LOAN AGREEMENT
 
This Loan Agreement (“Agreement”) is made as of June 22, 2005 by and among (i)
Acura Pharmaceuticals, Inc., a New York corporation (“Company”), (ii) Essex
Woodlands Health Ventures V, L.P. (“Essex”), (iii) Care Capital Investments II,
L.P. and Care Capital Offshore Investments II, L.P. (collectively “Care
Capital”) and (iv) Galen Partners III, L.P., Galen Partners International III,
L.P. and Galen Employee Fund III, L.P. (collectively “Galen and, together with
Essex and Care Capital, the “Lenders”). In consideration of the mutual covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
 
ARTICLE I
LOAN; SECURITY DOCUMENTS
 
1.1.  TERM LOAN
 
On the terms and subject to the conditions of this Agreement, each Lender
severally agrees to make to the Company on the Closing Date a term loan (each, a
“Loan”) in a principal amount equal to such Lender’s Commitment. No amounts paid
or prepaid with respect to any Loan may be reborrowed.
 
1.2.  NOTES
 
The Company’s unconditional and absolute obligation to repay to the Lenders the
principal of the Loans and interest thereon shall be evidenced by a promissory
note (each, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms hereof, and together with any renewals
thereof or substitutions therefor, a “Note”), in the form of Exhibit A hereto
with appropriate insertions, dated the Closing Date. The date and amount of each
repayment and prepayment of principal thereon received by a Lender shall be
recorded by the Lender in its records or, at its option, on the schedule
attached to the Note. The aggregate unpaid principal amount so recorded shall be
prima facie evidence of the principal amount owing and unpaid on the Note to the
Lender absent manifest error. The failure to so record any such amount or any
error in so recording any such amount, however, shall not limit or otherwise
affect the Company’s obligations hereunder or under the Note to repay the
principal amount of the Loan together with all interest accruing thereon.
 
1.3.  CLOSING
 
The closing (the “Closing”) at which the Loans shall be disbursed to the Company
will take place at the offices of St. John & Wayne, L.L.C., Two Penn Plaza East,
Newark, New Jersey 07105 upon the satisfaction of the conditions to Closing set
forth in this Agreement on the date hereof, or such other place, time and date
as shall be mutually agreed to by the Company and the Lenders. On the date of
the Closing (the “Closing Date”), the Company shall deliver to each Lender a
Note, dated the Closing Date, in the principal amount equal to such Lender’s
Commitment. The Company shall deliver the foregoing Notes against receipt by the
Company from each Lender of an amount equal to the Commitment of such Lender, in
each case by wire transfer in immediately available funds in U.S. dollars to an
account designated by the Company.
 
 
 

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1.4.  USE OF PROCEEDS
 
The Company shall apply the proceeds of the Loans to general corporate purposes.
The Company shall not use any proceeds of the Loans to purchase or carry any
“margin stock” (as defined in Regulation U promulgated by the Board of Governors
of the Federal Reserve System).
 
1.5.  COMPANY SECURITY DOCUMENTS
 
All of the obligations of the Company under the Transaction Documents to or for
the benefit of the Lenders (or their agents and representatives) shall be
secured by the following items (collectively, the “Company Collateral”), each of
which shall be senior and superior to all other liens: (a) a lien on all the
personal property and assets of the Company now existing or hereinafter acquired
granted pursuant to the Company General Security Agreement, including, without
limitation, a lien on and security interest in all of the issued and outstanding
shares of common stock of the Guarantors pursuant to a separate Stock Pledge
Agreement; and (b) collateral assignments of all leases, contracts, patents,
copyrights, trademarks and service marks of the Company.
 
1.6.  GUARANTIES; GUARANTOR SECURITY
 
All of the obligations of the Company under the Notes and this Agreement shall
be guaranteed pursuant to the Guaranties by the Guarantors. All of the
obligations of the Guarantors under the Guaranties shall be secured by the
following (collectively, the “Guarantor Collateral”) each of which shall be a
lien ranking senior and superior to all other liens: (a) a lien on all of the
personal property and assets of the respective Guarantors now existing or
hereinafter acquired, granted pursuant to the Guarantors General Security
Agreement; and (b) collateral assignments of all leases, contracts, patents,
copyrights, trademarks and service marks of the Guarantors.
 
ARTICLE II  
REPAYMENT; PREPAYMENTS; INTEREST
 
2.1.  REPAYMENT OF THE LOANS
 
The Company shall repay the aggregate outstanding principal amount of the Loans,
together with all accrued but unpaid interest thereon, in full on the earlier of
June 1, 2006 (the “Maturity Date”), or the date upon which the Loans become or
are declared due and payable pursuant to Article VII of this Agreement.
 
2.2.  PREPAYMENTS
 
The Company shall have the right to prepay the principal amount of a Loan, in
whole or in part, at any time without penalty or premium. Any prepayment of
principal shall be accompanied by a payment of all interest accrued and unpaid
on the portion of the principal amount being prepaid.  In addition the Company
shall, unless the Lenders shall otherwise agree in writing, prepay the Loans
from time to time in an amount equal to the net amounts received (after
satisfaction of associated expenses) by the Company in connection with any
Funding Event immediately upon the Company’s receipt thereof.
 
2.3.  INTEREST
 
(a) The Loans shall bear interest on the outstanding principal amount thereof at
a rate of ten percent (10%) per annum from the Closing Date. All accrued
interest on each Loan shall be payable in arrears on the last day of each
calendar quarter; provided that (i) interest accrued pursuant to Section 2.3(b)
shall be payable on demand, and (ii) in the event of any repayment or prepayment
of any Loan, accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment. All computations of
interest shall be made on the basis of a year of 360 days, and actual days
elapsed.
 
 
 

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(b) Notwithstanding the rate of interest specified above, after an Event of
Default and during the continuance thereof (regardless of whether the Loans have
been accelerated), the Company agrees to pay interest (after as well as before
judgment to the extent permitted by applicable law) on all unpaid principal,
interest or other amounts owing under the Transaction Documents, at a rate of
thirteen percent (13%) per annum. Unpaid interest on such amounts will continue
to accrue and will (to the extent permitted by applicable law) be compounded
daily.
 
2.4.  USURY
 
 
Notwithstanding anything herein to the contrary, if at any time the interest
rate applicable to a Loan, together with all fees, charges and other amounts
which are treated as interest on the Loan under applicable law shall exceed the
maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged,
taken, received or reserved by the Lenders in accordance with applicable law,
the rate of interest payable in respect of such Loan hereunder, together with
all charges payable in respect thereof, shall be limited to the Maximum Rate.
 
ARTICLE III
CONDITIONS TO CLOSING
 
The obligation of each Lender to make its Loan at the Closing is subject to the
fulfillment to such Lender’s satisfaction on or prior to the Closing Date of
each of the following conditions, unless otherwise waived by such Lender:
 
3.1.  REPRESENTATIONS AND WARRANTIES CORRECT; NO DEFAULT
 
The representations and warranties of the Company set forth in Article IV hereof
shall be true and correct when made, and shall be true and correct on the
Closing Date with the same force and effect as if they had been made on and as
of the Closing Date. No Event of Default, or any other event which, with the
giving of notice, the lapse of time, or both, would constitute an Event of
Default, shall have occurred and be continuing on the date of this Agreement or
on the Closing Date.
 
3.2.  PERFORMANCE
 
 
All covenants, agreements and conditions contained in this Agreement to be
performed or complied with by the Company on or prior to the Closing Date shall
have been performed or complied with by the Company.
 
3.3.  NO IMPEDIMENTS
 
None of the Company, or any of the Guarantors, or any Lender shall be subject to
any order, decree or injunction of a court or administrative or governmental
body or agency of competent jurisdiction directing that the transactions
provided for in the Transaction Documents or any material aspect thereof not be
consummated as contemplated by the Transaction Documents. There shall not be any
action, suit, proceeding, complaint, charge, hearing, inquiry or investigation
before or by any court or administrative or governmental body or agency pending
or, to the Company’s best knowledge, threatened, wherein an unfavorable order,
decree or injunction would prevent the performance of any of the Transaction
Documents or the consummation of any material aspect of the transactions or
events contemplated thereby, declare unlawful any aspect of the transactions or
events contemplated by the Transaction Documents, cause any material aspect of
the transactions contemplated by the Transaction Documents to be rescinded or
have a Material Adverse Effect.
 
 
 

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3.4.  OTHER AGREEMENTS AND DOCUMENTS
 
The Company shall have executed and delivered to each Lender this Agreement,
issued to such Lender its Note, and the Company and each of the Guarantors, as
applicable, shall have executed and delivered the following agreements and
documents:
 

(a)  
the Company General Security Agreement;

 

(b)  
the Guaranties;

 

(c)  
the Guarantors Security Agreement;

 

(d)  
the Stock Pledge Agreement;

 

(e)  
a secretary’s certificate of the Company, (i) attaching a certified copy of the
Certificate of Incorporation and current bylaws of the Company and certifying
the same as not having been amended and as being in being in full force and
effect, (ii) attaching and certifying resolutions by the Board of Directors
approving the execution, delivery and performance of the Transaction Documents
and the transactions contemplated thereby, and (iii) certifying as to the
incumbency, and attaching specimen signatures of, the officers or
representatives of the Company signing the Transaction Documents to which the
Company is a party;

 

(f)  
a secretary’s certificate of each of the Guarantors, (i) attaching a certified
copy of the certificate of incorporation and current bylaws of such Guarantor
and certifying the same as not having been amended and as being in being in full
force and effect, (ii) attaching and certifying resolutions by the board of
directors of such Guarantor approving the execution, delivery and performance of
the Transaction Documents and the transactions contemplated thereby, and (iii)
certifying as to the incumbency, and attaching specimen signatures of, the
officers or representatives of such Guarantor signing the Transaction Documents
to which such Guarantor is a party;

 

(g)  
a Certificate of Good Standing and Tax Status from the state of incorporation of
the Company and each Guarantor and from every state in which any of them is
qualified to do business;

 

(h)  
the IP Collateral Assignments; and

 
 
 

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(i)  
Financing Statements with respect to all personal property and assets of the
Company and each Guarantor.

 
3.5.  CONSENTS
 
The Company shall have obtained all necessary consents or waivers, if any, from
all parties governmental and private to any other material agreements to which
the Company is a party or by which it is bound immediately prior to the Closing
in order that the transactions contemplated by the Transaction Documents may be
consummated. 
 
3.6.  PROCEEDINGS AND OTHER DOCUMENTS
 
All corporate and other proceedings taken or required to be taken by the Company
and any Guarantor in connection with the transactions contemplated by this
Agreement and the other Transaction Documents to be consummated prior to the
Closing shall have been taken, and the Lenders shall have received such other
documents, in form and substance reasonably satisfactory to the Lenders and
their counsel, as to such other matters incident to the transactions
contemplated hereby as the Lenders may reasonably request. 
 
3.7.  OPINION OF COUNSEL
 
The Lenders shall have received the opinion of St. John & Wayne, L.L.C., counsel
to the Company, dated the Closing Date, substantially in the form of Exhibit B
attached hereto. 
 
3.8.  INDEPENDENT COMMITTEE OF BOARD OF DIRECTORS
 
The Company’s independent committee of the Board of Directors (the “Independent
Committee”) shall deliver to each of the Lenders the Independent Committee’s
resolutions approving the execution, delivery and performance of the Transaction
Documents to which the Company is a party and the transactions contemplated
thereby, each in form and substance reasonably acceptable to the Lenders.
 
 
 

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3.9.  SUBORDINATION AGREEMENT
 
The holders of the Senior Note shall have entered into a subordination
agreement, in form and substance acceptable to the Lenders, pursuant to which
all liens (and all other interests in collateral) securing the Company’s
obligations under the Senior Note and the Watson Term Loan shall be fully
subordinated to the liens (and other interests in collateral) securing the
Loans.
 
