Exhibit 10.2
AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT
 

THIS AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT (this "Agreement") is
entered into as of February 21, 2014, among the parties identified as "Grantors"
on the signature pages hereto and such other parties as may become Grantors
after the date hereof (individually a "Grantor", and collectively the
"Grantors") and MIDCAP FUNDING IV, LLC, a Delaware limited liability company, in
its capacity as administrative agent (in such capacity, the "Agent") for the
holders of the Obligations (defined below).
 
RECITALS
 
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement, dated
as of May 8, 2013 (as it may be amended, amended and restated, joined,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
by and among the Grantors, the lenders from time to time party thereto (the
"Lenders"), and Agent, the Lenders have agreed to make Loans upon the terms and
subject to the conditions set forth therein;
 
WHEREAS, in connection with the Original Credit Agreement (as defined in the
Credit Agreement), each Grantor other than Pernix Sleep, Inc. (“Pernix Sleep”)
entered into that certain Security and Pledge Agreement dated as of December 31,
2012 with Agent (as amended, restated, supplemented or otherwise modified from
time to time, the “Original Security Agreement”);
 
WHEREAS, in connection with entering into the Credit Agreement, Pernix Sleep
joined the Original Security Agreement as “Grantor” thereunder and each other
Grantor reaffirmed its prior grant and other obligations thereunder; and
 
WHEREAS, the Grantors have requested that Agent and the Lenders release their
Liens on certain assets included as Collateral under the Original Security
Agreement and Agent and Lenders are willing to so release such Liens, in
accordance with the terms and conditions of this Agreement.
 
NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
 
1. Definitions.
 
(a) Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Credit Agreement.
 
(b) The following terms shall have the meanings assigned to such terms in the
UCC:  Accession, As-Extracted Collateral, Chattel Paper, Consumer Goods, Deposit
Account, Document, Electronic Chattel Paper, Farm Products, Fixtures, General
Intangible, Health-Care-Insurance Receivable, Instrument, Inventory,
Letter-of-Credit Right, Manufactured Home, Proceeds, Payment Intangible,
Security Entitlement, Securities Account, Securities Intermediary, Supporting
Obligation and Tangible Chattel Paper.
 
 
 
1

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

 
 
(c) The following terms shall have the meanings set forth below:
 
"Accounts" means collectively (a) any right to payment of a monetary obligation,
whether or not earned by performance, (b) without duplication, any "Account" (as
defined in the UCC), any accounts receivable (whether in the form of payments
for services rendered or goods sold, rents, license fees or otherwise), any
Health-Care-Insurance Receivables, any Payment Intangibles and all other rights
to payment and/or reimbursement of every kind and description, whether or not
earned by performance, (c) all accounts, General Intangibles, rights, remedies,
Supporting Obligations, Letter-of-Credit Rights and security interests in
respect of the foregoing, all rights of enforcement and collection, all books
and records evidencing or related to the foregoing, and all rights under the
Financing Documents in respect of the foregoing, (d) all information and data
compiled or derived by any Grantor or to which any Grantor is entitled in
respect of or related to the foregoing, and (e) all Proceeds of any of the
foregoing.
 
"Information Certificate" means each Information Certificate, in the form
attached hereto as Exhibit A, prepared by each of the Grantors and delivered to
the Agent on or prior to December 31, 2012, which such Information Certificate
shall be updated, modified and supplemented from time to time pursuant to the
terms hereof.
 
“Required Permits” means such licenses, certificates, accreditations, product
clearances or approvals, provider numbers or provider authorizations, marketing
authorizations, other authorizations, registrations, permits, consents and
approvals that are necessary for the possession, marketing, sale, or delivery
for sale of any Product as such activity is being conducted by any applicable
Grantor with respect to such Product at such time, including drug listings and
drug establishment registrations under 21 U.S.C. Section 510, registrations
issued by DEA under 21 U.S.C. Section 823 (if applicable to any Product), and
those issued by state governments for the conduct of any Grantor’s business.
 
"Termination Date" means the date that (i) all Obligations (other than
contingent obligations in respect of Letters of Credit and contingent indemnity
obligations for which no claim has been assorted) have been paid in full, (ii)
no commitments or other obligations of any Lender to provide funds to Borrower
remain outstanding, and (iii) no Letter of Credit or Support Agreement remains
outstanding (or, to the extent outstanding, such Letters of Credit have been
cash collateralized as required under the Credit Agreement).
 
"UCC" means the Uniform Commercial Code in effect from time to time in the State
of Maryland.
 
2. Grant of Security Interest in the Collateral.  To secure the prompt payment
and performance in full when due, whether by lapse of time, acceleration,
mandatory prepayment or otherwise, of the Obligations, each Grantor hereby (a)
reaffirms its prior grant to Agent, for its benefit and the benefit of the
Lenders, of a continuing security interest in, and a right to set off against,
any and all right, title and interest of such Grantor in and to all of the
Collateral described below and (b) grants to the Agent, for its benefit and the
benefit of the Lenders, a continuing security interest in, and a right to set
off against, any and all right, title and interest of such Grantor in and to all
of the following, whether now owned or existing or owned, acquired, or arising
hereafter (collectively, the "Collateral"):
 
(a) all Accounts;
 
(b) all cash and currency;
 
(c) all Deposit Accounts;
 
(d) all Securities Accounts;
 
(e) all Security Entitlements;
 
(f) all Inventory;
 
(g) all Required Permits; and
 
(h) all Accessions and all Proceeds of any and all of the foregoing.
 
 
 
2

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

 
 
Notwithstanding anything to the contrary in this Agreement, the “Collateral”
shall include Required Permits only to the extent necessary for Agent to have
the ability in the event of a liquidation of any Inventory to dispose of or
transfer to a third party such Inventory in accordance with Agent’s rights and
remedies under this Agreement and the other Financing Documents in accordance
with applicable law.  For purposes of clarity, Agent shall have no right to
transfer such Required Permits to a third party and shall cooperate with any
efforts by a Grantor or designee to transfer such Required Permits so long as
such transfer does not interfere with Agent’s rights and remedies under this
Agreement and the other Financing Document with respect to the Inventory.
 
