Unassociated Document


     

    SUBORDINATION
      AGREEMENT,
      dated
      as of January 31, 2006, by and among Acura Pharmaceuticals, Inc., a New York
      corporation (the "Company"),
      the
      legal and beneficial holders of the Watson Note (the "Watson
      Holders"),
      the
      holders of the June 2005 Notes (the "June
      2005 Lenders"),
      the
      holders of the September 2005 Notes (the “September
      2005 Lenders”),
      the
      holders of the November 2005 Notes (the “November
      2005 Lenders”),
      the
      holders of the January 2006 Notes (the “January 2006 Lenders”), Galen Partners
      III, L.P., a Delaware limited partnership, as agent for the Watson Holders,
      the
      June 2005 Lenders, the September 2005 Lenders, the November 2005 Lenders and
      the
      January 2006 Lenders (in such capacity, the "Agent")
      and
      the Grantors listed on the signature pages hereof. 

     

    RECITALS

     

    (A)  Certain
      capitalized terms used in this Agreement without definition have the meaning
      ascribed to them in Section 1
      below.


     

    (B)  WHEREAS,
      Watson Pharmaceuticals, Inc., a Nevada corporation ("Watson")
      and
      the Company have entered into a Loan Agreement dated March 29, 2000 (such
      agreement, as supplemented, amended or otherwise modified from time to time,
      including, without limitation, as amended through the Third Amendment to Loan
      Agreement dated February 6, 2004, the "Watson
      Loan Agreement")
      pursuant to which Watson agreed to extend certain funds to the Company. The
      Company’s obligation to pay the principal amount of, and interest on, the Watson
      Term Loan is now evidenced by a secured promissory note dated as of December
      20,
      2002 (the "Watson
      Note")
      which
      is secured by (i) a lien on and security interest in the Company Personal
      Property granted pursuant to the Watson Security Agreement dated March 29,
      2000
      between the Company and Watson (such agreement, as amended, supplemented, or
      otherwise modified from time to time, the "Watson
      Security Agreement"),
      (ii)
      collateral assignments of the Company Assignable Property pursuant to the Watson
      Security Agreement or otherwise (such collateral assignments, as amended,
      supplemented, or otherwise modified from time to time, collectively the
“Watson
      Assignments”),
      and
      (iii) a lien on and security interest in the Company Investment Property
      pursuant to a Stock Pledge Agreement between the Company and Watson (such
      agreement, as amended, supplemented, or otherwise modified from time to time,
      the "Watson
      Stock Pledge Agreement").

     

    (C)  WHEREAS,
      in connection with, and in order to support the obligations of the Company
      under, the Watson Loan Agreement, each of the Guarantors has guaranteed the
      Company’s obligations under the Watson Term Loan and has undertaken certain
      additional obligations pursuant to the Continuing Unconditional Secured Guaranty
      by each Guarantor dated March 29, 2000 (each such guaranty and all other
      obligations of each of the Guarantors under the Watson Loan Agreement, in each
      case, as they may be amended, supplemented or otherwise modified from time
      to
      time, a "Watson
      Guaranty").
      The
      Watson Guaranties are secured by (i) a lien on and security interest in the
      Guarantor Personal Property of each Guarantor granted pursuant to a Guarantors
      General Security Agreement dated March 29, 2000 between the Guarantors and
      Watson (such agreement, as amended, supplemented, or otherwise modified from
      time to time, the "Watson
      Guarantors General Security Agreement"),
      (ii)
      collateral assignments of the Guarantor Assignable Property of each Guarantor
      pursuant to the Watson Guarantors General Security Agreement or otherwise (such
      collateral assignments, as amended, supplemented, or otherwise modified from
      time to time, collectively the “Watson
      Guarantor Assignments”),
      and
      (iii) a mortgage granted by Acura Pharmaceutical Technologies, Inc. to Watson
      of
      its Guarantor Mortgage Property (such mortgage, as amended, supplemented, or
      otherwise modified from time to time, the "Watson Mortgage").
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (D)  WHEREAS,
      the June 2005 Lenders and the Company have entered into a Loan Agreement dated
      as of June 22, 2005 (such agreement, as amended, supplemented, or otherwise
      modified from time to time, the "June
      2005 Loan Agreement")
      pursuant to which the Company has issued the June 2005 Notes. The June 2005
      Notes are secured by (i) liens and security interests granted pursuant to the
      Company General Security Agreement dated as of June 22, 2005 between the Company
      and the Agent (such agreement, as amended, supplemented, or otherwise modified
      from time to time, the "June
      2005 Company General Security Agreement"),
      (ii)
      collateral assignments of the Company Assignable Property pursuant to the June
      2005 Company General Security Agreement or otherwise (such collateral
      assignments, as amended, supplemented, or otherwise modified from time to time,
      collectively the “June
      2005 Assignments”),
      and
      (iii) a lien on and security interest in the Company Investment Property
      pursuant to a Stock Pledge Agreement between the Company and the Agent (such
      agreement, as amended, supplemented, or otherwise modified from time to time,
      the "June
      2005 Stock Pledge Agreement").
      

     

    (E)  WHEREAS,
      as a condition to the June 2005 Lenders’ obligation to lend sums under the June
      2005 Loan Agreement and in order to support the Obligations of the Company
      under
      the June 2005 Loan Agreement, each of the Guarantors has guaranteed the
      Company’s Obligations under the June 2005 Notes and the June 2005 Loan Agreement
      and has undertaken certain additional obligations pursuant to the Continuing
      Unconditional Secured Guaranty by each Guarantor dated as of June 22, 2005
      (each
      such guaranty and all other obligations of each of the Guarantors under the
      June
      2005 Loan Agreement, in each case, as they may be amended, supplemented or
      otherwise modified from time to time, a "June
      2005 Guaranty").
      The
      June 2005 Guaranties are secured by (i) a lien on and security interest in
      the
      Guarantor Personal Property of each Guarantor granted pursuant to a Guarantors
      General Security Agreement dated as of June 22, 2005 between the Guarantors
      and
      the Agent (such agreement, as amended, supplemented, or otherwise modified
      from
      time to time, the "June
      2005 Guarantors General Security Agreement")
      and
      (ii) collateral assignments of the Guarantor Assignable Property of each
      Guarantor pursuant to the June 2005 Guarantors General Security Agreement or
      otherwise (such collateral assignments, as amended, supplemented, or otherwise
      modified from time to time, collectively the “June
      2005 Guarantor Assignments”).
      

     

    (F)  WHEREAS,
      the September 2005 Lenders and the Company have entered into a Loan Agreement
      dated as of September 16, 2005 (such agreement, as amended, supplemented, or
      otherwise modified from time to time, the "September
      2005 Loan Agreement")
      pursuant to which the Company has agreed to issue the September 2005 Notes.
      The
      September 2005 Notes are secured by (i) liens and security interests granted
      pursuant to the Company General Security Agreement dated as of September 16,
      2005 between the Company and the Agent (such agreement, as amended,
      supplemented, or otherwise modified from time to time, the "September
      2005 Company General Security Agreement"),
      (ii)
      collateral assignments of the Company Assignable Property pursuant to the
      September 2005 Company General Security Agreement or otherwise (such collateral
      assignments, as amended, supplemented, or otherwise modified from time to time,
      collectively the “September
      2005 Assignments”),
      and
      (iii) a lien on and security interest in the Company Investment Property
      pursuant to a Stock Pledge Agreement between the Company and the Agent (such
      agreement, as amended, supplemented, or otherwise modified from time to time,
      the "September
      2005 Stock Pledge Agreement").
      

     

    
      
        
        

      

      
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    (G)  WHEREAS,
      as a condition to the September 2005 Lenders’ obligation to lend sums under the
      September 2005 Loan Agreement and in order to support the Obligations of the
      Company under the September 2005 Loan Agreement, each of the Guarantors has
      guaranteed the Company’s Obligations under the September 2005 Notes and the
      September 2005 Loan Agreement and has undertaken certain additional obligations
      pursuant to the Continuing Unconditional Secured Guaranty by each Guarantor
      dated as of September 16, 2005 (each such guaranty and all other obligations
      of
      each of the Guarantors under the September 2005 Loan Agreement, in each case,
      as
      they may be amended, supplemented or otherwise modified from time to time,
      a
      "September
      2005 Guaranty").
      The
      September 2005 Guaranties are secured by (i) a lien on and security interest
      in
      the Guarantor Personal Property of each Guarantor granted pursuant to a
      Guarantors General Security Agreement dated as of September 16, 2005 between
      the
      Guarantors and the Agent (such agreement, as amended, supplemented, or otherwise
      modified from time to time, the "September
      2005 Guarantors General Security Agreement")
      and
      (ii) collateral assignments of the Guarantor Assignable Property of each
      Guarantor pursuant to the September 2005 Guarantors General Security Agreement
      or otherwise (such collateral assignments, as amended, supplemented, or
      otherwise modified from time to time, collectively the “September
      2005 Guarantor Assignments”).
      

     

    (H)  WHEREAS,
      the November 2005 Lenders and the Company have entered into a Loan Agreement
      dated as of November 9, 2005 (such agreement, as amended, supplemented, or
      otherwise modified from time to time, the "November
      2005 Loan Agreement")
      pursuant to which the Company has issued the November 2005 Notes. The November
      2005 Notes are secured by (i) liens and security interests granted pursuant
      to
      the Company General Security Agreement dated as of November 9, 2005 between
      the
      Company and the Agent (such agreement, as amended, supplemented, or otherwise
      modified from time to time, the "November
      2005 Company General Security Agreement"),
      (ii)
      collateral assignments of the Company Assignable Property pursuant to the
      November 2005 Company General Security Agreement or otherwise (such collateral
      assignments, as amended, supplemented, or otherwise modified from time to time,
      collectively the “November
      2005 Assignments”),
      and
      (iii) a lien on and security interest in the Company Investment Property
      pursuant to a Stock Pledge Agreement between the Company and the Agent (such
      agreement, as amended, supplemented, or otherwise modified from time to time,
      the "November
      2005 Stock Pledge Agreement").
      

     

    (I)  WHEREAS,
      as a condition to the November 2005 Lenders’ obligation to lend sums under the
      November 2005 Loan Agreement and in order to support the Obligations of the
      Company under the November 2005 Loan Agreement, each of the Guarantors has
      guaranteed the Company’s Obligations under the November 2005 Notes and the
      November 2005 Loan Agreement and has undertaken certain additional obligations
      pursuant to the Continuing Unconditional Secured Guaranty by each Guarantor
      dated as of November 9, 2005 (each such guaranty and all other obligations
      of
      each of the Guarantors under the November 2005 Loan Agreement, in each case,
      as
      they may be amended, supplemented or otherwise modified from time to time,
      a
      "November
      2005 Guaranty").
      The
      November 2005 Guaranties are secured by (i) a lien on and security interest
      in
      the Guarantor Personal Property of each Guarantor granted pursuant to a
      Guarantors General Security Agreement dated as of the date hereof between the
      Guarantors and the Agent (such agreement, as amended, supplemented, or otherwise
      modified from time to time, the "November
      2005 Guarantors General Security Agreement")
      and
      (ii) collateral assignments of the Guarantor Assignable Property of each
      Guarantor pursuant to the November 2005 Guarantors General Security Agreement
      or
      otherwise (such collateral assignments, as amended, supplemented, or otherwise
      modified from time to time, collectively the “November
      2005 Guarantor Assignments”).
      

