Exhibit 10.17

 

AMENDED AND RESTATED LOAN AGREEMENT

 

Wells Fargo Bank, N.A.

Philadelphia, Pennsylvania  19109

(Hereinafter referred to as the “Bank”)

 

Lannett Company, Inc.

13200 Townsend Road

Philadelphia, Pennsylvania  19154

(Hereinafter referred to as “LCI”)

 

Lannett Holdings, Inc.

103 Foulk Road, Suite 202

Wilmington, DE  19803

(Hereinafter referred to as “Holdings”)

 

Cody Laboratories, Inc.

601 Yellowstone Avenue

Cody, Wyoming

(Hereinafter referred to as “Cody”

and collectively with LCI and Holdings, “Borrower”)

 

This AMENDED AND RESTATED LOAN AGREEMENT (the “Agreement”) is entered into this
29th day of April, 2011, effective as of March 31, 2011, between WELLS FARGO
BANK, NATIONAL ASSOCIATION (successor in interest to Wachovia Bank, National
Association) (“Bank”), with a place of business located at 123 South Broad
Street, Philadelphia, PA 19109 and LANNETT COMPANY, INC., a Delaware
corporation, LANNETT HOLDINGS, INC., a Delaware corporation and CODY
LABORATORIES, INC., a Wyoming corporation (individually and collectively, the
“Borrower”), each with its chief executive office located at 13200 Townsend
Road, Philadelphia, PA 19154.

 

BACKGROUND

 

Lannett and the Bank entered into a Loan Agreement dated February 28, 2003 (the
“Original Agreement”), pursuant to which the Bank made available to Lannett
Company, Inc. a line of credit facility.

 

Lannett has requested from the Bank two additional credit facilities and the
Bank has agreed to enter into those additional facilities provided that Holdings
and Cody becomes parties to this Agreement, subject to the limitations set forth
in Section 15 with respect to Cody.  Holdings is a subsidiary  of Lannett and
will benefit from the Loans.  Cody is an affiliate of Lannett and will benefit
from the Loans.

 

The parties agreed to enter into this Agreement which amends and restates in its
entirety that certain Original Agreement.

 

AGREEMENT

 

Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:

 

1.                 DEFINITIONS.  In addition to the terms other wise defined
herein, the following terms shall have the following definitions when used in
this Agreement and the other Loan Documents:

 

(a)      Advance or Advances.  The term “Advances” when used collectively, and
“Advance” when used individually, refers to the advances made under the
Revolving Facility.

 

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(b)     Loan Documents.  The term “Loan Documents” refers to this Agreement, all
documents executed in connection herewith or related hereto, including, without
limitation, any letters of credit, any applications for such letters of credit
and any other documents executed in connection therewith or related thereto, a
commitment letter, guaranty agreements, security agreements, security
instruments, financing statements, mortgage instruments, any renewals or
modifications, whenever any of the foregoing are executed, but does not include
swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time).

 

(c)      Loans or Loan.  The term “Loans” when used collectively, and “Loan”
when used individually, refers to the Revolving Facility and the Term Loan.

 

(d)     Material Adverse Change. The term “Material Adverse Change” shall mean a
material adverse change in (a) the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of any
Borrower, (b) the Collateral, (c) any Borrower’s ability to perform its
obligations under the Loan Documents, or (d) the rights and remedies of the
Lender hereunder, in each case as determined by the Lender in its discretion.

 

(e)      Material Adverse Effect. The term “Material Adverse Effect” shall mean
a material adverse effect on (a) the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of
any Borrower, (b) the Collateral, (c) any Borrower’s ability to perform its
obligations under the Loan Documents, or (d) the rights and remedies of the
Lender hereunder, in each case as determined by the Lender in its discretion.

 

(f)        Maturity Date.  The term Line of Credit Maturity Date means March 31,
2012.

 

(g)     Notes or Note.  The term “Notes” when used collectively, and “Note” when
used individually, refers to the Revolving Note, and the Term Note.

 

(h)     Obligations.  The term “Obligations” refers to any and all indebtedness
and other obligations under this Agreement, all other obligations under any
other Loan Document(s), and all obligations under any swap agreements (as
defined in 11 U.S.C. § 101, as in effect from time to time) between Borrower and
Bank or any of its affiliates whenever executed.

 

(i)         PIDA Loan.  The term “PIDA Loan” means a certain term loan from the
Pennsylvania Industrial Development Authority (“PIDA”) to Borrower and secured
by the Townsend property.

 

(j)         Townsend Property.  The term “Townsend Property” means that certain
property known as 13200 Townsend Road, Philadelphia PA.

 

(k)      Certain Other Terms.  All terms that are used but not otherwise defined
in this Agreement or any of the other Loan Documents shall have the definitions
provided in the Uniform Commercial Code.

 

2.                 LINE OF CREDIT FACILITY.

 

(a)             Commitment.  Subject to the terms, conditions and limitations
hereof and in reliance upon the representations and warranties set forth herein,
the Lender agrees to lend to Borrowers at any time or from time to time on or
after the Closing Date and before the Maturity Date, the Advances and issue the
Letters of Credit as may be requested or deemed requested by Borrowers, provided
that the sum of (i) the aggregate outstanding principal of Advances, plus
(ii) the aggregate amount available to be drawn under all Letters of Credit,
plus (iii) the aggregate amount of unreimbursed drawings under all standby
Letters of Credit shall not at any time exceed Three Million ($3,000,000)
Dollars (the “Committed Amount”).