ARTICLE IV  
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
As a material inducement to each Lender to enter into and perform its
obligations under this Agreement, except as set forth in the Schedule of
Exceptions, the Company hereby represents and warrants to each Lender as
follows:
 
4.1.  ORGANIZATION AND EXISTENCE
 
The Company is a corporation duly organized, validly existing and in good
standing under the laws of New York and is qualified to do business in such
other jurisdictions as the nature or conduct of its operations or the ownership
of its properties require such qualification. The Company does not own or lease
any property or engage in any activity in any jurisdiction that might require
qualification to do business as a foreign corporation in such jurisdiction and
where the failure to so qualify could reasonably be expected to have a Material
Adverse Effect or subject the Company to a material liability. The Company has
furnished the Lenders with true, correct and complete copies of its Certificate
of Incorporation, By-Laws and all amendments thereto, as of the date hereof.
 
4.2.  SUBSIDIARIES AND AFFILIATES
 
Section 4.2 of the Schedule of Exceptions sets forth the name, jurisdiction of
incorporation and authorized and outstanding capitalization of each Subsidiary.
Except as disclosed in Section 4.2 of the Schedule of Exceptions, all of the
outstanding shares of capital stock of each of the Subsidiaries are duly and
validly authorized, are validly issued and are fully paid and nonassessable and
have been offered, issued, sold and delivered in compliance with applicable
federal and state securities laws. Except as set forth in Section 4.2 of the
Schedule of Exceptions, the Company has, and upon the Closing will have, no
Subsidiaries and will not own of record or beneficially any capital stock or
equity interest or investment in any corporation, association or business
entity. Except as disclosed in Section 4.2 of the Schedule of Exceptions, each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to carry on its business as now
conducted and proposed to be conducted. Except as set forth in Section 4.2 of
the Schedule of Exceptions, no Subsidiary owns or leases any property or engages
in any activity in any jurisdiction which might require such Subsidiary to
qualify to do business as a foreign corporation in such jurisdiction and where
the failure to so qualify could reasonably be expected to have a Material
Adverse Effect or subject such Subsidiary to a material liability.
 
 
 

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4.3.  CAPITALIZATION
 
As of the date hereof, the Company’s authorized capital stock consists of (i)
650,000,000 shares of Common Stock, of which 22,946,415 shares are outstanding
and approximately 341,128,344 shares are reserved for issuance for the purposes
set forth in Section 4.3 of the Schedule of Exception, and (ii) 290,000,000
shares of Preferred Stock, of which (1) 45,000,000 shares are Series A
Preferred, (2) 25,000,000 shares are Series B Preferred, (3) 70,000,000 shares
are Series C-1 Preferred, (4) 50,000,000 shares are Series C-2 Preferred and (5)
100,000,000 shares are Series C-3 Preferred. Set forth in Section 4.3 of the
Schedule of Exceptions is a complete and correct list, as of the Closing Date,
of the number of shares of Common Stock held by the Company’s public
stockholders generally, stockholders holding in excess of 5% of the Company’s
Common Stock and all holders of Preferred Stock, options, warrants, debentures
and other securities convertible or exercisable for Common Stock. Such schedule
is complete and correct in all material respects. All the issued and outstanding
shares of capital stock of the Company are (i) duly authorized and validly
issued, (ii) fully paid and nonassessable and (iii) have been offered, issued,
sold and delivered by the Company in compliance with applicable federal and
state securities laws.
 
4.4.  AUTHORIZATION
 

(a)  
Each of the Company and the Guarantors has all requisite corporate power and
authority (i) to execute and deliver, and to perform and observe their
respective obligations under, the Transaction Documents to which it is a
respective party, and (ii) to consummate the transactions contemplated hereby
and thereby, including, without limitation, the grant of any security interest,
mortgage, payment trust, guaranty or other security arrangement by the Company
in, on or in respect of the Company Collateral, and by any and all of the
Guarantors in, on or in respect of the Guarantor Collateral.

 

(b)  
All corporate action on the part of (i) the Company and the directors and,
except as set forth in Section 4.4(b) of the Schedule of Exceptions, the
stockholders of the Company necessary for the authorization, execution, delivery
and performance by the Company of the Transaction Documents and the transactions
contemplated therein, and for the authorization, issuance and delivery of the
Notes, has been taken and (ii) each Guarantor and their respective directors and
stockholders necessary for the authorization, execution, delivery and
performance by each Guarantor of the Guarantors General Security Document, the
Guaranties and the transactions contemplated therein or in any other Transaction
Document with respect to the Guarantors, has been taken.

 
4.5.  BINDING OBLIGATIONS; NO MATERIAL ADVERSE CONTRACTS
 
The Transaction Documents constitute valid and binding obligations of the
Company and the Guarantors enforceable in accordance with their respective
terms. Except as set forth in Section 4.5 of the Schedule of Exceptions, the
execution, delivery and performance by the Company and the Guarantors of the
Transaction Documents and compliance therewith will not result in any violation
of and will not conflict with, or result in a breach of any of the terms of, or
constitute a default, or accelerate or permit the acceleration of any rights or
obligations, under, any provision of state, local, federal or foreign law to
which the Company or either of the Guarantors is subject, the Certificate of
Incorporation, as amended, or the By-Laws, as amended, of the Company or either
of the Guarantors, or any mortgage, indenture, agreement, instrument, judgment,
decree, order, rule or regulation or other restriction to which the Company or
either of the Guarantors is a party or by which it is bound, and except for
Permitted Liens, result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or
either of the Guarantors pursuant to any such term. No stockholder of the
Company or either Guarantor has or will have any preemptive rights or rights of
first refusal by reason of the issuance of the Notes.
 
 
 

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4.6.  COMPLIANCE WITH INSTRUMENTS
 
Neither the Company nor any Subsidiary (a) is in violation of its organizational
documents, (b) is in default, and no event has occurred which, with the giving
of notice, or the lapse of time, or both, would constitute such a default, in
the due performance or observance of any term, covenant or condition contained
in any material agreement, including, without limitation, any license, indenture
or other instrument to which it is a party or by which it is bound or to which
any of its property or assets is subject or (c) is in violation of any law,
ordinance, governmental rule, regulation or court decree to which it or its
property may be subject (including without limitation any Legal Requirements
relating to the biotechnology and pharmaceutical industry) except for (x) such
defaults and violations set forth in Section 4.6 of the Schedule of Exceptions,
and (y) such violations under clause (b) and (c) that would not, individually or
in the aggregate, have a Material Adverse Effect.
 
4.7.  LITIGATION
 
Except as set forth in Section 4.7 of the Schedule of Exceptions, there are no
actions, suits or proceedings (including governmental or administrative
proceedings), investigations, third-party subpoenas or inquiries by any
regulatory agency, body or other governmental authority, to which the Company or
any of the Subsidiaries is a party or is subject, or to which any of their
authorizations, consents and approvals or other properties or assets, is
subject, which is pending, or, to the best knowledge of the Company, threatened
or contemplated against the Company or any Subsidiary, or any of such property
or assets, that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect. The Company is not subject to any actions,
suits or proceedings (including governmental or administrative proceedings),
investigation, third-party subpoenas or inquiries by any regulatory agency, body
or other governmental authority or any third Person regarding its accounting
practices or policies.
 
4.8.  FINANCIAL INFORMATION; SEC DOCUMENTS
 
(a)  The Company has furnished to the Lenders complete and correct copies of the
consolidated financial statements of the Company and its Subsidiaries, including
consolidated balance sheets as of December 31, 2004 and 2003 and consolidated
statements of operations, changes in cash flows and stockholders’ equity,
covering the three years ended December 31, 2004, all of which statements have
been certified by BDO Seidman LLP or Grant Thornton LLP, independent accountants
within the meaning of the Securities Act and the rules and regulations
thereunder, and all of which statements are included or incorporated by
reference in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2004 filed with the SEC under the Exchange Act. Such financial
statements have been prepared in conformity with GAAP applied on a consistent
basis throughout the periods involved, except as otherwise stated therein and
fairly present the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and their consolidated results of
operations for such periods. Except as previously disclosed to the Lenders in
writing, the Company’s auditors have raised no material issues nor delivered any
material correspondence with respect to any of the Company’s financial
statements or financial affairs.
 
 
 

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(b)  The Company has also furnished to the Lenders the unaudited consolidated
balance sheet of the Company and its Subsidiaries as of March 31, 2005 and the
related unaudited consolidated statements of operations, consolidated statements
of cash flow and consolidated statements of stockholders’ equity for the three
months ended March 31, 2005. Such financial statements were prepared in
conformity with GAAP applied on a basis consistent with the financial statements
referred to in Section 4.8(a) and fairly present the consolidated financial
position of the Company and its Subsidiaries as of such date and their
consolidated results of operations for such periods (subject to normal year-end
adjustments).
 
(c)  None of the documents filed by the Company with the SEC since December 31,
2003 contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
contained therein not false or misleading in light of the circumstances in which
they were made. There are no facts which the Company has not disclosed in the
Company Reports or disclosed to the Lenders which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
 
(d)  Except as set forth in Section 4.8 of the Schedule of Exceptions or in the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005,
subsequent to December 31, 2004, (i) none of the Company or any Guarantor has
incurred any liability or obligations, direct or indirect, or entered into any
transactions not in the ordinary course of business, in either case which is
material to the Company or any Guarantor, as a whole, (ii) there has not been
any material change in the short-term debt or long-term debt of any of the
Company or any Guarantor and (iii) there has been no material change in the
Company’s accounting principles.
 
(e)  Except as set forth in Section 4.8 of the Schedule of Exceptions or in the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005,
since December 31, 2004, there has been no Material Adverse Effect with respect
to the Company and its Subsidiaries.
 
4.9.  OFFERING EXEMPTION
 
(a)  None of the Company, its Affiliates or any Person acting on its or their
behalf has engaged or will engage, in connection with the offering and sale of
the Notes, in any form in general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act, and none of the Company, or any
of its Affiliates has, directly or indirectly, solicited any offer to buy, sell
or offer to sell or otherwise negotiate in respect of, in the United States or
to any United States citizen or resident, any security which is or would be
integrated with the sale of the Notes in a manner that would require the Notes
to be registered under the Securities Act. The offering, sale and issuance of
the Notes have been, are, and will be exempt from registration under the
Securities Act, and such offering, sale and issuance is also exempt from
registration under applicable state securities and “blue sky” laws.
 
(b)  None of the Company or any Guarantor is, or upon consummation of the
transactions contemplated under the Transaction Documents, will be, subject to
registration as an “investment company” under the 1940 Act.
 
 
 

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4.10.  PERMITS; GOVERNMENTAL AND OTHER APPROVALS
 
(a)  Other than as set forth in Section 4.10 of the Schedule of Exceptions or in
the Company Reports, each of the Company and its Subsidiaries possesses all
necessary consents, approvals, authorizations, orders, registrations, stamps,
filings, qualifications, licenses, permits or other analogous acts by, of, from
or with all public, regulatory or governmental agencies, bodies and authorities
and all other third parties, to own, lease and operate its respective properties
and to carry on its business as now conducted and proposed to be conducted
except to the extent that the failure to obtain any such consents, approvals,
authorizations, orders, registrations, stamps, filings, qualifications, licenses
or permits would not have a Material Adverse Effect. Other than as set forth in
Section 4.10 of the Schedule of Exceptions, no approval, consent, authorization
or other order of, and no designation, filing, registration, qualification or
recording with, any governmental authority or any other Person is required in
connection with the Company’s valid execution, delivery and performance of this
Agreement or the offer, issuance and sale of the Notes by the Company to the
Lenders or the consummation of any other transaction contemplated on the part of
the Company hereby.
 