Each Grantor hereby acknowledges and agrees that the security interest created
hereby in its Collateral constitutes continuing collateral security for all of
the Obligations, whether now existing or hereafter arising, including, without
limitation, any amounts currently outstanding and any future advances.
 
3. Representations and Warranties.  Each Grantor hereby represents and warrants
to the Agent, for the benefit of the Lenders, that:
 
(a) Ownership.  Such Grantor is the legal and beneficial owner of its Collateral
and has the right to pledge, sell, assign or transfer the same.
 
(b) Security Interest/Priority.  This Agreement creates a valid security
interest in favor of the Agent, for the benefit of the Lenders, in the
Collateral and, when properly perfected by filing, shall constitute a valid and
perfected, first priority security interest in the Collateral, to the extent
such security interest can be perfected by filing under the UCC, free and clear
of all Liens except for Permitted Liens.  With respect to any Collateral
consisting of a Deposit Account, Securities Entitlement or held in a Securities
Account, upon execution and delivery by the applicable Grantor, the applicable
Securities Intermediary or bank and the Agent of a deposit account control
agreement or securities account control agreement, as applicable, the Agent
shall have a valid and perfected, first priority security interest in such
Collateral.
 
(c) Types of Collateral.  On the Restatement Closing Date, none of the
Collateral consists of, or is the Accession or Proceeds of, As-Extracted
Collateral, Consumer Goods, Farm Products, Manufactured Homes or standing
timber.  Each of the Grantors has delivered to the Agent an Information
Certificate in the form attached hereto as Exhibit A.  Each Grantor represents
that the completed Information Certificate delivered to the Agent is true and
correct in all material respects and the facts contained in the Information
Certificate are accurate in all material respects, in each case as of the
Restatement Closing Date.  Each Grantor hereby agrees that it shall supplement
its Information Certificate promptly upon obtaining information which would
require any material correction or addition to the Information Certificate and
such Grantor shall promptly deliver such updated Information Certificate to the
Agent; provided that, in any event, Grantors shall have delivered an updated
Information Certificate, with all information set forth therein accurate in all
respects as of the Restatement Closing Date, within thirty (30) days after the
date hereof.
 
(d) Inventory.  With respect to any Inventory of a Grantor, such Grantor has
exclusive possession and control of such Inventory except for (i) Inventory in
transit with common carriers or (ii) Inventory disposed of as permitted by the
Credit Agreement.  No Inventory of a Grantor is held by a Person other than a
Grantor pursuant to consignment, sale or return, sale on approval or similar
arrangement.
 
(e) [Intentionally Omitted].
 
(f) [Intentionally Omitted].
 
(g) Contracts; Agreements; Licenses.  The Grantors have no material contracts,
agreements or licenses (including the Material Contracts) constituting
Collateral which are non-assignable by their terms or as a matter of law, or
which prevent the granting of a security interest therein, except for those
contracts, agreements or licenses where (i) such prohibition or default has been
waived or consented to by the third party that is party to such contract,
agreement or license or (i) such prohibition or default would be rendered
ineffective according to the relevant provisions of the UCC, any other
applicable law or principles of equity.
 
(h) [Intentionally Omitted].
 
(i) Consents; Etc.  Except for (i) the filing or recording of UCC financing
statements, (ii) customary and legally required procedures to foreclose or
otherwise realize upon a Lien and (iii) consents, authorizations, filings or
other actions which have been obtained or made, no consent or authorization of,
filing with, or other act by or in respect of, any arbitrator or Governmental
Authority and no consent of any other Person (including, without limitation, any
stockholder, member or creditor of such Grantor), is required for (A) the grant
by such Grantor of the security interest in the Collateral granted hereby or for
the execution, delivery or performance of this Agreement by such Grantor (other
than as set forth on Schedule 3(i)), (B) the perfection of such security
interest (to the extent such security interest can be perfected by filing under
the UCC or the granting of control (to the extent required under Section 4(b)
hereof) or (C) the exercise by the Agent or the Lenders of the rights and
remedies provided for in this Agreement.
 
(j) [Intentionally Omitted].
 
 
 
 
3

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

 
 
(k) Accounts.
 
(i) No amount payable to such Grantor under or in connection with any Accounts
is evidenced by any Instrument or Chattel Paper which has not been delivered to
the Agent.
 
(ii) The amounts represented by such Grantor to the Agent from time to time as
owing to such Grantor in respect of the Accounts will at such times be accurate.
 
(l) [Intentionally Omitted].
 
(m) [Intentionally Omitted].
 
(n) [Intentionally Omitted].
 
4. Covenants.  Each Grantor covenants that until the Termination Date, such
Grantor shall:
 
(a) Maintenance of Perfected Security Interest.  Maintain the security interest
created by this Agreement as a perfected security interest having at least the
priority described in Section 3(b) and shall defend such security interest and
such priority against the claims and demands of all Persons.
 
(b) Instruments/Chattel Paper/Control.
 
(i) If any amount in excess of $100,000 payable under or in connection with any
of the Collateral shall be or become evidenced by any Instrument or Tangible
Chattel Paper, or if any property constituting Collateral shall be stored or
shipped subject to a Document, Grantor shall ensure that such Instrument,
Tangible Chattel Paper or Document is either in the possession or control of
such Grantor at all times or, if requested by the Agent to perfect its security
interest in such Collateral, is delivered to the Agent duly endorsed in a manner
satisfactory to the Agent.  Such Grantor shall ensure that any Collateral
consisting of Tangible Chattel Paper is marked with a legend acceptable to the
Agent indicating the Agent's security interest in such Tangible Chattel Paper.
 