 

(b)            Advances.  The Lender agrees, subject to the terms and conditions
of this Loan Agreement, from time to time, to make Advances or issue Letters of
Credit (as hereinafter defined) to Borrowers hereunder on a revolving basis. 
The aggregate outstanding amount of such Advances and face amount of such
Letters of Credit shall not exceed in the aggregate outstanding at any time the
Revolving Credit Committed Amount.

 

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(c)             Letters of Credit.  Upon the request of Borrower, Bank shall
issue standby Letters of Credit (the “Revolving Facility”), provided, the
aggregate amount available to be drawn under all standby letters of credit (each
a “Letter of Credit”) plus the aggregate amount of unreimbursed drawings under
all standby Letters of Credit at any one time does not exceed the Committed
Amount, and further provided, no standby Letter of Credit shall expire more than
365 days after the date it is issued.  Notwithstanding anything to the contrary
contained herein, the aggregate amount available to be drawn under all Letters
of Credit plus the aggregate amount of unreimbursed drawings under all Letters
of Credit at any one time shall not exceed the Committed Amount.  Bank’s
obligation to issue Letters of Credit shall terminate upon occurrence of an
Event of Default exists, or in any case, if not sooner terminated, on the
Maturity Date.

 

(d)            Letter of Credit Fees.  Borrower shall pay to Bank, at such times
as Bank shall require, Bank’s standard fees in connection with commercial
Letters of Credit, as in effect from time to time, and with respect to standby
Letters of Credit, an additional fee equal to 2.00% per annum on the face amount
of each standby Letter of Credit, payable annually, in advance, for so long as
such Letter of Credit is outstanding.

 

(e)      Limitations.  Each request for the issuance of a Letter of Credit is
subject to the following conditions:

 

(i)                This Agreement and the Loan Documents shall be effective;

 

(ii)             There has been no Material Adverse Change since the date of
this Agreement in Borrower’s business or financial condition or in the value of
the Collateral or the priority of Bank’s security interests in the Collateral;

 

(iii)          No Event of Default shall have occurred and be continuing or
shall result from the issuance of the Letter of Credit;

 

(iv)         Borrower shall have delivered to Bank such invoices, searches
(including, without limitation, lien searches relating to the Seller of
equipment not selling in the ordinary course of business), documents,
certificates and other documentation or information as Bank shall reasonably
require;

 

(v)            The Bank shall have received all documents required by Bank in
connection with Letters of Credit, including without limitation, applications
therefor, all in form satisfactory to Bank;

 

(vi)         Each of the conditions set forth in Section 6 have been satisfied;

 

(vii)      Each Letter of Credit is within and complies with the terms and
conditions of this Agreement; and

 

(ix)   During the term of the Note, Borrower agrees to pay down the aggregate
outstanding principal balance of all Advances to a maximum of $0.00 for 60
consecutive days annually.

 

(f)               Note.  Borrower’s Obligations under Revolving Facility shall
be evidenced by a note of even date herewith, as the same is amended and/or
modified from time to time (the “Revolving Note”).  The terms of the Revolving
Facility not set forth in this Agreement, including but not limited to interest
rate and repayment terms, are set forth in the Revolving Note and are
incorporated herein by reference.

 

(g)            Availability Fee.  Borrower shall pay to Bank an availability fee
(the “Availability Fee”), equal to 0.375% per annum calculated daily, on the
difference between (i) the face amount of the Revolving Note and (ii) the
outstanding principal balance of the Revolving Note.  The

 

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Availability Fee will be due and payable in consecutive monthly payments on the
first day of the month and continuing on the same day of each month thereafter,
with a final payment due and payable on the date that all principal and accrued
interest is paid in full.

 

3.                 TERM LOAN FACILITY.

 

(a)      Term Loan.  Bank agrees to lend to Borrower an amount equal to
$3,056,000 (the “Term Loan”).

 

(b)     Note.  Borrower’s Obligations under the Term Loan shall be evidenced by
a note to be executed at the closing of Term Loan in the form and with such
terms as set forth in Exhibit C attached hereto and made part hereof, as the
same is amended and/or modified by written agreement of the parties from time to
time (the “Term Note”). The terms of the Term Loan not set forth in this
Agreement, including but not limited to interest rate and repayment terms, are
set forth in the Term Note and are incorporated herein by reference.

 

(c)             Closing.  Closing on the Term Loan may occur after the execution
of this Agreement, but in any case not later than May 11, 2011.

 

4.                 SECURITY.

 

(a)      As security for the Line of Credit Facility, Borrower has granted Bank
a security interest in the collateral described in that certain Security
Agreement of even date herewith, as modified, restated or replaced from time to
time (the “Security Agreement”).

 

(b)     As security for Term Loan, Borrower has granted to Bank a first mortgage
on the Townsend Property. The Line of Credit Facility is not secured by the
Mortgage.

 

5.                CONDITIONS PRECEDENT.  Closing of any Loans under this
Agreement and the making of the Loans are subject to the following conditions
precedent (all documents to be in form and substance satisfactory to Bank and
Bank’s counsel):

 

(a)             Borrower shall deliver and shall cause to be delivered to Bank
this Agreement, the Notes, all other Loan Documents and any other document or
instrument required by Bank in connection herewith, all properly executed.

 

(b)            Borrower shall have paid and performed all Obligations to be paid
or performed as of such date required under this Agreement or under any other
Loan Document.

