Unassociated Document


    Exhibit
      10.4

     

    
      SUBORDINATION
        AGREEMENT,
        dated
        as of November 9, 2005, 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”),
        Galen
        Partners III, L.P., a Delaware limited partnership, as agent for the Watson
        Holders, the June 2005 Lenders, the September 2005 Lenders and the November
        2005
        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").
        

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      (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,
        in connection with the execution of the September 2005 Loan Agreement, the
        Company, Agent, the Watson Holders, the June 2005 Lenders and the September
        2005
        Lenders entered into a Subordination Agreement dated as of September 16,
        2005
        (the “September
        2005 Subordination Agreement”).
        

       

      (I)  WHEREAS,
        the November 2005 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 "November
        2005 Loan Agreement")
        pursuant to which the Company has agreed to issue the November 2005 Notes.
        The
        November 2005 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 "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").
        

       

      (J)  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 as of the date hereof (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, or will be, 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”).
        

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (K)  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. 

       

      "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. 

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      "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.

       

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

       

      "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 and the
        November 2005 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
        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. 

       

      "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 Acura
        Pharmaceutical Technologies, Inc., its Guarantor Mortgage Property.

       

      "Guarantor
        Mortgage Property"
        means
        Acura Pharmaceutical Technologies, Inc.’s real property located at 16235 State
        Road 17, Culver, Indiana.

       

      "Guarantor
        Personal Property"
        means,
        in respect of either 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 and the
        November 2005 Guarantor Security Documents. 

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

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

       

      "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. 

       

      "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. 

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      "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 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 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. 

       

      "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.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

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

       

      “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 November 2005 Lenders, the Required September 2005 Lenders and
        the
        Required June 2005 Lenders. 

       

      “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 and
        the
        November 2005 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.
        

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      "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. 

       

      "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.

       

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

       

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

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      "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.

       

      "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 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. 

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      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. 

       

      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 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 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. 

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      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 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 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.

       

      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:

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      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 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. 

       

      (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. 

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      (f) 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 the Required November
        2005 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;

       

      (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 to any liens securing
        debtor-in-possession (“DIP”)
        financing that has been approved by the Required November 2005 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 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, 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 the Required November 2005 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. 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; 

       

      (v) in
        the
        event of a sale or sales of an asset or assets by the Company that has been
        approved by the Required November 2005 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 the Required November 2005 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 the November 2005
        Lenders in full in cash or is supported by the Required November 2005
        Lenders.

       

      (g) 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 the Required September
        2005 Lenders and consented to in writing by the Required November 2005
        Lenders:

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (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 and 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;

       

      (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 and junior to any replacement liens granted to the
        November 2005 Lenders and to any liens securing debtor-in-possession
        (“DIP”)
        financing that has been approved by the Required September 2005 Lenders and
        has
        been approved by the Required November 2005 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 the
        Required November 2005 Lenders and as agreed to by 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 the Required November 2005 Lenders and agreed to by the
        Required September 2005 Lenders, for example, for fees of the U.S. Trustee
        and
        estate professionals; 

       

      (iv) the
        June
        2005 Lenders agree not to oppose their liens being primed by any DIP loan
        that
        has been approved by the Required November 2005 Lenders and has been approved
        by
        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 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 the Required November 2005 Lenders and been approved by 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 the Required November 2005 Lenders consent 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 both the November 2005 Lenders
        and the September 2005 Lenders in full in cash or is supported by the Required
        November 2005 Lenders and the Required September 2005 Lenders.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      (h) 
        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 and the November 2005
        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; 

       

      (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.

       

      (i) 
        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. 

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      (j)
        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.
        

       

      (k)
        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.

       

      (l)
        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.
        

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      (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. 

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      (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.
        

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      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. 

       

      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 

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      (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). 

       

      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
        and the
        November 2005 Lenders represents and warrants to the other Watson Holders,
        June
        2005 Lenders, September 2005 Lenders and November 2005 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; 

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      (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.

       

      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. 

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      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 under the November 2005 Notes; (ii) at least
        sixty
        percent (60%) of the outstanding principal amount under the September 2005
        Notes, (iii) at least sixty percent (60%) of the outstanding principal amount
        under the June 2005 Notes, and (iv) 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 September 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:

       

      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;
        

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      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. 

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      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]

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      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

              
	 
 	 
 	 
 
	 	By:  	/s/ Peter
                A. Clemens
	 	
                By:
                  Peter A. Clemens

              
	 	
                Its:
                  Sr. VP & CFO

              


      

       

      
        	 	 	 
	 	
                AXIOM
                  PHARMACEUTICAL CORPORATION,
                  

                
                  a
                    Delaware corporation

                

              
	 
 	 
 	 
 
	 	By:  	
                /s/
                  Peter A. Clemens

              
	 	
                By:
                  Peter A. Clemens

              
	 	
                Its:
                  Sr. VP & CFO

              


      

       

      
        	 	 	 
	 	
                ACURA
                  PHARMACEUTICAL TECHNOLOGIES,
                  INC., 

                an
                  Indiana corporation

              
	 
 	 
 	 
 
	 	By:  	/s/ Peter
                A. Clemens
	 	
                By:
                  Peter A. Clemens

              
	 	
                Its:
                  Sr. VP & CFO

              


      

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

      


      
        	
                GALEN
                  PARTNERS III, L.P.

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

                610
                  Fifth Avenue, 5th
                  Fl.

                New
                  York, New York 10019

                 

                 

                /s/
                  Srini Conjeevaram   

                By:
                  Srini Conjeevaram

                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/
                  Srini Conjeevaram   

                By:
                  Srini Conjeevaram

                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:
                  General Partner

              	
                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

              


      

       

      
        
          
          

        

        
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                MICHAEL
                  WEISBROT

                1136
                  Rock Creek Road

                Gladwyne,
                  Pennsylvania 19035

                 

                /s/
                  Michael Weisbrodt  

              	
                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 E. Heppe  

                 

              	
                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 E. Bordeau  

                 

              


      

       

      
        
          
          

        

        
          29