(ii) Execute and deliver all agreements, assignments, instruments or other
documents as reasonably requested by the Agent for the purpose of obtaining and
maintaining control (as such term is used in Articles 8 and 9 of the UCC) with
respect to any Collateral consisting of (i) Deposit Accounts, (ii) Securities
Accounts and Securities Entitlements, (iii) Letter-of-Credit Rights and (iv)
Electronic Chattel Paper.
 
(c) Collateral Held by Warehouseman, Bailee, etc.  If any Collateral is at any
time in the possession or control of a warehouseman, bailee or any agent or
processor of such Grantor, and the Agent so requests, (i) notify such Person in
writing of the Agent's security interest therein, (ii) instruct such Person to
hold all such Collateral for the Agent's account and, while an Event of Default
exists, subject to the Agent's instructions and (iii) obtain a written
acknowledgment from such Person that it is holding such Collateral for the
benefit of the Agent.
 
(d) Treatment of Accounts.  Not grant or extend the time for payment of any
Account, or compromise or settle any Account for less than the full amount
thereof, or release any person or property, in whole or in part, from payment
thereof, or allow any credit or discount thereon, in each case other than as
normal and customary in the ordinary course of a Grantor's business.  The Agent
shall have the right to make test verifications of the Accounts in any
reasonable manner and through any medium that it considers advisable, and
Grantors shall fully cooperate with the Agent in connection therewith.
 
(e) [Intentionally Omitted].
 
(f) Inventory.  Not permit any Inventory to be kept at a location other than
that listed on the Information Certificate except for (A) Inventory in transit
and (B) Inventory disposed of as permitted by the Credit Agreement or herein.
 
(g) Books and Records.  Mark its books and records to reflect the security
interest granted pursuant to this Agreement.
 
(h) [Intentionally Omitted].
 
(i) Nature of Collateral.  At all times maintain the Collateral as personal
property and not affix any of the Collateral to any real property in a manner
which would change its nature from personal property to real property or a
Fixture to real property, unless Agent shall have a perfected Lien on such
Fixture or real property.
 
(j) [Intentionally Omitted].
 
(k) [Intentionally Omitted].
 
(l) [Intentionally Omitted].
 
(m) [Intentionally Omitted].
 
 
 
4

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

 
 
(n) Notices.  Promptly notify the Agent in writing of its acquisition of any
interest after the date hereof in any property constituting Collateral that is
of a type that requires the security interest or lien therein to be registered,
recorded or filed under, or notice given under, any federal statute or
regulation.
 
5. [Intentionally Omitted].
 
6. Filing of Financing Statements, Notices, etc.  Each Grantor hereby authorizes
the Agent to prepare and file such financing statements (including continuation
statements) or amendments thereof or supplements thereto or other instruments as
the Agent may from time to time reasonably deem necessary or appropriate in
order to perfect and maintain the security interests granted hereunder in
accordance with the UCC and each such Grantor hereby ratifies all such financing
statements heretofore filed by the Agent.  Each Grantor shall also execute and
deliver to the Agent such agreements, assignments or instruments (including
affidavits, notices, reaffirmations and amendments and restatements of existing
documents, as the Agent may reasonably request) and do all such other things as
the Agent may reasonably deem necessary or appropriate (i) to assure to the
Agent of its security interests in the Collateral and the attachment and
perfection thereof, (ii) to consummate the transactions contemplated hereby and
(iii) to otherwise protect and assure the Agent of its rights and interests
hereunder.  In addition, each Grantor will, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to the Agent from time to time, upon
the reasonable request of the Agent, all such lists, descriptions and
designations of its Collateral, warehouse receipts, receipts in the nature of
warehouse receipts, bills of lading, document of title, vouchers, invoices,
schedules, confirmatory assignments, conveyances, financing statements, transfer
endorsements, power of attorney, certificates, reports and other assurances or
instruments and take all such further steps relating to the Collateral and other
property or rights covered by the security interests hereby granted, which the
Agent shall from time to time deem reasonably appropriate to perfect, preserve
or protect its security interests in the Collateral.  Such Grantor also hereby
ratifies its authorization for the Agent to have filed any initial financing
statement or amendment thereto under the UCC in effective in any jurisdiction if
filed prior to the date hereof.
 
7. Advances.  If any Grantor fails to perform any of the covenants and
agreements contained herein, the Agent may, at its sole option and in its sole
discretion, perform the same and in so doing may expend such sums as the Agent
may reasonably deem advisable in the performance thereof, including, without
limitation, the payment of any insurance premiums, the payment of any taxes, a
payment to obtain a release of a Lien or potential Lien, expenditures made in
defending against any adverse claim and all other expenditures which the Agent
may make for the protection of the security interests in the Collateral or which
Agent may be compelled to make by operation of Law.  All such sums and amounts
so expended shall:  (a) be repayable by the Grantors on a joint and several
basis promptly upon timely notice thereof and demand therefore; (b) constitute
additional Obligations; and (c) bear interest from the date said amounts are
expended until said amounts are fully reimbursed by the Grantors at the Default
Rate.  Neither the performance of any covenant or agreement by the Agent on
behalf of any Grantor, nor the advance or expenditure therefor, shall relieve
the Grantors of any Default or Event of Default.  The Agent may make any payment
hereby authorized in accordance with any bill, statement or estimate procured
from the appropriate public office or holder of the claim to be discharged
without inquiry into the accuracy of such bill, statement or estimate or into
the validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent such payment is being contested in good faith by a Grantor
in appropriate proceedings and against which adequate reserves are being
maintained in accordance with GAAP.
 