 

(c)             At the time of closing of the Term Loan, Bank shall have
received a written opinion of the counsel of Borrower acceptable to Bank that
includes confirmation of the following:  (i) The accuracy of the representations
set forth in this Agreement in the Representations Subparagraphs entitled
“Authorization; Non-Contravention”; “Compliance with Laws”, and “Organization
and Authority”.  (ii) This Agreement and other Loan Documents have been duly
executed and delivered by Borrower, any guarantor and any owner of collateral,
and constitute the legal, valid and binding obligations of Borrower, any
guarantor and any owner of collateral, enforceable in accordance with their
terms.  (iii) No registration with, consent of, approval of, or other action by,
any federal, state or other governmental authority or regulatory body is
required by law in connection with the execution and delivery of this Agreement
and the other Loan Documents, or the extension of credit under this Agreement or
the other Loan Documents, or, if so required, such registration has been made,
and such consent or approval given or such other appropriate action taken.
(iv) The Loan Documents constituting security instruments create a valid
security interest in or lien on the collateral described therein.  (v) The
interest rate applicable to Letter of Credit reimbursement obligations is not
usurious.

 

(d)            If the closing on a Loan does not occur simultaneously with the
execution of this Agreement, Bank shall have received a certification in the
form attached hereto as Exhibit D.

 

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(e)             Bank shall have received all other documents, agreements,
opinions, appraisals, reports, insurance and certifications in connection
herewith as Bank may reasonably require.

 

6.                 REPRESENTATIONS.  Borrower represents that from the date of
this Agreement and until final payment in full of the Obligations:

 

(a)      Accurate Information.  All information now and hereafter furnished to
Bank is and will be true, correct and complete in all material respects.  Any
such information relating to Borrower’s financial condition will accurately
reflect Borrower’s financial condition as of the date(s) thereof, (including all
contingent liabilities of every type), and Borrower further represents that its
financial condition has not changed materially or adversely since the date(s) of
such documents.

 

(b)     Authorization; Non-Contravention.  The execution, delivery and
performance by Borrower and any guarantor, as applicable, of this Agreement and
other Loan Documents to which it is a party are within its power, have been duly
authorized as may be required and, if necessary, by making appropriate filings
with any governmental agency or unit and are the legal, binding, valid and
enforceable obligations of Borrower and any guarantors; and do not
(i) contravene, or constitute (with or without the giving of notice or lapse of
time or both) a violation of any provision of applicable law, a violation of the
organizational documents of Borrower or any guarantor, or a default under any
agreement, judgment, injunction, order, decree or other instrument binding upon
or affecting Borrower or any guarantor, (ii) result in the creation or
imposition of any lien (other than the lien(s) created by the Loan Documents) on
any of Borrower’s or any guarantor’s assets, or (iii) give cause for the
acceleration of any obligations of Borrower or any guarantor to any other
creditor.

 

(c)      Asset Ownership.  Borrower has good and marketable title to the
Townsend Property and the “Collateral” (as defined in the Security Agreement),
and the Townsend Property and Collateral are free and clear of mortgages,
security deeds, pledges, liens, charges, and all other encumbrances, except for
the liens listed on Exhibit A or as otherwise disclosed to Bank by Borrower in
writing and approved by Bank (“Permitted Liens”).  To Borrower’s knowledge, no
default has occurred under any Permitted Liens and no claims or interests
adverse to Borrower’s present rights in its properties and assets have arisen.

 

(d)     Discharge of Liens and Taxes.  Borrower has duly filed, paid and/or
discharged all taxes or other claims, to the extent due and payable, that may
become a lien on any of its property or assets, except to the extent that such
items are being appropriately contested in good faith and an adequate reserve
for the payment thereof is being maintained.

 

(e)      Sufficiency of Capital.  Borrower is not, and after consummation of
this Agreement and after giving effect to all indebtedness incurred and liens
created by Borrower in connection with this Agreement and any other Loan
Documents, will not be, insolvent within the meaning of 11 U.S.C. § 101, as in
effect from time to time.

 

(f)        Compliance with Laws.  Borrower and any subsidiary and affiliate of
Borrower and any guarantor are in compliance in all material respects with all
federal, state and local laws, rules and regulations applicable to its
properties, operations, business, and finances, including, without limitation,
all applicable federal, state and local laws and regulations intended to protect
the environment; and the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), if applicable. None of Borrower, or any subsidiary or
affiliate of Borrower or any guarantor is a Sanctioned Person or has any of its
assets in a Sanctioned Country or does business in or with, or derives any of
its operating income from investments in or transactions with, Sanctioned
Persons or Sanctioned Countries in violation of economic sanctions administered
by OFAC.  The proceeds from the Loan will not be used to fund any operations in,
finance any investments or activities in, or make any payments to, a Sanctioned
Person or a Sanctioned Country. “OFAC” means the U.S. Department of the
Treasury’s Office of Foreign Assets Control. “Sanctioned Country” means a
country subject to a sanctions program identified on the list maintained by OFAC
and available at
http://www.treas.gov/offices/enforcement/ofac/programs/index.shtml, or as
otherwise published

 

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from time to time.  “Sanctioned Person” means (i) a person named on the list of
Specially Designated Nationals or Blocked Persons maintained by OFAC available
at http://www.treas.gov/offices/enforcement/ofac/sdn/index.shtml, or as
otherwise published from time to time, or (ii) (A) an agency of the government
of a Sanctioned Country, (B) an organization controlled by a Sanctioned Country,
or (C) a person resident in a Sanctioned Country to the extent subject to a
sanctions program administered by OFAC.

 

(g)     Organization and Authority.  Each corporation, partnership or limited
liability company Borrower and/or guarantor, as applicable, is duly created,
validly existing and in good standing under the laws of the state of its
organization, and has all powers, governmental licenses, authorizations,
consents and approvals required to operate its business as now conducted.  Each
corporation, partnership or limited liability company Borrower and/or guarantor,
as applicable, is duly qualified, licensed and in good standing in each
jurisdiction where qualification or licensing is required by the nature of its
business or the character and location of its property, business or customers,
and in which the failure to so qualify or be licensed, as the case may be, in
the aggregate, could have a material adverse effect on the business, financial
position, results of operations, properties or prospects of Borrower or any such
guarantor.