     

    
      
        
        

      

      
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    (J)  WHEREAS,
      in connection with the execution of the November 2005 Loan Agreement, the
      Company, Agent, the Watson Holders, the June 2005 Lenders, the September 2005
      Lenders and the November 2005 Lenders entered into a Subordination Agreement
      dated as of November 9, 2005 (the “November
      2005 Subordination Agreement”).
      

     

    (K)  WHEREAS,
      the January 2006 Lenders and the Company have entered into a Loan Agreement
      dated as of the date hereof (such agreement, as amended, supplemented, or
      otherwise modified from time to time, the "January
      2006 Loan Agreement")
      pursuant to which the Company has agreed to issue the January 2006 Notes. The
      January 2006 Notes are, or will be, secured by (i) liens and security interests
      granted pursuant to the Company General Security Agreement dated as of the
      date
      hereof between the Company and the Agent (such agreement, as amended,
      supplemented, or otherwise modified from time to time, the "January
      2006 Company General Security Agreement"),
      (ii)
      collateral assignments of the Company Assignable Property pursuant to the
      January 2006 Company General Security Agreement or otherwise (such collateral
      assignments, as amended, supplemented, or otherwise modified from time to time,
      collectively the “January
      2006 Assignments”),
      and
      (iii) a lien on and security interest in the Company Investment Property
      pursuant to a Stock Pledge Agreement between the Company and the Agent (such
      agreement, as amended, supplemented, or otherwise modified from time to time,
      the "January
      2006 Stock Pledge Agreement").
      

     

    (L)  WHEREAS,
      as a condition to the January 2006 Lenders’ obligation to lend sums under the
      January 2006 Loan Agreement and in order to support the Obligations of the
      Company under the January 2006 Loan Agreement, APT has guaranteed the Company’s
      Obligations under the January 2006 Notes and the January 2006 Loan Agreement
      and
      has undertaken certain additional obligations pursuant to the Continuing
      Unconditional Secured Guaranty by APT dated as of as of the date hereof (such
      guaranty and all other obligations of APT under the January 2006 Loan Agreement,
      in each case, as they may be amended, supplemented or otherwise modified from
      time to time, the "January
      2006 Guaranty").
      The
      January 2006 Guaranty is, or will be, secured by (i) a lien on and security
      interest in the Guarantor Personal Property of APT granted pursuant to a
      Guarantor’s General Security Agreement dated as of the date hereof between APT
      and the Agent (such agreement, as amended, supplemented, or otherwise modified
      from time to time, the "January
      2006 Guarantor’s General Security Agreement")
      and
      (ii) collateral assignments of the Guarantor Assignable Property of APT pursuant
      to the January 2006 Guarantor’s General Security Agreement or otherwise (such
      collateral assignments, as amended, supplemented, or otherwise modified from
      time to time, collectively the “January
      2006 Guarantor Assignments”).
      

     

    
      
        
        

      

      
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    (M)  WHEREAS,
      it is a condition to closing under the January 2006 Loan Agreement that the
      parties hereto shall have entered into this Agreement to confirm, among other
      things, their relative rights with respect to the Company Collateral and the
      Guarantor Collateral. 

     

    (N)  WHEREAS,
      it is a condition to closing under the November 2005 Loan Agreement that the
      parties hereto shall have entered into this Agreement to confirm, among other
      things, their relative rights with respect to the Company Collateral and the
      Guarantor Collateral. 

     

    NOW
      THEREFORE, in consideration of the foregoing and the mutual promises and
      agreements hereinafter contained, the parties hereto agree as follows:


     

    SECTION
      1. Definitions.  (a)
      As
      used herein, the following terms have the following meanings: 

     

    "Agent"
      has the
      meaning specified in the introductory paragraph of this Agreement. 

     

    this
      "Agreement"
      means
      this Subordination Agreement, as it may be supplemented, amended or otherwise
      modified from time to time. 

     

    “APT”
means
      Acura Pharmaceutical Technologies, Inc., an Indiana corporation.

     

    "Bankruptcy
      Proceeding"
      means,
      in the case of any Grantor, each of the following: (a) any distribution of
      all
      or any of the assets of such Grantor upon the dissolution, winding up, total
      or
      partial liquidation, arrangement, reorganization, adjustment, protection, relief
      or composition of such Grantor or its debts, whether in any bankruptcy,
      insolvency, arrangement, reorganization, receivership or relief proceeding
      or
      similar case or proceeding under any Federal or state bankruptcy or similar
      law
      and (b) any assignment for the benefit of creditors of any other marshalling
      of
      the assets and liabilities of such Grantor or otherwise. 

     

    "Cash
      Obligations"
      means,
      as at any time, the Obligations of the Company or any Guarantor, as applicable,
      to the extent then payable in cash.

     

    "Collateral"
      means,
      collectively, the Company Collateral and the Guarantor Collateral of all
      Guarantors.

     

    "Company"
      has the
      meaning specified in the introductory paragraph of this Agreement. 

     

    "Company
      Assignable Property"
      means,
      collectively, all of the Company’s leases, contracts, patents, copyrights,
      trademarks and service marks, now owned or existing or hereafter acquired or
      arising.

     

    "Company
      Collateral"
      means,
      collectively, the Company Personal Property, the Company Assignable Property
      and
      Company Investment Property.

     

    
      
        
        

      

      
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    "Company
      Investment Property"
      means
      all of the issued and outstanding shares of Acura Pharmaceutical Technologies,
      Inc. 

     

    "Company
      Personal Property"
      means
      all of the Company’s properties and assets of whatever nature, tangible or
      intangible, now owned or existing or hereafter acquired or arising.

     

    "Company
      Security Documents"
      means,
      collectively, the Watson Company Security Documents, the June 2005 Company
      Security Documents, the September 2005 Company Security Documents, the November
      2005 Company Security Documents and the January 2006 Company Security Documents.
      

     

    "Grantors"
      means
      the Company, Axiom Pharmaceutical Corporation, a Delaware corporation, and
      Acura
      Pharmaceutical Technologies, Inc., an Indiana corporation, and each other
      subsidiary or affiliate of the Company that is or becomes a party to any
      Security Document or any Guaranty Security Document.

     

    "Guarantors"
      means
      (i) either or both of Axiom Pharmaceutical Corporation, a Delaware corporation,
      and APT, as applicable in the context, and (ii) each other subsidiary or
      affiliate of the Company that is or becomes a party to any Security Document.
      

     

    "Guarantor
      Assignable Property"
      means,
      collectively, in respect of any Guarantor, all of such Guarantor’s leases,
      contracts, patents, copyrights, trademarks and service marks, now owned or
      existing or hereafter acquired or arising.

     

    "Guarantor
      Collateral"
      means,
      collectively, in respect of any Guarantor, (a) its Guarantor Personal Property,
      (b) its Guarantor Assignable Property and (c) if such Guarantor is APT, its
      Guarantor Mortgage Property.

     

    "Guarantor
      Mortgage Property"
      means
      APT’s real property located at 16235 State Road 17, Culver,
      Indiana.

     

    "Guarantor
      Personal Property"
      means,
      in respect of a Guarantor, all of such Guarantor’s properties and assets of
      whatever nature, tangible or intangible, now owned or existing or hereafter
      acquired or arising.

     

    "Guarantor
      Security Documents"
      means,
      collectively, the Watson Guarantor Security Documents, the June 2005 Guarantor
      Security Documents, the September 2005 Guarantor Security Documents, the
      November 2005 Guarantor Security Documents and the January 2006 Guarantor
      Security Documents. 

     

    "Guaranty
      Documents"
      means,
      collectively, the Watson Guaranties, the June 2005 Guaranties, the September
      2005 Guaranties, the November 2005 Guaranties and the January 2006 Guaranty.
      

     

    "January
      2006 Company General Security Agreement"
      has the
      meaning specified in the recitals. 

     

    
      
        
        

      

      
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    "January
      2006 Company Security Documents"
      means,
      collectively, the January 2006 Company General Security Agreement, the January
      2006 Assignments and the January 2006 Stock Pledge Agreement. 

     

    "January
      2006 Guarantor Security Documents"
      means,
      collectively, the January 2006 Guarantor’s General Security Agreement and the
      January 2006 Guarantor Assignments. 

     

    "January
      2006 Guarantor’s General Security Agreement"
      has the
      meaning specified in the recitals.

     

    "January
      2006 Guaranty"
      has the
      meaning specified in the recitals. 

     

    "January
      2006 Lenders"
      has the
      meaning specified in the introductory paragraph of this Agreement. 

     

    "January
      2006 Loan Agreement"
      has the
      meaning specified in the recitals. 

     

    "January
      2006 Loan Maximum Amount"
      means,
      at any time, an amount equal to the sum of (a) the aggregate principal amount
      of
      all January 2006 Notes then outstanding, (b) without duplication, the aggregate
      amount of unpaid interest theretofore accrued on the January 2006 Notes, and
      (c)
      without duplication, the aggregate amount of all costs, expenses, fees,
      indemnities and other amounts payable in respect of the January 2006 Notes,
      the
      January 2006 Loan Agreement, the January 2006 Guaranty, the January 2006 Company
      Security Documents and the January 2006 Guarantor Security
      Documents.

     

    "January
      2006 Notes"
      means
      the Company’s Secured Promissory Notes (as amended, supplemented or otherwise
      modified from time to time) issued from time to time under the January 2006
      Loan
      Agreement.

     

    "January
      2006 Stock Pledge Agreement"
      has the
      meaning specified in the recitals.

     

    "June
      2005 Company General Security Agreement"
      has the
      meaning specified in the recitals. 

     

    "June
      2005 Company Security Documents"
      means,
      collectively, the June 2005 Company General Security Agreement, the June 2005
      Assignments and the June 2005 Stock Pledge Agreement. 

     

    "June
      2005 Guarantor Security Documents"
      means,
      collectively, the June 2005 Guarantors General Security Agreement and the June
      2005 Guarantor Assignments. 

     

    "June
      2005 Guarantors General Security Agreement"
      has the
      meaning specified in the recitals.

     

    "June
      2005 Guaranty"
      has the
      meaning specified in the recitals. 

     

    
      
        
        

      

      
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    "June
      2005 Lenders"
      has the
      meaning specified in the introductory paragraph of this Agreement. 

     

    "June
      2005 Loan Agreement"
      has the
      meaning specified in the recitals. 

     

    "June
      2005 Loan Maximum Amount"
      means,
      at any time, an amount equal to the sum of (a) the aggregate principal amount
      of
      all June 2005 Notes then outstanding, (b) without duplication, the aggregate
      amount of unpaid interest theretofore accrued on the June 2005 Notes, and (c)
      without duplication, the aggregate amount of all costs, expenses, fees,
      indemnities and other amounts payable in respect of the June 2005 Notes, the
      June 2005 Loan Agreement, the June 2005 Guaranties, the June 2005 Company
      Security Documents and the June 2005 Guarantor Security Documents.

     

    "June
      2005 Notes"
      means
      the Company’s Secured Promissory Notes (as amended, supplemented or otherwise
      modified from time to time) issued from time to time under the June 2005 Loan
      Agreement.