8. Remedies.
 
(a) General Remedies.  Upon the occurrence of an Event of Default and during
continuation thereof, the Agent shall have, in addition to the rights and
remedies provided herein, in the Financing Documents, in any other documents
relating to the Obligations, or by Law (including, but not limited to, levy of
attachment, garnishment and the rights and remedies set forth in the UCC of the
jurisdiction applicable to the affected Collateral), the rights and remedies of
a secured party under the UCC (regardless of whether the UCC is the law of the
jurisdiction where the rights and remedies are asserted and regardless of
whether the UCC applies to the affected Collateral), and further, the Agent may,
with or without judicial process or the aid and assistance of others, (i) enter
on any premises on which any of the Collateral may be located and, without
resistance or interference by the Grantors, take possession of the Collateral,
(ii) dispose of any Collateral on any such premises, (iii) require the Grantors
to assemble and make available to the Agent at the expense of the Grantors any
Collateral at any place and time designated by the Agent which is reasonably
convenient to both parties, (iv) remove any Collateral from any such premises
for the purpose of effecting sale or other disposition thereof, and/or (v)
without demand and without advertisement, notice, hearing or process of law, all
of which each of the Grantors hereby waives to the fullest extent permitted by
Law, at any place and time or times, sell and deliver any or all Collateral held
by or for it at public or private sale (at any exchange or broker's board or
elsewhere, by one or more contracts, in one or more parcels, for cash, upon
credit or otherwise, at such prices and upon such terms as the Agent deems
advisable, in its sole discretion (subject to any and all mandatory legal
requirements).  Each Grantor acknowledges that any such private sale may be at
prices and on terms less favorable to the seller than the prices and other terms
which might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sale shall be deemed to have been made in a
commercially reasonable manner.  Neither the Agent's compliance with applicable
Law nor its disclaimer of warranties relating to the Collateral shall be
considered to adversely affect the commercial reasonableness of any sale.  To
the extent the rights of notice cannot be legally waived hereunder, each Grantor
agrees that any requirement of reasonable notice shall be met if such notice,
specifying the place of any public sale or the time after which any private sale
is to be made, is personally served on or mailed, postage prepaid, to the
Borrower in accordance with the notice provisions of the Credit Agreement at
least ten (10) days before the time of sale or other event giving rise to the
requirement of such notice.  The Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.  The Agent shall not be obligated to make any sale or other
disposition of the Collateral regardless of notice having been given.  To the
extent permitted by applicable Law, Agent or any Lender may be a purchaser at
any such sale.  To the extent permitted by applicable Law, each of the Grantors
hereby waives all of its rights of redemption with respect to any such
sale.  Subject to the provisions of applicable Law, the Agent may postpone or
cause the postponement of the sale of all or any portion of the Collateral by
announcement at the time and place of such sale, and such sale may, without
further notice, to the extent permitted by Law, be made at the time and place to
which the sale was postponed, or the Agent may further postpone such sale by
announcement made at such time and place.
 
 
 
5

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

 
 
(b) Remedies Relating to Accounts.  During the continuation of an Event of
Default, whether or not the Agent has exercised any or all of its rights and
remedies hereunder (except as prohibited by applicable Law, including without
limitation, the federal anti-assignment provisions of 42 USC §1396a(a)(32) and
§1395g(c), as construed by the Centers for Medicare & Medicaid Services
("CMS")), (i) each Grantor will promptly upon request of the Agent instruct all
account debtors to remit all payments in respect of Accounts to a mailing
location selected by the Agent and (ii) the Agent shall have the right to
enforce any Grantor's rights against its customers and account debtors, and the
Agent or its designee may notify any Grantor's customers and account debtors
that the Accounts of such Grantor have been assigned to the Agent or of the
Agent's security interest therein, and may (either in its own name or in the
name of a Grantor or both) demand, collect (including without limitation by way
of a lockbox arrangement), receive, take receipt for, sell, sue for, compound,
settle, compromise and give acquittance for any and all amounts due or to become
due on any Account, and, in the Agent's discretion, file any claim or take any
other action or proceeding to protect and realize upon the security interest of
the holders of the Obligations in the Accounts.  Each Grantor acknowledges and
agrees that the Proceeds of its Accounts remitted to or on behalf of the Agent
in accordance with the provisions hereof shall be solely for the Agent's own
convenience and that such Grantor shall not have any right, title or interest in
such Accounts or in any such other amounts except as expressly provided
herein.  Neither the Agent nor the Lenders shall have any liability or
responsibility to any Grantor for acceptance of a check, draft or other order
for payment of money bearing the legend "payment in full" or words of similar
import or any other restrictive legend or endorsement or be responsible for
determining the correctness of any remittance.  Furthermore, during the
continuation of an Event of Default, (i) the Agent shall have the right, but not
the obligation, to make test verifications of the Accounts in any manner and
through any medium that it reasonably considers advisable, and the Grantors
shall furnish all such assistance and information as the Agent may require in
connection with such test verifications, (ii) upon the Agent's request and at
the expense of the Grantors, the Grantors shall cause independent public
accountants or others satisfactory to the Agent to furnish to the Agent reports
showing reconciliations, aging and test verifications of, and trial balances
for, the Accounts and (iii) the Agent in its own name or in the name of others
may communicate with account debtors on the Accounts to verify with them to the
Agent's satisfaction the existence, amount and terms of any Accounts.
 
(c) [Intentionally Omitted].
 
(d) Access.  In addition to the rights and remedies hereunder, upon the
occurrence of an Event of Default and during the continuance thereof, the Agent
shall have the right to enter and remain upon the various premises of the
Grantors without cost or charge to the Agent, and use the same, together with
materials, supplies, books and records of the Grantors for the purpose of
collecting and liquidating the Collateral, or for preparing for sale and
conducting the sale of the Collateral, whether by foreclosure, auction or
otherwise.  In addition, the Agent may remove Collateral, or any part thereof,
from such premises and/or any records with respect thereto, in order to
effectively collect or liquidate such Collateral.
 