 

(h)     No Litigation.  There are no pending or threatened suits, claims or
demands against Borrower or any guarantor where the claim or controversy amount
is in excess of $1,000,000.00 that have not been disclosed to Bank by Borrower
in writing, and approved by Bank.

 

(i)                Indemnity. Borrower will indemnify Bank and its affiliates
from and against any losses, liabilities, claims, damages, penalties or fines
imposed upon, asserted or assessed against or incurred by Bank arising out of
the inaccuracy or breach of any of the representations contained in this
Agreement or any other Loan Documents.

 

(j)                Real Property Collateral.  Except as disclosed by Borrower to
Bank in writing prior to the date hereof, with respect to any real property
collateral required hereby:

 

(i)             All taxes, governmental assessments, insurance premiums, and
water, sewer and municipal charges, and rents (if any) which previously became
due and owing in respect thereof have been paid as of the date hereof.

 

(ii)          There are no mechanics’ or similar liens or claims which have been
filed for work, labor or material (and no rights are outstanding that under law
could give rise to any such lien) which affect all or any interest in any such
real property and which are or may be prior to or equal to the lien thereon in
favor of Bank.

 

(iii)       None of the improvements which were included for purpose of
determining the appraised value of any such real property lies outside of the
boundaries and/or building restriction lines thereof, and no improvements on
adjoining properties materially encroach upon any such real property.

 

(iv)      There is no pending, or to the best of Borrower’s knowledge
threatened, proceeding for the total or partial condemnation of all or any
portion of any such real property, and all such real property is in good repair
and free and clear of any damage that would materially and adversely affect the
value thereof as security and/or the intended use thereof.

 

7.                 AFFIRMATIVE COVENANTS.  Borrower agrees that from the date
hereof and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower will:

 

(a)      Access to Books and Records.  Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents of
Borrower as Bank shall reasonably require, and allow Bank, at Borrower’s
expense, to inspect, audit and examine the same and to make extracts therefrom
and to make copies thereof.

 

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(b)     Accounts Payable Aging.  Deliver to Bank, from time to time hereafter
but not less than quarterly within 30 days of the end of each such period, a
detailed payables report including aging of payables by total, vendor names and
addresses, a reconciliation statement, and the original date of each invoice.

 

(c)      Accounts Receivable Aging.  Deliver to Bank, from time to time
hereafter but not less than quarterly within 30 days of the end of each such
period, a detailed receivables report including totals, customer names and
addresses, a reconciliation statement, and the original date of each invoice.

 

(d)     Business Continuity.  Conduct its business in substantially the same
manner and locations as such business is now and has previously been conducted.

 

(e)      Omitted.

 

(f)        Compliance with Other Agreements.  Comply with all terms and
conditions contained in this Agreement, and any other Loan Documents, and swap
agreements, if applicable, as defined in 11 U.S.C. § 101, as in effect from time
to time.

 

(g)     Estoppel Certificates.  Furnish, within 15 days after request by Bank, a
written statement duly acknowledged of the amount due under the Loan and whether
offsets or defenses exist against the Obligations.

 

(h)     Insurance.  Maintain adequate insurance coverage with respect to its
properties and business against loss or damage of the kinds and in the amounts
customarily insured against by companies of established reputation engaged in
the same or similar businesses including, without limitation, commercial general
liability insurance, workers compensation insurance, and business interruption
insurance; all acquired in such amounts and from such companies as Bank may
reasonably require.

 

(i)         Maintain Properties.  Maintain, preserve and keep its property in
good repair, working order and condition, making all replacements, additions and
improvements thereto necessary for the proper conduct of its business, unless
prohibited by the Loan Documents.

 

(j)         Non-Default Certificate From Borrower.  Deliver to Bank, with the
Financial Statements required below, a certificate signed by Borrower, in the
form attached hereto as Exhibit B, if Borrower is an individual, or by a
principal financial officer of Borrower warranting that no “Default” as
specified in the Loan Documents nor any event which, upon the giving of notice
or lapse of time or both, would constitute such a Default, has occurred.

 

(k)      Notice of Default and Other Notices.  (A) Notice of Default.  Furnish
to Bank immediately upon becoming aware of the existence of any condition or
event which constitutes an Event of Default (as defined in the Loan Documents)
or any event which, upon the giving of notice or lapse of time or both, may
become an Event of Default, written notice specifying the nature and period of
existence thereof and the action which Borrower is taking or proposes to take
with respect thereto.  (B) Other Notices.  Promptly notify Bank in writing of
(i) any Material Adverse Change in its financial condition or its business;
(ii) any default under any material agreement, contract or other instrument to
which it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any indebtedness owing by Borrower; (iii) the
commencement of, and any adverse determination in, any litigation with any third
party or any proceeding before any governmental agency or unit affecting
Borrower; and (v) at least 30 days prior thereto, any change in Borrower’s name
or address as shown above, and/or any change in Borrower’s form of entity or
structure.

 

(l)         Other Financial Information.  Deliver promptly such other
information regarding the operation, business affairs, and financial condition
of Borrower which Bank may reasonably request.

 

(m)   Payment of Debts.  Pay and discharge when due, and before subject to
penalty or further charge, and otherwise satisfy before maturity or delinquency,
all obligations, debts, taxes, and liabilities of whatever nature or amount,
except those which Borrower in good faith disputes.

 

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(n)     Reports and Proxies.  Deliver to Bank, promptly, a copy of all financial
statements, reports, notices, and proxy statements, sent by Borrower to
stockholders, and all regular or periodic financial reports required to be filed
by Borrower with any governmental agency or authority.

