EXHIBIT 10.7

GUARANTORS GENERAL SECURITY AGREEMENT
 
This Guarantors General Security Agreement (the “Agreement”) is dated September
16, 2005 by and among Acura Pharmaceutical Technologies, Inc., an Indiana
corporation with its principal place of business at 16235 State Road 17, Culver,
Indiana, 46511 (“APT”), Axiom Pharmaceutical Corporation, a Delaware corporation
with its principal place of business at c/o Acura Pharmaceuticals, Inc., 616 N.
North Court, Suite 120, Palatine, Illinois, 60067 (“Axiom” and, together with
Houba, the “Guarantors”), and Galen Partners III, L.P., a Delaware limited
partnership with its principal place of business at 610 Fifth Avenue, Fifth
Floor, New York, New York, 10020, acting in its capacity as agent for the
Lenders, as defined below (the “Agent”), for the benefit of the Lenders.
 
PRELIMINARY STATEMENTS
 
A. Acura Pharmaceuticals, Inc. (the “Company”) has entered into a Loan Agreement
of even date herewith (as the same may be amended, modified, supplemented or
restated from time to time, the “Loan Agreement;” terms which are capitalized in
this Agreement and not otherwise defined shall have the meanings ascribed to
them in the Loan Agreement) with the Lenders party thereto (the “Lenders”).
 
B. Each of the Guarantors has executed and delivered to Agent, for the benefit
of the Lenders, a Continuing Unconditional Secured Guaranty of even date
herewith (each a “Guaranty”) of the Company’s obligations under the Loan
Agreement (collectively, the “Obligations”).
 
C. The Lenders have required, as a condition precedent to the effectiveness of
the Loan Agreement, that each Guarantor (a) grant to the Agent, for the ratable
benefit of the Lenders, a security interest in and to the Collateral (as defined
in Section 2.1 below) and (b) execute and deliver this Agreement in order to
secure the payment and performance by such Guarantor of the Guaranty.
 
AGREEMENT
 
In consideration of the premises and in order to induce the Lenders to enter
into and perform the Loan Agreement, each Guarantor hereby agrees as follows:
 
 
 

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ARTICLE 1
 
CREATION OF SECURITY INTEREST
 
1.1 SECURITY INTEREST
 
Each Guarantor hereby pledges, assigns and grants to the Agent a continuing
perfected lien and security interest having priority over any and all other
security interests in all of such Guarantor’s right, title and interest in and
to the Collateral (as defined in Section 2.1 below) in order to secure the
payment and performance of all Obligations owing by such Guarantor.
 
1.2 GUARANTORS REMAIN LIABLE
 
Anything herein to the contrary notwithstanding, (a) the Guarantors shall remain
liable under the contracts and agreements included in the Collateral to the
extent set forth therein to perform all of their duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by the Agent of any of the rights hereunder shall not release the
Guarantors from any of their duties or obligations under the contracts and
agreements included in the Collateral and (c) neither the Agent nor any Lender
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, the Loan Agreement or
any other Transaction Document, nor shall the Agent or any Lender be obligated
to perform any of the obligations or duties of the Guarantors thereunder or to
take any action to collect or enforce any claim for payment assigned hereunder.
 
ARTICLE 2
 
COLLATERAL
 
2.1 COLLATERAL
 
For purposes of this Agreement, the term “Collateral” shall mean, with respect
to each Guarantor, all of the assets of such Guarantor including all of the
kinds and types of property described in clauses (a) through (g) of this Section
2.1, whether now owned or hereafter at any time arising, acquired or created by
such Guarantor and wherever located, and includes all replacements, additions,
accessions, substitutions, repairs, proceeds and products relating thereto or
therefrom, and all documents, ledger sheets and files of such Guarantor relating
thereto and all Proceeds (as defined in Section 2.2 below) of Collateral:
 
(a) all of such Guarantor’s accounts, whether now existing or existing in the
future, including without limitation (i) all accounts receivable (whether or not
specifically listed on schedules furnished to the Agent), including, without
limitation, all accounts created by or arising from all of such Guarantor’s
sales of goods or rendition of services made under any of such Guarantor’s trade
names, or through any of its divisions, (ii) all unpaid seller’s rights
(including rescission, replevin, reclamation and stoppage in transit) relating
to the foregoing or arising therefrom, (iii) all rights to any goods represented
by any of the foregoing, including returned or repossessed goods, (iv) all
reserves and credit balances held by such Guarantor with respect to any such
accounts receivable or account debtors, (v) all health-care-insurance
receivables, and (vi) all guarantees or collateral for any of the foregoing (all
of the foregoing property and similar property being hereinafter referred to as
“Accounts”);
 
 
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(b) all of such Guarantor’s inventory, including without limitation (i) all raw
materials, work in process, parts, components, assemblies, supplies and
materials used or consumed in such Guarantor’s businesses, wherever located and
whether in the possession of such Guarantor or any other Person; (ii) all goods,
wares and merchandise, finished or unfinished, held for sale or lease or leased
or furnished or to be furnished under contracts of service, wherever located and
whether in the possession of such Guarantor or any other person or entity; and
(iii) all goods returned to or repossessed by such Guarantor (all of the
foregoing property being hereinafter referred to as “Inventory”);
 
(c) all of the equipment owned or leased by such Guarantor, including, without
limitation, machinery, equipment, office equipment and supplies, computers and
related equipment, furniture, furnishings, tools, tooling, jigs, dies, fixtures,
manufacturing implements, fork lifts, trucks, trailers, motor vehicles, and
other equipment (all of the foregoing property being hereinafter referred to as
“Equipment”);
 