(e) Nonexclusive Nature of Remedies.  Failure by the Agent or the holders of the
Obligations to exercise any right, remedy or option under this Agreement, any
other Financing Document, any other agreement or document relating to the
Obligations, or as provided by Law, or any delay by the Agent or the holders of
the Obligations in exercising the same, shall not operate as a waiver of any
such right, remedy or option.  No waiver hereunder shall be effective unless it
is in writing, signed by the party against whom such waiver is sought to be
enforced and then only to the extent specifically stated, which in the case of
the Agent or the holders of the Obligations shall only be granted as provided
herein.  To the extent permitted by Law, neither the Agent, the holders of the
Obligations, nor any party acting as attorney for the Agent or the holders of
the Obligations, shall be liable hereunder for any acts or omissions or for any
error of judgment or mistake of fact or law other than to the extent that any
losses or liabilities with respect thereto are determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from their gross negligence or willful misconduct hereunder. The rights and
remedies of the Agent and the holders of the Obligations under this Agreement
shall be cumulative and not exclusive of any other right or remedy which the
Agent or the holders of the Obligations may have.
 
(f) Retention of Collateral.  In addition to the rights and remedies hereunder,
the Agent may, in compliance with Sections 9-620 and 9-621 of the UCC or
otherwise complying with the requirements of applicable Law of the relevant
jurisdiction, accept or retain the Collateral in satisfaction of the
Obligations.  Unless and until the Agent shall have provided such notices,
however, the Agent shall not be deemed to have retained any Collateral in
satisfaction of any Obligation for any reason.
 
(g) Deficiency.  In the event that the proceeds of any sale, collection or
realization are insufficient to pay all amounts to which the Agent or the
Lenders are legally entitled, or entitled to hereunder or under any other
Financing Document, the Grantors shall be jointly and severally liable for the
deficiency, together with interest thereon at the Default Rate, together with
the costs of collection and the fees, charges and disbursements of counsel.  Any
surplus remaining after the full payment and satisfaction of the Obligations
shall be returned to the Grantors or to whomsoever a court of competent
jurisdiction shall determine to be entitled thereto.
 
(h) Consent to Receiver.  Without limiting the generality of the foregoing or
limiting in any way the rights of the Lenders and the Agent under the Credit
Agreement, this Agreement or the other Financing Documents or otherwise under
applicable Laws, at any time after the occurrence, and during the continuance,
of an Event of Default, the Agent shall be entitled to apply for and have a
receiver or receiver and manager appointed under state or federal law by a court
of competent jurisdiction in any action taken by the Agent or the Lenders to
enforce their rights and remedies under the Credit Agreement, hereunder and
under the other Financing Documents in order to manage, protect, preserve, sell
and otherwise dispose of all or any portion of the Collateral and continue the
operation of the business of the Grantors or any of them, and to collect all
revenues and profits thereof and apply the same to the payment of all reasonable
expenses and other charges of such receivership, including the reasonable
compensation of the receiver, and to the payment of the Loans and other
Obligations until a sale or other disposition of such Collateral shall be
finally made and consummated.  EACH GRANTOR HEREBY IRREVOCABLY CONSENTS TO AND
WAIVES ANY RIGHT TO OBJECT TO OR OTHERWISE CONTEST THE APPOINTMENT OF A RECEIVER
AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, AS PROVIDED ABOVE.  EACH GRANTOR
GRANTS SUCH WAIVER AND CONSENT KNOWINGLY AFTER HAVING DISCUSSED THE IMPLICATIONS
THEREOF WITH COUNSEL, ACKNOWLEDGES THAT THE UNCONTESTED RIGHT TO HAVE A RECEIVER
APPOINTED FOR THE FOREGOING PURPOSES IS CONSIDERED ESSENTIAL BY THE AGENT AND
LENDERS IN CONNECTION WITH THE ENFORCEMENT OF THEIR RIGHTS AND REMEDIES
HEREUNDER AND UNDER THE OTHER FINANCING DOCUMENTS, AND THE AVAILABILITY OF SUCH
APPOINTMENT AS A REMEDY UNDER THE FOREGOING CIRCUMSTANCES WAS A MATERIAL FACTOR
IN INDUCING LENDERS TO PROVIDE (AND COMMIT TO PROVIDE) FINANCIAL ACCOMMODATIONS
TO BORROWER, AND AGREES TO ENTER INTO ANY AND ALL STIPULATIONS IN ANY LEGAL
ACTIONS, OR AGREEMENTS OR OTHER INSTRUMENTS IN CONNECTION WITH THE FOREGOING AND
TO COOPERATE FULLY WITH THE AGENT AND LENDERS IN CONNECTION WITH THE ASSUMPTION
AND EXERCISE OF CONTROL BY THE RECEIVER OVER ALL OR ANY PORTION OF THE
COLLATERAL AND PROPERTY OF BORROWER AND ITS SUBSIDIARIES.  NO RIGHT CONFERRED
UPON LENDERS OR THE AGENT HEREBY OR BY ANY FINANCING DOCUMENT SHALL BE EXCLUSIVE
OF ANY OTHER RIGHT REFERRED TO HEREIN OR THEREIN OR NOW OR HEREAFTER AVAILABLE
AT LAW, IN EQUITY, BY STATUTE OR OTHERWISE.
 
