Document:

Unassociated Document

    

      EXHIBIT
        10.6

      CONTINUING
        UNCONDITIONAL SECURED GUARANTY

       

      This
        Continuing Unconditional Secured Guaranty (“Guaranty”)
        is
        made on September 16, 2005 by Acura Pharmaceutical Technologies, Inc., an
        Indiana corporation (“Guarantor”)
        in
        favor of Galen Partners III, L.P., a Delaware limited partnership, acting
        in its
        capacity as agent for the Lenders, as defined below (“Agent”),
        for
        the benefit of the Lenders.

       

      PRELIMINARY
        STATEMENTS

       

      Acura
        Pharmaceuticals, Inc., a New York corporation (the “Borrower”),
        entered into a Loan Agreement of even date herewith (the “Loan
        Agreement;”
        terms
        used in this Guaranty and not otherwise defined shall have the meanings given
        to
        them in the Loan Agreement) with the Lenders party (each a “Lender”
        and
        collectively, the “Lenders”).
        Pursuant to the Loan Agreement, the Lenders have made financial accommodations
        to the Borrower in accordance with the terms of the Loan Agreement. The
        Guarantor will continue to receive certain benefits from such accommodations
        and
        is therefore willing to guaranty the prompt payment and performance of the
        obligations of the Borrower, on the terms set forth in this Guaranty. The
        extension of credit by the Lenders to the Borrower is necessary and desirable
        to
        the conduct and operation of the business of the Borrower and will inure
        to the
        financial benefit of the Guarantor.

       

      AGREEMENT

       

      For
        value
        received and in consideration of any loan, advance, or financial accommodation
        of any kind whatsoever heretofore, now or hereafter made, given or granted
        to
        the Borrower by the Lenders (including, without limitation, the loans evidenced
        by the Notes as made by the Lenders to the Borrower pursuant to, the Loan
        Agreement) and other good and valuable consideration (the sufficiency and
        receipt of which are hereby acknowledged), the Grantor hereby agrees as follows:
        

       

      ARTICLE
        1

       

      
        GUARANTY

      

       

      1.1 GUARANTY

       

      The
        Guarantor unconditionally guarantees to the Agent for the benefit of the
        Lenders
        (a) the full and prompt payment and performance when due, whether at maturity
        or
        earlier, by reason of acceleration or otherwise, and at all times thereafter,
        of
        all liabilities of the Borrower to the Lenders and (b) the prompt, full and
        faithful discharge by the Borrower of each and every term, condition, agreement,
        representation, warranty or covenant now or hereafter made by the Borrower
        to
        the Lenders or the Agent, in each case, under these clauses (a) and (b),
        pursuant to the Loan Agreement, the Notes, the other Transaction Documents
        or
        any document or instrument delivered by the Borrower to the Lenders in
        connection therewith or pursuant thereto (which, together with the liabilities
        described in clause (a) of this Section 1.1, are collectively referred to
        in
        this Guaranty as the “Borrower’s
        Liabilities”).
        The
        Guarantor further agrees to pay all reasonable out-of-pocket costs and expenses,
        including, without limitation, all court costs and reasonable attorneys’ and
        paralegals’ fees paid or incurred by the Lenders and the Agent (on behalf of the
        Lenders), in endeavoring to collect all or any part of the Borrower’s
        Liabilities from, or in prosecuting any action against the Guarantor or any
        other guarantor of all or any part of the Borrower’s Liabilities.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      1.2 NO
        FRAUDULENT CONVEYANCE

       

      Notwithstanding
        any provision of this Guaranty to the contrary, it is intended that this
        Guaranty, and any liens and security interests granted by the Guarantor to
        secure this Guaranty, will not constitute a Fraudulent Conveyance (as defined
        below). Consequently, the Guarantor agrees that if this Guaranty, or any
        liens
        or security interests securing this Guaranty, would, but for the application
        of
        this sentence, constitute a Fraudulent Conveyance, this Guaranty and each
        such
        lien and security interest shall be valid and enforceable only to the maximum
        extent that would not cause this Guaranty or such lien or security interest
        to
        constitute a Fraudulent Conveyance, and this Guaranty shall automatically
        be
        deemed to have been amended accordingly at all relevant times. For purposes
        hereof, “Fraudulent
        Conveyance”
        means a
        transfer of property or the incurrence of liability which would be avoidable
        under Section 548 or 544(b) of the Bankruptcy Code (as defined herein) or
        a
        fraudulent conveyance or fraudulent transfer under the provisions of any
        applicable fraudulent conveyance or fraudulent transfer law or similar law
        of
        any state, nation or other governmental unit, as in effect from time to
        time.