(d) all of such Guarantor’s general intangibles (including, without limitation,
payment intangibles), instruments, securities (including without limitation
United States of America Treasury Bills), credits, claims, demands, documents,
letters of credit and letter of credit proceeds, documents of title,
certificates of title, certificates of deposit, warehouse receipts, bills of
lading, leases which are permitted to be assigned or pledged, deposit accounts,
money, tax refund claims, and contract rights which are permitted to be assigned
or pledged (all of the foregoing property being hereinafter referred to as
“Intangibles”);
 
(e) all of each Guarantor’s intellectual property, including, without
limitation, New Drug Applications, Investigatory New Drug Applications,
Abbreviated New Drug Applications, Alternative New Drug Applications,
registrations and quotas as issued by the DEA or the Attorney General of the
United States pursuant to the CSA, certifications, permits and approvals of
federal and state governmental agencies, patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, domain names, technical knowledge and processes, formal or informal
licensing arrangements which are permitted to be assigned or pledged,
blueprints, technical specifications, computer software, programs, databases,
copyrights, copyright applications and all confidential and proprietary
information, including, without limitation, know-how, trade secrets,
manufacturing and production processes and techniques, inventions, research and
development information, databases and data, including, without limitation,
technical data, financial and marketing and business data, customer lists,
supplier lists, pricing and cost information and business and marketing plans,
and all embodiments thereof, and rights thereto, including, without limitation,
all of such Guarantor’s rights to use the patents, trademarks, copyrights,
service marks, or other property of the aforesaid nature of other Persons now or
hereafter licensed to such Guarantor, together with the goodwill of the business
symbolized by or connected with such Guarantor’s trademarks, copyrights, service
marks, licenses and the other rights included in this Section 2.1(e) (all of the
foregoing property being hereinafter referred to as “Intellectual Property”);
 
 
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(f) all deposit accounts, letter-of-credit rights, instruments (including,
without limitation, promissory notes), investment property and chattel paper;
and
 
(g) all interest, dividends, distributions, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the then existing Collateral.
 
2.2 PROCEEDS
 
For purposes of this Agreement, the term “Proceeds” shall include (a) whatever
is now or hereafter received by such Guarantor upon the sale, exchange,
collection or other disposition of any item of Collateral, whether such proceeds
constitute Inventory, Accounts, Intangibles, royalties, payment under insurance
(whether or not the Agent is the loss payee thereof), or any indemnities,
warranties or guaranties, payable by reason of loss or damage to or otherwise
with respect to any or the foregoing Collateral, and (b) any such items which
are now or hereafter acquired by such Guarantor with any proceeds of Collateral
hereunder.
 
ARTICLE 3
 
REPRESENTATIONS AND WARRANTIES
 
Each Guarantor severally represents and warrants as follows:
 
3.1 ORGANIZATION AND EXISTENCE
 
Such Guarantor is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and is qualified to do
business in such other jurisdictions as the nature or conduct of its operations
or the ownership of its properties require such qualification. Such Guarantor
does not own or lease any property or engage in any activity in any jurisdiction
that might require qualification to do business as a foreign corporation in such
jurisdiction and where the failure to so qualify could reasonably be expected to
have a Material Adverse Effect or subject such Guarantor to a material
liability.
 
3.2 AUTHORIZATION
 
(a) Such Guarantor has all requisite corporate power and authority (i) to
execute and deliver, and to perform and observe its obligations under, the
Transaction Documents to which it is a party, and (ii) to consummate the
transactions contemplated hereby and thereby, including, without limitation, the
grant of any security interest, mortgage, payment trust, guaranty or other
security arrangement by such Guarantor in, on or in respect of the Collateral.
 
(b) All corporate action on the part of such Guarantor and its directors and
stockholders necessary for the authorization, execution, delivery and
performance by such Guarantor of this Agreement, the Guaranty by such Guarantor
in favor of Agent, and the transactions contemplated therein or in any other
Transaction Document to which it is a party, has been taken.
 
 
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3.3 PLACES OF BUSINESS
 
Such Guarantor has no places of business, or warehouses in which it leases
space, other than those set forth on Section 3.3 of Schedule A, a copy of which
is attached hereto and made a part hereof (“Schedule A”).
 
3.4 LOCATION OF COLLATERAL
 
Except for the movement of Collateral from time to time from one place of
business or warehouse listed on Section 3.3 of Schedule A to another place of
business or warehouse listed on Section 3.3 of Schedule A, the Collateral is
located at such Guarantor’s chief executive offices or other places of business
or warehouses listed on Section 3.3 of Schedule A, and not at any other
location.
 
3.5 RESTRICTIONS ON COLLATERAL DISPOSITION
 
Except for any restrictions imposed under the Guarantors General Security
Agreement dated as of March 29, 2000 given by the Guarantors in connection with
the Senior Note (the “Watson Guarantors Security Agreement”) and the Guarantors
General Security Agreement dated as of June 22, 2005 given by the Guarantors in
connection with a certain Loan Agreement, dated of even date therewith (“Bridge
Loan Guarantors Security Agreement”), none of the Collateral is subject to
contractual obligations that may restrict or inhibit the Agent’s rights or
ability to sell or dispose of the Collateral or any part thereof after the
occurrence of an Event of Default.
 