 
 
6

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

 
 
9. Rights of the Agent.
 
(a) Power of Attorney.  In addition to other powers of attorney contained herein
each Grantor hereby designates and appoints the Agent, on behalf  itself and the
Lenders, and each of its designees or agents, as attorney-in-fact of such
Grantor, irrevocably and with power of substitution, with authority to take any
or all of the following actions upon the occurrence and during the continuance
of an Event of Default:
 
(i) to demand, collect, settle, compromise, adjust, give discharges and
releases, all as the Agent may reasonably determine;
 
(ii) to commence and prosecute any actions at any court for the purposes of
collecting any Collateral and enforcing any other right in respect thereof;
 
(iii) to defend, settle or compromise any action brought and, in connection
therewith, give such discharge or release as the Agent may deem reasonably
appropriate;
 
(iv) receive, open and dispose of mail addressed to a Grantor and endorse
checks, notes, drafts, acceptances, money orders, bills of lading, warehouse
receipts or other instruments or documents evidencing payment, shipment or
storage of the goods giving rise to the Collateral of such Grantor on behalf of
and in the name of such Grantor, or securing, or relating to such Collateral;
 
(v) sell, assign, transfer, make any agreement in respect of, or otherwise deal
with or exercise rights in respect of, any Collateral or the goods or services
which have given rise thereto, as fully and completely as though the Agent were
the absolute owner thereof for all purposes;
 
(vi) adjust and settle claims under any insurance policy relating thereto;
 
(vii) execute and deliver all assignments, conveyances, statements, financing
statements, renewal financing statements, security agreements, affidavits,
notices and other agreements, instruments and documents that the Agent may
reasonably determine necessary in order to perfect and maintain the security
interests and liens granted in this Agreement and in order to fully consummate
all of the transactions contemplated therein;
 
(viii) institute any foreclosure proceedings that the Agent may deem
appropriate;
 
(ix) to pay or discharge taxes, liens, security interests or other encumbrances
levied or placed on or threatened against the Collateral;
 
(x) to direct any parties liable for any payment in connection with any of the
Collateral to make payment of any and all monies due and to become due
thereunder directly to the Agent or as the Agent shall direct (except as
prohibited by applicable Law, including without limitation, the federal
anti-assignment provisions of 42 USC §1396a(a)(32) and §1395g(c), as construed
by CMS);
 
(xi) to receive payment of and receipt for any and all monies, claims, and other
amounts due and to become due at any time in respect of or arising out of any
Collateral;
 
(xii) to withdraw all monies or securities held in any account for application
to the Obligations in accordance with the Credit Agreement;
 
(xiii) to accelerate any note pledged to the Agent pursuant to this Agreement or
any other Financing Document which may be accelerated in accordance with its
terms, and take any other lawful action to collect upon any such note
(including, without limitation, to make any demand for payment thereon); and
 
(xiv) do and perform all such other acts and things as the Agent may reasonably
deem to be necessary, proper or convenient in connection with the Collateral.
 
 
 
7

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

 
 
This power of attorney is a power coupled with an interest and shall be
irrevocable until the Termination Date.  The Agent shall be under no duty to
exercise or withhold the exercise of any of the rights, powers, privileges and
options expressly or implicitly granted to the Agent in this Agreement, and
shall not be liable for any failure to do so or any delay in doing so.  The
Agent shall not be liable for any act or omission or for any error of judgment
or any mistake of fact or law in its individual capacity or its capacity as
attorney-in-fact except acts or omissions resulting from its gross negligence or
willful misconduct as determined in a final non-appealable judgment by a court
of competent jurisdiction.  This power of attorney is conferred on the Agent
solely to protect, preserve and realize upon its security interest in the
Collateral.
 
(b) Assignment by the Agent.  The Agent may from time to time assign the
security interests to a successor administrative agent appointed in accordance
with the Credit Agreement, and such successor shall be entitled to all of the
rights and remedies of the Agent under this Agreement in relation thereto.
 
(c) Agent's Duty of Care.  Other than the exercise of reasonable care to assure
the safe custody of the Collateral while being held by the Agent hereunder, the
Agent (and the other Lenders) shall have no duty or liability to preserve rights
pertaining thereto, it being understood and agreed that the Grantors shall be
responsible for preservation of all rights in the Collateral, and the Agent and
the other Lenders shall be relieved of all responsibility for the Collateral
upon surrendering it or tendering the surrender of it to the Grantors.  The
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Agent accords its own property,
which shall be no less than the treatment employed by a reasonable and prudent
agent in the industry, it being understood that the Agent shall not have
responsibility for taking any necessary steps to preserve rights against any
parties with respect to any of the Collateral.  In the event of a public or
private sale of Collateral pursuant to Section 8 hereof, the Agent shall have no
responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Collateral, whether or not the Agent has or is deemed to have knowledge of such
matters, or (ii) taking any steps to clean, repair or otherwise prepare the
Collateral for sale.
 
(d) Liability with Respect to Accounts.  Anything herein to the contrary
notwithstanding, each of the Grantors shall remain liable under each of the
Accounts to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account.  Neither the Agent nor any Lender
shall have any obligation or liability under any Account (or any agreement
giving rise thereto) by reason of or arising out of this Agreement or the
receipt by the Agent or any Lender of any payment relating to such Account
pursuant hereto, nor shall the Agent or any Lender be obligated in any manner to
perform any of the obligations of a Grantor under or pursuant to any Account (or
any agreement giving rise thereto), to make any payment, to make any inquiry as
to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account (or any agreement
giving rise thereto), to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
 
(e) [Intentionally Omitted].
 
10. Application of Proceeds.  Upon the acceleration of the Obligations pursuant
to the Credit Agreement, any payments in respect of the Obligations and any
proceeds of the Collateral, when received by the Agent or any Lender in cash or
its equivalent, will be applied in reduction of the Obligations in the order and
priority set forth in (or otherwise dictated by) the Credit Agreement.
 
11. Reinstatement.  This Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment, in whole
or in part, of any of the Obligations is rescinded or must otherwise be restored
or returned by the Agent or any Lender as a preference, fraudulent conveyance or
otherwise under any debtor relief Law, all as though such payment had not been
made; provided that in the event payment of all or any part of the Obligations
is rescinded or must be restored or returned, all reasonable costs and expenses
(including without limitation any reasonable legal fees and disbursements)
incurred by the Agent or any Lender in defending and enforcing such
reinstatement shall be deemed to be included as a part of the Obligations.
 
12. Amendments; Waivers; Modifications, etc.  This Agreement and the provisions
hereof may not be amended, waived, modified, changed, discharged or terminated
except as set forth in the Credit Agreement.
 