       

      1.3 GUARANTY
        UNCONDITIONAL

       

      The
        Guarantor hereby agrees that, except as hereinafter provided, and to the
        extent
        permitted by applicable law, its obligations under this Guaranty shall be
        unconditional, irrespective of (a) the validity or enforceability of the
        Borrower’s Liabilities or any part thereof, or of any Note or other document
        evidencing all or any part of the Borrower’s Liabilities, (b) the absence of any
        attempt to collect the Borrower’s Liabilities from the Borrower or any other
        guarantor or other action to enforce the same, (c) the waiver or consent
        by the
        Agent, any Lender or Lenders with respect to any provision of any instrument
        evidencing the Borrower’s Liabilities, or any part thereof, or any other
        agreement heretofore, now or hereafter executed by the Borrower and delivered
        to
        the Agent, the Lender or Lenders, (d) the failure by the Agent or any Lender
        to
        take any steps to perfect and maintain its security interest in, or to preserve
        its rights to, any security or collateral for the Borrower’s Liabilities, (e)
        the institution of any proceeding under Chapter 11 of Title 11 of the United
        States Code (11 U.S.C. §101 et seq.), as amended (the “Bankruptcy
        Code”),
        or
        any similar proceeding, by or against the Borrower, or the Agent’s or any
        Lender’s election in any such proceeding of the application of Section
        1111(b)(2) of the Bankruptcy Code, (f) any borrowing or grant of a security
        interest by the Borrower as debtor-in-possession, under Section 364 of the
        Bankruptcy Code, (g) the disallowance, under Section 502 of the Bankruptcy
        Code,
        of all or any portion of the Lenders’ claim(s) for repayment of the Borrower’s
        Liabilities, or (h) any other circumstance which might otherwise constitute
        a
        legal or equitable discharge or defense of a guarantor.

       

      1.4 WAIVERS

       

      (a)The
        Guarantor hereby waives diligence, presentment, demand of payment, filing
        of
        claims with a court in the event of receivership or bankruptcy of the Borrower,
        protest or notice with respect to the Borrower’s Liabilities and all demands
        whatsoever, and covenants that this Guaranty will not be discharged, except
        by
        complete performance of the obligations and liabilities contained herein.
        Upon
        the occurrence and during the continuance of an Event of Default under the
        Loan
        Agreement, Lenders may, at their sole election, proceed directly and at once,
        without notice, against the Guarantor to collect and recover the full amount
        or
        any portion of the Borrower’s Liabilities, without first proceeding against any
        other Person, or against any security or collateral for the Borrower’s
        Liabilities.

       

      
        
          
          

        

        
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      (b)The
        Guarantor hereby waives any and all claims (including, without limitation,
        any
        claim for reimbursement, contribution or subrogation) of the Guarantor against
        the Borrower, any endorser or any other guarantor of all or any part of the
        Borrower’s Liabilities, or against any of the Borrower’s properties, arising by
        reason of any payment by the Guarantor to the Lenders pursuant to the provisions
        hereof.

       

      1.5 NO
        SUBROGATION

       

      The
        Guarantor hereby unconditionally and irrevocably agrees not to exercise any
        rights that it may now have or hereafter acquire against the Borrower or
        any
        other insider guarantor that arise from the existence, payment, performance
        or
        enforcement of the Borrower’s Liabilities under or in respect of this Guaranty,
        the Loan Agreement, the Notes, the other Transaction Documents or any document
        or instrument delivered by the Borrower to the Lenders in connection therewith
        or pursuant thereto, including, without limitation, any right of subrogation,
        reimbursement, exoneration, contribution or indemnification and any right
        to
        participate in any claim or remedy of the Agent or the Lenders against the
        Borrower or any other insider guarantor or any Collateral, whether or not
        such
        claim, remedy or right arises in equity or under contract, statute or common
        law, including, without limitation, the right to take or receive from the
        Borrower or any other insider guarantor, directly or indirectly, in cash
        or
        other property or by set-off or in any other manner, payment or security
        on
        account of such claim, remedy or right. If any amount shall be paid to any
        Guarantor in violation of the immediately preceding sentence at any time
        prior
        to the indefeasible payment in full in cash of the Borrower’s Liabilities and
        all other amounts payable under this Guaranty, such amount shall be received
        and
        held in trust for the benefit of the Lenders, shall be segregated from other
        property and funds of the Guarantor and shall forthwith be paid or delivered
        to
        the Agent in the same form as so received (with any necessary endorsement
        or
        assignment) to be credited and applied to the Borrower’s Liabilities and all
        other amounts payable under this Guaranty, whether matured or unmatured,
        in
        accordance with the terms of the Notes and the Loan Agreement, or to be held
        as
        collateral for any Borrower’s Liabilities or other amounts payable under this
        Guaranty thereafter arising. After the Loan Agreement has been terminated
        and
        the Notes canceled and the indefeasible payment in full in cash of the
        Borrower’s Liabilities and all other amounts payable under this Guaranty has
        occurred, except in the case of a Reinstatement Event (as defined below),
        the
        Agent and the Lenders will, at the Guarantor’s request and expense, execute and
        deliver to the Guarantor appropriate documents, without recourse and without
        representation or warranty, necessary to evidence the transfer by subrogation
        to
        the Guarantor of an interest in the Borrower’s Liabilities resulting from such
        payment made by the Guarantor pursuant to this Guaranty.