3.6 STATUS OF ACCOUNTS
 
Each Account is based on an actual and bona fide rendition of services or sale
of goods or products to customers, made by such Guarantor in the ordinary course
of its business. The Accounts created are such Guarantor’s exclusive property
and are not and shall not be subject to any lien, consignment arrangement,
encumbrance, security interest or financing statement whatsoever, except (i) the
lien in favor of the holders of the Senior Note under the Watson Term Loan and
the documents executed in connection therewith, including, without limitation,
the Watson Guarantors Security Agreement and (ii) the lien in favor of the
holders of the Secured Promissory Notes issued in connection with a bridge loan
(the “Bridge Loan”) extended pursuant to the terms of that certain Loan
Agreement, dated as of June 22, 2005 and the documents executed in connection
therewith, including, without limitation, the Bridge Loan Guarantors Security
Agreement. To the best knowledge of such Guarantor, such Guarantor’s customers
have accepted the goods, products and services and owe and are obligated to pay
the full amounts stated in the invoices according to their terms, without any
dispute, offset, defense or counterclaim.
 
3.7 COPYRIGHTS, TRADEMARKS AND PATENTS
 
(a) Such Guarantor owns outright all of the Intellectual Property Rights listed
on Section 4.12 of the Schedule of Exceptions attached to the Loan Agreement
free and clear of all liens and encumbrances except for the Permitted Liens and
pays no royalty to anyone under or with respect to any of them.
 
 
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(b) Such Guarantor has not licensed to anyone the use of any of such
Intellectual Property Rights and has no knowledge of the infringing use by the
Company or any Guarantor of any Intellectual Property Rights of third parties.
 
(c) Other than as disclosed to the Company’s or the Guarantors’ Board of
Directors, Such Guarantor has no knowledge, nor has it received any notice (i)
of any conflict with the asserted rights of others with respect to any
Intellectual Property Rights used in, or useful to, the operation of the
business conducted by the Company and the Guarantors or with respect to any
license under which the Company or a Guarantor is licensor or licensee; or (ii)
that the Intellectual Property Rights infringe upon the rights of any third
party.
 
(d) Such Guarantor has made or performed all filings, recordings and other acts
and has paid all required fees and taxes to maintain and protect its interest in
each and every item of Intellectual Property in full force and effect throughout
the world, and to protect and maintain its interest therein including, without
limitation, recordations of any of its interests in patents and trademarks with
the U.S. Patent and Trademark Office and in corresponding national and
international patent offices, and recordation of any of its interests in any
copyrights with the U.S. Copyright Office and in corresponding national and
international copyright offices. Such Guarantor has used proper statutory notice
in connection with its use of each patent, trademark and copyright.
 
3.8 INVENTORY
 
All Inventory of such Guarantor consists of a quality and quantity usable and
salable in the ordinary course of business, except for obsolete items and items
of below-standard quality, all of which have been or will be written off or
written down to net realizable value on the consolidated balance sheet of the
Guarantors and its Subsidiaries as of March 31, 2005. The quantities of each
type of Inventory (whether raw materials, work-in-process, or finished goods)
are not excessive, but are reasonable and warranted in the present circumstances
of such Guarantor.
 
3.9 OWNERSHIP
 
Such Guarantor is the legal and beneficial owner of its Collateral free and
clear of any lien, claim, option or right of others, except for the security
interest created under this Agreement, the Watson Guarantors Security Agreement
and the Bridge Loan Guarantors Security Agreement. No effective financing
statement or other instrument similar in effect covering all or any part of such
Collateral or listing such Guarantor or any trade name of such Guarantor is on
file in any recording office, except such as may have been filed relating to the
Watson Term Loan and the Bridge Loan. The Agent has, for the benefit of the
Lenders, a valid and perfected security interest in the Collateral which
security interest has priority over any and all other security interests in such
Collateral.
 
 
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ARTICLE 4
 
COVENANTS
 
Each Guarantor agrees (which agreements shall be several as to each Guarantor
except as otherwise provided) as follows:
 
4.1 DEFEND AGAINST CLAIMS
 
Such Guarantor will defend the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest therein unless both the
Agent and such Guarantor determine that the claim or demand is not material and
that, consequently, such defense would not be consistent with good business
judgment. Such Guarantor will not permit any lien notices with respect to the
Collateral or any portion thereof to exist or be on file in any public office
except for those in favor of the Agent and those permitted under the terms of
the Loan Agreement.
 
4.2 CHANGE IN COLLATERAL LOCATION
 
Such Guarantor will not (a) change its corporate name, (b) change the location
of its chief executive office or establish any place of business other than
those specified in Section 3.3 of Schedule A, or (c) move or permit movement of
the Collateral from the locations specified therein except from one such
location to another such location, unless in each case such Guarantor shall have
given the Agent at least thirty (30) days prior written notice thereof, and
shall have, in advance, executed and caused to be filed or delivered to the
Agent any financing statements or other documents required by the Agent to
perfect the security interest of the Agent in the Collateral in accordance with
Section 4.3 of this Agreement, all in form and substance satisfactory to the
Agent.
 
4.3 ADDITIONAL FINANCING STATEMENTS
 
Promptly upon the reasonable request of the Agent, such Guarantor will execute
and deliver or use its best efforts to procure any document, give any notices,
execute and file any financing statements, mortgages or other documents, all in
form and substance satisfactory to the Agent, mark any chattel paper, deliver
any chattel paper or instruments to the Agent and take any other actions that
are necessary or, in the opinion of the Agent, desirable to perfect or continue
the perfection and the first priority of the Agent’s security interest in the
Collateral, to protect the Collateral against the rights, claims, or interests
of third persons, or to effect the purposes of this Agreement. Such Guarantor
will pay the costs incurred in connection with any of the foregoing.
 