 

(o)     PIDA Loan.  Borrower shall comply with all requirements and obligations
relating to the PIDA Loan.

 

8.                 NEGATIVE COVENANTS.  Borrower agrees that from the date
hereof and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower will not:

 

(a)      Change in Fiscal Year.  Change its fiscal year.

 

(b)     Change of Control.  Make or suffer a change of ownership that will
permit a single person or entity to own more than a 50% interest in LCI,
Holdings or Cody.

 

(c)      Encumbrances.  Create, assume, or permit to exist any mortgage,
security deed, deed of trust, pledge, lien, charge or other encumbrance on the
Townsend Property or the “Collateral” (as defined in the Security Agreement),
other than: (i) security interests required by the Loan Documents; (ii) liens
for taxes contested in good faith; (iii) Permitted Liens, (iv) capitalized lease
obligations and purchase money liens on and security interests in equipment in
the ordinary course of business, (v) mechanics’, materialmen’s, warehousemen’s,
carriers’ or other like liens arising in the ordinary course of business of the
Borrower or any subsidiary, if any, arising with respect to obligations which
are not overdue for a period longer than thirty (30) days or which are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been provided on the books of the Borrower or a subsidiary,
(vi) pledges or deposits in connection with workers’ compensation, unemployment
insurance, or other forms of governmental insurance or benefits or deposits or
pledges to secure the performance of bids, tenders, contracts, leases, public or
statutory obligations, surety or appeal bonds or other deposits or pledges for
purposes of a like general nature or given in the ordinary course of a business
by the Borrower or any subsidiary, or (vii) other encumbrances consisting of
zoning restrictions, easements, rights-of-way, restrictions on the use of real
property or minor irregularities in the title thereto, which do not arise in
connection with the borrowing of, or any obligation for the payment of, money
and which in the aggregate, do not materially detract from the value of the
business, properties or assets of the Borrower.

 

(d)     Guarantees.  Guarantee or otherwise become responsible for obligations
of any other person or persons, other than the endorsement of checks and drafts
for collection in the ordinary course of business.

 

(e)      Investments.  Use any Advances under the Line of Credit Facility to
purchase any stock, securities, or evidence of indebtedness of any other person
or entity except investments in direct obligations of the United States
Government and certificates of deposit of United States commercial banks having
a tier 1 capital ratio of not less than 6% and then in an amount not exceeding
10% of the issuing Bank’s unimpaired capital and surplus.

 

(f)        Cross Default.  Default in payment or performance of any obligation
to Bank or its affiliates under any other loans, contracts or agreements of
Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the
holder(s) of the majority ownership interests of Borrower (“Affiliate” shall
have the meaning as defined in 11 U.S.C. § 101, as in effect from time to time,
except that the term “Borrower” shall be substituted for the term “Debtor”
therein; “Subsidiary” shall mean any business in which Borrower holds, directly
or indirectly, a controlling interest).

 

(g)     Omitted.

 

(h)     Government Intervention.  Permit the assertion or making of any seizure,
vesting or intervention by or under authority of any governmental entity, as a
result of which the management of Borrower or any guarantor is displaced of its
authority in the conduct of its

 

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respective business or such business is materially curtailed or materially
impaired, and the same is not withdrawn, released or rescinded within thirty
(30) days after it becomes effective.

 

(i)         Judgment Entered.  Permit the entry of any monetary judgment or the
assessment against, the filing of any tax lien against, or the issuance of any
writ of garnishment or attachment against any property of or debts due Borrower
in excess of One Hundred Thousand Dollars ($100,000) or more to remain
unsatisfied for a period in excess of fifteen (15) days.

 

(j)         Prepayment of Other Debt.  Use any Advances under the Line of Credit
Facility to retire any long-term debt entered into prior to the date of this
Agreement at a date in advance of its legal obligation to do so.

 

(k)      Retire or Repurchase Capital Stock.  Use any Advances under the Line of
Credit Facility to retire or otherwise acquire any of its capital stock.

 

(l)         Additional Indebtedness.  Incur any additional indebtedness secured
by the Townsend Property and the Collateral (as defined in the Security
Agreement),, except for the indebtedness secured by the Permitted Liens or trade
payables incurred in the ordinary course of business.

 

9.                 FINANCIAL REPORTING.

 

(a)      Annual Financial Statements.  Borrower shall deliver to Bank, within 90
days after the close of each fiscal year, audited financial statements
reflecting its operations during such fiscal year, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules and in reasonable detail, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year.  If audited statements are required,
all such statements shall be examined by an independent certified public
accountant acceptable to Bank.  The opinion of such independent certified public
accountant shall not be acceptable to Bank if qualified due to any limitations
in scope imposed by Borrower or any other person or entity. Any other
qualification of the opinion by the accountant shall render the acceptability of
the financial statements subject to Bank’s approval.

 

(b)     Periodic Financial Statements.  Borrower shall deliver to Bank, within
45 days after the end of each fiscal quarter, unaudited management-prepared
quarterly financial statements including, without limitation, a balance sheet,
profit and loss statement and statement of cash flows, with supporting
schedules; all in reasonable detail and prepared in conformity with generally
accepted accounting principles, applied on a basis consistent with that of the
preceding year.  Such statements shall be certified as to their correctness by a
principal financial officer of Borrower and in each case, if audited statements
are required, subject to audit and year-end adjustments.

 

(c)      Tax Returns.  Borrower shall deliver to Bank, within 30 days of filing,
complete copies of all federal and state tax returns for all entities reported
on Borrower’s tax returns or related entities, as applicable, together with all
schedules thereto, each of which shall be signed and certified by Borrower to be
true and complete copies of such returns.  In the event an extension is filed,
Borrower shall deliver a copy of the extension within 30 days of filing.

