Ex-10.1



 





Exhibit 10.1


SECOND SUPPLEMENTAL INDENTURE




     SECOND SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of
October 29, 2004, among aaiPharma Inc., a Delaware corporation (the “Company”),
the Guarantor parties hereto and Wachovia Bank, National Association (formerly,
First Union National Bank), as trustee under the Indenture referred to below
(the “Trustee”).



W I T N E S S E T H




     WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture, dated as of March 28, 2002, among the Company, the Guarantors
parties thereto and the Trustee, providing for the issuance of the Company’s
11% Senior Subordinated Notes due 2010 (the “Notes”), which indenture was
subsequently modified by a First Supplemental Indenture dated as of April 20,
2004 among the Company, the Guarantors party thereto and the Trustee to, among
other matters, increase the interest rate to 11.5% (such indenture, as so
modified, the “Indenture”);



     WHEREAS, the Board of Directors of the Company has determined that it is
in the best interest of the Company to authorize and approve the amendments to
the Indenture (the “Proposed Amendments”) set forth in this Supplemental
Indenture;



     WHEREAS, Section 9.02 of the Indenture provides that the Company and the
Trustee may amend the Indenture with the written consent of the Holders of a
majority in principal amount of the then outstanding Notes (the “Requisite
Consents”);



     WHEREAS, the Company has distributed the Consent Solicitation Statement,
dated October 22, 2004, as amended by the Revised Consent Solicitation
Statement, dated October 28, 2004 (as amended, the “Solicitation Statement"),
and accompanying Consent Form to the Holders of the Notes in connection with
the Proposed Amendments as described in the Solicitation Statement;



     WHEREAS, the Requisite Consents to the Proposed Amendments have been
received by the Company and the Trustee and all other conditions precedent, if
any, provided for in the Indenture relating to the execution of this
Supplemental Indenture have been complied with as of the date hereof;



     WHEREAS, the execution and delivery of this Supplemental Indenture has
been duly authorized by the Company; and



     WHEREAS, this Supplemental Indenture shall become operative upon receipt
by the Trustee of an Officers’ Certificate certifying that the Conditions (as
defined in the Solicitation Statement) have been duly performed and complied
with or (if permitted) waived by the Company;



     NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto mutually covenant and agree for the equal and ratable benefit of
the Holders of the Notes as follows:



     1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.



     2. DEFINITIONS.



     (a) Section 1.01 of the Indenture is amended by deleting the definition of
“First Priority Lien” and replacing it with the following definition:




	 	 	     “First Priority Lien” means the Liens on the Collateral granted by
the Company or any Guarantor to secure the payment and performance of all
or any Senior Lender Claims or New Senior Indebtedness, and all
replacements, renewals and other modifications of such Liens.



 









 









     (b) Section 1.01 of the Indenture is amended by inserting the following
new definitions:




	 	 	     “New Intercreditor Agreement” has the meaning provided in Section
14.03(c).
	 
	 	 	     “New Senior Indebtedness” has the meaning provided in Section
14.03(c).




     3. RESTRICTED PAYMENTS. Section 4.07 of the Indenture is amended by
adding the following new paragraph at the end of Section 4.07:




	 	 	     “Notwithstanding any provision to the contrary in this Section 4.07,
the Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment
(other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company or to the Company or a Restricted
Subsidiary of the Company) until the interest payments due on the Notes on
April 1, 2005 and October 1, 2005 have been paid in full, together with
any applicable default interest thereon.”