4.4 ADDITIONAL LIENS; TRANSFERS
 
Without the prior written consent of the Agent, such Guarantor will not, in any
way, hypothecate or create or permit to exist any lien, security interest,
charge or encumbrance on or other interest in the Collateral, other than those
permitted under the terms of the Loan Agreement and the liens in favor of the
holders of the Senior Note pursuant to (i) the Watson Term Loan and documents
relative thereto and (ii) the Bridge Loan and the documents relative thereto,
and such Guarantor will not sell, transfer, assign, pledge, collaterally assign,
exchange or otherwise dispose of the Collateral, other than the sale of
Inventory in the ordinary course of business and the sale of obsolete or worn
out Equipment. Notwithstanding the foregoing, if the proceeds of any such sale
consist of notes, instruments, documents of title, letters of credit or chattel
paper, such proceeds shall be promptly delivered to the Agent to be held as
Collateral hereunder. If the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation of these
provisions, the security interest of the Agent shall continue in such Collateral
or part thereof notwithstanding such sale, transfer, assignment, exchange or
other disposition, and such Guarantor will hold the proceeds thereof for the
benefit of the Agent, and promptly transfer such proceeds to the Agent in kind.
 
 
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4.5 CONTRACTUAL OBLIGATIONS
 
Such Guarantor will not enter into any contractual obligations which may
restrict or inhibit the Agent’s rights or ability to sell or otherwise dispose
of the Collateral or any part thereof after the occurrence or during the
continuance of an Event of Default.
 
4.6 AGENT’S RIGHT TO PROTECT COLLATERAL
 
Upon the occurrence or continuance of an Event of Default, the Agent shall have
the right at any time to make any payments and do any other acts the Agent may
deem necessary to protect the security interests of the Lenders in the
Collateral, including, without limitation, the rights to pay, purchase, contest
or compromise any encumbrance, charge or lien which, in the reasonable judgment
of the Agent, appears to be prior to or superior to the security interests
granted hereunder, and appear in and defend any action or proceeding purporting
to affect its security interests in, or the value of, the Collateral. The
Guarantors hereby jointly and severally agree to reimburse the Agent for all
payments made and expenses incurred under this Agreement including reasonable
fees, expenses and disbursements of attorneys and paralegals acting for the
Agent, including any of the foregoing payments under, or acts taken to protect
its security interests in, the Collateral, which amounts shall be secured under
this Agreement, and agree they shall be bound by any payment made or act taken
by the Agent hereunder absent the Agent’s gross negligence or willful
misconduct. The Agent shall have no obligation to make any of the foregoing
payments or perform any of the foregoing acts.
 
4.7 FURTHER OBLIGATIONS WITH RESPECT TO ACCOUNTS
 
In furtherance of the continuing assignment and security interest in the
Accounts of such Guarantor granted pursuant to this Agreement, upon the creation
of Accounts, upon the Agent’s request, such Guarantor will execute and deliver
to the Agent in such form and manner as the Agent may require, solely for its
convenience in maintaining records of Collateral, such confirmatory schedules of
Accounts, and other appropriate reports designating, identifying and describing
the Accounts as the Agent may reasonably require. In addition, upon the Agent’s
request, such Guarantor shall provide the Agent with copies of agreements with,
or purchase orders from, the customers of such Guarantor and copies of invoices
to customers, proof of shipment or delivery and such other documentation and
information relating to such Accounts and other Collateral as the Agent may
reasonably require. Furthermore, upon the Agent’s request, such Guarantor shall
deliver to the Agent any documents or certificates of title issued with respect
to any property included in the Collateral, and any promissory notes, letters of
credit or instruments related to or otherwise in connection with any property
included in the Collateral, which in any such case came into the possession of
such Guarantor, or shall cause the issuer thereof to deliver any of the same
directly to the Agent, in each case with any necessary endorsements in favor of
the Agent. Failure to provide the Agent with any of the foregoing shall in no
way affect, diminish, modify or otherwise limit the security interests granted
herein. Each Guarantor hereby authorizes the Agent to regard such Guarantor’s
printed name or rubber stamp signature on assignment schedules or invoices as
the equivalent of a manual signature by such Guarantor’s authorized officers or
agents.
 
 
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4.8 INSURANCE
 
Such Guarantor agrees to maintain public liability insurance, third party
property damage insurance and replacement value insurance on the Collateral
under such policies of insurance, with such insurance companies, in such amounts
and covering such risks as are at all times satisfactory to the Agent in its
commercially reasonable judgment. All policies covering the Collateral are to
name the Agent as an additional insured and the loss payee in case of loss, and
are to contain such other provisions as the Agent may reasonably require to
fully protect the Agent’s interest in the Collateral and to any payments to be
made under such policies. Without limiting the generality of the foregoing, all
such policies shall contain standard lender’s loss payable clauses in favor of
the Agent and shall provide that the same may not be cancelled, terminated or
revised without giving the Agent at least 30 days prior written notice of such
cancellation, termination or revision. Proceeds of such insurance policy or
policies will be applied to the Obligations unless written consent to the
contrary is obtained from the Agent. Such Guarantor will furnish the Agent with
certificates of insurance or such other evidence satisfactory to the Agent so as
to evidence compliance with the provisions of this Section.
 