(b)  Without limiting the generality of the representations and warranties made
in Section 4.10(a), the Company represents and warrants that (i) it and the
Guarantors are in compliance with all applicable provisions of the FDC Act,
except where any such noncompliance could not reasonably be expected to have a
Material Adverse Effect; (ii) its products and those of the Guarantors are not
adulterated or misbranded and are in lawful distribution; (iii) the consent
agreement entered into by the Company with the United States Attorney for the
Eastern District of New York on behalf of the FDA on June 29, 1993 has been
terminated; and (iv) it and the Guarantors are, and will be, in compliance with
the following specific requirements: (A) Acura Pharmaceutical Technologies, Inc.
has registered its facility with the FDA, (B) the Company and the Guarantors
have listed their drug products with the FDA, (C) each drug product marketed by
the Company or any Guarantor is the subject of an application approved by the
FDA, (D) all drug products marketed by the Company or either Guarantor comply
with any conditions of approval and the terms of the application submitted to
the FDA, (E) all of the Company’s and the Guarantors’ drug products are
manufactured in compliance with the FDA’s good manufacturing practice
regulations, (F) all of the Company’s and the Guarantors’ products are labeled
and promoted in accordance with the terms of the marketing application and the
provisions of the FDC Act, (G) all adverse events relating to the Company and
the Guarantors that were required to be reported to the FDA have been reported
to the FDA in a timely manner, (H) to the Company’s best knowledge, neither the
Company nor any Guarantor is employing or utilizing the services of any
individual who has been debarred under the FDC Act, (I) all stability studies
required to be performed for products distributed by the Company or a Guarantor
have been completed or are ongoing in accordance with the applicable FDA
requirements, (J) to the best of the Company’s knowledge, none of the Company’s
or a Guarantor’s products have been exported for sale outside the United States,
and (K) each of the Company and the Guarantors is in compliance with the
provisions of the Prescription Drug Marketing Act, to the extent applicable;
except, with respect to subclauses (iv)(E), (iv)(G), (iv)(J) and (iv)(K) above,
where any such noncompliance could not reasonably be expected to have a Material
Adverse Effect. 
 
 
 

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(c)  Without limiting the generality of the representations and warranties made
in Section 4.10(a), the Company also represents and warrants that it and the
Guarantors are in compliance with all applicable provisions of the CSA and that
the Company and the Guarantors are in compliance with the following specific
requirements, except where such noncompliance could not reasonably be expected
to have a Material Adverse Effect: (i) the Company and the Guarantors are
registered with the DEA at each facility where controlled substances are
exported, imported, manufactured or distributed; (ii) all controlled substances
are stored and handled pursuant to DEA security requirements; (iii) all records
and inventories of receipt and distributions of controlled substances are
maintained in the manner and form as required by DEA regulations; (iv) all
reports, including, but not limited to, ARCOS, manufacturing quotas, production
quotas, and disposals, have been submitted to the DEA in a timely manner; (v)
all adverse events, including thefts or significant losses of controlled
substances, have been reported to the DEA in a timely manner; (vi) to the
Company’s best knowledge, neither the Company nor any Guarantor is employing any
individual, with access to controlled substances, who has previously been
convicted of a felony involving controlled substances; and (vii) any imports or
exports of controlled substances have been conducted in compliance with the CSA
and DEA regulations. 
 
4.11.  SALES REPRESENTATIVES; CUSTOMERS AND KEY EMPLOYEES
 
(a)  Except as set forth in Section 4.11 of the Schedule of Exceptions, to the
best knowledge of the Company, no independent sales representatives, customers,
officers or key employees or group of key employees of the Company or any
Guarantor has any intention to terminate his, her or its relationship with the
Company or such Guarantor on or after the Closing or, in the case of employees,
leave the employ of the Company or any of the Guarantors on and after the
Closing, nor has the Company or any of the Guarantors discussed or taken any
steps to terminate the employment of any officer or key employee or group of key
employees. Other than as set forth in Section 4.11 of the Schedule of Exceptions
or in the Company Reports, all personnel of the Company and any of the
Guarantors are employed on an “at will” basis and may be terminated upon notice
of not more than 30 days.
 
(b)  To the Company’s best knowledge, no employee of the Company or any of the
Guarantors, or any consultant (including any scientific advisor) with whom the
Company or any of the Guarantors has contracted, is in violation of any term of
any employment contract, proprietary information agreement, licenses, or any
other agreement relating to the right of any such individual to be employed by,
or to contract with, the Company or any of the Guarantors because of the nature
of the business conducted by the Company and the Guarantors; and the continued
employment by the Company or any of the Guarantors of their present employees,
and the performance of the Company’s and the Guarantor’s contracts with its
independent contractors, will not result in any such violation, except where any
such violation could not reasonably be expected to have a Material Adverse
Effect. None of the Company or any of the Guarantors has received any written,
or to the best knowledge of the Company, oral notice alleging that any such
violation has occurred.
 
(c)  All of the Company’s and any of the Guarantor’s consultants (including
scientific advisors), officers and key employees are subject to customary
non-disclosure and non-competition agreements. 
 
 
 

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4.12.  COPYRIGHTS, TRADEMARKS AND PATENTS; LICENSES
 
(a)  Section 4.12 of the Schedule of Exceptions sets forth a list of all of the
Company’s and any Guarantor’s Intellectual Property Rights. The Intellectual
Property Rights are, to the best of the Company’s knowledge, fully valid and are
in full force and effect; provided, that the Company makes no representation as
to whether any pending patent applications will be allowed.
 
(b)  The Company or a Guarantor owns outright all of the Intellectual Property
Rights listed on Section 4.12 of the Schedule of Exceptions attached hereto free
and clear of all liens and encumbrances except for the Permitted Liens, and does
not pay, and is not required to pay, any royalty to anyone under or with respect
to any of them.
 
(c)  Neither the Company nor any Guarantor has licensed anyone to use any of
such Intellectual Property Rights and has no knowledge of, nor has it received
any notice relating to, the infringing use by the Company or any Guarantor of
any Intellectual Property Rights.
 
(d)  Except as otherwise disclosed to the Company’s Board of Directors, the
Company has no knowledge, nor has it received any notice (i) of any conflict
with the asserted rights of others with respect to any Intellectual Property
Rights used in, or useful to, the operation of the business conducted by the
Company and the Guarantors or with respect to any license under which the
Company or a Guarantor is licensor or licensee; or (ii) that the Intellectual
Property Rights infringe upon the rights of any third party.
 
(e)  Except as set forth in Section 4.12 of the Schedule of Exceptions, neither
the Company nor any Guarantor is a party to any license agreement pursuant to
which the Company is the licensor or licensee of any Intellectual Property
Rights.
 
4.13.  INVENTORY
 
The Company and its Subsidiaries do not maintain any material inventory.
 
4.14.  NO DISCRIMINATION; LABOR MATTERS
 
Neither the Company nor any Guarantor in any manner or form discriminates,
fosters discrimination or permits discrimination against any Person based on
gender or age, or belonging to any minority race or believing in any minority
creed or religion. No charge of discrimination in employment, whether by reason
of age, gender, race, religion or other legally protected category that has been
asserted or is now pending or, to the best knowledge of the Company and the
Guarantors, threatened before the United States Equal Employment Opportunity
Commission or other federal or governmental authorities. The Company and each
Guarantor is in compliance with all applicable Legal Requirements respecting
employment practices, terms and conditions of employment and wages and hours and
is not and has not engaged in any unfair labor practice. The Company and each
Guarantor has withheld and paid to the appropriate governmental authorities or
is holding for payment not yet due to governmental authorities, all amounts
required to be withheld from such employees of the Company or the Guarantors and
is not liable for any arrears of wages, taxes, penalties or other sums for
failure to comply with any of the foregoing. Except as set forth in Section 4.14
of the Schedule of Exceptions, in connection with the operation of the Company’s
and each Guarantor’s business, (a) there is no unfair labor practice charge or
complaint against the Company or any Guarantor pending before the National Labor
Relations Board or any other governmental agency arising out of the Company’s or
any Guarantor’s activities and the Company has no knowledge, nor has it received
notice of any facts or information that would give rise thereto; (b) there is no
significant labor trouble, labor strike, material controversy, material
unsettled grievance, dispute, request for representation, slowdown or stoppage
actually pending against or affecting the Company or any of the Guarantors and,
to the best knowledge of the Company, none is or has been threatened; and (c)
none of the Company or any of the Guarantors has any collective bargaining
agreements with respect to any personnel nor is the Company aware of any current
attempts to organize or establish any labor union or employee association with
respect to any personnel, nor is there any certification, interim certifications
or voluntary recognition of any such union with regard to a bargaining unit.
 
 
 

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4.15.  ENVIRONMENTAL MATTERS
 
(a)  Without limiting the generality of the representations and warranties given
in Section 4.10(a), each of the Company and the Subsidiaries has obtained all
environmental, health and safety permits, licenses and other authorizations
necessary or required for the operation of its business, except where the
failure to possess such franchises, licenses, permits or other authority could
not reasonably be expected to have a Material Adverse Effect, and all such
permits, licenses and other authorizations are in full force and effect and each
of the Company and, except as set forth in Section 4.15 of the Schedule of
Exceptions, the Subsidiaries is in compliance with all terms and conditions of
such permits, except where such noncompliance could not reasonably be expected
to have a Material Adverse Effect.
 
(b)  There is no proceeding pending or, to the best knowledge of the Company,
threatened, which may result in the denial, rescission, termination,
modification or suspension of any environmental or health or safety permits,
licenses or other authorizations necessary for the operation of the business of
the Company and the Subsidiaries.
 
(c)  During the occupancy by the Company or any Subsidiary of any real property
owned or leased by the Company or such Subsidiary, neither the Company nor any
Subsidiary, and to the best knowledge of the Company, no other Person, has
caused or permitted materials to be generated, released, stored, treated,
recycled, disposed of on, under or at such parcels, which materials, if known to
be present, would require cleanup, removal or other remedial or responsive
action under any environmental Legal Requirements. To the best knowledge of the
Company, there are no underground storage tanks and no PCB, PCB contaminated oil
or asbestos on any property leased by the Company or any Subsidiary.
 
(d)  Except as set forth in Section 4.15 of the Schedule of Exceptions, neither
the Company nor any Subsidiary is subject to any judgment, decree, order or
citation related to or arising out of environmental Legal Requirements, or has
received notice that it has been named or listed as a potentially responsible
party by any Person in any matter arising under environmental Legal
Requirements.
 
(e)  To the Company’s best knowledge, each of the Company and the Subsidiaries
has disposed of all waste in full compliance with all environmental Legal
Requirements.
 
4.16.  TAXES
 
The Company and each of the Guarantors have (a) filed all necessary income,
franchise and other material tax returns, domestic and foreign, (b) paid all
taxes shown as due thereunder and (c) withheld and paid to the appropriate tax
authorities all amounts required to be withheld from wages, salaries and other
remuneration to employees. The Company has no knowledge, nor has it received
notice, of any tax deficiency which might be assessed against the Company or any
Guarantor which, if so assessed, could reasonably be expected to have a Material
Adverse Effect.
 
 
 

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4.17.  EMPLOYEE BENEFIT PLANS AND SIMILAR ARRANGEMENTS
 
(a)  Section 4.17 of the Schedule of Exceptions and the Company Reports list all
employee benefit plans and collective bargaining, labor and employment
agreements or other similar arrangements in effect to which the Company, the
Guarantors, and any of their respective ERISA Affiliates are a party or by which
the Company, the Guarantors, and any of respective ERISA Affiliates are bound,
legally or otherwise, including, without limitation, (i) any profit-sharing,
deferred compensation, bonus, stock option, stock purchase, pension, retainer,
consulting, retirement, severance, welfare or incentive plan, agreement or
arrangement; (ii) any plan, agreement or arrangement providing for fringe
benefits or perquisites to employees, officers, directors or agents, including
but not limited to benefits relating to employer-supplied automobiles, clubs,
medical, dental, hospitalization, life insurance and other types of insurance,
retiree medical, retiree life insurance and any other type of benefits for
retired and terminated employees; (iii) any employment agreement; or (iv) any
other “employee benefit plan” (within the meaning of Section 3(3) of ERISA)
(herein referred to individually as “Plan” and collectively as “Plans”).
 
(b)  True and complete copies of the following documents with respect to any
Plan of the Company, its Subsidiaries, and each ERISA Affiliate, as applicable,
have been made available to each of the Lenders: (i) the most recent Plan
document and trust agreement (including any amendments thereto and prior plan
documents, if amended within the last two years), (ii) the last two Form 5500
filings and schedules thereto, (iii) the most recent IRS determination letter,
(iv) all summary plan descriptions, (v) a written description of each material
non-written Plan, (vi) each written communication to employees intended to
describe a Plan or any benefit provided by such Plan, (vii) the most recent
actuarial report, and (viii) all correspondence with the IRS, the Department of
Labor and the PBGC concerning any controversy. Each report described in clause
(vii) accurately reflects the funding status of the Plan to which it relates and
subsequent to the date of such report there has been no adverse change in the
funding status or financial condition of such Plan.
 