       

      
        
          
          

        

        
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      1.6 LENDERS’
        RIGHTS WITH RESPECT TO BORROWER’S LIABILITIES

       

      The
        Lenders are hereby authorized, without notice or demand and without affecting
        the liability of the Guarantor hereunder, at any time and from time to time
        to
        (a) increase the amount of, renew, extend, accelerate or otherwise change
        the
        time for payment of, or other terms relating to the Borrower’s Liabilities or
        otherwise modify, amend or change the terms of any debenture, note or other
        agreement, document or instrument now or hereafter executed by the Borrower
        and
        delivered to the Lenders; (b) accept partial payments on the Borrower’s
        Liabilities; (c) take and hold security or collateral for the payment of
        the
        Borrower’s Liabilities guaranteed hereby, or for the payment of this Guaranty,
        or for the payment of any other guaranties of the Borrower’s Liabilities or
        other liabilities of the Borrower, and exchange, enforce, waive and release
        any
        such security or collateral; (iv) apply such security or collateral and direct
        the order or manner of sale thereof as in their sole discretion they may
        determine; and (v) settle, release, compromise, collect or otherwise liquidate
        the Borrower’s Liabilities and any security or collateral therefor in any
        manner, without affecting or impairing the obligations of the Guarantor
        hereunder. The Lenders shall have the exclusive right to determine the time
        and
        manner of application of any payments or credits, whether received from the
        Borrower or any other source, and such determination shall be binding on
        the
        Guarantor. All such payments and credits may be applied, reversed and reapplied,
        in whole or in part, to any of the Borrower’s Liabilities as the Lenders shall
        determine in their sole discretion without affecting the validity or
        enforceability of this Guaranty (unless otherwise required pursuant to the
        Loan
        Agreement).

       

      1.7 INFORMATION

       

      The
        Guarantor hereby assumes responsibility for keeping itself informed of the
        financial condition of the Borrower, and any and all endorsers and/or other
        guarantors of any instrument or document evidencing all or any part of the
        Borrower’s Liabilities and of all other circumstances bearing upon the risk of
        nonpayment of the Borrower’s Liabilities or any part thereof that diligent
        inquiry would reveal, and the Guarantor hereby agrees that neither the Agent
        nor
        the Lenders shall have any duty to advise the Guarantor of information known
        to
        any of them regarding such condition or any such circumstances or to undertake
        any investigation not a part of their respective regular business routines.
        If
        the Agent or any Lender, in their respective sole discretions, undertake
        at any
        time or from time to time to provide any such information to the Guarantor,
        the
        Agent or such Lender, as the case may be, shall not be under any obligation
        to
        update any such information or to provide any such information to the Guarantor
        on any subsequent occasion.

       

      1.8 REINSTATEMENT

       