 

(d)     Annual Budget.  Borrower shall deliver to Bank, no later than 60 days
after the close of each fiscal year, Borrower’s annual budget projections of
revenues and expenses for the next fiscal year.

 

10.           FINANCIAL COVENANTS.  Prior to the termination of Borrower’s
Obligations hereunder, the Borrower shall comply with the following financial
covenants at all times, to be reviewed by the Bank periodically as set forth
below:

 

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(a)             Debt Service Coverage Ratio.  Borrower shall maintain a Debt
Service Coverage Ratio of not less than 2.50 to 1.00, to be measured quarterly
on a rolling four quarter basis.

 

(b)            Leverage Ratio.  Borrower shall maintain a Leverage Ratio of not
more than 1.00 to 1.00, to be measured quarterly.

 

(c)             Definitions. The following definitions are applicable to this
Section:

 

Capitalized Lease means a lease under which the obligations of the lessee would,
in accordance with generally accepted accounting principles, be included in
determining total liabilities as shown on the liability side of a balance sheet.

 

Debt Service Coverage means the ratio of (i) EBITDA less cash taxes paid to
(ii) the sum of (a) interest expense plus (b) scheduled current maturities of
long term debt (excluding the refinancing of balloon payments under existing
debt and the $4,500,000 PIDC Loan due January 1, 2011) and capitalized leases
paid.

 

EBITDA means, for any applicable period, without duplication, the sum of 
(i) Net Income, plus (ii) Interest Expense, plus (iii) the aggregate amount of
depreciation and amortization, plus (iv) accrued income taxes to the extent
deducted in calculating Net Income, plus (v) non-cash stock compensation
expense.

 

Interest Expenses means, for any period, without duplication, the following:
interest expenses deducted in the determination of Net Income (excluding (i) the
amortization of fees and costs with respect to the transactions contemplated
hereunder which have been capitalized as transaction costs and (ii) interest
paid in kind).

 

Leverage Ratio means the ratio of Total Liabilities to (i) Tangible Net Worth
plus (ii) debt fully subordinated to Lender on terms and conditions acceptable
to Lender.

 

Net Income means, for any applicable period of computation, the net income (or
net deficit) of Borrower for any period, after deduction of all expenses, taxes
and other proper charges, all as determined in accordance with GAAP.

 

Tangible Net Worth means total assets (excluding all intangible assets,
including, without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks and brand names) minus Total
Liabilities.

 

Total Liabilities means all liabilities, including Capitalized Leases and
reserves for deferred taxes, debt fully subordinated to Lender on terms and
conditions acceptable to Lender, and other deferred sums appearing on the
liabilities side of a balance sheet and all obligations as lessee under
off-balance sheet synthetic leases.

 

11.                                 EVENTS OF DEFAULT.  The occurrence of any
one or more of the following events shall constitute an “Event of Default” under
this Agreement:

 

a.               Borrower fails to pay when due and payable any portion of the
Obligations (whether principal, interest, fees and charges due Lender,
reimbursement of Lender Expenses, or other amounts constituting Obligations) and
such failure continues for fifteen (15) days;

b.              Borrower fails or neglects to perform, keep or observe any term,
provision, condition, representation, warranty, covenant or agreement contained
in this Agreement, in any of the other Loan Documents or in any other present or
future agreement between Borrower and Lender and, if such failure is amenable to
cure, it is not cured within twenty (20) days after the earlier of (i) notice of
such failure has been given to the Borrower by the Lender or (ii) notice of such
failure should have been given to the Lender by the Borrower under Section 5.1;
provided that, if the failure to perform is of such a nature that it can be
cured,

 

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as determined by the Lender, but not within the aforesaid twenty (20) day
period, such longer period as it is required to cure such default, but, in any
case, not to exceed sixty (60) days from the commencement of the cure period, so
long as Borrower initiates corrective action within such twenty (20) day period
and diligently pursues such action to a conclusion reasonably satisfactory to
the Lender;

c.               Any misstatement or misrepresentation now or hereafter exists
in a material respect in any warranty, representation, statement or report made
to Lender by Borrower in the Loan Documents, or if any such warranty or
representation is withdrawn by Borrower;

d.              There is a Material Adverse Change in Borrower’s business or
financial condition which is unacceptable to the Lender (in a reasonable and
good faith exercise of its discretion);

e.               Any material portion of Borrower’s assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the
possession of any judicial officer;

f.                 An Insolvency Proceeding is commenced by Borrower;

g.              An Insolvency Proceeding is commenced against Borrower and is
not dismissed within sixty (60) days after filing thereof;

h.              A notice of lien, levy or assessment is filed of record with
respect to any of Borrower’s assets by the United States government, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, or any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether choate or
otherwise, upon any of Borrower’s assets and the same is not paid within thirty
(30) days after the same becomes due and payable,

i.                  Borrower (i) fails to pay any obligation owing by the
Borrower to the Lender when due (whether such obligation has become due by
scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise) and such failure continues after any applicable grace period
specified in any agreement or instrument relating to such obligation, or
(ii) fails to perform any term, covenant or agreement on its part to be
performed under any agreement or instrument relating to such obligation between
Borrower and Lender, when required to be performed and such failure continues
after any applicable grace period specified in such agreement or instrument, if
the effect of such failure to perform is to accelerate, or to permit the
acceleration of such obligation.

j.                  A default of the Borrower under the Swap Agreement or any
Swap Obligations.