(c)  Each Plan is and has been maintained in compliance with applicable Legal
Requirements, including but not limited to ERISA and the Code, and with any
applicable collective bargaining agreements or other contractual obligations.
 
(d)  With respect to any 412 Plan, there has been no failure to make any
contribution or pay any amount due as required by Section 412 of the Code,
Section 302 of ERISA or the terms of any such Plan, and no funding waiver has
been requested or received from the IRS. The assets of the Company, its
Subsidiaries, or any ERISA Affiliates are not now, nor will they after the
passage of time be, subject to any lien imposed under Section 412(n) of the Code
by reason of a failure of the Company, any Subsidiary, or any ERISA Affiliate to
make timely installments or other payments required under Section 412 of the
Code.
 
(e)  No Plan subject to Title IV of ERISA has any Unfunded Pension Liability.
 
 
 

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(f)  Except as shown on Section 4.17 of the Schedule of Exceptions, there are no
pending, or to the best knowledge of the Company, its Subsidiaries, and ERISA
Affiliates,  threatened claims, investigations, actions or lawsuits, other than
routine claims for benefits in the ordinary course, asserted or instituted
against (i) any Plan or its assets, (ii) any ERISA Affiliate with respect to any
412 Plan, or (iii) any fiduciary with respect to any Plan for which the Company,
its Subsidiaries, or any ERISA Affiliate may be directly or indirectly liable,
through indemnification obligations or otherwise.
 
(g)  Except as set forth in Section 4.17 of the Schedule of Exceptions, none of
the Company, any Subsidiary, or any ERISA Affiliate has incurred and or
reasonably expects to incur (i) any Withdrawal Liability and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in Withdrawal Liabilities, or any liability under Section 4063, 4064, or
4243, or (ii) any outstanding liability under Title IV of ERISA with respect to
any 412 Plan.
 
(h)  Except as shown on Section 4.17 of the Schedule of Exceptions, within the
last five years, none of the Company, any Subsidiary or any ERISA Affiliate has
transferred any assets or liabilities of a 412 Plan subject to Title IV of ERISA
which had, at the date of such transfer, an Unfunded Pension Liability or has
engaged in a transaction which may reasonably be subject to Section 4212(c) or
Section 4069 of ERISA.
 
(i)  None of the Company, any Subsidiary, or any ERISA Affiliate has engaged,
directly or indirectly, in a non-exempt prohibited transaction (as defined in
Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan.
 
(j)  No “reportable event” (within the meaning of Section 4043 of ERISA) has
occurred with respect to any Plan.
 
(k)  Neither the Company nor any of its Subsidiaries provides, or has provided,
retiree welfare benefits for the benefit of any present or former employee or
director.
 
(l)  Neither the Company nor any of its Subsidiaries has made any commitment or
any formal plan to create any additional Plan or to modify or terminate (except
to the extent required by applicable law) any existing Plan.
 
(m)  Neither the Company nor any of its Subsidiaries is a party to any plan,
agreement or arrangement pursuant to the terms of which the consummation or
announcement of any transaction contemplated by this Agreement will result
(either alone or in connection with the occurrence of any additional or further
acts or events) in any benefit under any Plan being established or becoming
accelerated or immediately vested and payable.
 
(n)  The provisions of Section 280G of the Code will not apply with respect to
any payment made or to be made pursuant to or in connection with any Plan.
 
4.18.  PERSONAL PROPERTY
 
The Company and the Guarantors have good and marketable title to each item of
equipment, machinery, furniture, fixtures, vehicles, structures and other
personal property, tangible and intangible, included as an asset in the
Financial Statements filed as part of the Company Reports, free and clear of any
security interests, options, liens, claims, charges or encumbrances whatsoever,
except as set forth in Section 4.18 of the Schedule of Exceptions and as
disclosed in the Company General Security Agreement and the Guarantors General
Security Agreement.
 
 
 

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4.19.  REAL PROPERTY
 
(a)  The Company and the Guarantors do not own any fee simple interest in real
property other than as set forth in Section 4.19 of the Schedule of Exceptions
(the “Owned Property”). The Company and the Guarantors do not lease or sublease
any real property other than as set forth on Schedule 4.19 (the “Leased
Property”). The Company has made available for inspection by the Lenders true
and complete copies of all Leases. The Company and each Guarantor enjoys a
peaceful and undisturbed possession of the Owned Property and Leased Property.
No Person other than the Company or any Guarantor has any right to use or occupy
any part of the Owned Property and the Leased Property. Except as set forth in
Section 4.19 of the Schedule of Exceptions, the Leases are valid, binding and in
full force and effect, all rent and other sums and charges payable thereunder
are current, no notice of default or termination under any of the Leases is
outstanding, no termination event or condition or uncured default on the part of
the Company or, to the best of the Company’s knowledge, on the part of the
landlord, sublandlord, as the case may be, thereunder, exists under the Leases,
and no event has occurred and no condition exists which, with the giving of
notice, or the lapse of time, or both, would constitute such a default or
termination event or condition. There are no subleases, licenses or other
agreements granting to any Person other than the Company or the Guarantors any
right to possession, use, occupancy or enjoyment of the Premises demised by the
Leases. Each Owned Property and Leased Property is used in the conduct of the
Company’s or the Guarantors’ business.
 
(b)  Without limiting the generality of the representations and warranties given
in Section 4.10(a), all required permits, licenses, franchises, approvals and
authorizations of all governmental authorities having jurisdiction over each
Leased Property and from all insurance companies and fire rating and other
similar boards and organizations have been issued to the Company and the
Guarantors to enable each Leased Property or Owned Property to be lawfully
occupied and used for all the purposes for which they are currently occupied and
used and have been lawfully issued and are in full force and effect, except
where the failure to possess such permits, licenses, franchises, approvals and
authorizations, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
 
(c)  Neither the Company nor the Guarantors have received any notice nor have
they any knowledge of any pending, threatened or contemplated condemnation
proceeding affecting any Leased Property or the Owned Property or any part
thereof.
 
4.20.  DISCLOSURE
 
The information heretofore provided and to be provided in connection with this
Agreement, including, without limitation, the Schedule of Exceptions and the
Exhibits hereto, the Transaction Documents and each of the agreements,
documents, certificates and writings previously furnished to the Lenders or
their representatives, do not and will not contain any untrue statement of a
material fact and do not and will not omit to state a material fact necessary in
order to make the statements and writings contained herein and therein not false
or misleading in the light of the circumstances under which they were made.
There are no facts that (individually or in the aggregate) could reasonably be
expected to have a Material Adverse Effect, which has not been set forth herein
or in the Schedule of Exceptions or the Company Reports.
 
 
 

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4.21.  INTENTIONALLY OMITTED
 
4.22.  INSURANCE
 
(a)  Each of the Company and the Guarantors maintains, with financially sound
and reputable insurers, insurance against loss or damage by theft, fire,
explosion and other risks customarily insured against by companies in the line
of business of the Company or the Guarantors, in amounts sufficient to prevent
the Company or the Guarantors from becoming a co-insurer of the property insured
as well as insurance against other hazards and risks and liability to Persons
and property to the extent and in the manner customary for companies in similar
businesses similarly situated or as may be required by law, including, without
limitation, general liability, fire and business interruption insurance, and
product liability insurance as may be required pursuant to any license agreement
to which the Company or the Guarantors is a party or by which it is bound.
 
(b)  The Company maintains D&O Insurance as detailed in Section 4.22(b) of the
Schedule of Exceptions, which D&O Insurance is in full force and effect and as
to which the Company has not received any notice of default, termination, change
in terms, change in coverage or similar notice.
 
4.23.  NON-COMPETES
 
Except as set forth in Section 4.23 of the Schedule of Exceptions, and as
contemplated by Section 4.11(c), the Company and its Subsidiaries are not
subject to any non-compete or similar arrangements with any Persons that
restrict or may restrict the Company and its Subsidiaries from carrying on its
business as now conducted and as it is proposed to be conducted.
 
4.24.  PRODUCT WARRANTY
 
Except as set forth in Section 4.24 of the Schedule of Exceptions, or as
reflected or reserved against in the Financial Statements, (a) to the knowledge
of the Company, each product manufactured by the Company or any Subsidiary has
been in material conformity with all applicable contractual commitments of the
Company or any Subsidiary, and (b) no product currently manufactured by the
Company or any Subsidiary is subject to any guaranty, warranty or indemnity of a
contractual nature other than the applicable standard terms and conditions, if
any, applicable to the sale or delivery of such product.
 
4.25.  MINUTE BOOKS
 
The Company and the Subsidiaries have made accurate and complete copies of their
minute books available for inspection by the Lenders.
 
ARTICLE V
 
AFFIRMATIVE COVENANTS
 
 
 

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The Company hereby covenants and agrees, so long as any Note remains
outstanding, as follows:
 
5.1.  MAINTENANCE OF CORPORATE EXISTENCE; PROPERTIES AND LEASES; TAXES;
INSURANCE
 
(a)  The Company shall, and shall cause each of the Guarantors to, maintain in
full force and effect its corporate existence, rights and franchises and all
terms of licenses and other rights to use licenses, trademarks, trade names,
service marks, copyrights, patents, processes or any other Intellectual Property
Rights owned or possessed by it and necessary to the conduct of its business,
except where failure to maintain such rights, franchises and terms of licenses
and other rights to use such Intellectual Property Rights could not reasonably
be expected to have a Material Adverse Effect.
 
(b)  The Company shall, and shall cause the Guarantors to, keep each of its
properties necessary to the conduct of its business in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company shall, and shall cause the Guarantors to,
at all times comply with each provision of all leases to which it is a party or
under which it occupies property, except where any such noncompliance could not
reasonably be expected to have a Material Adverse Effect.
 
(c)  The Company shall, and shall cause each of the Guarantors to, (i) promptly
pay and discharge, or cause to be paid and discharged when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, assets, property or business of the Company and the Guarantors,
(ii) withhold and promptly pay to the appropriate tax authorities all amounts
required to be withheld from wages, salaries and other remuneration to
employees, and (iii) promptly pay all claims or indebtedness (including, without
limitation, claims or demands of workmen, materialmen, vendors, suppliers,
mechanics, carriers, warehousemen and landlords) which, if unpaid might become a
lien upon the assets or property of the Company or the Guarantors; provided,
however, that any such tax, lien, assessment, charge or levy need not be paid if
(1) the validity thereof shall be contested timely and in good faith by
appropriate proceedings, (2) the Company or the Guarantors shall have set aside
on its books adequate reserves with respect thereto, and (3) the failure to pay
shall not be prejudicial in any material respect to the holders of the Notes,
and provided further that the Company or the Guarantors will pay or cause to be
paid any such tax, lien, assessment, charge or levy forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefore. Except to the extent prohibited by Article VI of this
Agreement, the Company shall, and shall cause the Guarantors to, pay or cause to
be paid all other indebtedness incident to the operations of the Company or the
Guarantors.
 
(d)  The Company shall, and shall cause each of the Guarantors to, keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by theft, fire, explosion and other
risks customarily insured against by companies in the line of business of the
Company or the Guarantors, in amounts sufficient to prevent the Company or the
Guarantors from becoming a co-insurer of the property insured; and the Company
shall, and shall cause the Guarantors to, maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
Persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated or as may be required by law, including,
without limitation, general liability, fire and business interruption insurance,
and product liability insurance as may be required pursuant to any license
agreement to which the Company or the Guarantors is a party or by which it is
bound.
 