4.9 TAXES
 
Such Guarantor agrees to pay, when due, all taxes lawfully levied or assessed
against such Guarantor or any of the Collateral before any penalty or interest
accrues thereon; provided, however, that, unless such taxes have become a
federal tax or ERISA lien on any of the assets of such Guarantor, no such tax
need be paid if the same is being contested, in good faith, by appropriate
proceedings promptly instituted and diligently conducted and if an adequate
reserve or other appropriate provision shall have been made therefor as required
in order to be in conformity with GAAP.
 
4.10 COMPLIANCE WITH LAWS
 
Such Guarantor agrees to comply in all material respects with all Legal
Requirements applicable to the Collateral or any part thereof, or to the
operation of its business or its assets generally, unless such Guarantor
contests in good faith, by appropriate legal, administrative or other
proceedings promptly instituted and diligently conducted, any such Legal
Requirements in a reasonable manner and in good faith. Such Guarantor agrees to
maintain in full force and effect, its respective licenses and permits granted
by any governmental authority as may be necessary or advisable for such
Guarantor to conduct its business in all material respects.
 
 
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4.11 MAINTENANCE OF PROPERTY
 
Such Guarantor agrees to keep all property useful and necessary to its business
in good working order and condition (ordinary wear and tear excepted) and not to
commit or suffer any waste with respect to any of its properties.
 
4.12 ENVIRONMENTAL AND OTHER MATTERS
 
Such Guarantor will conduct its business so as to comply in all respects with
all environmental, land use, occupational, safety or health Legal Requirements
in all jurisdictions in which it is or may at any time be doing business, except
to the extent that such Guarantor is contesting, in good faith by appropriate
legal, administrative or other proceedings, promptly instituted and diligently
conducted, any such Legal Requirement; provided, further, that such Guarantor
shall comply with the order of any court or other governmental authority
relating to such Legal Requirements unless such Guarantor shall currently be
prosecuting an appeal, proceedings for review or administrative proceedings and
shall have secured a stay of enforcement or execution or other arrangement
postponing enforcement or execution pending such appeal, proceedings for review
or administrative proceedings.
 
4.13 INTELLECTUAL PROPERTY
 
With respect to each item of its Intellectual Property, each of the Guarantors
agrees to take, at its expense, all necessary steps, including, without
limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office
and any other governmental authority, to (a) maintain the validity and
enforceability of such Intellectual Property and maintain such Intellectual
Property in full force and effect, and (b) pursue the registration and
maintenance of each patent, trademark, or copyright registration or application,
now or hereafter included in such Intellectual Property of the Guarantors,
including, without limitation, the payment of required fees and taxes, the
filing of responses to office actions issued by the U.S. Patent and Trademark
Office, the U.S. Copyright Office or other governmental authorities, the filing
of applications for renewal or extension, the filing of affidavits under
Sections 8 and 15 of the U.S. Trademark Act, the filing of divisional,
continuation, continuation-in-part, reissue and renewal applications or
extensions, the payment of maintenance fees and the participation in
interference, reexamination, opposition, cancellation, infringement and
misappropriation proceedings. Neither Guarantor shall, without the prior written
consent of the Agent, discontinue use of or otherwise abandon any Intellectual
Property, or abandon any right to file an application for any patent, trademark
or copyright, unless such Guarantor shall have previously determined that such
use or the pursuit or maintenance of such Intellectual Property is no longer
desirable in the conduct of such Guarantor’s business and that the loss thereof
would not be reasonably likely to have a Material Adverse Effect, in which case,
such Guarantor will give prompt notice of any such abandonment to the Agent.
 
4.14 FURTHER ASSURANCES
 
Such Guarantor shall take all such further actions and execute all such further
documents and instruments (including, but not limited to, collateral assignments
of Intellectual Property and Intangibles or any portion thereof) as the Agent
may at any time reasonably determine in its sole discretion to be necessary or
desirable to further carry out and consummate the transactions contemplated by
the Loan Agreement and the documentation relating thereto, including this
Agreement, and to perfect or protect the liens (and the priority status thereof)
of the Agent in the Collateral.
 
 
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ARTICLE 5
 
REMEDIES
 
5.1 OBTAINING COLLATERAL UPON DEFAULT
 
If any Event of Default shall have occurred and be continuing, then and in every
such case, subject to the terms of the Loan Agreement and any mandatory
requirements of applicable law then in effect, the Agent, in addition to any
rights now or hereafter existing under applicable law, shall have all rights as
a secured creditor under the Uniform Commercial Code in all relevant
jurisdictions and may:
 
(a) personally, or by agents or attorneys, immediately retake possession of the
Collateral or any part thereof, from any Guarantor or any other Person who then
has possession of any part thereof, with or without notice or process of law,
and for that purpose may enter upon such Guarantor’s premises where any of the
Collateral is located and remove the same and use in connection with such
removal any and all services, supplies, aids and other facilities of such
Guarantor;
 
(b) instruct the obligor or obligors on any agreement, instrument or other
obligation (including, without limitation, the Accounts) constituting the
Collateral to make any payment required by the terms of such instrument or
agreement directly to the Agent;
 
(c) withdraw all monies, securities and instruments held pursuant to any pledge
arrangement for application to the Obligations;
 