     

    "June
      2005 Stock Pledge Agreement"
      has the
      meaning specified in the recitals.

     

    "Junior
      Secured Party",
      as to
      any item of Collateral, and as to Secured Creditors purporting to have liens
      on
      and securities interests in such item under the Security Documents, means one
      such Secured Creditor whose lien on and security interest in such item (and
      to
      the extent such lien on and security interest in such item) is stated in Section
      2 hereof to be junior in right to the liens and security interests of one or
      more such other Secured Creditors on and in such item. 

     

    "Obligations"
      of the
      Company or any Guarantor means, at any time, any loans, advances, debts,
      liabilities and obligations of the Company or such Guarantor, (a) in the case
      of
      the Company, under the January 2006 Notes, the January 2006 Loan Agreement,
      the
      November 2005 Notes, the November 2005 Loan Agreement, the September 2005 Notes,
      the September 2005 Loan Agreement, the June 2005 Notes, the June 2005 Loan
      Agreement and the Watson Loan Agreement; and (b) in the case of any Guarantor,
      under its Watson Guaranty, its January 2006 Guaranty, its November 2005
      Guaranty, its September 2005 Guaranty and its June 2005 Guaranty, in each case,
      whether matured or unmatured, contingent or liquidated and whether for
      principal, accrued and unpaid interest (including, without limitation, interest
      accruing after the filing of a petition, or other act, initiating a Bankruptcy
      Proceeding), accrued and unpaid expenses, indemnities, fees (including attorneys
      fees and disbursements) or otherwise, whether or not such obligations are due
      and payable at such time.

     

    "November
      2005 Company General Security Agreement"
      has the
      meaning specified in the recitals. 

     

    "November
      2005 Company Security Documents"
      means,
      collectively, the November 2005 Company General Security Agreement, the November
      2005 Assignments and the November 2005 Stock Pledge Agreement. 

     

    
      
        
        

      

      
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    "November
      2005 Guarantor Security Documents"
      means,
      collectively, the November 2005 Guarantors General Security Agreement and the
      November 2005 Guarantor Assignments. 

     

    "November
      2005 Guarantors General Security Agreement"
      has the
      meaning specified in the recitals.

     

    "November
      2005 Guaranty"
      has the
      meaning specified in the recitals. 

     

    "November
      2005 Lenders"
      has the
      meaning specified in the introductory paragraph of this Agreement. 

     

    "November
      2005 Loan Agreement"
      has the
      meaning specified in the recitals. 

     

    "November
      2005 Loan Maximum Amount"
      means,
      at any time, an amount equal to the sum of (a) the aggregate principal amount
      of
      all November 2005 Notes then outstanding, (b) without duplication, the aggregate
      amount of unpaid interest theretofore accrued on the November 2005 Notes, and
      (c) without duplication, the aggregate amount of all costs, expenses, fees,
      indemnities and other amounts payable in respect of the November 2005 Notes,
      the
      November 2005 Loan Agreement, the November 2005 Guaranties, the November 2005
      Company Security Documents and the November 2005 Guarantor Security
      Documents.

     

    "November
      2005 Notes"
      means
      the Company’s Secured Promissory Notes (as amended, supplemented or otherwise
      modified from time to time) issued from time to time under the November 2005
      Loan Agreement.

     

    "November
      2005 Stock Pledge Agreement"
      has the
      meaning specified in the recitals. 

     

    "November
      2005 Subordination Agreement"
      has the
      meaning specified in the recitals.

     

    "Required
      January 2006 Lenders"
      means
      January 2006 Lenders holding at least fifty percent (50%) of the outstanding
      principal amount of the January 2006 Notes.

     

    “Required
      June 2005 Lenders”
means
      June 2005 Lenders holding at least sixty percent (60%) of the outstanding
      principal amount under the June 2005 Notes.

     

    “Required
      November 2005 Lenders”
means
      November 2005 Lenders holding at least fifty percent (50%) of the outstanding
      principal amount under the November 2005 Notes.

     

    “Required
      Senior Secured Parties”
means
      the Required January 2006 Lenders, the Required November 2005 Lenders, the
      Required September 2005 Lenders and the Required June 2005 Lenders.


     

    
      
        
        

      

      
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    “Required
      September 2005 Lenders”
means
      September 2005 Lenders holding at least sixty percent (60%) of the outstanding
      principal amount under the September 2005 Notes;

    


    “Required
      Watson Holders”
means
      Watson Holders holding at least sixty percent (60%) of the outstanding principal
      amount under the Watson Notes.

    


    "Person"
      means
      any individual, corporation, limited liability company, partnership,
      association, trust or any other entity or organization, including a government
      or political subdivision or an agency or instrumentality thereof. 

     

    "Secured
      Creditors"
      means
      the Watson Holders, the June 2005 Lenders, the September 2005 Lenders, the
      November 2005 Lenders and the January 2006 Lenders, and their respective agents,
      permitted successors, transferees and assigns, in their respective capacities
      as
      the beneficiaries under the Security Documents and the Guaranty Documents,
      respectively (whether named in such agreement or as an assignee thereof).


     

    "Security
      Documents"
      means,
      collectively, the Company Security Documents and the Guarantor Security
      Documents. 

     

    "Senior
      Secured Party",
      as to
      any item of Collateral, and as to Secured Creditors purporting to have liens
      on
      and security interests in such item under the Security Documents, means one
      such
      Secured Creditor whose lien on and security interest in such item (and to the
      extent such lien on and security interest in such item) is stated in Section
      2
      hereof to be senior and prior in right to the liens and security interests
      of
      one or more such other Secured Creditors on and in such item.

     

    "September
      2005 Company General Security Agreement"
      has the
      meaning specified in the recitals. 

     

    "September
      2005 Company Security Documents"
      means,
      collectively, the September 2005 Company General Security Agreement, the
      September 2005 Assignments and the September 2005 Stock Pledge Agreement.


     

    "September
      2005 Guarantor Security Documents"
      means,
      collectively, the September 2005 Guarantors General Security Agreement and
      the
      September 2005 Guarantor Assignments. 

     

    "September
      2005 Guarantors General Security Agreement"
      has the
      meaning specified in the recitals.

     

    "September
      2005 Guaranty"
      has the
      meaning specified in the recitals. 

     

    "September
      2005 Lenders"
      has the
      meaning specified in the introductory paragraph of this Agreement. 

     

    "September
      2005 Loan Agreement"
      has the
      meaning specified in the recitals. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    "September
      2005 Loan Maximum Amount"
      means,
      at any time, an amount equal to the sum of (a) the aggregate principal amount
      of
      all September 2005 Notes then outstanding, (b) without duplication, the
      aggregate amount of unpaid interest theretofore accrued on the September 2005
      Notes, and (c) without duplication, the aggregate amount of all costs, expenses,
      fees, indemnities and other amounts payable in respect of the September 2005
      Notes, the September 2005 Loan Agreement, the September 2005 Guaranties, the
      September 2005 Company Security Documents and the September 2005 Guarantor
      Security Documents.

     

    "September
      2005 Notes"
      means
      the Company’s Secured Promissory Notes (as amended, supplemented or otherwise
      modified from time to time) issued from time to time under the September 2005
      Loan Agreement.

     

    "September
      2005 Stock Pledge Agreement"
      has the
      meaning specified in the recitals.

     

    "Transaction
      Documents"
      means,
      collectively, (a) this Agreement,(b) the January 2006 Loan Agreement, (c) the
      January 2006 Notes, (d) the November 2005 Loan Agreement, (e) the November
      2005
      Notes, (f) the September 2005 Loan Agreement, (g) the September 2005 Notes,
      (h)
      the June 2005 Loan Agreement, (i) the June 2005 Notes, (j) the Watson Loan
      Agreement, (k) the Watson Note, (l) the Security Documents, and (m) the Guaranty
      Documents. 

     

    "Watson"
      has the
      meaning specified in the recitals. 

     

    "Watson
      Holders"
      has the
      meaning specified in the introductory paragraph of this Agreement. 

     

    "Watson
      Company Security Documents"
      means,
      collectively, the Watson Security Agreement, the Watson Assignments and the
      Watson Stock Pledge Agreement. 

     

    "Watson
      Guarantor Security Documents"
      means,
      collectively, the Watson Guarantors General Security Agreement, the Watson
      Guarantor Assignments and the Watson Mortgage. 

     

    "Watson
      Guaranty"
      has the
      meaning specified in the recitals. 

     

    "Watson
      Guarantors General Security Agreement"
      has the
      meaning specified in the recitals.

     

    "Watson
      Loan Agreement"
      has the
      meaning specified in the recitals. 

     

    "Watson
      Maximum Amount"
      means,
      at any time, an amount equal to the sum of (a) $5,000,000, (b) without
      duplication, the aggregate amount of unpaid interest theretofore accrued on
      the
      Watson Term Loan and (c) without duplication, the aggregate amount of all costs,
      expenses, fees, indemnities and other amounts payable in respect of the Watson
      Loan Agreement, the Watson Note, the Watson Guaranties, the Watson Company
      Security Documents and the Watson Guarantor Security Documents.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    "Watson Mortgage"
      has the
      meaning specified in the recitals.

     

    "Watson Note"
      has the
      meaning specified in the recitals.

     

    "Watson
      Security Agreement"
      has the
      meaning specified in the recitals.

     

    "Watson
      Stock Pledge Agreement"
      has the
      meaning specified in the recitals.

     

    "Watson
      Term Loan"
      means
      the term loan in the principal amount of $5,000,000 (as amended, supplemented,
      or otherwise modified from time to time) evidenced by the Watson
      Note.

     

    (b) UCC
      Terms.
      Terms
      defined in Article 9 of the Uniform Commercial Code in effect in the State
      of
      New York (or in any other State, including, without limitation, the State of
      Indiana, to the extent that the Uniform Commercial Code in effect in such State
      is to be applied pursuant to the terms hereof) and not otherwise defined herein
      are used as therein defined. 

     

    SECTION
      2. Priorities.    (a)
      (i) The parties hereto hereby agree to the following priorities of interest
      in
      the Company Collateral: 

     

    The
      liens
      and securities interests of the January 2006 Lenders (under the January 2006
      Company Security Documents) on and in the Company Collateral, securing the
      Company’s Obligations to the January 2006 Lenders (up to an aggregate amount
      equal to the January 2006 Loan Maximum Amount in effect from time to time)
      shall
      at all times be senior and prior in right to the liens thereon and security
      interests therein of the November 2005 Lenders under the November 2005 Company
      Security Documents, the September 2005 Lenders under the September 2005 Company
      Security Documents, the June 2005 Lenders under the June 2005 Company Security
      Documents and the Watson Holders under the Watson Company Security Documents.
      

     

    The
      liens
      and securities interests of the November 2005 Lenders (under the November 2005
      Company Security Documents) on and in the Company Collateral, securing the
      Company’s Obligations to the November 2005 Lenders (up to an aggregate amount
      equal to the November 2005 Loan Maximum Amount in effect from time to time)
      shall at all times be senior and prior in right to the liens thereon and
      security interests therein of the September 2005 Lenders under the September
      2005 Company Security Documents, the June 2005 Lenders under the June 2005
      Company Security Documents and the Watson Holders under the Watson Company
      Security Documents. 

