent Applications Nos. 12/079,875 and 12/142,240 and international patent application No. PCT/US06/024685 as well as (a) any continuations, continuations in part, divisional, national phase application or foreign counterpart of any of the foregoing (including all patents issuing thereon), (b) the rights to any and all extensions, and supplementary protection certificates related to all of the foregoing and (c) the right to file for any and all extensions, exclusivities, and supplementary protection certificates that may appertain to any and all of the foregoing.

“Patent Assignment” means the Patent Assignment, dated the Closing Date, between Seller and Buyer, substantially in the form of Exhibit E.

“Payoff Letter” has the meaning set forth in Section 7.18.

“Person” means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority.

“Product” means the pharmaceutical products that were approved pursuant to the Seller NDAs prior to Closing.

“Product Intellectual Property” means

(a)

the items set forth on Schedule 14.1(b);

(b)

the Legacy IP;

(c)

the technology, trade secrets, know-how, and other proprietary information, including any such chemical, pharmacological, toxicological, pharmaceutical, physical, analytical, safety, efficacy, bioequivalency, quality assurance, quality control and clinical data, that is owned by Seller and related primarily to Product or the manufacture, validation, packaging, release testing, stability or shelf life of the Product, including any such information contained or embodied in the product formulations, research records, product specifications, manufacturing, engineering and other manuals and drawings, standard operating procedures, flow diagrams, annual product reviews, process validation reports, analytical method validation reports, specifications for stability trending and process controls, testing and reference standards for impurities in and degradation of the Product, technical data packages, chemical and physical characterizations, dissolution test methods and results, formulations for administration, clinical trial reports, regulatory communications, regulatory filings and data generated in connection with the testing of the Product, and labeling;

(d)

the Trademarks; and

(e)

the Patents.

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Additionally, the Product Intellectual Property shall include the right to file for, maintain, and enforce any available intellectual property protection or rights that may pertain to any individual item within the Product Intellectual Property.

“Purchase Price” shall have the meaning set forth in Section 3.1(a).

“QOL Members” has the meaning set forth in the preamble.

“Reasonable Best Efforts” means such prompt, substantial and reasonably persistent efforts as a prudent Person desirous of achieving a result would use in similar circumstances; provided that the Parties shall be required to expend only such efforts and resources to achieve such results as are commercially reasonable in similar circumstances without the requirement of any action or expenditure that is clearly disproportionate or clearly unduly burdensome.

“Rebate” means any rebate, discount, reimbursement, administrative fee, chargeback or other payment payable pursuant to (a) state Medicaid, Medicare or other state and governmental pharmaceutical assistance programs, including with respect to any program of the U.S. Department of Veterans Affairs or (b) Contracts between Seller or Buyer and managed care organizations (including pharmacy benefit management companies, health plans and insurance companies) or other customers, in each case relating to utilization or sale of the Product during any particular period.

“Regulatory Approvals” means (a) the Seller NDAs and (b) all current manufacturing and marketing authorizations and regulatory approvals relating to the manufacturing or marketing of the Product outside of the United States, to the extent that Seller has ownership or control thereof or rights thereto (including all additions, supplements, extensions and modifications thereto and the official regulatory files relating thereto).

“Regulatory Documentation” means (a) registrations or applications for, or other filings or submissions with respect to, the Regulatory Approvals to the extent made by Seller or in the possession or control of Seller, including reports, data and other written materials filed by Seller or in the possession or control of Seller as part of or referenced in, the Regulatory Approvals, and the Seller’s risk management plan (or any other risk management plan in the possession or control of Seller) with respect to the Product, (b) any other filings or submissions with respect to the Product made by (or in the possession or control of) Seller with any Governmental or Regulatory Authority other than the FDA, (c) compliance documentation, including complaint history, compliance history (including any field alerts, market withdrawals and recalls), pharmacovigilance, requests for additional scientific information with respect to the Product, manufacturing change controls, process/lab investigations, stability protocols and test data and product development packages and (d) written communications, and written summaries and minutes of other communications, with the FDA or other Governmental or Regulatory Authorities to the extent relating to any of the foregoing, in each case, that are owned by Seller or in the possession or control of Seller as of the Closing Date.