 

During any cure or grace period set forth in this Section 11, the Lender shall
refrain from the exercise of any remedies provided it upon default in
Section 12.1; provided, however, that the Lender may, during such period:
(i) exercise its right to set off against assets or accounts of the Borrower in
its possession or control; and (ii) take all actions with respect to the
Collateral necessary for the protection of the Collateral and its interest
therein against third parties, including, if required, the exercise of the
remedies under the provisions of Section 12.1.

 

12.           LENDER’S RIGHTS AND REMEDIES

 

12.1                           Rights and Remedies. Upon the occurrence of an
Event of Default, Lender may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:

 

(a)                                  Declare all Obligations, whether evidenced
by this Agreement, a Note or any of the other Loan Documents or otherwise,
immediately due and payable in full;

 

(b)                                Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement, any of the other Loan
Documents or any other agreement between Borrower and Lender;

 

(c)                                 Terminate this Agreement and any of the
other Loan Documents as to any future liability or obligation of Lender, but
without affecting Lender’s rights and security interest in the Collateral and
without affecting the Obligations;

 

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(d)                                 Without notice to or demand upon Borrower or
any guarantor, make such payments and do such acts as Lender considers necessary
or reasonable to protect its security interest in the Collateral. Borrower
agrees to assemble the Collateral if Lender so requires and to deliver or make
the Collateral available to Lender at a place designated by Lender.  Borrower
authorizes Lender to enter any premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest or compromise any encumbrance, charge or lien that in Lender’s
determination appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith. With respect to any of
Borrower’s owned premises, Borrower hereby grants Lender a license to enter into
possession of such premises and to occupy the same, without charge, in order to
exercise any of Lender’s rights or remedies provided herein, at law, in equity,
or otherwise;

 

(e)                                  Without notice to Borrower (such notice
being expressly waived) and without constituting a retention of any collateral
in satisfaction of an obligation (within the meaning of Section 9505 of the
Code), set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Lender (including any amounts received in a lockbox
or blocked account), or (ii) indebtedness at any time owing to or for the credit
or the account of Borrower held by Lender;

 

(f)                                    Hold, as cash collateral, any and all
balances and deposits of Borrower held by Lender (including any amounts received
in a lockbox or blocked account) to secure the Obligations;

 

(g)                                 Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale and sell (in the manner
provided for herein) the Collateral. Lender is hereby granted a license or other
right to use, without charge, Borrower’s labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale and selling any
Collateral. Borrower’s rights under all licenses and all franchise agreements
shall inure to Lender’s benefit;

 

(h)                                 Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower’s premises)
as Lender determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;

 

(i)                                    Lender shall give notice of the
disposition of the Collateral as follows:

 

(1)                                  Lender shall give the Borrower and each
holder of a security interest in the Collateral who has filed with Lender a
written request for notice, a notice in writing of the time and place of public
sale or, if the sale is a private sale or some other disposition other than a
public sale is to be made, then the time on or after which the private sale or
other disposition is to be made;

 

(2)                                  The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least five
(5) calendar days before the date fixed for the sale, or at least five
(5) calendar days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to Persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as they have
furnished to Lender;

 

(l)                                     Lender may credit bid and purchase at
any public sale;

 

(m)                               Any deficiency that exists after disposition
of the Collateral as provided above shall be paid immediately by Borrower. Any
excess will be remitted without interest by Lender to the party or parties
legally entitled to such excess; and

 

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(n)                                 In addition to the foregoing, Lender shall
have all rights and remedies provided by law and any rights and remedies
contained in any other Loan Documents. All such rights and remedies shall be
cumulative.

 

12.2                           No Waiver. No delay on the part of Lender in
exercising any right, power or privilege under this Agreement shall operate as a
waiver, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or otherwise, preclude other or further exercise
of the right, power or privilege or the exercise of any other right, power or
privilege.

 

13.           MISCELLANEOUS PROVISIONS.

 

(a)      Assignment.  This Agreement and the other Loan Documents shall inure to
the benefit of and be binding upon the parties and their respective heirs, legal
representatives, successors and assigns.  Bank’s interests in and rights under
this Agreement and the other Loan Documents are freely assignable, in whole or
in part, by Bank.  Borrower shall not assign its rights and interest hereunder
without the prior written consent of Bank, and any attempt by Borrower to assign
without Bank’s prior written consent is null and void.  Any assignment shall not
release Borrower from the Obligations.

 

(b)     Organization; Powers.  Borrower represents that Borrower (i) is (a) an
adult individual and is sui juris, or (b) a corporation, general partnership,
limited partnership, limited liability company or other legal entity, duly
organized, validly existing and in good standing under the laws of its state of
organization, and is authorized to do business in each other jurisdiction
wherein its ownership of property or conduct of business legally requires such
organization (ii) has the power and authority to own its properties and assets
and to carry on its business as now being conducted and as now contemplated; and
(iii) has the power and authority to execute, deliver and perform, and by all
necessary action has authorized the execution, delivery and performance of, all
of its obligations under this Loan Agreement and any other Loan Document to
which it is a party.

 

(c)      Applicable Law; Conflict Between Documents.  This Agreement and, unless
otherwise provided in any other Loan Document, the other Loan Documents shall be
governed by and interpreted in accordance with federal law and, except as
preempted by federal law, the laws of the state named in Bank’s address on the
first page hereof without regard to that state’s conflict of laws principles. 
If the terms of this Agreement should conflict with the terms of any commitment
letter, the terms of this Agreement shall control.

 

(d)     Borrower’s Accounts.  Except as prohibited by law, Borrower grants Bank
a security interest in all of Borrower’s deposit accounts and investment
property with Bank and any of its affiliates.