(d) sell, assign or otherwise liquidate, or direct any Guarantor to sell, assign
or otherwise liquidate, any or all of the Collateral or any part thereof, and
take possession of the proceeds of any such sale or liquidation;
 
(e) take possession of the Collateral or any part thereof, by directing any
Guarantor in writing to deliver the same to the Agent at any place or places
designated by the Agent, in which event such Guarantor shall at its own expense:
 
(1) forthwith cause the same to be moved to the place or places so designated by
the Agent and there delivered to the Agent,
 
(2) store and keep any Collateral so delivered to the Agent at such place or
places pending further action by the Agent as provided in Section 5.2, and
 
 
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(3) while the Collateral shall be so stored and kept, provide such guards and
maintenance services as shall be necessary to protect the same and to preserve
and maintain the Collateral in good condition;
 
it being understood that any Guarantor’s obligation to so deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Agent shall be entitled to a decree
requiring specific performance by such Guarantor of said obligation.
 
5.2 DISPOSITION OF COLLATERAL
 
Any Collateral repossessed by the Agent under or pursuant to Section 5.1 and any
other Collateral whether or not so repossessed by the Agent may be sold,
assigned, leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of sale the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as the Agent may, in compliance with any
mandatory requirements of applicable law, determine to be commercially
reasonable. Any of the Collateral may be sold, leased or otherwise disposed of,
in the condition in which the same existed when taken by the Agent or after any
overhaul or repair which the Agent shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceedings permitted by such requirements shall be made upon not less than ten
(10) days’ written notice to such Guarantor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for the ten (10) days after the giving of such
notice, to the right of such Guarantor or any nominee of such Guarantor to
acquire the Collateral involved at a price or for such other consideration at
least equal to the intended sale price or other consideration so specified. Any
such disposition which shall be a public sale permitted by such requirements
shall be made upon not less than ten (10) days’ written notice to such Guarantor
specifying the time and place of such sale and, in the absence of applicable
requirements of law, shall be by public auction (which may, at the option of the
Agent, be subject to reserve), after publication at least once in The New York
Times not less than ten (10) days prior to the date of sale. If The New York
Times is not then being published, publication may be made in lieu thereof in
any newspaper then being circulated in the City of New York, New York, as the
Agent may elect. All requirements of reasonable notice under this Section 5.2
shall be met if such notice is mailed, postage prepaid at least ten (10) days
before the time of such sale or disposition, to the Guarantor at its address set
forth herein or such other address as the Guarantor may have, in writing,
provided to the Agent. The Agent may, if it deems it reasonable, postpone or
adjourn any sale of any Collateral from time to time by an announcement at the
time and place of the sale to be so postponed or adjourned without being
required to give a new notice of sale. The proceeds realized from the sale of
any Collateral shall be applied as follows: first, to the reasonable costs,
expenses and attorneys’ fees and expenses incurred by Agent for collection and
for acquisition, completion, protection, removal, storage, sale and delivery of
the Collateral; second, to interest due on any of the Obligations and any fees
payable under this Agreement; and third, to the principal of the Obligations. If
any deficiency shall arise, Guarantors shall remain liable to Agent and Lenders
therefor.
 
 
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5.3 POWER OF ATTORNEY
 
Each Guarantor hereby irrevocably authorizes and appoints the Agent, or any
Person or agent the Agent may designate, as such Guarantor’s attorney-in-fact,
at such Guarantor’s cost and expense, subject to the terms of the Loan
Agreement, to exercise all of the following powers upon and at any time after
the occurrence and during the continuance of an Event of Default, which powers,
being coupled with an interest, shall be irrevocable until all of the
Obligations owing by such Guarantor shall have been paid and satisfied in full:
 
(a) accelerate or extend the time of payment, compromise, issue credits, bring
suit or administer and otherwise collect Accounts or proceeds of any Collateral;
 
(b) receive, open and dispose of all mail addressed to such Guarantor and notify
postal authorities to change the address for delivery thereof to such address as
the Agent may designate;
 
(c) give customers indebted on Accounts notice of the Agent’s interest therein,
or to instruct such customers to make payment directly to the Agent for such
Guarantor’s account;
 
(d) convey any item of Collateral to any purchaser thereof;
 
(e) give any notices or record any liens under Section 4.3 hereof; and
 
(f) make any payments or take any acts under Section 4.6 hereof.
 
The Agent’s authority under this 5.3 shall include, without limitation, the
authority to execute and give receipt for any certificate of ownership or any
document, transfer title to any item of Collateral, sign such Guarantor’s name
on all financing statements or any other documents deemed necessary or
appropriate to preserve, protect or perfect the security interest in the
Collateral and to file the same, prepare, file and sign such Guarantor’s name on
any notice of lien, assignment or satisfaction of lien or similar document in
connection with any Account and prepare, file and sign such Guarantor’s name on
a proof of claim in bankruptcy or similar document against any customer of such
Guarantor, and to take any other actions arising from or incident to the rights,
powers and remedies granted to the Agent in this Agreement. This power of
attorney is coupled with an interest and is irrevocable by such Guarantor.
 