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“Restrictive Contract” has the meaning set forth in Section 5.7(a).

“Restricted Period” has the meaning set forth in Section 12.1.

“Sales Tax Certificate” has the meaning set forth in Section 7.14.

“Seller” has the meaning set forth in the preamble to this Agreement.

“Seller Consents” has the meaning set forth in Section 5.3(b).

“Seller Governmental Consents” has the meaning set forth in Section 5.3(a).

“Seller NDAs” means New Drug Application #21-642, New Drug Application #19-722 and Investigative New Drug Application #25,696 filed pursuant to Section 505(b) of the Federal Food, Drug, and Cosmetic Act, including all periods of exclusivity awarded or attached thereto, and applicable FDA rules and regulations for marketing authorization within the United States (including all additions, supplements, extensions and modifications thereto and the official regulatory files relating thereto).

“Seller Third Party Consents” has the meaning set forth in Section 5.3(b).

“Seller Indemnified Parties” has the meaning set forth in Section 10.2(b).

“Standstill Agreement” means the Standstill Agreement, dated as of March 31, 2009, by and among Buyer, Seller, Velos and ANU.

“Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A Code), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, recording, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.

“Tax Allocation” has the meaning set forth in Section 3.2.

“Tax Return” means any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental or Regulatory Authority in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Law relating to any Tax.

“Trade Dress” means the current packaging and labeling of the Product as currently approved by the FDA.

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“Trademark” means those items listed on Schedule 5.10(c) and all goodwill associated therewith.

“Trademark Assignment” means the Trademark Assignment, dated the Closing Date, between Seller and Buyer, substantially in the form of Exhibit F.

“Velos” has the meaning set forth in Section 9.11.

“Wholesalers” has the meaning set forth in Section 7.16.

14.2

Construction of Certain Terms and Phrases.

(a)

When the context in which words are used in this Agreement indicates that such is the intent, words used in the singular shall have a comparable meaning when used in the plural, and vice versa; pronouns stated in the masculine, feminine or neuter shall include each other gender.

(b)

The section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement.

(c)

The term “including” is not limiting and means “including, without limitation.”

(d)

Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are disclosed to Buyer, (ii) references to any statute or regulation shall be construed as including all statutory and regulatory provisions amending, replacing, supplementing or interpreting such statute or regulation, except that for purposes of determining the accuracy of any representation and warranty, such reference shall only be to such statute or regulation as in effect on the date the representation and warranty was made and (iii) references to “Sections,” “Schedules”, “Exhibits” or “Annexes” are to sections, schedules, exhibits or annexes, as applicable, of this Agreement.

14.3

Disclosure Schedules.

The schedules referred to herein and delivered pursuant to and attached to this Agreement (collectively, “Disclosure Schedules”) are integral parts of this Agreement. The disclosure of an item on a particular Disclosure Schedule as an exception to a specific representation or warranty will be deemed adequately disclosed as an exception with respect to all other representations or warranties, notwithstanding the presence or absence of an appropriate cross reference thereto, to the extent that the relevance of such item to such other representations or warranties is reasonably apparent on the face of such item and such item describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing, or

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inclusion of a copy, of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein, unless the representation or warranty is being made as to the existence of the document or other item itself. Seller is responsible for preparing and arranging the Disclosure Schedules corresponding to the lettered and numbered sections of Section 5.

[Signature Page Follows]

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IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the date first above written.

BUYER

PAR PHARMACEUTICAL, INC.

By: /s/ John A. MacPhee

Name: John A. MacPhee

Title: President, Strativa Pharmaceuticals, a division

of Par Pharmaceutical, Inc.

SELLER

QOL MEDICAL, LLC

By: /s/ Edwin B. Hernandez

Name: Edwin B. Hernandez

Title: Chief Operating Officer

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IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the date first above written.

QOL MEMBER

For purposes of Annexes 1 and 2 only.

/s/ Trevor Blake

Trevor Blake

QOL MEMBER

For purposes of Annexes 1 and 2 only.

/s/ Edwin Hernandez

Edwin Hernandez

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IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the date first above written.

QOL MEMBER

For purposes of Annex 2 only.

BALLAST POINT VENTURES L.P.