 

(e)      Jurisdiction.  Borrower irrevocably agrees to non-exclusive personal
jurisdiction in the state named in the Bank’s address on the first page hereof.

 

(f)        Limitation on Liability.  In no event shall either Borrower or Bank
be liable to the other for indirect, special, or consequential damages which may
arise out of or are in any way connected with this Agreement or the Obligations.

 

(g)     Severability.  If any provision of this Agreement or of the other Loan
Documents shall be prohibited or invalid under applicable law, such provision
shall be ineffective but only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement or other such document.

 

(h)     Payments.  If paying by mail, all payments shall be mailed to Commercial
Loan Services, P. O. Box 740502, Atlanta, GA  30374-0502.

 

(i)         Notices.  Any notices to Borrower shall be sufficiently given, if in
writing and mailed or delivered to the Borrower’s address shown above or such
other address as provided hereunder, and to Bank, if in writing and mailed or
delivered to Wells Fargo Bank, N.A., Mail Code VA7628 / R4057-01Z, P. O. Box
13327, Roanoke, VA  24040 or Wells Fargo Bank, N.A.,

 

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Mail Code VA7628 / R4057-01Z, 7711 Plantation Road, Roanoke, VA 24019 or such
other address as Bank may specify in writing from time to time.  Notices to Bank
must include the mail code.  In the event that Borrower changes Borrower’s
address at any time prior to the date the Obligations are paid in full, Borrower
agrees to promptly give written notice of said change of address by registered
or certified mail, return receipt requested, all charges prepaid.

 

(j)         Plural; Captions.  All references in the Loan Documents to Borrower,
guarantor, person, document or other nouns of reference mean both the singular
and plural form, as the case may be, and the term “person” shall mean any
individual, person or entity.  The captions contained in the Loan Documents are
inserted for convenience only and shall not affect the meaning or interpretation
of the Loan Documents.

 

(k)      Posting of Payments.  All payments received during normal banking hours
after 2:00 p.m. local time at the office of Bank first shown above shall be
deemed received at the opening of the next banking day.

 

(l)         Joint and Several Obligations.  If there is more than one Borrower,
each is jointly and severally obligated.  Fees and Taxes.  Borrower shall
promptly pay all documentary, intangible recordation and/or similar taxes on
this transaction whether assessed at closing or arising from time to time.

 

(m)   LIMITATION ON LIABILITY; WAIVER OF PUNITIVE DAMAGES. EACH OF THE PARTIES
HERETO, INCLUDING BANK BY ACCEPTANCE HEREOF, AGREES THAT IN ANY JUDICIAL,
MEDIATION OR ARBITRATION PROCEEDING OR ANY CLAIM OR CONTROVERSY BETWEEN OR AMONG
THEM THAT MAY ARISE OUT OF OR BE IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE
LOAN DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN OR AMONG THEM OR THE
OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN NO EVENT SHALL ANY PARTY HAVE
A REMEDY OF, OR BE LIABLE TO THE OTHER FOR, (1) INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY DAMAGES.   EACH OF THE
PARTIES HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY
DAMAGES THEY MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY
SUCH PROCEEDING, CLAIM OR CONTROVERSY, WHETHER THE SAME IS RESOLVED BY
ARBITRATION, MEDIATION, JUDICIALLY OR OTHERWISE.

 

(n)     Telephone Communication Monitoring.  Borrower agrees that Borrower’s
telephone communications with Bank may be monitored and/or recorded to improve
customer service and security.

 

(o)            Final Agreement.  This Agreement and the other Loan Documents
represent the final agreement between the parties and may not be contradicted by
evidence of prior, contemporaneous or subsequent agreements of the parties. 
There are no unwritten agreements between the parties.

 

14.           WAIVER OF JURY TRIAL.  TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF BORROWER BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH
RESPECT HERETO.  THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ACCEPT THIS
AGREEMENT.  EACH OF THE PARTIES AGREES THAT THE TERMS HEREOF SHALL SUPERSEDE AND
REPLACE ANY PRIOR AGREEMENT RELATED TO ARBITRATION OF DISPUTES BETWEEN THE
PARTIES CONTAINED IN ANY LOAN DOCUMENT OR ANY OTHER DOCUMENT OR AGREEMENT
HERETOFORE EXECUTED IN CONNECTION WITH, RELATED TO OR BEING REPLACED,
SUPPLEMENTED, EXTENDED OR MODIFIED BY, THIS AGREEMENT.

 

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15.           EFFECT OF AGREEMENT ON CODY.  Cody is a subsidiary of LCI. Cody
has executed this Agreement as a party and hereby covenants and agrees that upon
the issuance of a financial statement of LCI which shows that the valuation of
Cody constitutes more than 10% of shareholders’ equity, whereupon Cody shall
automatically be a party to this Agreement and obligated under the Notes (the
“Cody Effective Date”).

 

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IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be duly executed under seal.

 

 

Lannett Company, Inc.

 

 

 

 

 

By:

/s/ Keith R. Ruck

 

 

 

Name:  Keith R. Ruck

 

Title: Vice President of Finance and Chief Financial Officer

 

 

 

 

 

Lannett Holdings, Inc.

 

 

 

 

 

By:

/s/ Keith R. Ruck

 

 

 

Name:  Keith R. Ruck

 

Title: Officer

 

 

 

 

 

Cody Laboratories, Inc.

 

 

 

 

 

By:

/s/ Richard Asherman

 

 

 

Name:  Richard Asherman

 

Title: Chief Executive Officer

 

 

 

 

 

Wells Fargo Bank, N.A.

 

 

 

 

 

By:

/s/ Stephen T. Dorosh

 

 

Stephen T. Dorosh, Vice President

 

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