13. Successors in Interest.  This Agreement shall be binding upon each Grantor,
its successors and assigns and shall inure, together with the rights and
remedies of the Agent and the holders of the Obligations hereunder, to the
benefit of the Agent and the holders of the Obligations and their successors and
permitted assigns.
 
14. Notices.  All notices required or permitted to be given under this Agreement
shall be in conformance with the notice provisions set forth in the Credit
Agreement.
 
 
 
8

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

 
 
15. Counterparts.  This Agreement may be executed in any number of counterparts,
each of which where so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument.  It shall not be necessary
in making proof of this Agreement to produce or account for more than one such
counterpart.
 
16. Headings.  The headings of the sections hereof are provided for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Agreement.
 
17. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.  The
terms of Sections 12.10 and 12.11 of the Credit Agreement with respect to
governing law, submission to jurisdiction, venue and waiver of jury trial (and,
where applicable, judicial reference) are incorporated herein by reference,
mutatis mutandis, and the parties hereto agree to such terms.
 
18. Severability.  If any provision of this Agreement is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
 
19. Entirety.  This Agreement, the other Financing Documents and the other
agreements and documents relating to the Obligations represent the entire
agreement of the parties hereto and thereto, and supersede all prior agreements
and understandings, oral or written, if any, including any commitment letters or
correspondence relating to the Financing Documents, any other agreements and
documents relating to the Obligations, or the transactions contemplated herein
and therein.
 
20. Other Security.  To the extent that any of the Obligations are now or
hereafter secured by property other than the Collateral (including, without
limitation, real property and securities owned by a Grantor), or by a guarantee,
endorsement or property of any other Person, then the Agent shall have the right
to proceed against such other property, guarantee or endorsement upon the
occurrence of any Event of Default, and the Agent shall have the right, in its
sole discretion, to determine which rights, security, liens, security interests
or remedies the Agent shall at any time pursue, relinquish, subordinate, modify
or take with respect thereto, without in any way modifying or affecting any of
them or the Obligations or any of the rights of the Agent or the Lenders under
this Agreement, under any other of the Financing Documents or under any other
document relating to the Obligations.
 
21. Rights of Required Lenders.  All rights of the Agent hereunder, if not
exercised by the Agent, may be exercised by the Required Lenders upon written
notice to the Grantors that the Required Lenders have so chosen to exercise such
rights.
 
22. Additional Grantors.  Each Subsidiary of Borrower that is required to become
a party to this Agreement pursuant to Section 4.10 of the Credit Agreement shall
become a Grantor for all purposes of this Agreement upon execution and delivery
to the Agent of a joinder agreement in form and substance acceptable to Agent.
 
23. Joint and Several Liability.  Notwithstanding anything to the contrary in
this Agreement or the other Financing Documents, all payment and performance
obligations of the Grantors arising under this Agreement and the other Financing
Documents shall be joint and several obligations of each Grantor secured by all
the Collateral.  The Agent may apply any portion of the Collateral to satisfy
any of the Obligations.
 
24. Waiver of Subrogation.  If the Agent exercises any of the remedies referred
to above in respect of any of the Collateral and applies any of the proceeds of
any Collateral to any amounts owing to Agent or any Lender under the Financing
Documents, no Grantor shall, in respect of such monies, seek to enforce
repayment, obtain the benefit of any security, be indemnified or receive
Collateral from any Borrower or a contribution from any other Person, or
exercise any other rights or legal remedies of any kind which may accrue to any
Grantor against any Borrower, whether by way of subrogation, offset,
counterclaim or otherwise, in respect of the amount so payable or so paid (or in
respect of any other monies for the time being due to any Grantor from any
Borrower) until the Termination Date occurs; provided however that, in no
circumstances shall any Grantor make a claim against any Collateral owned by any
other Grantor prior to the occurrence of the Termination Date.  Each of the
Grantors shall hold in trust for, and forthwith pay or transfer to, the Agent
any payment or distribution or benefit of security received by such Grantor
contrary to this Section 24.
 
25. Marshalling.  The Agent shall not be required to marshal any present or
future collateral security (including, but not limited to, this Agreement and
the Collateral) for, or other assurance of payment of, the Obligations or to
resort to such collateral security or other assurances of payment in any
particular order, and all of the rights of the Agent hereunder or in respect of
such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights, however existing or arising.  Each Grantor
hereby agrees that it will not invoke any law relating to the marshalling of
Collateral or other collateral security which might cause delay in or impede the
enforcement of the Agent's rights under this Agreement, the other Financing
Documents, or any other document or Instrument that creates, evidences,
guaranties or secures any of the Obligations, and each Grantor hereby
irrevocably waives the benefits of all such laws.
 
26. Waiver of Bond.  Each Grantor hereby waives the posting of any bond
otherwise required of the Agent in connection with any judicial process or
proceeding (i) to realize on the Collateral or any other security for its
obligations hereunder, (ii) to enforce any judgment or other court order entered
in favor of the Agent, or (iii) to enforce by specific performance, temporary
restraining order, or preliminary or permanent injunction, this Agreement, any
other Financing Document or any other agreement or document between the Agent
and such Grantor.
 
27. Certain Releases.  Upon any sale, lease, transfer or other disposition of
any item of Collateral of any Grantor permitted by the Financing Documents
(other than sales of Inventory in the ordinary course of such Grantor’s
business), the Agent will, at such Grantor’s expense, execute and deliver to
such Grantor such documents as such Grantor shall reasonably request to evidence
the release of such item of Collateral from the security interest granted
herein.
 
 
 
9

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

 
 
28. Amendment and Restatement; Release of Liens; Return of Tangible Collateral.
 
(a) This Agreement shall become effective, and shall amend and restate the
Original Security Agreement, upon the execution of this Agreement and that
certain Amendment No. 1 to Amended and Restated Credit Agreement by Grantors,
Agent and the other parties thereto and delivery of updated schedules to this
Agreement (the “Effective Time”), and from and after such effective time, (i)
all references made to the Original Security Agreement in the Financing
Documents or in any other instrument or document executed and/or delivered
pursuant thereto shall, without anything further, be deemed to refer to this
Agreement and (ii) the Original Security Agreement shall be deemed amended and
restated in its entirety hereby.
 