 
 

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5.2.  BASIC FINANCIAL INFORMATION
 
The Company shall furnish the following reports to each Lender, so long as it is
a holder of a Note:
 
(a)  as soon as practicable, but in any event within 90 days after the end of
each fiscal year of the Company, (i) audited balance sheets of the Company as at
the end of such year, together with audited statements of income and retained
earnings and statements of cash flows of the Company for such year, together
with notes related thereto, each prepared in accordance with GAAP, consistently
applied, and setting out in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail and certified by certified
independent public accountants of established national reputation, and (ii) a
report of the principal financial officer of the Company containing a management
discussion and analysis of the Company’s consolidated financial condition at the
end of such year and the results of operations for such year, including, but not
limited to, a description of significant events with respect to the Company and
its Subsidiaries, if any, during the preceding year and any planned or
anticipated significant activities or events during the upcoming months;
 
(b)  as soon as practicable, but in any event within 45 days after the end of
each of the first three fiscal quarters of the Company in each year, (i) an
unaudited balance sheet at the end of such quarter, and unaudited statements of
income, of profit and loss and of changes in financial condition of the Company
(including cash flow statements) for such period and for the current fiscal year
to date, in each case prepared in accordance with GAAP, consistently applied
(other than for accompanying notes and subject to changes resulting from
year-end audit adjustments), and (ii) a report of the principal financial
officer of the Company containing a management discussion and analysis of the
Company’s consolidated financial condition at the end of such quarter and the
results of operations for such quarter and the year to date, including, but not
limited to, a description of significant events with respect to the Company and
its Subsidiaries, if any, during such periods and any planned or anticipated
significant activities or events during the upcoming months; and
 
(c)  with reasonable promptness such other information and financial data
concerning the Company as any Person entitled to receive materials under this
Section 5.2 may reasonably request.
 
5.3.  NOTICE OF ADVERSE CHANGE
 
The Company shall promptly give notice to all Lenders (but in any event within
two days) after becoming aware of the existence of any condition or event which
constitutes, or the occurrence of, any of the following:
 
 
 

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(a)  any Event of Default or any default that with the passage of time or the
giving of notice would constitute an Event of Default;
 
(b)  the institution or threatening of institution of any action, suit or
proceeding against the Company or any Subsidiary before any court,
administrative agency or arbitrator, including, without limitation, any action
of a foreign government or instrumentality, which, if adversely decided, could
reasonably be expected to have a Material Adverse Effect;
 
(c)  any information relating to the Company or any Subsidiary which could
reasonably be expected to have a Material Adverse Effect; or
 
(d)  any failure by the Company or any of its Subsidiaries to comply with the
provisions of Section 5.4 below.
 
Any notice given under this Section 5.3 shall specify the nature and period of
existence of the condition, event, information, development or circumstance, the
anticipated effect thereof and what actions the Company or any Guarantor, as the
case may be, has taken and proposes to take with respect thereto.
 
5.4.  COMPLIANCE WITH AGREEMENTS; COMPLIANCE WITH LAWS
 
The Company shall, and shall cause its Subsidiaries to, comply with the terms
and conditions of all material agreements, commitments or instruments to which
the Company or any of its Subsidiaries is a party or by which it or they may be
bound. The Company shall, and shall cause each of its Subsidiaries to, duly
comply with any Legal Requirements relating to the conduct of their respective
businesses, properties or assets, including, but not limited to, the
requirements of the FDA Act, the Prescription Drug Marketing Act, the CSA,
ERISA, the Environmental Protection Act, the Occupational Safety and Health Act,
the Foreign Corrupt Practices Act, the Sarbanes-Oxley Act of 2002 and the rules
and regulations of each of the agencies administering such acts, in each case
except for any such noncompliance that could not reasonably be expected to have
a Material Adverse Effect.
 
5.5.  PROTECTION OF LICENSES
 
The Company shall, and shall cause its Subsidiaries to, maintain, defend and
protect to the best of their ability licenses and sublicenses (and to the extent
the Company or a Subsidiary is a licensee or sublicensee under any license or
sublicense, as permitted by the license or sublicense agreement), trademarks,
trade names, service marks, patents and applications therefore and other
proprietary information or Intellectual Property Rights owned or used by it or
them and shall keep duplicate copies of any licenses, trademarks, service marks
or patents owned or used by it, if any, at a secure place selected by the
Company.
 
5.6.  ACCOUNTS AND RECORDS; INSPECTIONS
 
(a)  The Company shall keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to the business and affairs of the Company and its Subsidiaries in
accordance with GAAP applied on a consistent basis.
 
(b)  The Company shall permit each Lender or any of such Lender’s officers,
employees or representatives during regular business hours of the Company, upon
reasonable notice and as often as such Lender may reasonably request, to visit
and inspect the offices and properties of the Company and its Subsidiaries and
to make extracts or copies of the books, accounts and records of the Company or
its Subsidiaries, and to discuss the affairs, finances and accounts of the
Company and its Subsidiaries, with the Company’s (or Subsidiary’s) directors and
officers, its independent public accountants, consultants and attorneys.
 
 
 

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(c)  Nothing contained in this Section 5.6 shall be construed to limit any
rights that a Lender may have with respect to the books and records of the
Company and its Subsidiaries, to inspect its properties or to discuss its
affairs, finances and accounts.
 
(d)  The Company will retain an Approved Accounting Firm to audit the Company’s
financial statements at the end of each fiscal year. In the event the services
of an Approved Accounting Firm or any firm of independent public accountants
hereafter employed by the Company are terminated, the Company will promptly
thereafter request the firm of independent public accountants whose services are
terminated to deliver to the Lenders a letter of such firm setting forth its
understanding as to the reasons for the termination of their services and
whether there were, during the two most recent fiscal years or such shorter
period during which said firm had been retained by the Company any disagreements
between them and the Company on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. In
its notice, the Company shall state whether the change of accountants was
recommended or approved by the Board of Directors or any committee thereof. In
the event of such termination, the Company will promptly thereafter engage
another Approved Accounting Firm.
 
5.7.  MAINTENANCE OF OFFICE
 
The Company will maintain its principal office at the address of the Company set
forth in Section 10.4 of this Agreement where notices, presentments and demands
in respect of this Agreement and any of the Notes may be made upon the Company,
until such time as the Company shall notify the Lenders in writing, at least 30
days prior thereto, of any change of location of such office.
 
5.8.  FURTHER ASSURANCES
 
From time to time the Company shall execute and deliver to the Lenders such
other instruments, certificates, agreements and documents and take such other
action and do all other things as may be reasonably requested by the Lenders in
order to implement or effectuate the terms and provisions of this Agreement and
the transactions contemplated hereby.
 
5.9.  SEC REPORTS
 
The Company will file, on a timely basis, any SEC Reports and keep all such SEC
Reports and public information current. The Company agrees that none of the SEC
Reports filed by the Company will, at the time of filing, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
 
 
 

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5.10.  COLLATERAL
 
 
With respect to all Company Collateral and Guarantor Collateral, the Company
shall (and shall cause the Guarantors to) take all actions necessary to preserve
and protect the Lenders’ first priority security interest therein pursuant to
the applicable Transaction Documents or otherwise.
 
5.11.  MINIMUM CASH
 
The Company shall maintain at all times cash or cash deposits (in an account
pledged to the Lenders or their agent) in an amount of at least Two Hundred
Thousand Dollars ($200,000).
 
ARTICLE VI 
 
NEGATIVE COVENANTS
 
The Company hereby covenants and agrees, so long as any Note remains
outstanding, it will not (and not allow any of the Guarantors to), directly or
indirectly, without the prior written consent of the Lenders:
 
6.1.  STAY, EXTENSION AND USURY LAWS
 
At any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law wherever enacted, now
or at any time hereinafter in force, which may affect the covenants or the
performance of the Notes or this Agreement, the Company hereby expressly waiving
all benefit or advantage of any such law, or by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Lenders but
will suffer and permit the execution of every such power as though no such law
had been enacted.
 
6.2.  LIENS
 
Except as otherwise provided in this Agreement or any other Transaction
Document, create, incur, assume or permit to exist any mortgage, pledge, lien,
security interest or encumbrance on any part of its properties or assets, or on
any interest it may have therein, now owned or hereafter acquired, nor acquire
or agree to acquire property or assets under any conditional sale agreement or
title retention contract, except that the foregoing restrictions shall not apply
to:
 
(a)  liens for taxes, assessments and other governmental charges, if payment
thereof shall not at the time be required to be made, and provided such reserve
as shall be required by GAAP consistently applied shall have been made
therefore;
 
(b)  liens of workmen, materialmen, vendors, suppliers, mechanics, carriers,
warehouseman and landlords or other like liens, incurred in the ordinary course
of business for sums not then due or that are being contested in good faith and
provided that an adverse decision in such contest would not materially affect
the business of the Company;
 
(c)  liens securing the Company’s obligations under the Senior Note and the
Watson Term Loan;
 
 
 

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(d)  statutory liens of landlords, statutory liens of banks and rights of
set-off, and other liens imposed by law, in each case incurred in the ordinary
course of business (i) for amounts not yet overdue or (ii) for amounts that are
overdue and that are being contested in good faith by appropriate proceedings,
so long as reserves or other appropriate provisions, if any, as shall be
required by GAAP, shall have been made for any such contested amounts;
 
(e)  liens incurred or deposits made in the ordinary course of business in
connection with workers’ compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
 
(f)  any attachment or judgment lien not otherwise constituting an Event of
Default, or an event which, with the giving of notice, the lapse of time, or
both, would not otherwise constitute an Event of Default;
 
(g)  easements, rights-of-way, restrictions, encroachments, and other minor
defects or irregularities in title, in each case which do not and will not
interfere with the ordinary conduct of the business of the Company or any of its
Subsidiaries, except where such interference could not reasonably be expected to
have a Material Adverse Effect;
 
(h)  any (i) interest or title of a lessor or sublessor under any lease, (ii)
restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to, or (iii) subordination of the interest of the
lessee or sublessee under such lease to any restriction or encumbrance referred
to in the preceding clause (ii), so long as the holder of such restriction or
encumbrance agrees to recognize the rights of such lessee or sublessee under
such lease;
 
(i)  liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the importation of
goods;
 
(j)  any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
 
(k)  liens securing obligations (other than obligations representing
Indebtedness for borrowed money) under operating, reciprocal easement or similar
agreements entered into in the ordinary course of business of the Company and
its Subsidiaries; and
 
(l)  the replacement, extension or renewal of any lien permitted by this
Section 6.2 upon or in the same property theretofore subject or the replacement,
extension or renewal (without increase in the amount or change in any direct or
contingent obligor) of the Indebtedness secured thereby.
 
6.3.  INDEBTEDNESS
 
Create, incur, assume, suffer, permit to exist, or guarantee, directly or
indirectly, any Indebtedness, excluding:
 
(a)  the endorsement of instruments for the purpose of deposit or collection in
the ordinary course of business;
 
 
 

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(b)  Indebtedness which may, from time to time be incurred or guaranteed by the
Company which in the aggregate principal amount does not exceed $500,000 and is
subordinate to the Indebtedness under this Agreement on terms reasonably
satisfactory to the Lenders;
 
(c)  Indebtedness existing on the date hereof and described in Section 6.4 of
the Schedule of Exceptions;
 
(d)  Indebtedness relating to contingent obligations of the Company and its
Subsidiaries under guaranties in the ordinary course of business of the
obligations of suppliers, customers, and licensees of the Company and its
Subsidiaries;
 
(e)  Indebtedness relating to loans from the Company to its Subsidiaries or
Indebtedness owed to any of the Guarantors;
 
(f)  Indebtedness relating to capital leases in an amount not to exceed
$500,000;
 
(g)  Indebtedness relating to a working capital line of credit in an amount not
to exceed $5,000,000 and which is subordinate to the Indebtedness under this
Agreement on terms reasonably satisfactory to the Lenders;
 
(h)  accounts or notes payable arising out of the purchase of merchandise or
services in the ordinary course of business; or
 
(i)  the Notes.
 
6.4.  ARM’S LENGTH TRANSACTIONS
 
Enter into any transaction, contract or commitment or take any action other than
at Arm’s Length.
 
6.5.  LOANS AND ADVANCES
 
Except for loans and advances outstanding as of the Closing Date and set forth
in Section 6.5 of the Schedule of Exceptions, directly or indirectly, make any
advance or loan to, or guarantee any obligation of, any Person, except for
intercompany loans or advances in the ordinary course of business and those
provided for in this Agreement.
 
 
 

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6.6.  INTERCOMPANY TRANSFERS; TRANSACTIONS WITH AFFILIATES; DIVERSION OF
CORPORATE OPPORTUNITIES
 
(a)  Make any intercompany transfers of monies or other assets in any single
transaction or series of transactions, except as otherwise permitted in this
Agreement.
 