     4. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. Section
4.09 of the Indenture is amended as follows:



     (a) The first paragraph of Section 4.09 is amended by deleting the
paragraph in its entirety and replacing it with the following:




	 	 	     “The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, “incur”) any Indebtedness (including
Acquired Debt), and the Company will not issue any Disqualified Stock, and the
Company will not permit any of its Restricted Subsidiaries to issue any
Disqualified Stock or preferred stock; provided, however, that the Company and
any Guarantor may incur Indebtedness (including Acquired Debt), and the Company
may issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the
Company’s most recently ended four full fiscal quarters for which financial
statements have been filed with the SEC in compliance with Section 4.03
immediately preceding the date on which such additional Indebtedness is
incurred, or such Disqualified Stock is issued, would have been at least 2.25
to 1, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred,
or such Disqualified Stock had been issued, at the beginning of such
four-quarter period; provided further, that any Indebtedness incurred or
Disqualified Stock issued by the Company or any of its Restricted Subsidiaries
pursuant to this first paragraph of Section 4.09 must rank on a parity with or
be subordinated in right of payment to the Notes and the Subsidiary
Guarantees.”




     (b) Section 4.09(1) is amended by deleting the paragraph in its entirety
and replacing it with the following:




	 	 	     "(1)(A) the incurrence by the Company or any Guarantor of
Indebtedness under Credit Facilities in an aggregate principal amount at
any one time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability thereunder) not
to exceed $180 million, less the aggregate amount of all Net Proceeds of
Asset Sales (other than the sale of the M.V.I. and Aquasol product lines)
applied by the Company or any of its Restricted Subsidiaries to repay
such Indebtedness and to effect a corresponding commitment reduction
thereunder pursuant to Section 4.10 hereof, and (B) if the aggregate
principal amount of Indebtedness that can be incurred pursuant to clause
(1)(A) above is reduced at any time to less than $50 million by the
application of the Net Proceeds of Asset Sales to repay such Indebtedness
and to effect a corresponding commitment reduction thereunder pursuant to
Section 4.10 hereof, the incurrence by the Company or any Guarantor of
Indebtedness under Credit Facilities in an aggregate principal amount at
any one time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability thereunder) not
to exceed the difference between $50 million and the aggregate principal
amount of Indebtedness that can be incurred pursuant to clause (1)(A)
above; provided, however, that the Company or any Guarantor may only
incur Indebtedness pursuant to Section 4.09(1)(B) above that would cause
the aggregate Indebtedness then permitted to be



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	 	 	incurred under Sections 4.09(1)(A) and (B) to exceed $40 million if
the proceeds of such Indebtedness in excess of $40 million are used to
pay interest, including any applicable default interest, on the Notes.”




     (c) Section 4.09(14) is amended by deleting the paragraph in its entirety.



     5. ASSET SALES. Section 4.10 of the Indenture is amended by adding the
following new paragraph at the end of Section 4.10:




	 	 	     “Notwithstanding any provision to the contrary in this Section 4.10,
within 3 days after the receipt of any Net Proceeds from an Asset Sale
consummated on or after October 29, 2004, the Company shall apply such
Net Proceeds to repay Senior Debt incurred pursuant to Section 4.09(1)(A)
of this Indenture and to correspondingly reduce commitments with respect
thereto until the aggregate principal amount of Indebtedness that may be
incurred pursuant to Section 4.09(1)(A) of this Indenture equals $40
million.”




     6. SETTLEMENTS OF PENDING LITIGATION. The Indenture is amended to add the
following new Section 4.22:




	 	 	“Section 4.22 Settlements of Pending Litigation.
	 
	 	 	     After the effective date of the Second Supplemental Indenture to
this Indenture and until the interest payments due on the Notes on April
1, 2005 and October 1, 2005, together with any applicable default
interest thereon, have been paid in full, the Company will not, and will
not permit any of its Restricted Subsidiaries to, make aggregate cash
payments (excluding any payments funded or reimbursed with insurance
proceeds received by the Company or any Restricted Subsidiary and any
insurance proceeds paid directly to third parties on behalf of the
Company or any Restricted Subsidiary) in excess of $5 million in order to
settle any litigation pending against the Company or any Restricted
Subsidiary.”