(b) This Agreement is entered into and delivered to Agent and the Lenders in
replacement of and substitution for, and not in satisfaction for, the Original
Security Agreement.  Each Grantor acknowledges that the Obligations have not
been satisfied.  Each Grantor further acknowledges that all of the Liens granted
by such Grantor under the Original Security Agreement in the assets included as
“Collateral” in Section 2 of this Agreement are hereby reaffirmed and shall
continue hereafter to secure the Obligations, until all Obligations are repaid
in full in cash and the Financing Agreements are terminated.
 
(c) Effective as of the Effective Time, Agent hereby terminates, releases and
discharges its Liens, held for its benefit and the benefit of the Lenders, in
all assets of the Grantors other than the “Collateral” described in Section 2 of
this Agreement (such other assets, the “Excluded Collateral”), without
representation, warranty or recourse of any kind or nature.  Promptly following
the Effective Time, Agent agrees to (i) file, or direct a designee to file,
UCC-3 financing statements amending any financing statements currently of record
naming Agent or Agent’s predecessor in interest as “Secured Party” and a Grantor
as “debtor” to describe the collateral thereon as defined in Section 2 of this
Agreement and, if filed by a designee, in form and substance reasonably
acceptable to Agent, (ii) execute and deliver releases in order to evidence the
release of Liens granted under the Original Security Agreement related to
Intellectual Property and uncertificated equity and (iii) return to Grantors all
equity certificates in the possession of Agent.  Such release shall relate
solely to the Excluded Collateral.  Nothing herein shall be construed as a
release of any “Collateral” (as such term is defined in Section 2 of this
Agreement) other than the Excluded Collateral.  Upon any Grantor’s reasonable
request from time to time following the Effective Time, Agent will execute and
deliver such additional releases or other documents as may be necessary to
effectively terminate any and all of Agent’s Liens in the Excluded Collateral.
 
[The remainder of this page is left blank intentionally.]
 
 
 
10

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

 
 
(Signature Page to Amended and Restated Security and Pledge Agreement)
 
IN WITNESS WHEREOF, intending to be legally bound, and intending that this
agreement constitute an agreement executed under seal, each of the parties have
caused this Agreement to be executed under seal the day and year first above
mentioned.
 
GRANTORS:
 
PERNIX THERAPEUTICS HOLDINGS, INC., a Maryland corporation
By: /s/ Douglas Drysdale(SEAL)
Name: Douglas Drysdale
Title:   President and Chief Executive Officer
Address:
10863 Rockley Road
Houston, TX 77099
Fax: 800-793-2145
 
MACOVEN PHARMACEUTICALS, LLC, a Louisiana limited liability company
By:        Pernix Therapeutics, LLC, a Louisiana
limited liability company
Its:        Sole Member and Sole Manager
By:         Pernix Therapeutics Holdings, Inc., a
Maryland corporation
Its:         Sole Member and Sole Manager
By:         /s/ Douglas Drysdale(SEAL)
Name: Douglas Drysdale
Title:   President and Chief Executive Officer
 
 
PERNIX MANUFACTURING, LLC, a Texas limited liability company
By:        Pernix Therapeutics Holdings, Inc., a
Maryland corporation
Its:        Sole Member
By:         /s/ Douglas Drysdale(SEAL)
Name: Douglas Drysdale
Title:   President and Chief Executive Officer

 
 
 
11

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

 
(Signature Page to Amended and Restated Security and Pledge Agreement)
 

GRANTORS:
PERNIX THERAPEUTICS, LLC,
a Louisiana limited liability company
By:        Pernix Therapeutics Holdings, Inc.,
a Maryland corporation
Its:        Sole Member and Sole Manager
By:      /s/ Douglas Drysdale           (SEAL)
Douglas Drysdale
President and Chief Executive Officer
 
 
CYPRESS PHARMACEUTICALS, INC.,
a Mississippi corporation
 
By:   /s/ Michael C. Pearce(SEAL)
Michael C. Pearce
President and Chief Executive Officer

 
 
GAINE, INC.,
a Delaware corporation
 
By:   /s/ Cooper C. Collins(SEAL)
Cooper C. Collins
President and Chief Executive Officer

GRANTORS:
RESPICOPEA INC.,
a Delaware corporation
 
By:   /s/ Cooper C. Collins(SEAL)
Cooper C. Collins
President
 
 
HAWTHORN PHARMACEUTICALS, INC.,
a Mississippi corporation
 
By:   /s/ Cooper C. Collins(SEAL)
Cooper C. Collins
President and Chief Executive Officer
 
 
PERNIX SLEEP, INC.,
a Delaware corporation
 
By:   /s/ Cooper C. Collins(SEAL)
Cooper C. Collins
President and Chief Executive Officer

 

 
12

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

 

 
GRANTORS:
GTA GP, INC.,
a Maryland corporation
 
By:   /s/ Cooper C. Collins(SEAL)
Cooper C. Collins
President and Chief Executive Officer
 
 
GTA LP, INC.,
a Maryland corporation
 
By:   /s/ Cooper C. Collins(SEAL)
Cooper C. Collins
President and Chief Executive Officer

 
 
 
13

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

 
 

 
Accepted and agreed to as of the date first above written.
 
AGENT:
MIDCAP FUNDING IV, LLC,
as Agent
 
By:/s/ Brett Robinson     (SEAL)
Brett Robinson
Managing Director

 
 

 
 
14

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

 
 
SCHEDULE 3(i)
 
CONSENTS
 

 
 
15

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

 

 
EXHIBIT A
 
INFORMATION CERTIFICATE
 
See attached.
 

16