(b)  Engage in any transaction with any of the officers, directors, employees or
Affiliates of the Company or of its Subsidiaries, except on terms no less
favorable to the Company or the Subsidiary as could be obtained at Arm’s Length.
 
(c)  Divert (or permit anyone to divert) any business or opportunity of the
Company or any Subsidiary to any other corporate or business entity.
 
6.7.  INVESTMENTS
 
Make any investments in, or purchase any stock, option, warrant, or other
security or evidence of Indebtedness of, any Person (exclusive of any
Subsidiary), other than obligations of the United States Government or
certificates of deposit or other instruments maturing within one year from the
date of purchase from financial institutions with capital in excess of $100
million, in each case which are pledged to the Lenders (or their agent) in a
manner that is acceptable to the Lenders and that results in a perfected first
priority security interest in favor of the Lenders (or their agent).
 
6.8.  OTHER BUSINESS
 
Enter into or engage, directly or indirectly, in any business other than the
business currently conducted or proposed to be conducted as disclosed to the
Lenders prior to the date hereof by the Company or any Subsidiary.
 
6.9.  EMPLOYEE BENEFIT PLANS AND COMPENSATION
 
Except as otherwise approved by the Board, or by a committee thereof to whom the
Board has delegate such authority, (a) enter into or materially amend any
agreement to provide for or otherwise establish any written or unwritten
employee benefit plan, program or other arrangement of any kind, covering
current or former employees of the Company or its Subsidiaries except for any
such plan, program or arrangement expressly permitted under an existing
agreement listed in Section 4.17 the Schedule of Exceptions or in the Company
Reports; or (b) provide for or agree to any material increase in any benefit
provided to current or former employees of the Company or its Subsidiaries over
that which is provided to such individuals pursuant to a plan or arrangement
disclosed in Section 4.17 of the Schedule of Exceptions or in the Company
Reports.
 
 
 

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6.10.  CAPITAL EXPENDITURES
 
Other than for capital expenditures approved by the Company’s Board of
Directors, make or commit to make, or permit any of its Subsidiaries to make or
commit to make, any capital expenditures in excess of $25,000 in the aggregate
during any fiscal year of the Company.
 
6.11.  FORMATION OF SUBSIDIARIES
 
Organize or invest, or permit any Subsidiary to organize or invest, in any new
corporation, partnership, joint venture, limited liability company, trust or
estate of which (or in which) (a) more than 50% of the issued and outstanding
capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at the time capital stock
of any other class of such corporation shall or might have voting power upon the
occurrence of any contingency), the interest in the capital or profits of such
partnership, joint venture or limited liability company or the beneficial
interest in such trust or estate, is at the time directly or indirectly owned or
controlled by the Company, any of its Subsidiaries or any of their respective
officers or directors, or (b) a material minority investment in any such entity
is directly or indirectly owned or controlled by the Company, any of its
Subsidiaries or any of their respective officers or directors.
 
6.12.  CERTAIN PAYMENTS
 
Make any cash payments of principal or interest with respect to any Indebtedness
(other than the Loans or as expressly provided for in the Budget), without the
prior written consent of the Lenders, which consent shall be within their sole
and absolute discretion.
 
ARTICLE VII 
 
EVENTS OF DEFAULT
 
7.1.  EVENTS OF DEFAULT
 
If any of the following events shall occur and be continuing, an “Event of
Default” shall be deemed to have occurred:
 
(a)  if the Company shall default in the payment of any part of the principal or
interest of any Note, when the same shall become due and payable, whether at
maturity or at a date fixed for payment or prepayment or by acceleration or
otherwise;
 
(b)  if the Company shall default in the performance of any of the covenants
contained in Articles V or VI and, in a case of a default under Section 5.1
through and including Section 5.7 (exclusive of Section 5.1(c)), such default
shall have continued without cure for fifteen (15) days after written notice
(“Default Notice”) is given to the Company with respect to such covenant by any
holder of the Notes (and the Company shall give to all of the holders of the
Notes at the time outstanding prompt written notice of the receipt of such
Default Notice, specifying the default referred to therein); provided, however,
that such 15 day grace period shall not apply in the event the Company fails to
give notice as provided in Section 5.3;
 
(c)  except as provided in Section 7.1(b), if the Company or any of the
Guarantors shall default in the performance of any other agreement contained in
any Transaction Document or in any other agreement executed in connection with
this Agreement and such default shall not have been remedied to the satisfaction
of the Lenders within 15 days after notice thereof shall have been given to the
Company; provided, however, that such 15 day grace period shall not apply in the
event the Company fails to give notice as provided in Section 5.3;
 
 
 

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(d)  if any representation or warranty made by the Company, any Guarantor or any
of their officers in any Transaction Document or in or any certificate delivered
pursuant thereto shall prove to have been incorrect in any material respect when
made;
 
(e)  if (i) any default shall occur under any indenture, mortgage, agreement,
instrument or commitment evidencing, or under which there is at the time
outstanding, any Indebtedness of the Company or a Subsidiary, in excess of
$250,000, or which results in such Indebtedness, in an aggregate amount (with
other defaulted Indebtedness) in excess of $250,000 becoming (or being declared
by its holders or, on its behalf, by an agent or trustee therefore to be) due
and payable prior to its due date; (ii) irrespective of the monetary thresholds
specified in subclause (i) above, if any default, event of default or any other
condition shall occur or exist under the Watson Term Loan which shall be
continuing after the respective grace period, if any, specified in the Watson
Term Loan, and the effect of which is to permit the acceleration of the maturity
of the Indebtedness outstanding thereunder; (iii) a Change of Control shall have
occurred; or (iv) a Funding Event shall have occurred without the simultaneous
prepayment in full of the Loans pursuant to Section 2.2 above;
 
(f)  if any of the Company or its Subsidiaries shall default in the observance
or performance of any term or provision of an agreement to which it is a party
or by which it is bound which default could reasonably be expected to have a
Material Adverse Effect and such default is not waived or cured within the
applicable grace period; 
 
(g)  if a final judgment which, either alone or together with other outstanding
final judgments against the Company and its Subsidiaries, exceeds an aggregate
of $250,000 shall be rendered against the Company or any Subsidiary and such
judgment shall have continued undischarged or unstayed for 45 days after entry
thereof;
 
(h)  if the Company or any Subsidiary shall generally not pay its debts as such
debts become due or shall make an assignment for the benefit of creditors
generally, or shall admit in writing its inability to pay its debts generally;
or if any proceeding shall be instituted by or against the Company or any
Subsidiary seeking to adjudicate it as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors, or seeking entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in the
case of such proceeding instituted against it (but not instituted by it) that is
being diligently contested by it in good faith, either such proceeding shall
remain undismissed or unstayed for a period of 45 days or any of the actions
sought in such proceeding (including, without limitation, the entry of an order
for relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or any substantial part of its property) shall
occur; or if any writ of attachment or execution or any similar process shall be
issued or levied against it or any substantial part of its property which is
either not released, stayed, bonded or vacated within 45 days after its issue or
levy or any of the actions sought or relief sought in any proceeding pursuant to
which such writ or similar process shall be issued or initiated shall occur or
be granted; or if the Company or any Subsidiary takes corporate action in
furtherance of any of the aforesaid purposes or conditions;
 
 
 

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(i)  if any provision of any Transaction Document shall for any reason cease to
be valid and binding on, or enforceable against, the Company or any Guarantor,
or the Company or any Guarantor shall so assert in writing; or
 
(j)  any Transaction Document (or any financing statement) which purports:
 
(i)  to create, perfect or evidence a lien on or security interest in any
Company Collateral or Guarantor Collateral in favor of the Lenders (or their
agents and representatives), or to provide for the priority of any such lien or
security interest over the interest of any other party in the same Collateral,
shall cease to create, or to preserve the enforceability, perfection or priority
of, such lien and security interest; or
 
(ii)  to provide for the priority in right of payment of the Company’s
obligations under the Transaction Documents to or in favor of the Lenders (or
their agents or representatives) shall cease to preserve such priority.
 
7.2.  REMEDIES
 
Upon the occurrence and during the continuance of an Event of Default, any
Lender or Lenders of 60% of the then outstanding principal amount of the Loans
may at any time (unless all defaults shall theretofore have been remedied) at
its or their option, by written notice or notices to the Company (a) declare all
the Notes to be due and payable, whereupon the same shall forthwith mature and
become due and payable, together with interest accrued thereon, without
presentment, demand, protest or notice, all of which are hereby waived by the
Company; and (b) declare any other amounts payable to the Lenders under this
Agreement or as contemplated hereby due and payable; provided, however, that
upon the occurrence of an Event of Default under Section 7.1(h), the Notes,
together with interest accrued thereon, shall automatically become and be due
and payable, without presentment, demand, protest or notice of any kind, or any
other action of any Lender of any kind, all of which are hereby waived by the
Company.
 
Notwithstanding anything to the contrary contained in this Section 7.2, in the
event that at any time after the principal of the Notes shall so become due and
payable and prior to the date of maturity stated in the Notes all arrears of
principal of an interest on the Notes (with interest at the rate specified in
the Notes on any overdue principal and, to the extent legally enforceable, on
any interest overdue) shall be paid by or for the account of the Company, then
the holder or holders of sixty percent (60%) of the then outstanding principal
amount of the Loans, by written notice or notices to the Company, may (but shall
not be obligated to) waive such Event of Default and its consequences and
rescind or annul such declaration, but no such waiver shall extend to or affect
any subsequent Event of Default or impair a right resulting therefrom. If any
holder of the Note shall give any notices or take any other action with respect
to a claimed default, the Company, forthwith upon receipt of such notice or
obtaining knowledge of any such other action, will give notice thereof to all
other holders of the Notes, describing such notice or other action and the
nature of the claimed default.
 
 
 

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7.3.  ENFORCEMENT
 
In case any one or more Events of Default shall occur and be continuing, the
Lenders or their agent may proceed to protect and enforce the rights of the
Lenders (granted to them or to their agent) by an action at law, suit in equity
or other appropriate proceeding, whether for the specific performance of any
agreement in favor of the Lenders or their agent which is contained in any of
the Transaction Documents or in such Note or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law (including, without limitation,
the right to enforce the Company Collateral, the Guaranties and the Guarantor
Collateral, each in accordance with its respective terms). Each Lender agrees
that it will give written notice to the other Lenders prior to instituting any
such action. In case of a default in the payment of any principal of or interest
on any Note, the Company will pay to the holder thereof such further amount as
shall be sufficient to cover the cost and the expenses of collection, including,
without limitation, reasonable attorney’s fees, expenses and disbursements. No
course of dealing and no delay on the part of any Lender or their agent in
exercising any rights shall operate as a waiver thereof or otherwise prejudice
such Lender’s or their agent’s rights. No right conferred hereby or by any Note
upon any holder thereof shall be exclusive of any other right referred to herein
or therein or now available at law or in equity, by statute or otherwise..
 
ARTICLE VIII 
 
INDEMNIFICATION
 
To the greatest extent permitted by applicable law, the Company agrees to
indemnify each Lender, its Affiliates and respective legal counsel, and each of
the officers, directors, partners and stockholders of each, against and hold it
harmless from all Losses arising out of or resulting from: (i) the breach of any
representation or warranty of the Company in any Transaction Document or in any
agreement, certificate or instrument delivered pursuant thereto; and (ii) the
breach of any agreement by the Company contained in any Transaction Document or
any agreement, certificate of instrument delivered pursuant thereto.

 
ARTICLE IX 

 
AMENDMENT AND WAIVER
 
No amendment of any provision of this Agreement, including any amendment of this
Article IX, shall be valid unless the same shall be in writing and signed by the
Company (and the Independent Committee) and the Lenders. No waiver by any party
of any default, misrepresentation, or breach of warranty or covenant hereunder
or under any other Transaction Document, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or thereunder or affect in any way any
rights arising by virtue of any prior or subsequent such occurrence.
 
 
 

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ARTICLE X 
 
MISCELLANEOUS
 
10.1.  GOVERNING LAW
 
This Agreement and the rights of the parties hereunder shall be governed in all
respects by the laws of the State of New York wherein the terms of this
Agreement were negotiated, excluding to the greatest extent permitted by law any
rule of law that would cause the application of the laws of any jurisdiction
other than the State of New York.
 