      The
        Guarantor consents and agrees that neither the Agent nor the Lenders shall
        be
        under any obligation to marshal any assets in favor of the Guarantor or against
        or in payment of any or all of the Borrower’s Liabilities. The Guarantor further
        agrees that, to the extent that the Borrower makes a payment or payments
        to the
        Lenders or the Lenders receive any proceeds of collateral, which payment
        or
        payments or any part thereof are subsequently invalidated, declared to be
        fraudulent or preferential, set aside and/or required to be repaid to the
        Borrower, its estate, trustee, receiver or any other party, including, without
        limitation, the Guarantor, under any bankruptcy law or state or federal
        statutory or common law, then to the extent of such payment or repayment,
        the
        Borrower’s Liabilities or the part thereof which has been paid, reduced or
        satisfied by such amount, and the Guarantor’s obligations hereunder with respect
        to such portion of the Borrower’s Liabilities, shall be reinstated and continued
        in full force and effect as of the date such initial payment, reduction or
        satisfaction occurred. Notwithstanding anything else to the contrary contained
        herein, the Guarantor consents and agrees that this Guaranty shall continue
        to
        be effective or be reinstated, as the case may be, if at any time any payment
        of
        any of the Borrower’s Liabilities is rescinded or must otherwise be returned by
        any Lender or any other Person upon the insolvency, bankruptcy or reorganization
        of the Borrower or the Guarantor or otherwise, all as though such payment
        had
        not been made (each such continuation or reinstatement, a “Reinstatement
        Event”).

       

      
        
          
          

        

        
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      1.9 ASSIGNMENTS
        BY LENDERS

       

      Each
        Lender may, to the extent and in the manner set forth in the Loan Agreement,
        sell or assign the Borrower’s Liabilities or any part thereof, or grant
        participations therein, and in any such event each and every permitted assignee
        or holder of, or participant in, all or any of the Borrower’s Liabilities shall
        have the right to enforce this Guaranty, by suit or otherwise for the benefit
        of
        such assignee, holder, or participant, as fully as if herein by name
        specifically given such right.

       

      ARTICLE
        2

       

      REPRESENTATIONS
        AND WARRANTIES

       

      The
        Guarantor hereby represents and warrants that: (a) it is a corporation duly
        organized, validly existing and in good standing under the laws of the State
        of
        Indiana; (b) it is duly authorized and empowered to execute and deliver this
        Guaranty; (c) all corporate action on the part of the Guarantor requisite
        for
        the due execution and delivery of this Guaranty and the due granting and
        creation of the security interests referred to herein has been duly and
        effectively taken; (d) the Guarantor’s chief executive office is located at c/o
        Acura Pharmaceuticals, Inc., 616 N. North Court, Suite 120, Palatine, Illinois
        60067; and (e) the execution, delivery and performance of this Guaranty will
        not
        result in any violation of, conflict with, or result in a breach of, any
        of the
        terms of, or constitute a default under, any agreements, contracts, court
        orders
        or consent decrees, the Certificate of Incorporation or the By-laws, as amended,
        of the Guarantor.

       

      ARTICLE
        3

       

      
        MISCELLANEOUS

      

       

      3.1 SUCCESSORS
        AND ASSIGNS; ASSIGNMENT BY GUARANTOR

       

      This
        Guaranty shall be binding upon the Guarantor and upon the successors (including
        without limitation, any receiver, trustee or debtor in possession of or for
        the
        Guarantor) of the Guarantor and shall inure to the benefit of the Lenders
        and
        their respective successors and permitted assigns. Notwithstanding anything
        contained herein to the contrary, this Guaranty may not be assigned by the
        Guarantor without the prior written consent of the Lenders.

       

      
        
          
          

        

        
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      3.2 TERM
        OF GUARANTY

       

      This
        Guaranty shall continue in full force and effect, and the Lenders shall be
        entitled to make loans and advances and extend financial accommodations to
        the
        Borrower on the faith hereof, until the Loan Agreement has been terminated
        and
        the Notes canceled and the indefeasible payment in full in cash of the
        Borrower’s Liabilities and all other amounts payable under this Guaranty has
        occurred. The Guarantor hereby unconditionally and irrevocably waives any
        right
        to revoke this Guaranty and acknowledges that this Guaranty is continuing
        in
        nature and applies to all Borrower’s Liabilities, whether existing now or in the
        future.

       

      

      3.3 SEVERABILITY

       

      Wherever
        possible each provision of this Guaranty shall be interpreted in such manner
        as
        to be effective and valid under applicable law, but if any provision of this
        Guaranty shall be prohibited by or invalid under such law, such provision
        shall
        be ineffective to the extent of such prohibition or invalidity without
        invalidating the remainder of such provision or the remaining provisions
        of this
        Guaranty.

       

      3.4 GOVERNING
        LAW

       

      THIS
        GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
        OF THE
        STATE OF NEW YORK WHEREIN THE TERMS OF THIS GUARANTY WERE NEGOTIATED, EXCLUDING
        TO THE GREATEST EXTENT PERMITTED BY LAW ANY RULE OF LAW THAT WOULD CAUSE
        THE
        APPLICATION OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.