By: Ballast Point Venture Partners, L.P., its general partner

By: RJ Ventures, LLC, its general partner

By:

/s/ Drew Graham

Name: Drew Graham

Title: Managing Member

QOL MEMBER

For purposes of Annex 2 only.

BALLAST POINT VENTURES E.F., LP

By: Ballast Point Venture Partners, L.P., its general partner

By: RJ Ventures, LLC, its general partner

By:

/s/ Drew Graham

Name: Drew Graham

Title: Managing Member

QOL MEMBER

For purposes of Annex 2 only.

H III PRIVATE EQUITY, LLC

By:/s/ James A. Haskin, III

Name: James A. Haskin, III

Title: Managing Member

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IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the date first above written.

QOL MEMBER

For purposes of Annex 2 only.

PELICAN MEDICAL, LLC

By:/s/ Frederick E. Cooper

Name: Frederick E. Cooper

Title: Manager

QOL MEMBER

For purposes of Annex 2 only.

CONIFER PARTNERS I, LLC

By: /s/ C.Bradford Jackson

Name: C. Bradford Jackson

Title: President, Southwest Asset Advisors, Inc.

Member Manager, Conifer Advisors, LLC

Member Manager, Conifer Partners I, LLC

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Annex 1

NON-COMPETITION PROVISIONS

This Annex 1 is part of the Asset Purchase Agreement, dated March __, 2009 (the “Purchase Agreement”), by and among Par Pharmaceutical, Inc., a Delaware corporation (“Buyer”), QOL Medical, LLC, a Delaware limited liability company (“Seller”), and the members of Seller who are signatories to the Purchase Agreement (each, a “QOL Member”). Buyer, Seller and the QOL Members are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties”. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Purchase Agreement.

ARTICLE I

NON-COMPETITION; REMEDY

Section 1.1

Non-Competition. Trevor Blake and Edwin Hernandez each acknowledges with respect solely to himself that (a) Buyer would not have entered into the Purchase Agreement but for the agreements and covenants contained in this Article 1 and (b) the agreements and covenants contained in this Article 1 are essential to protect the value and goodwill of the Acquired Assets. To induce Buyer to enter into the Purchase Agreement, Mr. Blake and Mr. Hernandez each separately hereby agrees that, following the Closing Date and for a period of three (3) years thereafter (the “Restricted Period”), without the prior consent of Buyer, he shall not, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed or retained by, render services to, provide financing (equity or debt) or advice to, or otherwise be connected in any manner with any business that at any time markets, sells, commercializes or develops or manufactures for sale or distribution (or takes any other action related to any of the foregoing) any pharmaceutical product that contains vitamin B12 to treat B12 deficiencies or maintain B12 levels, anywhere in the world; provided, however, that nothing contained herein shall prevent (i) the purchase or ownership by Mr. Blake or Mr. Hernandez of less than three (3%) percent of the outstanding equity securities of any class of securities of a company registered under Section 12 of the Securities and Exchange Act of 1934, as amended or (ii) the employment or provision of services by Mr. Blake or Mr. Hernandez with a third party which markets, sells, commercializes or develops or manufactures for sale or distribution pharmaceutical products that contain vitamin B12 to treat B12 deficiencies or maintain B12 levels, provided that such products constitute less than 15% of such third party’s business and neither Mr. Blake nor Mr. Hernandez takes any part in the efforts of such third party with respect to such products.

Section 1.2

No Competing Interests. Mr. Blake and Mr. Hernandez each hereby represents and warrants to Buyer with respect to himself only that he does not have any ownership or other interest in any business that markets, sells, commercializes or develops or manufactures for sale or distribution (or takes any other action related to any of the foregoing) any pharmaceutical product that contains vitamin B12 to treat B12 deficiencies or maintain B12

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levels, anywhere in the world. Mr. Blake and Mr. Hernandez each with respect to himself only hereby represents and warrants to Buyer that neither he nor any of his Affiliates has or shares with Seller any ownership or other interest in any Acquired Asset (other than indirectly through membership interest in the Seller).