10.2.  SUCCESSORS AND ASSIGNS
 
Except as otherwise expressly provided herein, the provisions hereof shall inure
to the benefit of, and be binding upon and enforceable by and against, the
parties hereto and their respective successors, assigns, heirs, executors and
administrators. No party may assign any of its rights hereunder without the
prior written consent of the other parties; provided, however, that any Lender
may assign any of its rights under any of the Transaction Documents to (a) any
Affiliate of such Lender or (b) any Person to whom such Lender shall transfer
its Note, provided, that in each case the transferee will be subject to the
applicable terms of the Transaction Documents to the same extent as if such
transferee were an original Lender hereunder.
 
10.3.  ENTIRE AGREEMENT
 
This Agreement (including the Exhibits and Schedules hereto), the other
Transaction Documents and any other documents delivered pursuant hereto and
simultaneously herewith constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof.
 
10.4.  NOTICES
 
All notices, demands or other communications given hereunder shall be in writing
and shall be sufficiently given if transmitted by facsimile or delivered either
personally or by a nationally recognized courier service marked for next
business day delivery or sent in a sealed envelope by first class mail, postage
prepaid and either registered or certified, return receipt requested, addressed
as follows:
 
(a)  if to the Company:
 
Acura Pharmaceuticals, Inc.
616 N. North Court, Suite 120
Palatine, Illinois 60067
Attention: Mr. Andrew D. Reddick
President and Chief Executive Officer
Facsimile: (847) 705-5399
 
(b) if to a Lender, to the address set forth on the signature page hereto, or to
such other address with respect to any party hereto as such party may from time
to time notify (as provided above) the other parties hereto. Any such notice,
demand or communication shall be deemed to have been given (i) on the date of
delivery, if delivered personally, (ii) on the date of facsimile transmission,
receipt confirmed, (iii) one business day after delivery to a nationally
recognized overnight courier service, if marked for next day delivery, or (iv)
five business days after the date of mailing, if mailed.
 
 
 

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(c) Copies of any notice, demand or communication given to the Company shall
also be delivered to St. John & Wayne, L.L.C., Two Penn Plaza East, Newark, New
Jersey, 07105-2249 Attn.: John P. Reilly, Esq., or such other address as may be
directed.
 
10.5.  DELAYS, OMISSIONS OR WAIVERS
 
No delay or omission to exercise any right, power or remedy accruing to any
Lender upon any breach or default of the Company under this Agreement shall
impair any such right, power or remedy of such Lender nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence, therein, or of
or in any similar breach or default thereafter occurring. Any permit, consent or
approval of any kind or character on the part of any Lender of any breach or
default under this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Lender, shall be
cumulative and not alternative. Notwithstanding anything set forth herein or in
any Transaction Document, if the consent of or the waiver by any Lender is
needed or otherwise desirable under any Transaction Document and the Company, or
any Affiliate thereof, pays or other gives consideration to any Lender, or an
Affiliate thereof, for such consent or waiver the Company shall offer the same
to all other Lenders.
 
10.6.  INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES
 
All covenants hereunder shall be given independent effect so that if a certain
action or condition constitutes a default under a certain covenant, the fact
that such action or condition is permitted by another covenant shall not affect
the occurrence of such default. In addition, all representations and warranties
hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
 
10.7.  RIGHTS AND OBLIGATIONS; SEVERABILITY
 
Unless otherwise expressly provided herein, each Lender’s rights and obligations
hereunder are several rights and obligations, not rights and obligations jointly
held with any other Person. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
 
10.8.  AGENT’S FEES
 
The Company hereby (a) represents and warrants that the Company has not retained
a finder or broker in connection with the transactions contemplated by this
Agreement and (b) agrees to indemnify and to hold the Lenders harmless of and
from any liability for commission or compensation in the nature of an agent’s
fee to any broker or other Person, and the costs and expenses of defending
against such liability or asserted liability, including, without limitation,
reasonable attorney’s fees, arising from any act by the Company or any of the
Company’s employees or representatives.
 
 
 

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10.9.  EXPENSES
 
(a)  The Company shall bear its own expenses and legal fees incurred on its
behalf with respect to the negotiation, execution and consummation of the
transactions contemplated by this Agreement, and, subject to Section 10.9(b) the
Company will reimburse each Lender for all of the legal fees and expenses
incurred by such Lender’s counsel with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement and the
transactions contemplated hereby; provided, however, that the Company’s
reimbursement obligation under this Section 10.9(a) shall not exceed Thirty Five
Thousand Dollars ($35,000) in the aggregate.
 
(b)  If the Loans are not disbursed, then each party shall bear its own expenses
and legal fees incurred on its behalf with respect to the negotiation, execution
and consummation of the transactions contemplated by this Agreement.
 
(c)  The Company also agrees to reimburse each Lender for all reasonable legal
fees and expenses subsequently incurred by such Lender or its agent and their
respective Affiliates in connection with the negotiation, execution and
consummation of any amendment, waiver or consent with respect to any agreement
to which the Company and the Lender or its agent are parties; provided, that
such waiver, amendment or consent (i) is requested by the Company or (ii) is
required by the terms of the agreement or is required as a result of any action
or inaction of the Company in violation of any such agreement.
 
(d)  The Company further agrees to pay or reimburse each Lender and their agent
for all out-of-pocket costs and expenses, including, without limitation,
reasonable attorneys’ fees and disbursements, and costs of settlement incurred
by the Lenders or their agent after the occurrence of an Event of Default (i) in
enforcing any obligation or in foreclosing against the Company Collateral or
Guarantors Collateral or exercising or enforcing any other right or remedy
available by reason of such Event of Default; (ii) in connection with any
negotiation, refinancing or restructuring of, or attempted refinancing or
restructuring of, the credit arrangements provided under this Agreement and the
other Transaction Documents in the nature of a “work-out” or in any insolvency
or bankruptcy proceeding; (iii) in commencing, defending or intervening in any
litigation or in filing a petition, complaint, answer, motion or other pleadings
in any legal proceeding relating to either Company or any of its Affiliates and
related to or arising out of the transactions contemplated hereby or by any of
the other Transaction Documents; (iv) in taking any other action in or with
respect to any suit or proceeding (whether in bankruptcy or otherwise) arising
out of or in connection with this Agreement or any of the other Transaction
Documents; (v) in protecting, preserving, collecting, leasing, selling, taking
possession of, or liquidating any of the Company Collateral or Guarantors
Collateral; or (vi) attempting to enforce or enforcing any security interest in
any of the Company Collateral, the Guarantors Collateral or any other rights
under any Transaction Document.
 
 
 

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10.10.  JURISDICTION
 
(a)  Each of the parties hereto hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of any New York
State court or United States Federal court sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents to which it
is a party or to whose benefit it is entitled, or for recognition or enforcement
of any judgment, and each of the parties hereto irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in any such New York State court or, to the fullest extent
permitted by law, in such United States Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the right that
any party may otherwise have to bring any action or proceeding relating to this
Agreement or any of the other Transaction Documents in the courts of any other
jurisdiction.
 
(b)  Each of the parties hereto irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or in relation to this Agreement or any other Transaction
Document to which it is a party in any such New York State or United States
Federal court sitting in New York City. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
 
10.11.  WAIVER OF JURY TRIAL
 
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT OR THE ACTIONS
OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT
THEREOF.
 
10.12.  CONFIDENTIALITY
 
(a)  Each of the Lenders hereby agrees to keep (and to cause its Affiliates,
employees, agents, attorneys, accountants and other professional advisors to
keep) confidential the confidential information provided to it by or on behalf
of the Company or its Subsidiaries pursuant to or in connection with the
Agreement or any other Transaction Document, provided that, such information may
be disclosed (i) solely in connection with the performance of the transactions
contemplated by this Agreement and any other Transaction Document to (A) its
Affiliates, directors, officers and employees who have a need to know such
information and its agents, attorneys, accountants and other professional
advisors or (B) the other Lenders, (ii) in response to any order of any court or
other governmental or administrative body or agency or as may be required by any
law binding upon any of the Lenders, (iii) in connection with the exercise of
any remedies under any Transaction Document or the enforcement of rights
hereunder and thereunder, (iv) with the consent of the Company or (v) to the
extent such information (A) is on the date hereof, or at or before the time such
disclosure becomes, publicly available other than as a result of a breach by
such disclosing Person of the obligation set forth in this Agreement or (B) at
or before the time of such disclosure becomes available to any Lender on a
nonconfidential basis from a source other than the Company or its Subsidiaries,
which source is not known to the recipient of such information to have breached
a confidentiality agreement with the Company or its Subsidiaries in respect of
such information.
 
 
 

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(b)  Each Lender hereby agrees that in the event such Lender is requested or
required other than by applicable law (by interrogatory, request for information
or documents, subpoena, deposition, civil investigative demand or other process)
to disclose any information pursuant to Section 10.12(a)(ii), such Lender will,
except to the extent such notice would cause such Lender to be in violation of
law, provide the Company with prompt notice of any such request or requirement
so that the Company may seek an appropriate protective order or other similar
assurance to prevent disclosure of such information or waive compliance with the
provisions of this Section 10.12. Such Lender may not oppose action by the
Company to obtain an appropriate protective order or other reliable assurance
that confidential treatment will be accorded such information, provided that
such Lender may oppose the Company’s action to obtain an appropriate protective
order or other reliable assurance in the event that, in connection with any
action, suit or other legal or equitable proceeding (including any bankruptcy
proceeding), such Lender reasonably believes that the failure to publicly
disclose such information would adversely affect such Lender’s ability to
protect or exercise its rights and remedies hereunder or under any other
Transaction Document. 
 
(c)  A Lender may also disclose, subject to their compliance with the
requirements of Section 10.12(b), such information to the extent the Lender
reasonably believe it is appropriate to in connection with any action, suit or
other legal or equitable proceeding (including any bankruptcy proceeding) to
protect or otherwise exercise their rights and remedies hereunder or under any
other Transaction Document in any legal or equitable proceeding.
 
(d)  In furtherance to the foregoing, each of the Lenders agrees that its right
to request any information pursuant to Section 5.2(b) or to avail itself of the
provisions of Section 5.6(b) shall be conditioned on its continuing compliance
with the requirements of this Section 10.12. 
 
10.13.  TITLES AND SUBTITLES
 
The titles of the articles, sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
 
10.14.  COUNTERPARTS
 
This Agreement may be executed in any number of counterparts, including by
facsimile copy, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
 
10.15.  MARSHALLING; RECOURSE TO SECURITY; PAYMENTS SET ASIDE
 
The Lenders shall not be under any obligation to marshal any assets in favor of
the Company or any of its Affiliates or any other party or against or in payment
of any or all of the Loan or other obligations hereunder. Recourse to security
shall not be required at any time. To the extent that the Company makes a
payment or payments to a Lender or a Lender enforces its security interests or
exercises its rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all liens, rights and remedies therefor, shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
 
 
 

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ARTICLE XI 
 
CERTAIN DEFINED TERMS
 
For purposes of this Agreement, the following terms have the meanings indicated
(unless otherwise expressly provided herein):
 
“412 Plan” means a Plan that is subject to Section 412 of the Code.
 
“1940 Act” means the Investment Company Act of 1940, as amended, and any
applicable rules and regulations thereunder, and any successor to such statute,
rules or regulations. Any reference herein to a specific section, rule or
regulation of the 1940 Act shall be deemed to include any corresponding
provisions of future law.
 
“Affiliate” has the meaning specified in Rule 501(b) under the Securities Act.
 
“Approved Accounting Firm” means any firm of independent certified public
accountants reasonably acceptable to the Lenders.
 
“ARCOS” means the Automation of Reports and Consolidated Orders System which
monitors the flow of DEA controlled substances from their point of manufacture
to point of sale or distribution.
 
“Board of Directors” means the board of directors of the Company.
 