     

    The
      liens
      and securities interests of the September 2005 Lenders (under the September
      2005
      Company Security Documents) on and in the Company Collateral, securing the
      Company’s Obligations to the September 2005 Lenders (up to an aggregate amount
      equal to the September 2005 Loan Maximum Amount in effect from time to time)
      shall at all times be senior and prior in right to the liens thereon and
      security interests therein of the June 2005 Lenders under the June 2005 Company
      Security Documents and the Watson Holders under the Watson Company Security
      Documents. 

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    The
      liens
      and security interests of the June 2005 Lenders (under the June 2005 Company
      Security Documents) on and in the Company Collateral, securing the Company’s
      Obligations to the June 2005 Lenders (up to an aggregate amount equal to the
      June 2005 Loan Maximum Amount in effect from time to time) shall at all times
      be
      senior and prior in right to the liens thereon and security interests therein
      of
      the Watson Holders under the Watson Company Security Documents. 

     

    The
      liens
      and security interests of the Watson Holders (under the Watson Company Security
      Documents) on and in the Company Collateral securing the Company’s Obligations
      to the Watson Holders (up to an aggregate amount equal to the Watson Maximum
      Amount in effect from time to time) shall at all times be junior and subordinate
      in right to the liens thereon and security interests therein of the January
      2006
      Lenders under the January 2006 Company Security Documents, the November 2005
      Lenders under the November 2005 Company Security Documents, the September 2005
      Lenders under the September 2005 Company Security Documents and the June 2005
      Lenders under the June 2005 Company Security Documents. 

     

    (ii)
       The
      parties hereto hereby agree to the following priorities of interest in the
      Guarantor Collateral of each Guarantor: 

     

    The
      liens
      and security interests of the January 2006 Lenders (under the January 2006
      Guarantor Security Documents) on and in the Guarantor Collateral of such
      Guarantor, securing such Guarantor’s Obligations under its January 2006 Guaranty
      (in respect of the Company’s Obligations to the January 2006 Lenders up to an
      aggregate amount equal to the January 2006 Loan Maximum Amount in effect from
      time to time) shall at all times be senior and prior in right to the liens
      thereon and security interests therein of the November 2005 Lenders under the
      November 2005 Guarantor Security Documents, the September 2005 Lenders under
      the
      September 2005 Guarantor Security Documents, the June 2005 Lenders under the
      June 2005 Guarantor Security Documents and the Watson Holders under the Watson
      Guarantor Security Documents. 

     

    The
      liens
      and security interests of the November 2005 Lenders (under the November 2005
      Guarantor Security Documents) on and in the Guarantor Collateral of such
      Guarantor, securing such Guarantor’s Obligations under its November 2005
      Guaranty (in respect of the Company’s Obligations to the November 2005 Lenders
      up to an aggregate amount equal to the November 2005 Loan Maximum Amount in
      effect from time to time) shall at all times be senior and prior in right to
      the
      liens thereon and security interests therein of the September 2005 Lenders
      under
      the September 2005 Guarantor Security Documents, the June 2005 Lenders under
      the
      June 2005 Guarantor Security Documents and the Watson Holders under the Watson
      Guarantor Security Documents. 

     

    The
      liens
      and security interests of the September 2005 Lenders (under the September 2005
      Guarantor Security Documents) on and in the Guarantor Collateral of such
      Guarantor, securing such Guarantor’s Obligations under its September 2005
      Guaranty (in respect of the Company’s Obligations to the September 2005 Lenders
      up to an aggregate amount equal to the September 2005 Loan Maximum Amount in
      effect from time to time) shall at all times be senior and prior in right to
      the
      liens thereon and security interests therein of the June 2005 Lenders under
      the
      June 2005 Guarantor Security Documents and the Watson Holders under the Watson
      Guarantor Security Documents. 

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    The
      liens
      and security interests of the June 2005 Lenders (under the June 2005 Guarantor
      Security Documents) on and in the Guarantor Collateral of such Guarantor,
      securing such Guarantor’s Obligations under its June 2005 Guaranty (in respect
      of the Company’s Obligations to the June 2005 Lenders up to an aggregate amount
      equal to the June 2005 Loan Maximum Amount in effect from time to time) shall
      at
      all times be senior and prior in right to the liens thereon and security
      interests therein of the Watson Holders under the Watson Guarantor Security
      Documents. 

     

    The
      liens
      and security interests of the Watson Holders (under the Watson Guarantor
      Security Documents) on and in the Guarantor Collateral of such Guarantor
      securing such Guarantor’s Obligations under its Watson Guaranty (in respect of
      the Company’s Obligations to the Watson Holders up to an aggregate amount equal
      to the Watson Maximum Amount in effect from time to time) shall at all times
      be
      junior and subordinate in right to the liens thereon and security interests
      therein of the January 2006 Lenders and the January 2006 Guarantor Security
      Documents, the November 2005 Lenders under the November 2005 Guarantor Security
      Documents, the September 2005 Lenders under the September 2005 Guarantor
      Security Documents and the June 2005 Lenders under the June 2005 Guarantor
      Security Documents. 

     

    (b)
       (i)
      The
      parties hereto hereby agree to the following priorities in right of payment
      of
      the Company’s Cash Obligations:

     

    The
      Company’s Cash Obligations under the January 2006 Notes and the January 2006
      Loan Agreement (up to an aggregate amount equal to the January 2006 Loan Maximum
      Amount in effect from time to time) shall at all times be senior and prior
      in
      right of payment to the Company’s Cash Obligations under the November 2005 Loan
      Agreement, the November 2005 Notes, the September 2005 Loan Agreement, the
      September 2005 Notes, the June 2005 Loan Agreement, the June 2005 Notes, the
      Watson Loan Agreement and the Watson Note.

     

    The
      Company’s Cash Obligations under the November 2005 Notes and the November 2005
      Loan Agreement (up to an aggregate amount equal to the November 2005 Loan
      Maximum Amount in effect from time to time) shall at all times be senior and
      prior in right of payment to the Company’s Cash Obligations under the September
      2005 Loan Agreement, the September 2005 Notes, the June 2005 Loan Agreement,
      the
      June 2005 Notes, the Watson Loan Agreement and the Watson Note.

     

    The
      Company’s Cash Obligations under the September 2005 Notes and the September 2005
      Loan Agreement (up to an aggregate amount equal to the September 2005 Loan
      Maximum Amount in effect from time to time) shall at all times be senior and
      prior in right of payment to the Company’s Cash Obligations under the June 2005
      Loan Agreement, the June 2005 Notes, the Watson Loan Agreement and the Watson
      Note.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    The
      Company’s Cash Obligations under the June 2005 Notes and the June 2005 Loan
      Agreement (up to an aggregate amount equal to the June 2005 Loan Maximum Amount
      in effect from time to time) shall at all times be senior and prior in right
      of
      payment to the Company’s Cash Obligations under the Watson Loan Agreement and
      the Watson Note.

     

    The
      Company’s Cash Obligations under the Watson Loan Agreement (up to an aggregate
      amount equal to the Watson Maximum Amount in effect from time to time) shall
      at
      all time be junior and subordinate in right of payment to the Company’s Cash
      Obligations under the November 2005 Notes, the November 2005 Loan Agreement,
      the
      September 2005 Notes, the September 2005 Loan Agreement, the June 2005 Notes
      and
      the 2005 Loan Agreement.

     

    (ii) The
      parties hereto hereby agree to the following priorities in right of payment
      of
      each Guarantor’s Cash Obligations:

     

    Such
      Guarantor’s Cash Obligations under its January 2006 Guaranty in respect of the
      Company’s Obligations to the January 2006 Lenders (up to an aggregate amount
      equal to the January 2006 Loan Maximum Amount in effect from time to time)
      shall
      at all times be senior and prior in right of payment to such Guarantor’s Cash
      Obligations under its November 2005 Guaranty, its September 2005 Guaranty,
      its
      June 2005 Guaranty and its Watson Guaranty.

     

    Such
      Guarantor’s Cash Obligations under its November 2005 Guaranty in respect of the
      Company’s Obligations to the November 2005 Lenders (up to an aggregate amount
      equal to the November 2005 Loan Maximum Amount in effect from time to time)
      shall at all times be senior and prior in right of payment to such Guarantor’s
      Cash Obligations under its September 2005 Guaranty, its June 2005 Guaranty
      and
      its Watson Guaranty.

     

    Such
      Guarantor’s Cash Obligations under its September 2005 Guaranty in respect of the
      Company’s Obligations to the September 2005 Lenders (up to an aggregate amount
      equal to the September 2005 Loan Maximum Amount in effect from time to time)
      shall at all times be senior and prior in right of payment to such Guarantor’s
      Cash Obligations under its June 2005 Guaranty and its Watson
      Guaranty.

     

    Such
      Guarantor’s Cash Obligations under its June 2005 Guaranty in respect of the
      Company’s Obligations to the June 2005 Lenders (up to an aggregate amount equal
      to the June 2005 Loan Maximum Amount in effect from time to time) shall at
      all
      times be senior and prior in right of payment to such Guarantor’s Cash
      Obligations under its Watson Guaranty.

     

    Such
      Guarantor’s Cash Obligations under its Watson Guaranty in respect of the
      Company’s Obligations to the Watson Holders (up to an aggregate amount equal to
      the Watson Maximum Amount in effect from time to time) shall at all times be
      junior and subordinate in right of payment to such Guarantor’s Cash Obligations
      under its January 2006 Guaranty, its November 2005 Guaranty, its September
      2005
      Guaranty and its June 2005 Guaranty.

     

    For
      the
      avoidance of doubt, nothing in this Section 2(b) shall apply at any time to
      any
      Obligations of the Company or any Guarantor to the extent that they are not
      then
      Cash Obligations.

     

    (c) Except
      as
      otherwise provided in Sections 2(a) and 2(b) hereof, no Secured Creditor shall
      have any lien or security interest which is prior to the lien and security
      interest of any other Secured Creditor in any item of Collateral covered by
      the
      Company Security Documents or the Guarantor Security Documents. 

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (d) So
      long
      as any Person is a Secured Creditor, the priorities set forth in this Agreement
      are applicable irrespective of the order of creation, attachment or perfection
      of any lien or security interest arising under the Security Documents (whether
      or not such security interests have been perfected) or any priority that might
      otherwise be available to such Secured Creditor under applicable law and
      notwithstanding any representation or warranty of the Company or any of the
      Guarantors to the contrary in any Transaction Document. 

     

    (e) Each
      Secured Creditor agrees not to contest, or to bring (or voluntarily join in)
      any
      action or proceeding for the purpose of contesting, the creation, attachment,
      validity, enforceability, perfection or priority (as herein provided) of, or
      seeking to avoid, the lien and security interest which any Security Document
      (as
      amended or otherwise modified hereby) purports to create in favor of any other
      Secured Creditor on or in any item of Collateral. Nothing herein shall be deemed
      or construed to prevent any Secured Creditor from commencing an action or
      proceeding against any other Secured Creditor to assert any right or claim
      it
      may have arising under or in connection with this Agreement. 