     7. POSSESSION, USE AND RELEASE OF COLLATERAL. Section 14.03 of the
Indenture is amended as follows:



     (a) Section 14.03(c) is amended by deleting the paragraph in its entirety
and replacing it with the following:




	 	 	     "(c) Notwithstanding any provision to the contrary herein or in the
Intercreditor Agreement, including, without limitation, Section 5.1
thereof, if the Senior Lender Claims have been paid in full in cash in
accordance with the terms thereof, and all commitments and letters of
credit thereunder have been terminated, the Second Priority Liens on the
Collateral shall remain in effect, subject to Section 14.03(e) below.
If, after the effective date of the Second Supplemental Indenture to this
Indenture and the payment in full in cash of the Senior Lender Claims in
accordance with the terms thereof, the Company or any Restricted
Subsidiary incurs Indebtedness that (i) is permitted to be incurred
pursuant to clause (1) of the definition of Permitted Debt set forth in
Section 4.09 of this Indenture, (ii) is Senior Debt and (iii) is secured
by assets of the Company and/or the Guarantors of the type constituting
Collateral (“New Senior Indebtedness”), then the Notes and any Guarantees
shall continue to be secured at such time by a Lien on the Collateral,
which shall be a Second Priority Lien in relation to the First Priority
Lien securing such New Senior Indebtedness, and the rights and remedies
of the Trustee and the Holders of the Notes shall be as set forth in the
Intercreditor Agreement and/or a new intercreditor agreement on the same
terms and conditions as the Intercreditor Agreement (as determined by the
Company and evidenced by an Officers’ Certificate delivered to the
Trustee and the Collateral Agent) (the “New Intercreditor Agreement”),
which New Intercreditor Agreement shall be deemed an “Intercreditor
Agreement” for all purposes of this Indenture and the Security Documents,
and the Collateral Agent is hereby authorized and directed to enter into
any such New Intercreditor Agreement. If, after the effective date of
the Second Supplemental Indenture to this Indenture, the Company or any
Restricted Subsidiary incurs Indebtedness pursuant to the first paragraph
of Section 4.09 which ranks on parity with the Notes and Subsidiary
Guarantees in right of payment and



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	 	 	grants a Lien on the Collateral to secure such Indebtedness, such
Lien shall rank pari passu with the Second Priority Liens on the
Collateral.”




     (b) A new Section 14.03(e) of the Indenture is hereby added as follows:




	 	 	     "(e) For so long as any Senior Lender Claims or any New Senior
Indebtedness remain outstanding, releases of Second Priority Liens on any
or all of the Collateral shall be governed by the Intercreditor Agreement
or any New Intercreditor Agreement entered into pursuant to Section
14.03(c) of this Indenture, including, without limitation, Section 5.1
thereof; provided that, for the avoidance of doubt, Section 5.1 of the
Intercreditor Agreement or any New Intercreditor Agreement shall not
operate to release the Second Priority Liens upon the release of the First
Priority Liens in connection with the payment in full of all Senior Lender
Claims and New Senior Indebtedness (except to the extent the Collateral
subject to such Liens was disposed of in connection with the payment in
full of all Senior Lender Claims or New Senior Indebtedness). If the
Senior Lender Claims and any New Senior Indebtedness have been paid in
full in cash in accordance with the terms thereof, and all commitments and
letters of credit thereunder have been terminated, then the Collateral
Agent is hereby authorized and directed to release the Second Priority
Liens on any Collateral that the Company sells, leases, transfers, conveys
or otherwise disposes of in accordance with the terms of this Indenture,
including, without limitation, Section 4.10 hereof, upon delivery to the
Collateral Agent and the Trustee of an Officers’ Certificate describing
the Collateral to be released and such sale, lease, transfer, conveyance
or other disposition of the Collateral and certifying that such sale,
lease, transfer, conveyance or other disposition and the release of the
Collateral are permitted under the terms of this Indenture and the
Security Documents.”




     8. TEMPORARY INCREASE IN INTEREST RATE. The interest rate on the Notes is
hereby deemed to be increased from 11.5% per annum to 12.0% per annum for the
period beginning on October 1, 2004 and ending on March 31, 2005.