“Change of Control” means the occurrence of any of the following: (a) the
Company consolidates with, or merges with or into, another Person (other than a
direct or indirect wholly owned Subsidiary) or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of the
Company’s assets or the assets of the Company and its Subsidiaries taken as a
whole to any Person, or any Person consolidates with, or merges with or into,
the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company, as the case may be, is converted into
or exchanged for cash, securities or other property, other than any such
transaction where the outstanding Voting Stock of the Company, as the case may
be, is converted into or exchanged for Voting Stock of the surviving or
transferee corporation and the beneficial owners of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly, not
less than a majority of the Voting Stock of the surviving or transferee
corporation immediately after such transaction, or (b) the Company, either
individually or in conjunction with one or more Subsidiaries sells, assigns,
conveys, transfers, leases or otherwise disposes of, or the Subsidiaries sell,
assign, convey, transfer, lease or otherwise dispose of, all or substantially
all of the properties and assets of the Company and its Subsidiaries, taken as a
whole (either in one transaction or a series of related transactions), including
capital stock of the Subsidiaries, to any Person (other than the Company or a
wholly owned Subsidiary of the Company). For purposes of this definition, the
term “Voting Stock” of the Company means securities of any class of capital
stock of the Company entitling the holders thereof to vote in the election of
members of the Board of Directors.
 
 
 

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“Code” means the Internal Revenue Code of 1986, as amended, and any applicable
rules and regulations thereunder, and any successor to such statute, rules or
regulations. Any reference herein to a specific section, rule or regulation of
the Code shall be deemed to include any corresponding provisions of future law.
 
“Commitment” means, with respect to each Lender, the commitment of such Lender
to make such Loan hereunder. The initial amount of each Lender’s Commitment is
set forth opposite its signature hereto. The aggregate amount of the Commitments
is $1,000,000.
 
“Common Stock” means the common stock, $0.01 par value, of the Company (now or
hereafter issued).
 
“Company General Security Agreement” means that certain Company General Security
Agreement of even date herewith by and between the Company and Galen Partners
III, L.P, as agent for the Lenders, as such agreement may be supplemented,
amended or otherwise modified from time to time in accordance with its terms.
 
“Company Reports” means, collectively, (a) the Company’s Annual Reports on Form
10-K for the fiscal years ended December 31, 2004, and (b) the Company’s
Quarterly Report on Form 10-Q for the three months ended March 31, 2005.
 
“CSA” means Controlled Substances Act, as amended, and any applicable rules and
regulations thereunder, and any successor to such statute, rules or regulations.
Any reference herein to a specific section, rule or regulation of the CSA shall
be deemed to include any corresponding provisions of future law.
 
“D&O Insurance” means “directors and officers” insurance.
 
“DEA” means the United States Drug Enforcement Administration.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
and any applicable rules and regulations thereunder, and any successor to such
statute, rules or regulations. Any reference herein to a specific section, rule
or regulation of ERISA shall be deemed to include any corresponding provisions
of future law.
 
“ERISA Affiliates” means (a) any corporation which at any time on or before the
Closing Date is or was a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as the Company, its
Subsidiaries, or any ERISA Affiliate; (b) any partnership, trade or business
(whether or not incorporated) which at any time on or before the Closing Date is
or was under common control (within the meaning of Section 414(c) of the Code)
with the Company, its Subsidiaries, or any ERISA Affiliate; and (c) any entity
which at any time on or before the Closing Date is or was a member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
the Company, its Subsidiaries or any ERISA Affiliate, or any corporation
described in clause (a) or any partnership, trade or business described in
clause (b) of this paragraph.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any
applicable rules and regulations thereunder, and any successor to such statute,
rules or regulations. Any reference herein to a specific section, rule or
regulation of the Exchange Act shall be deemed to include any corresponding
provisions of future law.
 
 
 

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“FDA” means the United States Food and Drug Administration.
 
“FDC Act” means the federal Food, Drug, and Cosmetic Act, as amended, and any
applicable rules and regulations thereunder, and any successor to such statute,
rules or regulations. Any reference herein to a specific section, rule or
regulation of the FDC Act shall be deemed to include any corresponding
provisions of future law.
 
“Funding Event” means the consummation by the Company or any of its Subsidiaries
after the date hereof of (a) any equity or debt financing, or (b) any sale,
transfer, license or similar arrangement (including by means of a joint venture)
whereby the Company or any of its Subsidiaries sells, transfers, licenses or
otherwise grants an interest in any material portion of its assets (including
Intellectual Property Rights) to another Person, provided that the consummation
of a transaction under Section (a) and/or (b) results in cash proceeds to the
Company, net of all costs and expenses, of at least Three Million Five Hundred
Thousand Dollars ($3,500,000).
 
“GAAP” means generally accepted accounting principles in the United States.
 
“Guaranties” means the Continuing Unconditional Secured Guaranties of even date
herewith by each of the Guarantors.
 
“Guarantors” means Acura Pharmaceutical Technologies, Inc. and Axiom
Pharmaceutical Corporation.
 
“Guarantors Security Agreement” means that certain Guarantors General Security
Agreement of even date herewith by and among the Guarantors and Galen Partners
III, L.P, as agent for the Lenders, as such agreement may be supplemented,
amended or otherwise modified from time to time in accordance with its terms.
 
“Intellectual Property Rights” means any and all patents, patent applications,
trademarks, copyrights, trademark registrations and applications therefore,
patent, trademark or trade name licenses, service marks, domain names, contracts
with employees or others relating in whole or in part to disclosure, assignment
or patenting of any inventions, discoveries, improvements, processes, formulae
or other know-how, and all patent, trademark or trade names or copyright
licenses which are in force.
 
“IP Collateral Assignments” means (a) that certain Patent Security Agreement and
that certain Trademark Security Agreement, each of even date herewith by and
between the Company and Galen Partners III, L.P, as agent for the Lenders, and
(b) that certain Trademark Security Agreement of even date herewith by and
between Axiom Pharmaceutical Corporation and Galen Partners III, L.P, as agent
for the Lenders, as such agreements may be supplemented, amended or otherwise
modified from time to time in accordance with their terms.
 
“IRS” means the Internal Revenue Service.
 
“Leases” any lease and sublease agreements, as amended to date, relating to the
Owned Property and the Leased Property.
 
“Legal Requirements” means any federal, state, local, municipal, foreign or
other law, statute, constitution, principle of common law, resolution,
ordinance, code, order, edict, judgment, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any governmental entity.
 
 
 

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“Losses” means any claims, losses, damages, liabilities (or actions in respect
thereof), obligations, penalties, awards, judgments, expenses (including,
without limitation, reasonable fees and expenses of counsel) or disbursements.
 
“Material Adverse Effect” means (a) a material adverse effect on, or change in,
the business, prospects, properties, operations, condition (financial or other)
or results of operations of the Company and its Subsidiaries, taken as a whole,
or (b) a material adverse effect on (i) the ability of the Company or any of the
Guarantors to perform its respective obligations or (ii) the rights or remedies
of any Lender under any Transaction Document.
 
“PBGC” means the Pension Benefit Guaranty Corporation.
 
“PCB” means polychlorinated biphenyls.
 
“Permitted Liens” means the liens permitted by Section 6.2.
 
“Person” means any individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
 
“Preferred Stock” means the Series A Preferred, the Series B Preferred, the
Series C-1 Preferred, the Series C-2 Preferred and the Series C-3 Preferred.
 
“Schedule of Exceptions” means the Schedule of Exceptions attached to this
Agreement.
 
“SEC” means the Securities and Exchange Commission.
 
“SEC Reports” means any reports, statements, releases or other documents
required to be filed by the Company with the SEC under the Exchange Act.
 
“Securities Act” means the Securities Act of 1933, as amended, and any
applicable rules and regulations thereunder, and any successor to such statute,
rules or regulations. Any reference herein to a specific section, rule or
regulation of the Securities Act shall be deemed to include any corresponding
provisions of future law.
 
“Senior Note” means that certain Amended and Restated Note in the principal
amount of $5,000,000 issued by the Company pursuant to the Watson Term Loan, and
any other promissory notes issued by the Company pursuant to the Watson Term
Loan from time to time.
 
“Series A Preferred” means the Series A Convertible Preferred Stock, $.01 par
value, of the Company (now or hereafter issued).
 
“Series B Preferred” means the Series B Convertible Preferred Stock, $.01 par
value, of the Company (now or hereafter issued).
 
“Series C-1 Preferred” means the Series C-1 Convertible Preferred Stock, $.01
par value, of the Company (now or hereafter issued).
 
 
 

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“Series C-2 Preferred” means the Series C-2 Convertible Preferred Stock, $.01
par value, of the Company (now or hereafter issued).
 
“Series C-3 Preferred” means the Series C-3 Convertible Preferred Stock, $.01
par value, of the Company (now or hereafter issued).
 
“Stock Pledge Agreement” means the Stock Pledge Agreement of even date herewith
by and among the Company and Galen Partners III, L.P, as agent for the Lenders,
as such agreement may be supplemented, amended or otherwise modified from time
to time in accordance with its terms.
 
“Subsidiary” means any entity in which the Company owns securities having a
majority of the voting power in the election of directors or persons serving
equivalent functions.
 
“Transaction Documents” means, collectively, (a) this Agreement, (b) the Notes,
(c) the Company General Security Agreement, (d) the Guaranties, (e) the
Guarantors Security Agreement, (f) the IP Collateral Assignments and (g) the
Stock Pledge Agreement.
 
“Unfunded Pension Liability” means, as of any determination date, the amount, if
any, by which the present value of all benefit liabilities (as that term is
defined in Section 4001(a)(16) of ERISA) of a plan subject to Title IV of ERISA
exceeds the fair market value of all assets of such plan, all determined using
the actuarial assumptions that would be used by the PBGC in the event of a
termination of the plan on such determination date.
 
“Watson Term Loan” means that certain Term Loan Agreement dated March 29, 2000
by and between the Company and Watson, as such agreement may be supplemented,
amended or otherwise modified from time to time in accordance with its terms,
including, without limitation, by the Third Amendment to the Watson Term Loan as
of February 6, 2004.
 
“Withdrawal Liability” has the meaning specified in Section 4201 of ERISA.
 
[SIGNATURE PAGES TO FOLLOW]
 
 
 

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IN WITNESS WHEREOF, the parties hereto have executed this Loan Agreement as of
the date first written above.
 
 

 
ACURA PHARMACEUTICALS, INC.
 
By: /s/ Andrew D. Reddick
Name: Andrew D. Reddick
Title: Chief Executive Officer 
   
Commitment:
$21,400.00
CARE CAPITAL OFFSHORE INVESTMENTS II, LP
By: Care Capital II, LLC, as general partner
47 Hulfish Street, Suite 310
Princeton, NJ 08542
 
 
By:  /s/ David R. Ramsay    
Name: David R. Ramsay
Its: Authorized Signatory
   
Commitment:
$311,933.33
CARE CAPITAL INVESTMENTS II, LP
By: Care Capital II, LLC, as general partner
47 Hulfish Street, Suite 310
Princeton, NJ 08542
 
 
By:  /s/ David R. Ramsay    
Name: David R. Ramsay
Its: Authorized Signatory
   
Commitment:
$304,521.88
GALEN PARTNERS III, L.P.
By: Claudius, L.L.C., General Partner
610 Fifth Avenue, 5th Fl.
New York, New York 10020
 
 
By:  /s/ Srini Conjeevaram    
Name: Srini Conjeevaram
Its: General Partner

 
 

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Commitment:
$27,564.48
GALEN PARTNERS INTERNATIONAL, III, L.P.
By: Claudius, L.L.C., General Partner
610 Fifth Avenue, 5th Fl.
New York, New York 10020
 
 
By:  /s/ Srini Conjeevaram    
Name: Srini Conjeevaram
Its: General Partner
Commitment:
$1,246.97
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
610 Fifth Avenue, 5th Fl.
New York, New York 10020
 
 
By:  /s/ Bruce F. Wesson    
Name: Bruce F. Wesson
Its: General Partner
Commitment:
$333,333.34
ESSEX WOODLANDS HEALTH
VENTURES V, L.P.
190 South LaSalle Street, Suite 2800
Chicago, IL 60603
 
 
By:  /s/ Immanuel Thangaraj  
Name: Immanuel Thangaraj
Its: Managing Director

 
 
 

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