       

      3.5 CONSENT
        TO JURISDICTION

       

      (a)
        The
        Guarantor 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 Guaranty
        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. The Guarantor agrees that a final judgment in any such action or
        proceeding shall be conclusive and may be enforced in other jurisdictions
        by
        suit on the right that any party may otherwise have to bring any action or
        proceeding relating to this Guaranty or any of the other Transaction Documents
        in the courts of any other jurisdiction.

       

      
        
          
          

        

        
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      (b)
        The
        Guarantor 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 Guaranty or any other Transaction Document to which it is
        a
        party in any such New York State or United States Federal court sitting in
        New
        York City. The Guarantor 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.

       

      3.6 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 ANY TRANSACTION DOCUMENT OR THE
        ACTIONS
        OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT
        THEREOF.

      
 

      [SIGNATURE
        PAGE TO FOLLOW]

      

      
        
          
          

        

        
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      IN
        WITNESS WHEREOF,
        this
        Guaranty has been duly executed by the undersigned as of the date first written
        above.

      

      ACURA
        PHARMACEUTICAL TECHNOLOGIES,
        INC.

       

      By: /s/
        Andrew D.
        Reddick                                             
         

      Name:
        Andrew D. Reddick

      Title:
        President and CEOUnassociated Document

    

      EXHIBIT
        10.7

    GUARANTORS
      GENERAL SECURITY AGREEMENT

     

    This
      Guarantors General Security Agreement (the “Agreement”)
      is
      dated September 16, 2005 by and among Acura Pharmaceutical Technologies, Inc.,
      an Indiana corporation with its principal place of business at 16235 State
      Road
      17, Culver, Indiana, 46511 (“APT”),
      Axiom
      Pharmaceutical Corporation, a Delaware corporation with its principal place
      of
      business at c/o Acura Pharmaceuticals, Inc., 616 N. North Court, Suite 120,
      Palatine, Illinois, 60067 (“Axiom”
      and,
      together with Houba, the “Guarantors”),
      and
      Galen Partners III, L.P., a Delaware limited partnership with its principal
      place of business at 610 Fifth Avenue, Fifth Floor, New York, New York, 10020,
      acting in its capacity as agent for the Lenders, as defined below (the
“Agent”),
      for
      the benefit of the Lenders.

     

    PRELIMINARY
      STATEMENTS

     

    A. Acura
      Pharmaceuticals, Inc. (the “Company”)
      has
      entered into a Loan Agreement of even date herewith (as the same may be amended,
      modified, supplemented or restated from time to time, the “Loan
      Agreement;”
      terms
      which are capitalized in this Agreement and not otherwise defined shall have
      the
      meanings ascribed to them in the Loan Agreement) with the Lenders party thereto
      (the “Lenders”).

     

    B. Each
      of
      the Guarantors has executed and delivered to Agent, for the benefit of the
      Lenders, a Continuing Unconditional Secured Guaranty of even date herewith
      (each
      a “Guaranty”)
      of the
      Company’s obligations under the Loan Agreement (collectively, the “Obligations”).

     

    C. The
      Lenders have required, as a condition precedent to the effectiveness of the
      Loan
      Agreement, that each Guarantor (a) grant to the Agent, for the ratable benefit
      of the Lenders, a security interest in and to the Collateral (as defined in
      Section 2.1 below) and (b) execute and deliver this Agreement in order to secure
      the payment and performance by such Guarantor of the Guaranty.

     

    AGREEMENT

     

    In
      consideration of the premises and in order to induce the Lenders to enter into
      and perform the Loan Agreement, each Guarantor hereby agrees as
      follows:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ARTICLE
      1

     

    CREATION
      OF SECURITY INTEREST

     

    1.1 SECURITY
      INTEREST

     

    Each
      Guarantor hereby pledges, assigns and grants to the Agent a continuing perfected
      lien and security interest having priority over any and all other security
      interests in all of such Guarantor’s right, title and interest in and to the
      Collateral (as defined in Section 2.1 below) in order to secure the payment
      and
      performance of all Obligations owing by such Guarantor.

     

    1.2 GUARANTORS
      REMAIN LIABLE

     

    Anything
      herein to the contrary notwithstanding, (a) the Guarantors shall remain liable
      under the contracts and agreements included in the Collateral to the extent
      set
      forth therein to perform all of their duties and obligations thereunder to
      the
      same extent as if this Agreement had not been executed, (b) the exercise by
      the
      Agent of any of the rights hereunder shall not release the Guarantors from
      any
      of their duties or obligations under the contracts and agreements included
      in
      the Collateral and (c) neither the Agent nor any Lender shall have any
      obligation or liability under the contracts and agreements included in the
      Collateral by reason of this Agreement, the Loan Agreement or any other
      Transaction Document, nor shall the Agent or any Lender be obligated to perform
      any of the obligations or duties of the Guarantors thereunder or to take any
      action to collect or enforce any claim for payment assigned
      hereunder.