     

    (f) Notwithstanding
      anything to the contrary in this Agreement, in the event of a Bankruptcy
      Proceeding of the Company, the November 2005 Lenders hereby agree as follows,
      in
      each case unless otherwise consented to in writing by the Required January
      2006
      Lenders:

     

    (i) the
      November 2005 Lenders waive any and all rights to dispute actions taken by
      the
      Required January 2006 Lenders to seek adequate protection with respect to the
      collateral securing the January 2006 Notes;

     

    (ii) the
      November 2005 Lenders agree not to seek any form of adequate protection other
      than: (A) replacement liens which shall be junior to any replacement liens
      granted to the January 2006 Lenders and to any liens securing
      debtor-in-possession (“DIP”)
      financing that has been approved by the Required January 2006 Lenders, and
      (B)
      periodic reports from the Company;

     

    (iii) the
      November 2005 Lenders agree not to oppose the use of cash collateral as agreed
      to by the Required January 2006 Lenders and will not oppose the use of any
      November 2005 Lenders’ cash collateral; provided, however, that the November
      2005 Lenders receive replacement liens. The November 2005 Lenders agree to
      a
      carve out from their collateral equal to any carve out agreed to by the Required
      January 2006 Lenders, for example, for fees of the U.S. Trustee and estate
      professionals; 

     

    (iv) the
      November 2005 Lenders agree not to oppose their liens being primed by any DIP
      loan that has been approved by the Required January 2006 Lenders; provided
      however, that the November 2005 Lenders receive replacement liens junior to
      the
      liens securing the DIP loan and the replacement liens received by the January
      2006 Lenders. Notwithstanding the foregoing, the November 2005 Lenders reserve
      all rights to oppose other aspects of any DIP loan that could be asserted if
      they held unsecured debt; 

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (v) in
      the
      event of a sale or sales of an asset or assets by the Company that has been
      approved by the Required January 2006 Lenders in a bankruptcy case, the November
      2005 Lenders agree to waive any right to assert that it is impossible to sell
      assets free and clear of their liens without their consent. Notwithstanding
      the
      foregoing, the November 2005 Lenders retain their rights to object a sale of
      assets on grounds other than the assets being sold free and clear of the
      November 2005 Lenders’ liens; 

     

    (vi) the
      November 2005 Lenders waive any and all rights to credit bid at a bankruptcy
      sale of the Company’s assets, unless the Required January 2006 Lenders’ consent;
      and 

     

    (vii) the
      November 2005 Lenders agree not to vote in favor of any plan of reorganization
      proposed in a bankruptcy case unless the plan either pays the January 2006
      Lenders in full in cash or is supported by the Required January 2006
      Lenders.

     

    (g)
       Notwithstanding
      anything to the contrary in this Agreement, in the event of a Bankruptcy
      Proceeding of the Company, the September 2005 Lenders hereby agree as follows,
      in each case unless otherwise consented to in writing by each of the Required
      November 2005 Lenders and the Required January 2006 Lenders:

     

    (i) the
      September 2005 Lenders waive any and all rights to dispute actions taken by
      the
      Required November 2005 Lenders to seek adequate protection with respect to
      the
      collateral securing the November 2005 Notes; and waive any and all rights to
      dispute actions taken by the Required January 2006 Lenders to seek adequate
      protection with respect to collateral securing the January 2006 Notes;


     

    (ii) the
      September 2005 Lenders agree not to seek any form of adequate protection other
      than: (A) replacement liens which shall be junior to any replacement liens
      granted to the November 2005 Lenders and junior to any replacement liens granted
      to the January 2006 Lenders, and to any liens securing debtor-in-possession
      (“DIP”)
      financing that has been approved by the Required November 2005 Lenders and
      has
      been approved by the Required January 2006 Lenders, and (B) periodic reports
      from the Company;

     

    (iii) the
      September 2005 Lenders agree not to oppose the use of cash collateral as agreed
      to by the Required November 2005 Lenders and as agreed to by the January 2006
      Lenders and will not oppose the use of any September 2005 Lenders’ cash
      collateral; provided, however, that the September 2005 Lenders receive
      replacement liens. The September 2005 Lenders agree to a carve out from their
      collateral equal to any carve out agreed to by the Required November 2005
      Lenders and agreed to by the January 2006 Lenders, for example, for fees of
      the
      U.S. Trustee and estate professionals; 

     

    (iv) the
      September 2005 Lenders agree not to oppose their liens being primed by any
      DIP
      loan that has been approved by each of the Required November 2005 Lenders and
      the Required January 2006 Lenders; provided however, that the September 2005
      Lenders receive replacement liens junior to the liens securing the DIP loan
      and
      the replacement liens received by the November 2005 Lenders and the January
      2006
      Lenders. Notwithstanding the foregoing, the September 2005 Lenders reserve
      all
      rights to oppose other aspects of any DIP loan that could be asserted if they
      held unsecured debt; 

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (v) in
      the
      event of a sale or sales of an asset or assets by the Company that has been
      approved by each of the Required November 2005 Lenders and the Required January
      2006 Lenders in a bankruptcy case, the September 2005 Lenders agree to waive
      any
      right to assert that it is impossible to sell assets free and clear of their
      liens without their consent. Notwithstanding the foregoing, the September 2005
      Lenders retain their rights to object a sale of assets on grounds other than
      the
      assets being sold free and clear of the September 2005 Lenders’ liens;


     

    (vi) the
      September 2005 Lenders waive any and all rights to credit bid at a bankruptcy
      sale of the Company’s assets, unless each of the Required November 2005 Lenders
      and the Required January 2006 Lenders consent; and 

     

    (vii) the
      September 2005 Lenders agree not to vote in favor of any plan of reorganization
      proposed in a bankruptcy case unless the plan either pays both the November
      2005
      Lenders and the January 2006 Lenders in full in cash or is supported by each
      of
      the Required November 2005 Lenders and the Required January 2006
      Lenders.

     

    (h) Notwithstanding
      anything to the contrary in this Agreement, in the event of a Bankruptcy
      Proceeding of the Company, the June 2005 Lenders hereby agree as follows, in
      each case unless otherwise consented to in writing by each of the Required
      September 2005 Lenders, the Required November 2005 Lenders and the Required
      January 2006 Lenders:

     

    (i) the
      June
      2005 Lenders waive any and all rights to dispute actions taken by the Required
      September 2005 Lenders to seek adequate protection with respect to the
      collateral securing the September 2005 Notes, waive any all rights to dispute
      actions taken by the Required November 2005 Lenders to seek adequate protection
      with respect to the collateral securing the November 2005 Notes and waive any
      and all rights to dispute actions taken by the Required January 2006 Lenders
      to
      seek adequate protection with respect to the collateral securing the January
      2006 Notes;

     

    (ii) the
      June
      2005 Lenders agree not to seek any form of adequate protection other than:
      (A)
      replacement liens which shall be junior to any replacement liens granted to
      the
      September 2005 Lenders, junior to any replacement liens granted to the November
      2005 Lenders, and junior to any replacement liens granted to the January 2006
      Lenders, and to any liens securing debtor-in-possession (“DIP”)
      financing that has been approved by each of the Required September 2005 Lenders,
      the Required November 2005 Lenders and the Required January 2006 Lenders, and
      (B) periodic reports from the Company;

     

    (iii) the
      June
      2005 Lenders agree not to oppose the use of cash collateral as agreed to by
      each
      of the Required January 2006 Lenders, the Required November 2005 Lenders and
      the
      Required September 2005 Lenders and will not oppose the use of any June 2005
      Lenders’ cash collateral; provided, however, that the June 2005 Lenders receive
      replacement liens. The June 2005 Lenders agree to a carve out from their
      collateral equal to any carve out agreed to by each of the Required January
      2006
      Lenders, the Required November 2005 Lenders and the Required September 2005
      Lenders, for example, for fees of the U.S. Trustee and estate professionals;
      

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (iv) the
      June
      2005 Lenders agree not to oppose their liens being primed by any DIP loan that
      has been approved by each of the Required January 2006 Lenders, the Required
      November 2005 Lenders and the Required September 2005 Lenders; provided however,
      that the June 2005 Lenders receive replacement liens junior to the liens
      securing the DIP loan and the replacement liens received by the January 2006
      Lenders, the November 2005 Lenders and the September 2005 Lenders.
      Notwithstanding the foregoing, the June 2005 Lenders reserve all rights to
      oppose other aspects of any DIP loan that could be asserted if they held
      unsecured debt; 

     

    (v) in
      the
      event of a sale or sales of an asset or assets by the Company that has been
      approved by each of the January 2006 Lenders, the Required November 2005 Lenders
      and the Required September 2005 Lenders in a bankruptcy case, the June 2005
      Lenders agree to waive any right to assert that it is impossible to sell assets
      free and clear of their liens without their consent. Notwithstanding the
      foregoing, the June 2005 Lenders retain their rights to object a sale of assets
      on grounds other than the assets being sold free and clear of the June 2005
      Lenders’ liens; 

     

    (vi) the
      June
      2005 Lenders waive any and all rights to credit bid at a bankruptcy sale of
      the
      Company’s assets, unless each of the Required January 2006 Lenders, the Required
      November 2005 Lenders and the Required September 2005 Lenders consent; and
      

     

    (vii) the
      June
      2005 Lenders agree not to vote in favor of any plan of reorganization proposed
      in a bankruptcy case unless the plan either pays each of the January 2006
      Lenders, the November 2005 Lenders and the September 2005 Lenders in full in
      cash or is supported by each of the Required January 2006 Lenders, the Required
      November 2005 Lenders and the Required September 2005 Lenders.

     

    (i) 
      Notwithstanding anything to the contrary in this Agreement, in the event of
      a
      Bankruptcy Proceeding of the Company, the Watson Holders hereby agree as
      follows, in each case unless otherwise consented to in writing by the Required
      Senior Secured Parties:

     

    (i) the
      Watson Holders waive any and all rights to dispute actions taken by the Senior
      Secured Parties to seek adequate protection with respect to the collateral
      securing the June 2005 Notes, the September 2005 Notes, the November 2005 Notes
      and the January 2006 Notes;

     

    (ii) the
      Watson Holders agree not to seek any form of adequate protection other than:
      (A)
      replacement liens which shall be junior to any replacement liens granted to
      the
      Senior Secured Parties and to any liens securing debtor-in-possession
      (“DIP”)
      financing that has been approved by the Required Senior Secured Parties, and
      (B)
      periodic reports from the Company;

     

    (iii) the
      Watson Holders agree not to oppose the use of cash collateral as agreed to
      by
      the Required Senior Secured Parties and will not oppose the use of any Watson
      Holders’ cash collateral; provided, however, that the Watson Holders receive
      replacement liens. The Watson Holders agree to a carve out from their collateral
      equal to any carve out agreed to by the Required Senior Secured Parties, for
      example, for fees of the U.S. Trustee and estate professionals; 

     

    
      
        
        

      

      
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    (iv) the
      Watson Holders agree not to oppose their liens being primed by any DIP loan
      that
      has been approved by the Required Senior Secured Parties; provided however,
      that
      the Watson Holders receive replacement liens junior to the liens securing the
      DIP loan and the replacement liens received by the Senior Secured Parties.
      Notwithstanding the foregoing, the Watson Holders reserve all rights to oppose
      other aspects of any DIP loan that could be asserted if they held unsecured
      debt; 

     

    (v) in
      the
      event of a sale or sales of an asset or assets by the Company that has been
      approved by the Required Senior Secured Parties in a bankruptcy case, the Watson
      Holders agree to waive any right to assert that it is impossible to sell assets
      free and clear of their liens without their consent. Notwithstanding the
      foregoing, the Watson Holders retain their rights to object a sale of assets
      on
      grounds other than the assets being sold free and clear of the Watson Holders’
liens; 

     

    (vi) the
      Watson Holders waive any and all rights to credit bid at a bankruptcy sale
      of
      the Company’s assets, unless the Required Senior Secured Parties consent; and


     

    (vii) the
      Watson Holders agree not to vote in favor of any plan of reorganization proposed
      in a bankruptcy case unless the plan either pays the Senior Secured Parties
      in
      full in cash or is supported by the Required Senior Secured
      Parties.