Section 1.3

Remedies for Breach. Mr. Blake and Mr. Hernandez each acknowledges and agrees with respect to himself only that: (a) Buyer would be irreparably injured in the event of a breach by him of any of the obligations imposed on him under this Article 1; (b) monetary damages would not be an adequate remedy for such breach by him; (c) Buyer shall be entitled (without the need to post any bond) to injunctive relief, in addition to any other remedy that it may have, in the event of any such breach; and (d) the existence of any claims that he may have against Buyer, whether under this Agreement, any Ancillary Agreement or otherwise, shall not be a defense to (or reason for the delay of) the enforcement by Buyer of any of their rights or remedies under this Article 1.

Section 1.4

Separate Obligations. For avoidance of doubt, all covenants and obligations contained in this Annex 1 are separate and distinct with respect to Mr. Blake and Mr. Hernandez and neither undertakes (nor shall he be liable for breaches with respect to) any covenants or obligations with respect to the other person. Buyer shall look solely to the person to with the breach relates with respect to any breach of any covenant or obligation by Mr. Blake or Mr. Hernandez under this Annex 1.

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Annex 2

CERTAIN PROVISIONS APPLICABLE TO QOL MEMBERS

This Annex 2 is part of the Asset Purchase Agreement, dated March __, 2009 (the “Purchase Agreement”), by and among Par Pharmaceutical, Inc., a Delaware corporation (“Buyer”), QOL Medical, LLC, a Delaware limited liability company (“Seller”), and the members of Seller who are signatories to the Purchase Agreement (each, a “QOL Member”). Buyer, Seller and the QOL Members are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties”. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Purchase Agreement.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE QOL MEMBERS

Each of the QOL Members represents and warrants, solely with respect to himself or itself and not with respect to any other QOL Member or the Seller, to Buyer as of the date of the Purchase Agreement and as of the Closing Date, as follows:

Section 2.1

Capacity; Authority; Organization; Good Standing; Power.

(a)

In the case of a QOL Member who is an individual, such QOL Member has the legal capacity to execute and deliver this Agreement and to perform the obligations required of it under this Annex 2. In the case of a QOL Member that is an entity, (i) such QOL Member is duly organized, validly existing and, to extent applicable, in good standing under the Laws of the jurisdiction under which it was formed, and has all requisite entity power and authority to enter into this Agreement and to perform the obligations required of it under this Annex 2, and (ii) the execution and delivery by such QOL Member of this Agreement and the performance of its obligations under this Annex 2, have been duly authorized by all necessary action on the part of such QOL Member, and such QOL Member has all necessary entity power with respect thereto.

(b)

This Agreement has been duly executed and delivered by such QOL Member and the obligations imposed on him or it in this Annex 2 are the valid and binding obligations of such QOL Member, enforceable against him/it in accordance with the terms of this Annex 2, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, and (ii) as limited by general principles of equity.

Section 2.2

Non-Contravention.

The execution and delivery by such QOL Member of this Agreement does not, and the performance by him/it of his/its obligations under this Annex 2 will not:

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(a)

conflict with or violate any provisions of the organizational documents of such QOL Member, if applicable; or

(b)

conflict with or result in a violation or breach of any term or provision of any Law applicable to such QOL Member or the property or assets of such QOL Member.

Section 2.3

Disclaimer of Other Representations and Warranties.

Except as expressly set forth in this Article 1, no QOL Member makes any representation or warranty, express or implied, at law or in equity, in respect of any of its or Seller’s assets (including, without limitation, the Acquired Assets and the Assumed Liabilities), liabilities or operations, including, without limitation, with respect to merchantability or fitness for any particular purpose, and any such other representations or warranties are hereby expressly disclaimed.

ARTICLE III

COVENANTS

Section 3.1

Non-Disruption.

Following the Closing Date and for a period of three (3) years thereafter (the “Restricted Period”), each QOL Member, with respect only to himself or itself, agrees that he or it shall not intentionally, directly or indirectly, interfere with, disrupt or attempt to disrupt any present(including the present relationships included in the Acquired Assets) relationship, contractual or otherwise, between the Buyer, on the one hand, and any of its customers, contractees, suppliers or employees, on the other hand. For clarification purposes, the selling of competitive products by such QOL Member shall not constitute a violation of the provisions of this Section 12.3.

Section 3.2

Confidentiality.