     

    ARTICLE
      2

     

    COLLATERAL

     

    2.1 COLLATERAL

     

    For
      purposes of this Agreement, the term “Collateral”
      shall
      mean, with respect to each Guarantor, all of the assets of such Guarantor
      including all of the kinds and types of property described in clauses (a)
      through (g) of this Section 2.1, whether now owned or hereafter at any time
      arising, acquired or created by such Guarantor and wherever located, and
      includes all replacements, additions, accessions, substitutions, repairs,
      proceeds and products relating thereto or therefrom, and all documents, ledger
      sheets and files of such Guarantor relating thereto and all Proceeds (as defined
      in Section 2.2 below) of Collateral:

     

    (a) all
      of
      such Guarantor’s accounts, whether now existing or existing in the future,
      including without limitation (i) all accounts receivable (whether or not
      specifically listed on schedules furnished to the Agent), including, without
      limitation, all accounts created by or arising from all of such Guarantor’s
      sales of goods or rendition of services made under any of such Guarantor’s trade
      names, or through any of its divisions, (ii) all unpaid seller’s rights
      (including rescission, replevin, reclamation and stoppage in transit) relating
      to the foregoing or arising therefrom, (iii) all rights to any goods represented
      by any of the foregoing, including returned or repossessed goods, (iv) all
      reserves and credit balances held by such Guarantor with respect to any such
      accounts receivable or account debtors, (v) all health-care-insurance
      receivables, and (vi) all guarantees or collateral for any of the foregoing
      (all
      of the foregoing property and similar property being hereinafter referred to
      as
“Accounts”);

     

    
      
         

      

      
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    (b) all
      of
      such Guarantor’s inventory, including without limitation (i) all raw materials,
      work in process, parts, components, assemblies, supplies and materials used
      or
      consumed in such Guarantor’s businesses, wherever located and whether in the
      possession of such Guarantor or any other Person; (ii) all goods, wares and
      merchandise, finished or unfinished, held for sale or lease or leased or
      furnished or to be furnished under contracts of service, wherever located and
      whether in the possession of such Guarantor or any other person or entity;
      and
      (iii) all goods returned to or repossessed by such Guarantor (all of the
      foregoing property being hereinafter referred to as “Inventory”);

     

    (c) all
      of
      the equipment owned or leased by such Guarantor, including, without limitation,
      machinery, equipment, office equipment and supplies, computers and related
      equipment, furniture, furnishings, tools, tooling, jigs, dies, fixtures,
      manufacturing implements, fork lifts, trucks, trailers, motor vehicles, and
      other equipment (all of the foregoing property being hereinafter referred to
      as
“Equipment”);

     

    (d) all
      of
      such Guarantor’s general intangibles (including, without limitation, payment
      intangibles), instruments, securities (including without limitation United
      States of America Treasury Bills), credits, claims, demands, documents, letters
      of credit and letter of credit proceeds, documents of title, certificates of
      title, certificates of deposit, warehouse receipts, bills of lading, leases
      which are permitted to be assigned or pledged, deposit accounts, money, tax
      refund claims, and contract rights which are permitted to be assigned or pledged
      (all of the foregoing property being hereinafter referred to as “Intangibles”);

     

    (e) all
      of
      each Guarantor’s intellectual property, including, without limitation, New Drug
      Applications, Investigatory New Drug Applications, Abbreviated New Drug
      Applications, Alternative New Drug Applications, registrations and quotas as
      issued by the DEA or the Attorney General of the United States pursuant to
      the
      CSA, certifications, permits and approvals of federal and state governmental
      agencies, patents, patent applications, trademarks, trademark applications,
      service marks, service mark applications, trade names, domain names, technical
      knowledge and processes, formal or informal licensing arrangements which are
      permitted to be assigned or pledged, blueprints, technical specifications,
      computer software, programs, databases, copyrights, copyright applications
      and
      all confidential and proprietary information, including, without limitation,
      know-how, trade secrets, manufacturing and production processes and techniques,
      inventions, research and development information, databases and data, including,
      without limitation, technical data, financial and marketing and business data,
      customer lists, supplier lists, pricing and cost information and business and
      marketing plans, and all embodiments thereof, and rights thereto, including,
      without limitation, all of such Guarantor’s rights to use the patents,
      trademarks, copyrights, service marks, or other property of the aforesaid nature
      of other Persons now or hereafter licensed to such Guarantor, together with
      the
      goodwill of the business symbolized by or connected with such Guarantor’s
      trademarks, copyrights, service marks, licenses and the other rights included
      in
      this Section 2.1(e) (all of the foregoing property being hereinafter referred
      to
      as “Intellectual
      Property”);
      