     9. GOVERNING LAW. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN
AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE, WITHOUT GIVING EFFECT TO
THE APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.



     10. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.



     11. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.



     12. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Company.



     13. RATIFICATION OF INDENTURE; SUPPLEMENTAL PART OF INDENTURE. Except as
specifically amended and supplemented by this Supplemental Indenture, the
Indenture shall remain in full force and effect and is hereby ratified and
confirmed. This Supplemental Indenture shall form a part of the Indenture for
all purposes, and every Holder of a Note heretofore or hereafter authenticated
and delivered shall be bound hereby.



     14. VALIDITY; ENFORCEABILITY. In case any provisions in this Supplemental
Indenture 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.



     15. THIRD-PARTY BENEFICIARY. Nothing in this Supplemental Indenture,
express or implied, shall give to any Person, other than the parties hereto and
their successors under the Indenture and the Holders of the Notes, any benefit
or any legal or equitable right, remedy or claim under the Indenture.



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     16. OPERATIVENESS. This Supplemental Indenture shall be effective upon
execution and delivery by all parties hereto. This Supplemental Indenture
shall become operative on the date of receipt by the Trustee of an Officers’
Certificate certifying that the Conditions (as defined in the Solicitation
Statement) have been duly performed and complied with or (if permitted) waived
by the Company.



[SIGNATURE PAGE FOLLOWS]




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     IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of October 29, 2004.



	 	 	 	 	 
	 

	 	AAIPHARMA INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/Thomas J. Aluise
	

	 	 	 	
 
	

	 	 	 	Name: Thomas J. Aluise
	

	 	 	 	Title: Vice President and Treasurer
	 
	 	 	 	 
	

	 	APPLIED ANALYTICAL INDUSTRIES
	

	 	LEARNING CENTER, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gregory S. Bentley
	

	 	 	 	
 
	

	 	 	 	Name: Gregory S. Bentley
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	

	 	AAI JAPAN, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gregory S. Bentley
	

	 	 	 	
 
	

	 	 	 	Name: Gregory S. Bentley
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	

	 	AAI PROPERTIES, INC.
	

	 	(F/K/A MALVERN ACQUISITION, INC.)
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gregory S. Bentley
	

	 	 	 	
 
	

	 	 	 	Name: Gregory S. Bentley
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	

	 	AAI TECHNOLOGIES, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gregory S. Bentley
	

	 	 	 	
 
	

	 	 	 	Name: Gregory S. Bentley
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	

	 	KANSAS CITY ANALYTICAL SERVICES, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gregory S. Bentley
	

	 	 	 	
 
	

	 	 	 	Name: Gregory S. Bentley
	

	 	 	 	Title: Vice President







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	 	AAI DEVELOPMENT SERVICES, INC. (F/K/A AAI
	

	 	INTERNATIONAL, INC.)
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gregory S. Bentley
	

	 	 	 	
 
	

	 	 	 	Name: Gregory S. Bentley
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	

	 	AAIPHARMA LLC (F/K/A NEOSAN
	

	 	PHARMACEUTICALS, INC.)
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gregory S. Bentley
	

	 	 	 	
 
	

	 	 	 	Name: Gregory S. Bentley
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	

	 	AAI DEVELOPMENT SERVICES, INC. (F/K/A AAI
	

	 	INTERNATIONAL CLINICAL TRIALS, INC., F/K/A
	

	 	MEDICAL & TECHNICAL RESEARCH ASSOCIATES, INC.)
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gregory S. Bentley
	

	 	 	 	
 
	

	 	 	 	Name: Gregory S. Bentley
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	

	 	WACHOVIA BANK, NATIONAL ASSOCIATION, AS
	

	 	TRUSTEE
	 
	 	 	 	 
	

	 	By:	 	/s/ James Long
	

	 	 	 	
 
	

	 	 	 	Name: James Long
	

	 	 	 	Title: Assistant Vice President








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