     

    (j) 
      The June
      2005 Lenders agree than in the event of a Bankruptcy Proceeding of the Company
      to (i) vote for any Plan of Reorganization supported by the Required June 2005
      Lenders, (ii) vote for and not object to a sale or sales of an asset that has
      been approved by the Required June 2005 Lenders; (iii) vote for and not object
      to any DIP loan that has been approved by the Required June 2005 Lenders; (iv)
      support and not object to a carve out from their collateral equal to any carve
      out agreed to by the Required June 2005 Lenders; (v) waive any and all rights
      to
      dispute actions taken by the Required June 2005 Lenders to seek adequate
      protection with respect to the collateral securing the June 2005 Notes; and
      (vi)
      waive any right to assert that it is impossible to sell assets free and clear
      of
      their liens without their consent, if such right has been waived by the Required
      June 2005 Lenders. 

     

    (k)
      The
      September 2005 Lenders agree than in the event of a Bankruptcy Proceeding of
      the
      Company to (i) vote for any Plan of Reorganization supported by the Required
      September 2005 Lenders, (ii) vote for and not object to a sale or sales of
      an
      asset that has been approved by the Required September 2005 Lenders; (iii)
      vote
      for and not object to any DIP loan that has been approved by the Required
      September 2005 Lenders; (iv) support and not object to a carve out from their
      collateral equal to any carve out agreed to by the Required September 2005
      Lenders; (v) waive any and all rights to dispute actions taken by the Required
      September 2005 Lenders to seek adequate protection with respect to the
      collateral securing the September 2005 Notes; and (vi) waive any right to assert
      that it is impossible to sell assets free and clear of their liens without
      their
      consent, if such right has been waived by the Required September 2005 Lenders.
      

     

    
      
        
        

      

      
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    (l)
      The
      November 2005 Lenders agree than in the event of a Bankruptcy Proceeding of
      the
      Company to (i) vote for any Plan of Reorganization supported by the Required
      November 2005 Lenders, (ii) vote for and not object to a sale or sales of an
      asset that has been approved by the Required November 2005 Lenders; (iii) vote
      for and not object to any DIP loan that has been approved by the Required
      November 2005 Lenders; (iv) support and not object to a carve out from their
      collateral equal to any carve out agreed to by the Required November 2005
      Lenders; (v) waive any and all rights to dispute actions taken by the Required
      November 2005 Lenders to seek adequate protection with respect to the collateral
      securing the November 2005 Notes; and (vi) waive any right to assert that it
      is
      impossible to sell assets free and clear of their liens without their consent,
      if such right has been waived by the Required November 2005
      Lenders.

     

    (m) The
      January 2006 Lenders agree than in the event of a Bankruptcy Proceeding of
      the
      Company to (i) vote for any Plan of Reorganization supported by the Required
      January 2006 Lenders, (ii) vote for and not object to a sale or sales of an
      asset that has been approved by the Required January 2006 Lenders; (iii) vote
      for and not object to any DIP loan that has been approved by the Required
      January 2006 Lenders; (iv) support and not object to a carve out from their
      collateral equal to any carve out agreed to by the Required January 2006
      Lenders; (v) waive any and all rights to dispute actions taken by the Required
      January 2006 Lenders to seek adequate protection with respect to the collateral
      securing the January 2006 Notes; and (vi) waive any right to assert that it
      is
      impossible to sell assets free and clear of their liens without their consent,
      if such right has been waived by the Required January 2006 Lenders.

     

    (n)
      The
      Watson Holders agree than in the event of a Bankruptcy Proceeding of the Company
      to (i) vote for any Plan of Reorganization supported by the Required Watson
      Holders, (ii) vote for and not object to a sale or sales of an asset that has
      been approved by the Required Watson Holders; (iii) vote for and not object
      to
      any DIP loan that has been approved by the Required Watson Holders; (iv) support
      and not object to a carve out from their collateral equal to any carve out
      agreed to by the Required Watson Holders; (v) waive any and all rights to
      dispute actions taken by the Required Watson Holders to seek adequate protection
      with respect to the collateral securing the Watson Notes; and (vi) waive any
      right to assert that it is impossible to sell assets free and clear of their
      liens without their consent, if such right has been waived by the Required
      Watson Holders.

     

    SECTION 3.  Enforcement
      of Security.    (a)  
      Each Secured Creditor may, from time to time, to the extent provided in the
      Transaction Documents to which it is a party, (i) give notice that an "event
      of
      default" has occurred and is continuing under such Transaction Documents, (ii)
      accelerate the Company’s Obligations under such Transaction Documents and (iii)
      whether or not it has given such notice or has effected such acceleration (but
      except as otherwise provided in this Agreement), take or authorize the taking
      of
      such action with regard to the protection, exercise, enforcement and collection
      of its rights in and to that portion of the Collateral, in which it may have
      an
      interest, as it may determine to be necessary or appropriate; provided,
      however,
      that
      each Secured Creditor which is, as to any item of Collateral, a Junior Secured
      Party in relation to one or more Senior Secured Parties, agrees that it (A)
      will
      not take any action to enforce, collect on or exercise any or its rights or
      remedies in respect of its liens on and security interests in such item or
      take
      or receive from the Company or any Guarantor, respectively, directly or
      indirectly, in cash or other property or by setoff or in any other manner,
      whether pursuant to any judicial or nonjudicial enforcement, collection,
      execution, levy or foreclosure proceedings or otherwise, including by deed
      in
      lieu of foreclosure, the Collateral, or any part thereof or interest therein,
      in
      each case unless and until each such Senior Secured Party has given written
      notice to such Junior Secured Party that those Obligations to such Senior
      Secured Party which are secured by such item and which are stated in Section
      2
      hereof to be senior to the Obligations to such Junior Secured Party have been
      indefeasibly paid in full (and each such Senior Secured Party hereby agrees
      promptly to give such notification following such payment to such Senior Secured
      Party), (B) will not interfere with any exercise by or on behalf of each such
      Senior Secured Party in respect of any liens and security interests of such
      Senior Secured Party on or in such item or any other rights or remedies of
      such
      Senior Secured Party in furtherance of the rights and remedies of such Senior
      Secured Party to the extent set forth in Section 2 hereof, and (C) will hold
      and
      promptly pay or deliver to each such Senior Secured Party, in order of and
      in
      accordance with the priorities set forth in Section 2 above (subject, however,
      to Section 3(b) hereof), any such item received by such Junior Secured Party
      (including, without limitation, any proceeds from the sale or other disposition
      of such item), in each case unless and until each such Senior Secured Party
      has
      given written notice to such Junior Secured Party that its Obligations (to
      the
      extent set forth in clause (A) above) have been indefeasibly paid in full.
      

     

    
      
        
        

      

      
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    (b)  (i)  Except
      as otherwise provided in clause (ii) below, each Secured Creditor agrees to
      hold
      any item of Collateral, received by it, in or against which a security interest
      or lien may be perfected by possession, as possessory agent on behalf of all
      Secured Creditors that have a lien on or security interest in such item
      (including, if appropriate, on its own behalf), and, unless such Secured
      Creditor is a Senior Secured Party as to such item in relation to all other
      Secured Creditors, to give notice (indicating the nature and amount of such
      items) of such item and to turn over to the appropriate Secured Creditor thereto
      forthwith upon receipt thereof, provided
      that
      this clause (i) is intended solely to assure continuous perfection of the liens
      and security interests granted under the Security Documents and nothing in
      this
      clause (i) shall be deemed or construed as altering the priorities or
      obligations set forth elsewhere in this Agreement; and (ii) in the event any
      Secured Creditor receives any proceeds from the sale or any other disposition
      of
      any Collateral in contravention of this Agreement) or in excess of the portion
      of such proceeds to which such Secured Creditor is entitled hereunder, such
      Secured Creditor shall give notice (indicating the nature and amount of such
      proceeds and such excess, as applicable) and turn such proceeds or such excess,
      as applicable, over to the appropriate Secured Creditor entitled thereto.


     

    (c) Except
      as
      otherwise expressly provided in this Agreement, each right, power and remedy
      of
      any of the Secured Creditors provided for in this Agreement or any of the
      Transaction Documents, or any other document relating thereto, whether such
      right, power or remedy is now existing or hereafter available at law or in
      equity or by statute or otherwise, shall be cumulative and concurrent (except
      to
      the extent otherwise provided in any such document) and shall be in addition
      to
      every other such right, power or remedy. Except as otherwise provided in Section
      3(a), the Transaction Documents, or any other document relating thereto, the
      exercise or the beginning of the exercise by any Secured Creditor of any one
      or
      more of such rights, powers or remedies shall not preclude the simultaneous
      or
      later exercise of all such rights, powers or remedies, and no course of dealing
      or failure or delay on the part of any party hereto in exercising any such
      right, power or remedy shall operate as a waiver thereof or otherwise prejudice
      its rights, powers or remedies. 

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    (d) Each
      Secured Creditor which is, as to any item of Collateral, a Junior Secured Party
      in relation to one or more Senior Secured Parties agrees that this Agreement
      shall be enforceable against it in all circumstances, including, without
      limitation, in any Bankruptcy Proceeding. 

     

    SECTION 4.  Notices
      of Default; Collateral Disposition, etc.    (a)
      Each of the Secured Creditors agrees individually to give the others (as
      applicable): copies of any written notice of an event of default (under any
      Transaction Document) received from or sent to any Grantor, (i) within 10
      business days of receipt of any such notice by such Secured Creditor from such
      Grantor (or, if earlier, prior to such Secured Creditor’s exercising any right
      or remedy or taking any other action, in respect of such event of default,
      against the Company, any Guarantor, any Company Collateral or any Guarantor
      Collateral), or, as applicable, (ii) simultaneously with any such notice sent
      by
      such Secured Creditor to any Grantor; and

     

    (b) This
      Agreement is intended, in part, to constitute a request for notice and a written
      notice of a claim by each Secured Creditor to the other of any interest in
      the
      Collateral, in accordance with the provisions of Section 9-611 and 9-621 of
      the
      Uniform Commercial Code. 

     

    (c) Anything
      herein to the contrary notwithstanding, nothing in this Section 4 shall permit
      any Secured Creditor to exercise any right or remedy, or to take any other
      action, against or in respect of the Company, any Guarantor, any Company
      Collateral or any Guarantor Collateral in contravention of Sections 2 or 3
      hereof or of any other provision of this Agreement. 