     

    
      
         

      

      
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    (f) all
      deposit accounts, letter-of-credit rights, instruments (including, without
      limitation, promissory notes), investment property and chattel paper;
      and

     

    (g) all
      interest, dividends, distributions, cash, instruments and other property from
      time to time received, receivable or otherwise distributed in respect of or
      in
      exchange for any or all of the then existing Collateral.

     

    2.2 PROCEEDS

     

    For
      purposes of this Agreement, the term “Proceeds”
      shall
      include (a) whatever is now or hereafter received by such Guarantor upon the
      sale, exchange, collection or other disposition of any item of Collateral,
      whether such proceeds constitute Inventory, Accounts, Intangibles, royalties,
      payment under insurance (whether or not the Agent is the loss payee thereof),
      or
      any indemnities, warranties or guaranties, payable by reason of loss or damage
      to or otherwise with respect to any or the foregoing Collateral, and (b) any
      such items which are now or hereafter acquired by such Guarantor with any
      proceeds of Collateral hereunder.

     

    ARTICLE
      3

     

    REPRESENTATIONS
      AND WARRANTIES

     

    Each
      Guarantor severally represents and warrants as follows:

     

    3.1 ORGANIZATION
      AND EXISTENCE

     

    Such
      Guarantor is a corporation duly organized, validly existing and in good standing
      under the laws of its state of incorporation and is qualified to do business
      in
      such other jurisdictions as the nature or conduct of its operations or the
      ownership of its properties require such qualification. Such Guarantor does
      not
      own or lease any property or engage in any activity in any jurisdiction that
      might require qualification to do business as a foreign corporation in such
      jurisdiction and where the failure to so qualify could reasonably be expected
      to
      have a Material Adverse Effect or subject such Guarantor to a material
      liability.

     

    3.2 AUTHORIZATION

     

    (a) Such
      Guarantor has all requisite corporate power and authority (i) to execute and
      deliver, and to perform and observe its obligations under, the Transaction
      Documents to which it is a party, and (ii) to consummate the transactions
      contemplated hereby and thereby, including, without limitation, the grant of
      any
      security interest, mortgage, payment trust, guaranty or other security
      arrangement by such Guarantor in, on or in respect of the
      Collateral.

     

    (b) All
      corporate action on the part of such Guarantor and its directors and
      stockholders necessary for the authorization, execution,
      delivery and performance by such Guarantor of this Agreement, the Guaranty
      by
      such Guarantor in favor of Agent, and the transactions contemplated therein
      or
      in any other Transaction Document to which it is a party, has been
      taken.

     

    
      
         

      

      
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    3.3 PLACES
      OF BUSINESS

     

    Such
      Guarantor has no places of business, or warehouses in which it leases space,
      other than those set forth on Section
      3.3 of Schedule A,
      a copy
      of which is attached hereto and made a part hereof (“Schedule
      A”).

     

    3.4 LOCATION
      OF COLLATERAL

     

    Except
      for the movement of Collateral from time to time from one place of business
      or
      warehouse listed on Section
      3.3 of Schedule A
      to
      another place of business or warehouse listed on Section
      3.3 of Schedule A,
      the
      Collateral is located at such Guarantor’s chief executive offices or other
      places of business or warehouses listed on Section
      3.3 of Schedule A,
      and not
      at any other location.

     

    3.5 RESTRICTIONS
      ON COLLATERAL DISPOSITION

     

    Except
      for any restrictions imposed under the Guarantors General Security Agreement
      dated as of March 29, 2000 given by the Guarantors in connection with the Senior
      Note (the “Watson
      Guarantors Security Agreement”)
      and
      the Guarantors General Security Agreement dated as of June 22, 2005 given by
      the
      Guarantors in connection with a certain Loan Agreement, dated of even date
      therewith (“Bridge
      Loan Guarantors Security Agreement”),
      none of
      the Collateral is subject to contractual obligations that may restrict or
      inhibit the Agent’s rights or ability to sell or dispose of the Collateral or
      any part thereof after the occurrence of an Event of Default.