5.4 WAIVER OF CLAIMS
 
Except as otherwise provided in this Agreement, EACH GUARANTOR HEREBY WAIVES, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN
CONNECTION WITH THE AGENT’S OR ANY LENDER’S TAKING POSSESSION OF OR DISPOSING OF
ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE
AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH ANY
GUARANTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE
UNITED STATES OR OF ANY STATE, and each Guarantor hereby further waives, to the
extent permitted by law:
 
 
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(a) all damages occasioned by such taking of possession except any damages which
are the direct result of the Agent’s or Lender’s gross negligence or willful
misconduct;
 
(b) all other requirements as to the time, place and terms of sale or other
requirements with respect to the enforcement of the Agent’s or Lender’s rights
hereunder, except as expressly provided herein; and
 
(c) all rights of redemption, appraisement, valuation, stay, extension or
moratorium now or hereafter in force under any applicable law in order to
prevent or delay the enforcement of this Agreement or the absolute sale of the
Collateral or any portion thereof, and such Guarantor, for itself and all who
may claim under it, insofar as it or they now or hereafter lawfully may, hereby
waives the benefit of all such laws.
 
Any sale of, or the grant of options to purchase, or any other realization upon
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of such Guarantor therein and thereto, and
shall be a perpetual bar both at law and in equity against such Guarantor and
against any and all persons claiming or attempting to claim the Collateral so
sold, optioned or realized upon, or any part thereof, from, through and under
such Guarantor.
 
5.5 REMEDIES CUMULATIVE
 
Each and every right, power and remedy hereby specifically given to the Agent
shall be in addition to every other right, power and remedy specifically given
under this Agreement, under the Loan Agreement or under other documentation
relating thereto or now or hereafter existing at law or in equity, or by
statute, and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time or simultaneously
and as often and in such order as may be deemed expedient by the Agent. All such
rights, powers and remedies shall be cumulative and the exercise or the
beginning of exercise of one shall not be deemed a waiver of the right to
exercise of any other or others. No delay or omission of the Agent in the
exercise of any such right, power or remedy and no renewal or extension of any
of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any default or Event of Default or any acquiescence
therein.
 
ARTICLE 6
 
MISCELLANEOUS PROVISIONS
 
6.1 NOTICES
 
All notices, approvals, consents or other communications required or desired to
be given hereunder shall be delivered in person, by facsimile transmission
followed promptly by first class mail, by a nationally recognized courier
service marked for next business day delivery or by overnight mail, and
delivered if to the Agent, then to the attention of Bruce F. Wesson, c/o Galen
Partners III, L.P., 610 Fifth Avenue, Fifth Floor, New York, New York, 10020,
fax no. (212) 218-4990, with a copy to George N. Abrahams, Esq., c/o Blank Rome,
LLP, Chrysler Building, 405 Lexington Avenue, New York, New York 10174, fax no.
(917) 332-3763, and if to the Guarantors, then to c/o Acura Pharmaceuticals,
Inc., attention of Mr. Andrew D. Reddick, 616 N. North Court, Suite 120,
Palatine, Illinois 60067, with a copy to John P. Reilly, Esq., St. John & Wayne,
L.L.C., 2 Penn Plaza East, Newark, New Jersey, 07105, fax no. (973) 491-3555.
 
 
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6.2 HEADINGS
 
The headings in this Agreement are for purposes of reference only and shall not
affect the meaning or construction of any provision of this Agreement.
 
6.3 SEVERABILITY
 
The provisions of this Agreement are severable, and if any clause or provision
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
then such invalidity or unenforceability shall affect, in that jurisdiction
only, such clause or provision, or part thereof, and shall not in any manner
affect such clause or provision in any other jurisdiction or any other clause or
provision of this Agreement in any jurisdiction.
 
6.4 AMENDMENTS, WAIVERS AND CONSENTS
 
Any amendment or waiver of any provision of this Agreement and any consent to
any departure by any Guarantor from any provision of this Agreement shall be
effective only if made or given in writing signed by the Agent.
 
6.5 INTERPRETATION OF AGREEMENT
 
All terms not defined herein or in the Loan Agreement shall have the meaning set
forth in the applicable Uniform Commercial Code. Acceptance of or acquiescence
in a course of performance rendered under this Agreement shall not be relevant
in determining the meaning of this Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
 
6.6 CONTINUING SECURITY INTEREST
 
This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect, (b) be binding upon each Guarantor,
and its successors and assigns and (b) inure to the benefit of the Agent and its
successors and assigns.
 
6.7 REINSTATEMENT
 
To the extent permitted by law, this Agreement shall continue to be effective or
be reinstated if at any time any amount received by the Agent in respect of the
Obligations owing by the Guarantors is rescinded or must otherwise be restored
or returned by the Agent upon the occurrence or during the pendency of any Event
of Default, all as though such payments had not been made.
 
 
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6.8 SURVIVAL OF PROVISIONS
 
All representations, warranties and covenants of the Guarantors contained herein
shall survive the execution and delivery of this Agreement, and shall terminate
only upon the full and final indefeasible payment and performance by the
Guarantors of the Obligations secured hereby.
 
6.9 SETOFF
 
The Agent shall have all rights of setoff available at law or in equity.
 
6.10 POWER OF ATTORNEY
 
In addition to the powers granted to the Agent under Section 5.3, each Guarantor
hereby irrevocably authorizes and appoints the Agent, or any Person or agent the
Agent may designate, as such Guarantor’s attorney-in-fact, at such Guarantor’s
cost and expense, to exercise all of the following powers, which being coupled
with an interest, shall be irrevocable until all of the Obligations shall have
been indefeasibly paid and satisfied in full:
 
(a) after the occurrence of an Event of Default, to receive, take, endorse,
sign, assign and deliver, all in the name of the Agent or such Guarantor, any
and all checks, notes, drafts, and other documents or instruments relating to
the Collateral; and
 
(b) to request, at any time from customers indebted on Accounts, verification of
information concerning the Accounts and the amounts owing thereon.
 