     

    SECTION 5.  Rights
      of Subrogation.    Any
      Junior Secured Party in respect of one or more Senior Secured Parties agrees
      that, whether or not any such Senior Secured Party shall have received any
      payment or distribution to any one or more Senior Secured Parties from the
      Company or any Guarantor or on account of their Obligations, such Junior Secured
      Party shall not be entitled to exercise any rights of subrogation or
      reimbursement (or similar right or remedy of a surety) until the date on which
      all Obligations to all such Senior Secured Parties (to the extent such
      Obligations are stated in Section 2 hereof to be senior to the Obligations
      to
      such Junior Secured Party) shall have been indefeasibly paid in full.


     

    SECTION 6.  Further
      Assurances.    Any
      Junior Secured Party in respect of one or more Senior Secured Parties will,
      at
      the expense of the Company, at any time and from time to time promptly execute
      and deliver all further instruments and documents and take all further action,
      that any Senior Secured Party may reasonably request, in order to protect any
      right or interest granted or purported to be granted hereby or to enable any
      Senior Secured Party to exercise and enforce its rights and remedies hereunder.
      

     

    SECTION 7.  Waiver
      of Marshalling and Similar Rights.    Each
      of the parties hereto, to the fullest extent permitted by applicable law, waives
      any requirement regarding, and agrees not to demand, request, plead or otherwise
      claim the benefit of, any marshalling, appraisement, valuation or other similar
      right that a creditor or any other Person may otherwise may have under
      applicable law. 

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    SECTION 8.  Obligations
      Hereunder Not Affected.    Except
      as otherwise provided in this Agreement, all rights, interests, agreements
      and
      obligations of the Secured Creditors hereunder, in respect of each other or
      in
      respect of the other parties to this Agreement, and all agreements and
      obligations of the Junior Secured Parties in respect of the respective Senior
      Secured Parties under this Agreement shall remain in full force and effect
      irrespective of: 

     

    (a) Any
      lack
      of validity or enforceability of any Transaction Document or any other agreement
      or instrument relating thereto; 

     

    (b) Any
      change in the time, manner or place of payment of, the security for, or in
      any
      other term of, all or any of the Obligations secured or guaranteed by the
      Security Documents, or any other extension, renewal, supplement, amendment
      or
      other modification, waiver, refinancing or restructuring of or any consent
      to
      departure from, or any act, omission or default under, this Agreement or any
      other Transaction Document (including, without limitation, any increase in
      such
      Obligations resulting from the extension of additional credit to, or the
      issuance of additional debt or equity instruments by, the Company or any of
      its
      Subsidiaries or otherwise, but excluding, in any event, any such increase in
      the
      Company’s Obligations to any one or more Secured Creditors to the extent that,
      after giving effect thereto and to any reductions associated or occurring
      substantially concurrently with such increase, the aggregate amount of the
      Company’s Obligations to such Secured Creditors would exceed the aggregate
      amount of such Obligations to such Secured Creditors stated to be subject to
      the
      priorities of Section 2 hereof); 

     

    (c) Any
      taking, exchange, surrender, release or non-perfection of any lien or security
      interest in the Collateral, or any other collateral, or any taking, release,
      supplement, amendment or other modification or waiver of or consent to departure
      from any Guaranty, or any other guaranty, for all or any of the Obligations,
      or
      any settlement or compromise of any of such Obligations; 

     

    (d) Any
      manner of application of the Collateral, or any other collateral, or proceeds
      thereof, to all or any of the Obligations of the Company secured or guaranteed
      by the Security Documents, or any manner of sale or other disposition of any
      Collateral or such other collateral or any other assets of the Company;


     

    (e) Any
      exercise or failure to exercise any rights by or against any Secured Creditor;
      

     

    (f) Any
      change, restructuring or termination of the corporate structure of the Company
      or any of its Subsidiaries (including, without limitation, Acura Pharmaceutical
      Technologies, Inc. and Axiom Pharmaceutical Corporation); or 

     

    (g) Any
      other
      circumstance (including, without limitation, any statute of limitations) that
      might otherwise constitute a defense available to, or a discharge of, any
      Grantor, any Guarantor, any borrower, any Secured Creditor or any other secured
      creditor (irrespective of such creditor being subordinated whether in priority
      of its liens on or security interest in collateral, in right of payment or
      otherwise). 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    This
      Agreement shall continue to be effective or be reinstated, as the case may
      be,
      if at any time any payment of any Obligation is rescinded or must otherwise
      be
      returned by any Secured Creditor upon the initiation of any Bankruptcy
      Proceedings against any Grantor, or otherwise, all as though such payment had
      not been made. 

     

    SECTION 9.  Appointment
      of Collateral Agents.
      In case
      of the pendency of any Bankruptcy Proceeding or other judicial proceeding
      relative to any Grantor or Guarantor, the Agent shall be entitled and empowered,
      by intervention in such proceeding or otherwise, (a) to file and prove a claim
      for the whole amount of the Obligations and other amounts due under the
      Transaction Documents or this Agreement and to file such other papers or
      documents as may be necessary or advisable in order to have such claims and
      amounts due allowed in such Bankruptcy Proceeding or judicial proceeding, and
      (b) to collect and receive any moneys or other property payable or deliverable
      on any such claims or other amounts due and to distribute the same in accordance
      with the provisions hereof. Nothing in this paragraph shall be deemed to
      authorize the Agent to authorize or consent to or accept or adopt on behalf
      of
      any 2005 Lender any plan or reorganization, arrangement, adjustment or
      composition affecting the Obligations or other amounts due under the Transaction
      Documents or this Agreement, or to authorize the Agent to vote in respect of
      the
      Obligations or other amounts due in any such Bankruptcy Proceeding or judicial
      proceeding. 

     

    SECTION 10.  Representations
      and Warranties.    Each
      of the Watson Holders, the June 2005 Lenders, the September 2005 Lenders, the
      November 2005 Lenders and the January 2006 Lenders represents and warrants
      to
      the other Watson Holders, June 2005 Lenders, September 2005 Lenders, November
      2005 Lenders and January 2006 Lenders party hereto as follows: 

     

    (a) (i)  This
      Agreement has been duly executed and delivered by its duly authorized officer
      and constitutes its legal, valid and binding obligation, enforceable against
      it
      in accordance with the terms hereof; and (ii) the execution, delivery and
      performance by it of this Agreement have been duly authorized by all necessary
      corporate or partnership action, as the case may be, and do not and will not
      (A)
      violate any provision of any law, rule or regulation having applicability to
      it
      or of its (x) charter or articles of association or by-laws or (y) limited
      partnership agreement, as the case may be, (B) result in a breach of or
      constitute a default or an event of default (or any event which, with the giving
      of notice, the lapse of time, or both, would constitute an event of default)
      under any indenture or loan or credit agreement or any other material agreement,
      lease or instrument to which it is a party, or (C) require the consent or
      approval of any governmental authority or arbitrator; 

     

    (b) Each
      of
      the Watson Holders represents and warrants that it has not heretofore
      transferred or assigned its lien on and security interest in any Collateral
      under the Watson Company Security Documents or the Watson Guarantor Security
      Documents; 

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    (c) Each
      of
      the June 2005 Lenders represents and warrants that it has not heretofore
      transferred or assigned its lien on and security interest in any Collateral
      under the June 2005 Company Security Documents or the June 2005 Guarantor
      Security Documents; and 

     

    (d) Each
      of
      the September 2005 Lenders represents and warrants that it has not heretofore
      transferred or assigned its lien on and security interest in any Collateral
      under the September 2005 Company Security Documents or the September 2005
      Guarantor Security Documents.

     

    (e) Each
      of
      the November 2005 Lenders represents and warrants that it has not heretofore
      transferred or assigned its lien on and security interest in any Collateral
      under the November 2005 Company Security Documents or the November 2005
      Guarantor Security Documents; and 

     

    SECTION 11.  Assignments.    (a)  No
      party hereto shall assign its rights hereunder or any interest herein or any
      of
      its rights or interests pursuant to the respective Security Documents made
      by it
      or in its favor, or any of its obligations hereunder or thereunder, to any
      other
      Person (i) without the prior written consent of the Senior Secured Parties
      holding a majority of the amount of the Obligations to such Senior Secured
      Parties and (ii) in compliance with Section 11(b) below. 

     

    (b) In
      the
      event of any assignment of any Security Document by any party hereto or by
      any
      successor or assignee of any party hereto or by any other party which may now
      or
      hereafter have any rights, title or interest in such Security Document,
      respectively, the terms of such assignment shall provide that, and the assigned
      Security Document shall bear a legend to the effect that (i) all provisions
      of
      such agreement, including provisions relating to the assignment thereof, shall
      be subject to the terms of this Agreement and that in the event of any conflict
      between such agreement and this Agreement, this Agreement shall prevail and
      (ii)
      the assignee of such Security Document shall be bound by all duties and
      obligations of the assignor of such Security Document under this
      Agreement.

     

    (c) Notwithstanding
      anything to the contrary in this Agreement, each party hereto acknowledges
      the
      assignment before the date hereof by Watson to the Watson Holders (and/or the
      Agent) of all of Watson’s rights and interests under the Watson Company Security
      Documents, the Watson Guarantor Security Documents, the Watson Guaranty, the
      Watson Loan Agreement, the Watson Term Loan and the Watson Note. 

     

    SECTION 12.  Continuing
      Agreement; Assignments of Obligations.    (a)  This
      Agreement shall remain in full force and effect until the date on which all
      Obligations shall have been indefeasibly paid in full and no Obligations are
      outstanding. 

     

    (b) This
      Agreement shall be binding upon, and inure to the benefit of and be enforceable
      by, each party hereto and its successors, permitted transferees and assigns.
      

     

    (c) Without
      limiting the generality of Section 12(b) above, except as otherwise provided
      in
      Section 11, nothing in this Agreement shall preclude any Secured Creditor from
      assigning or otherwise transferring all or any porting of its rights and
      obligations under any Transaction Document to any other Person, and such other
      Person shall thereupon become vested with all the rights in respect thereof
      granted to such Secured Creditor herein or otherwise, in each case as provided
      in the respective Transaction Documents. 

     

    
      
        
        

      

      
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    SECTION 13.  Amendment;
      Modification; Waiver of Documents.    (a)  Except
      as otherwise expressly provided herein, no provision of this Agreement may
      be
      supplemented, amended, or otherwise modified or waived other than by a writing
      signed by the parties hereto holding (i) at least fifty percent (50%) of the
      outstanding principal amount of the January 2006 Notes; (ii) at least fifty
      percent (50%) of the outstanding principal amount under the November 2005 Notes;
      (iii) at least sixty percent (60%) of the outstanding principal amount under
      the
      September 2005 Notes, (iv) at least sixty percent (60%) of the outstanding
      principal amount under the June 2005 Notes, and (v) at least sixty percent
      (60%)
      of the outstanding principal amount under the Watson Note. Without limiting
      the
      generality of the foregoing, the parties expressly acknowledge that no
      amendment, waiver or modification of Sections 2 or 3 of this Agreement shall
      require any consent of any Grantor. Furthermore, except as otherwise expressly
      provided herein, no rights of any Secured Creditor in any item of Collateral
      may
      be amended, supplemented, or otherwise modified (whether by virtue of supplement
      or amendment to or other modification of this Agreement, any Transaction
      Document or otherwise) without the prior written consent of such parties as
      would be sufficient to amend this Agreement pursuant to the first sentence
      of
      this Section 13. Anything herein to the contrary notwithstanding (but except
      as
      otherwise specified in the following sentence), each Secured Creditor may make
      supplements or amendments to, or modifications or waivers of the provisions
      of
      its Transaction Documents in accordance with the terms thereof without the
      prior
      written consent of or notice to any other Person, except for any changes in
      the
      definition of "Company Collateral" or "Guarantor Collateral" (or similar terms)
      set forth therein resulting in increase of the rights of such Secured Creditor
      in such item, which changes in such definitions shall require the prior written
      consent of such parties as would be sufficient to amend this Agreement pursuant
      to the first sentence of this Section 13. 