From and after the Closing Date, each QOL Member, with respect only to himself or itself, agrees that he or it shall not, at any time communicate, disclose or disseminate any Confidential Information to a third party in any manner whatsoever, except disclosure to their personal financial, tax or legal advisors, lenders and (for any QOL Member that is an entity) its owners or partners and as may be required under legal process by subpoena or other court order; provided, that such Party takes reasonable steps to provide Buyer with sufficient prior written notice in order to contest such requirement or order.

Section 3.3

Remedies for Breach.

Each QOL Member acknowledges and agrees with respect solely to himself or itself and with respect solely to the covenants of such QOL Member (and not with respect to the covenants of any other QOL Member) that: (a) Buyer would be irreparably injured in the event of a breach by such QOL Member of any of the obligations of such QOL Member under this Article 2; (b) monetary damages would not be an adequate remedy for such breach; (c) Buyer shall be entitled (without the need to post any bond) to injunctive relief, in addition to any other remedy that it may have, in the event of any such breach by such QOL Member; and (d) the existence of any claims that any QOL Member may have against Buyer, whether under this Agreement, any Ancillary Agreement or otherwise, shall

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not be a defense to (or reason for the delay of) the enforcement by Buyer of any of its rights or remedies under this Article 2.

14.4

ARTICLE III

SEPARATE OBLIGATIONS; SURVIVAL

Section 3.1

For avoidance of doubt, all representations, warranties, covenants and obligations contained in this Annex 2 are separate and distinct with respect to each QOL Member and no QOL Member undertakes (nor shall he or it be liable for breaches with respect to) any representations, warranties, covenants or obligations with respect to any other QOL Member. Buyer shall look solely to the individual QOL Member to which the breach relates with respect to any breach of any representation, warranty, covenant or obligation by such QOL Member.

Section 3.2

All representations, warranties and covenants of each QOL Member contained in this Annex 2 shall survive the Closing Date and shall remain operative and in full force and effect for a period of thirty-six (36) months following the Closing Date and shall then terminate and be of no further effect; provided, however, that (a) any claims with respect to breach of such representations, warranties and covenants shall survive the time(s) that the representation, warranty or covenant would otherwise terminate with respect to claims of which written notice in reasonable specificity has been given as provided in the Agreement prior to such termination and (b) the covenant contained in Section 2.2 shall survive the Closing Date until the Confidential Information covered by Section 2.2 enters the public domain (such information not being deemed to be in the public domain merely because it is embraced by more general information that is in the public domain) other than as a result of a breach of Section 2.2.

EX-31.1 4 exhibit31ceocert.htm CERTIFICATION Exhibit 31

Exhibit 31.1

Certification Pursuant to Rule 13a-14(a) of the Exchange Act

I, Patrick G. LePore, certify that:

I have reviewed this quarterly report on Form 10-Q of Par Pharmaceutical Companies, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting; and

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: May 6, 2009

/s/ Patrick G. LePore

Patrick G. LePore

Chairman, President and Chief Executive Officer

EX-31.2 5 exhibit31cfocert.htm CERTIFICATION Exhibit 31

Exhibit 31.2

Certification Pursuant to Rule 13a-14(a) of the Exchange Act

I, Lawrence A. Kenyon, certify that:

I have reviewed this quarterly report on Form 10-Q of Par Pharmaceutical Companies, Inc.;

any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: May 6, 2009

/s/ Lawrence A. Kenyon

Lawrence A. Kenyon

Executive Vice President and Chief Financial Officer

EX-32.1 6 exhibit32ceo.htm CERTIFICATION Exhibit 32

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Par Pharmaceutical Companies, Inc. (the “Company”) on Form 10-Q for the period ended March 28, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick G. LePore, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

/s/ Patrick G. LePore

Patrick G. LePore

Chairman, President and Chief Executive Officer

May 6, 2009

EX-32.2 7 exhibit32cfo.htm CERTIFICATION Exhibit 32

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Par Pharmaceutical Companies, Inc. (the “Company”) on Form 10-Q for the period ended March 28, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lawrence A. Kenyon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Lawrence A. Kenyon

Lawrence A. Kenyon

Executive Vice President and Chief Financial Officer

May 6, 2009