6.11 INDEMNIFICATION; AUTHORITY OF AGENT
 
Neither the Agent or any Lender nor any director, officer, employee, attorney or
agent of the Agent or any Lender shall be liable to any Guarantor for any action
taken or omitted to be taken by it or them hereunder, except for its or their
own gross negligence or willful misconduct, nor shall the Agent or any Lender be
responsible for the validity, effectiveness or sufficiency of this Agreement or
of any document or security furnished pursuant hereto. The Agent, the Lenders
and their respective directors, officers, employees, attorneys and agents shall
be entitled to rely on any communication, instrument or document reasonably
believed by it or them to be genuine and correct and to have been signed or sent
by the proper person or persons. Each Guarantor agrees to indemnify and hold
harmless the Agent, the Lenders and any other person from and against any and
all costs, expenses (including reasonable fees, expenses and disbursements of
attorneys and paralegals (including, without duplication, reasonable charges of
inside counsel)), claims or liability incurred by the Agent, any Lender or such
person hereunder, unless such claim or liability shall be due to willful
misconduct or gross negligence on the part of the Agent, the Lender or such
person.
 
6.12 RELEASE; TERMINATION OF AGREEMENT
 
Subject to the provisions of Section 6.7 of this Agreement, this Agreement shall
terminate upon the termination of the Guaranties and the full and final
indefeasible payment and performance of all the Obligations owing by each
Guarantor. At such time, the Agent shall, at the request of any Guarantor,
reassign and redeliver to such Guarantor all of the Collateral hereunder which
has not been sold, disposed of, retained or applied by the Agent in accordance
with the terms hereof. Such reassignment and redelivery shall be without
warranty by or recourse to the Agent, except as to the absence of any prior
assignments by the Agent of its interest in the Collateral, and shall be at the
expense of such Guarantor.
 
 
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6.13 COUNTERPARTS
 
This Agreement may be executed in one or more counterparts, including by
facsimile copy, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
 
6.14 GOVERNING LAW
 
This Agreement and the rights of the parties hereunder shall be governed by, and
construed in accordance with, the laws of the State of New York wherein the
terms of this Agreement were negotiated, excluding to the greatest extent
permitted by law any rule of law that would cause the application of the laws of
any jurisdiction other than the State of New York.
 
6.15 SUBMISSION TO JURISDICTION
 
(a) Each of the parties hereto hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of any New York
State court or United States Federal court sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising our of or
relating to this Agreement or any of the other Transaction Documents to which it
is a party, or for recognition or enforcement of any judgment, and each of the
parties hereto irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in any such New
York State court or, to the fullest extent permitted by law, in such United
States Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the right that any party may otherwise have to bring
any action or proceeding relating to this Agreement or any of the other
Transaction Documents in the courts of any other jurisdiction.
 
(b) Each of the parties hereto irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or in relation to this Agreement or any other Transaction
Document to which it is a party in any such New York State or United States
Federal court sitting in New York City. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
 
6.16 SERVICE OF PROCESS
 
EACH GUARANTOR HEREBY IRREVOCABLY AGREES THAT SERVICE OF PROCESS IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE EFFECTED BY MAILING A
COPY THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH GUARANTOR
AT ITS ADDRESS SET FORTH IN SECTION 6.1 HEREOF.
 
 
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6.17 LIMITATION OF LIABILITY
 
THE AGENT AND THE LENDERS SHALL NOT HAVE ANY LIABILITY TO ANY GUARANTOR (WHETHER
SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY ANY GUARANTOR
IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR
RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON THE AGENT OR LENDER, AS
APPLICABLE, THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
 
6.18 DELAYS; PARTIAL EXERCISE OF REMEDIES
 
No delay or omission of the Agent to exercise any right or remedy hereunder,
whether before or after the happening of any Event of Default, shall impair any
such right or shall operate as a waiver thereof or as a waiver of any such Event
of Default. No single or partial exercise by the Agent of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
 
6.19 JURY TRIAL
 
EACH OF THE GUARANTORS AND THE AGENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY TRANSACTION
DOCUMENT OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF.

[SIGNATURE PAGE TO FOLLOW]

 
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IN WITNESS WHEREOF, each Guarantor has caused this Guarantors General Security
Agreement to be duly executed and delivered as of the date first written above.
 

 
ACURA PHARMACEUTICAL
TECHNOLOGIES, INC.
     
By: /s/ Andrew D. Reddick                                 
Name: Andrew D. Reddick
Title: President and Chief Executive Officer
         
AXIOM PHARMACEUTICAL
CORPORATION
     
By: /s/ Andrew D. Reddick                                   
Name: Andrew D. Reddick
Title: President and Chief Executive Officer

 
By its acceptance hereof, as of the day and year first above written, the Agent
agrees to be bound by the provisions hereof applicable to it.
 

 
GALEN PARTNERS III, L.P.
 
By: Claudius, L.L.C, General Partner
610 Fifth Avenue, 5th Fl.
New York, New York 10019
   
By: /s/ Srini Conjeevaram                                
Name: Srini Conjeevaram, its General Partner
Title: President and Chief Executive Officer

 
 
 
 

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SCHEDULE A

Section 3.3

·APT

16235 State Road 17, Culver, Indiana 46511.

·Axiom

616 N. North Court, Suite 120, Palatine, Illinois 60067.
 
 
 

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