     

    (b) To
      the
      extent any provision of Section 13(a) or (b) hereof requires the consent of
      any
      Secured Creditor under one or more Security Documents to which such Secured
      Creditor is a party, the effectiveness of such consent shall be determined
      in
      accordance with such Security Documents. 

     

    (c) This
      Agreement supersedes in all respects the November 2005 Subordination Agreement.
      

     

    SECTION 14.  Intercreditor
      Agreement for Benefit of Parties Hereto.    Nothing
      in this Agreement, express or implied, is intended or shall be construed to
      confer upon any person or entity other than the Secured Creditors any right,
      remedy or claim by reason of this Agreement or any covenant, condition or
      stipulation hereof; and the covenants, stipulations and agreements contained
      in
      this Agreement are and shall be for the sole and exclusive benefit of the
      parties hereto, and their respective successors and assigns. 

     

    SECTION 15.  Notices.    All
      notices, demands or other communications given hereunder shall be in writing
      and
      shall be sufficiently given if transmitted by facsimile or delivered either
      personally or by a nationally recognized courier service marked for next
      business day delivery or sent in a sealed envelope by first class mail, postage
      prepaid and either registered or certified, return receipt requested, addressed
      as follows:

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    if
      to any
      Watson Holder, June 2005 Lender, September 2005 Lender or November 2005 Lender,
      to it as set forth opposite its signature on the signature pages hereto;


     

    if
      to the
      Company, to 616 N. North Court, Palatine, Illinois 60067, fax no. (847)
      705-5399, to the attention of Mr. Andrew D. Reddick, Chief Executive Officer;
      

     

    if
      to the
      Grantors and Guarantors, as applicable to: (i) Acura Pharmaceutical
      Technologies, Inc., c/o the Company at the notice address or fax number above;
      or (ii) Axiom Pharmaceutical Corporation, c/o the Company at the notice address
      or fax number above; 

     

    if
      to any
      future Grantor or Guarantor, at such address given by such Grantor or Guarantor
      for notices to it; and 

     

    or
      to
      such other address with respect to any party hereto as such party may from
      time
      to time notify (as provided above) the other parties hereto. 

     

    Any
      such
      notice, demand or communication shall be deemed to have been given (i) on the
      date of delivery, if delivered personally, (ii) on the date of facsimile
      transmission, receipt confirmed, (iii) one business day after delivery to a
      nationally recognized overnight courier service, if marked for next day delivery
      or (iv) five business days after the date of mailing, if mailed.

     

    SECTION 16.  Individual
      Action.    No
      Secured Creditor may require any other Secured Creditor to take or refrain
      from
      taking any action hereunder or with respect to any of the Collateral, except
      as
      and to the extent expressly set forth in this Agreement. Except as otherwise
      specified herein, no Secured Creditor shall be responsible to the other Secured
      Creditors for any recitals, statements, representations or warranties contained
      in this Agreement, any of the Transaction Documents, or any other agreements
      or
      instruments executed and delivered by any Grantor pursuant to any of the
      Transaction Documents or in any certificate of other document referred to or
      provided for in, or received by either of them under, any of the Transaction
      Documents or for the authenticity, accuracy, completeness, value, validity,
      effectiveness, genuineness, enforceability or sufficiency of any of the
      Transaction Documents or any other document referred to or provided for therein
      or any lien under any Transaction Document, or the perfection of any such lien
      or for any failure by any Grantor to perform any of its Obligations under any
      of
      the Transaction Documents. Each Secured Creditor may employ agents and
      attorneys-in-fact and shall not be responsible, except as to money or securities
      received by it or its authorized agents, for the negligence or misconduct of
      any
      such agents or attorneys-in-fact selected by it with reasonable care. No Secured
      Creditor, and none of its directors, officers, employees or agents shall be
      liable or responsible for any action taken or omitted to be taken by it or
      them
      hereunder or in connection herewith, except for its or their own gross
      negligence or willful misconduct. 

     

    SECTION 17.  Reliance.    In
      acting with respect to this Agreement, each of the Secured Creditors shall
      be
      entitled (a) to rely on any communication believed by it to be genuine and
      to
      have been made, sent or signed by the Person by whom it purports to have been
      made, sent or signed and (b) to rely on the advice or services or opinions
      and
      statements of any professional advisor whose advice or services to it seem
      necessary, expedient or desirable and are given or made in connection with
      this
      Agreement. 

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    SECTION 18.  No
      Waiver; Remedies.    Except
      as otherwise specified herein, no failure on the part of any Secured Creditor
      to
      exercise and no delay in exercising, any right or remedy hereunder shall operate
      as a waiver thereof, nor shall any single or partial exercise of any right
      or
      remedy hereunder preclude any other or further exercise thereof or the exercise
      of any other right. The rights and remedies herein provided are cumulative
      and
      not exclusive of any remedies provided by law. 

     

    SECTION 19.  Severability.    If
      any provision of this Agreement shall be invalid, illegal or unenforceable,
      the
      validity, legality and enforceability of the remaining provisions shall not
      in
      any way be affected or impaired thereby.

     

    SECTION 20.  Governing
      Law.    This
      Agreement and the rights of the parties hereunder shall be governed in all
      respects by the laws of the State of New York wherein the terms of this
      Agreement were negotiated, excluding to the greatest extent permitted by law
      any
      rule of law that would cause the application of the laws of any jurisdiction
      other than the State of New York.

     

    SECTION 21.  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 judgment or any other manner provided by law.
      Nothing in this Agreement or any other Transaction Document shall affect any
      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 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. 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. 

     

    SECTION 22.  Waiver
      of Jury Trial.    EACH
      OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
      IN
      ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
      OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION
      DOCUMENT OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION,
      PERFORMANCE OR ENFORCEMENT THEREOF.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    SECTION 23.  Titles
      and Subtitles.    The
      titles of the articles, sections and subsections of this Agreement are for
      convenience of reference only and are not to be considered in construing this
      Agreement.

     

    SECTION 24.  Counterparts.    This
      Agreement may be executed in any number of counterparts, including by facsimile
      copy, each of which shall be deemed an original, but all of which together
      shall
      constitute one instrument.

     

    SECTION 25.  Entire
      Agreement.    This
      Agreement constitutes the entire agreement between the parties hereto with
      respect to the subject matter hereof and supersedes all prior representations,
      negotiations, writings, memoranda and agreements. 

     

    [Signature
      pages follow]

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      and delivered by their respective officers thereunto duly authorized as of
      the
      date first written above. 

     

    
      	 	
              "GRANTORS"

               

              ACURA
                PHARMACEUTICALS, INC.,

              a
                New York corporation

               

               

              /s/
                Peter A. Clemens  

              By:
                Peter A. Clemens

              Its:
                Sr. VP & CFO

            
	 	
              AXIOM
                PHARMACEUTICAL

              CORPORATION,

              a
                Delaware corporation

               

               

              /s/
                Peter A. Clemens   

              By:
                

              Its:
                

            
	 	
              ACURA
                PHARMACEUTICAL

              TECHNOLOGIES,
                INC.,

              an
                Indiana corporation

               

               

              /s/
                Peter A. Clemens   

              By:
                Peter A. Clemens

              Its:
                Sr. VP & CFO

               

            


    

    


    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    


    


    
      	
              GALEN
                PARTNERS III, L.P.

              By:
                Claudius, L.L.C., General Partner

              610
                Fifth Avenue, 5th
                Fl.

              New
                York, New York 10019

               

               

              /s/
                Bruce F. Wesson  

              By:
                Bruce F. Wesson

              Its:
                General Partner

            	
              ESSEX
                WOODLANDS HEALTH 

              VENTURES
                V, L.P.

              190
                South LaSalle Street, Suite 2800

              Chicago,
                IL 60603

               

               

              /s/
                Immanuel Thangaraj

              By:
                Immanuel Thangaraj

              Its:
                Managing Director

               

            
	
              GALEN
                PARTNERS INTERNATIONAL, III, L.P.

              By:
                Claudius, L.L.C., General Partner

              610
                Fifth Avenue, 5th
                Floor

              New
                York, New York 10020

               

               

              /s/
                Bruce F. Wesson 

              By:
                Bruce F. Wesson

              Its:
                General Partner 

            	
              CARE
                CAPITAL INVESTMENTS II, LP

              By:
                Care Capital II, LLC, as general partner

              47
                Hulfish St., Suite 310

              Princeton,
                NJ 08542

               

               

              By:  /s/
                David R. Ramsay

              Name:
                David R. Ramsay

              Title:
                Authorized Signatory

               

            
	
              GALEN
                EMPLOYEE FUND III, L.P.

              By:
                Wesson Enterprises, Inc.

              610
                Fifth Avenue, 5th
                Floor

              New
                York, New York 10020

               

               

               

              /s/
                Bruce F. Wesson  

              By:
                Bruce F. Wesson 

              Its:
                President

            	
              CARE
                CAPITAL OFFSHORE

              INVESTMENTS
                II, LP

              By:
                Care Capital, L.L.C., as general partner

              47
                Hulfish St., Suite 310

              Princeton,
                NJ 08542

               

               

              By: /s/
                David R. Ramsay

              Name:
                David R. Ramsay

              Title:
                Authorized Signatory

            


    

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    
      	
              MICHAEL
                WEISBROT

              1136
                Rock Creek Road

              Gladwyne,
                Pennsylvania 19035

               

              /s/
                Michael Weisbrot   

            	
              SUSAN
                WEISBROT

              1136
                Rock Creek Road

              Gladwyne,
                Pennsylvania 19035

               

              /s/
                Susan Weisbrot   

               

            
	
              JOHN
                E. HEPPE, JR. 

              237
                W. Montgomery Avenue

              Haverford,
                Pennsylvania 19041

               

               

              /s/
                John Heppe, Jr.   

               

            	
              DENNIS
                ADAMS

              120
                Kynlyn Road

              Radnor,
                Pennsylvania 19312

               

               

              /s/
                Dennis Adams   

            
	
              PETER
                STIEGLITZ

              RJ
                Palmer LLC

              156
                West 56th
                Street, 5th
                Floor

              New
                York, New York 10019

               

               

              /s/
                Peter Stieglitz   

               

            	
              GEORGE
                E. BOUDREAU

              222
                Elbow Lane

              Haverford,
                PA 19041

               

               

               

              /s/
                George Boudreau   

               

            
	 	 


    

    


    


    
      
        
        

      

      33