     

    3.6 STATUS
      OF ACCOUNTS

     

    Each
      Account is based on an actual and bona fide rendition of services or sale of
      goods or products to customers, made by such Guarantor in the ordinary course
      of
      its business. The Accounts created are such Guarantor’s exclusive property and
      are not and shall not be subject to any lien, consignment arrangement,
      encumbrance, security interest or financing statement whatsoever, except (i)
      the
      lien in favor of the holders of the Senior Note under the Watson Term Loan
      and
      the documents executed in connection therewith, including, without limitation,
      the Watson Guarantors Security Agreement and (ii) the lien in favor of the
      holders of the Secured Promissory Notes issued in connection with a bridge
      loan
      (the “Bridge
      Loan”)
      extended pursuant to the terms of that certain Loan Agreement, dated as of
      June
      22, 2005 and the documents executed in connection therewith, including, without
      limitation, the Bridge Loan Guarantors Security Agreement. To the best knowledge
      of such Guarantor, such Guarantor’s customers have accepted the goods, products
      and services and owe and are obligated to pay the full amounts stated in the
      invoices according to their terms, without any dispute, offset, defense or
      counterclaim.

     

    3.7 COPYRIGHTS,
      TRADEMARKS AND PATENTS

     

    (a) Such
      Guarantor owns outright all of the Intellectual Property Rights listed on
Section
      4.12
      of the
      Schedule of Exceptions attached to the Loan Agreement free and clear of all
      liens and encumbrances except for the Permitted Liens and pays no royalty to
      anyone under or with respect to any of them.

     

    
      
         

      

      
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    (b) Such
      Guarantor has not licensed to anyone the use of any of such Intellectual
      Property Rights and has no knowledge of the infringing use by the Company or
      any
      Guarantor of any Intellectual Property Rights of third parties.

     

    (c) Other
      than as disclosed to the Company’s or the Guarantors’ Board of Directors, Such
      Guarantor has no knowledge, nor has it received any notice (i) of any conflict
      with the asserted rights of others with respect to any Intellectual Property
      Rights used in, or useful to, the operation of the business conducted by the
      Company and the Guarantors or with respect to any license under which the
      Company or a Guarantor is licensor or licensee; or (ii) that the Intellectual
      Property Rights infringe upon the rights of any third party.

     

    (d) Such
      Guarantor has made or performed all filings, recordings and other acts and
      has
      paid all required fees and taxes to maintain and protect its interest in each
      and every item of Intellectual Property in full force and effect throughout
      the
      world, and to protect and maintain its interest therein including, without
      limitation, recordations of any of its interests in patents and trademarks
      with
      the U.S. Patent and Trademark Office and in corresponding national and
      international patent offices, and recordation of any of its interests in any
      copyrights with the U.S. Copyright Office and in corresponding national and
      international copyright offices. Such Guarantor has used proper statutory notice
      in connection with its use of each patent, trademark and copyright.

     

    3.8 INVENTORY

     

    All
      Inventory of such Guarantor consists of a quality and quantity usable and
      salable in the ordinary course of business, except for obsolete items and items
      of below-standard quality, all of which have been or will be written off or
      written down to net realizable value on the consolidated balance sheet of the
      Guarantors and its Subsidiaries as of March 31, 2005. The quantities of each
      type of Inventory (whether raw materials, work-in-process, or finished goods)
      are not excessive, but are reasonable and warranted in the present circumstances
      of such Guarantor.

     

    3.9 OWNERSHIP

     

    Such
      Guarantor is the legal and beneficial owner of its Collateral free and clear
      of
      any lien, claim, option or right of others, except for the security interest
      created under this Agreement, the Watson Guarantors Security Agreement and
      the
      Bridge Loan Guarantors Security Agreement. No effective financing statement
      or
      other instrument similar in effect covering all or any part of such Collateral
      or listing such Guarantor or any trade name of such Guarantor is on file in
      any
      recording office, except such as may have been filed relating to the Watson
      Term
      Loan and the Bridge Loan. The Agent has, for the benefit of the Lenders, a
      valid
      and perfected security interest in the Collateral which security interest has
      priority over any and all other security interests in such
      Collateral.

     

    
      
         

      

      
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    ARTICLE
      4

     

    COVENANTS

     

    Each
      Guarantor agrees (which agreements shall be several as to each Guarantor except
      as otherwise provided) as follows:

     

    4.1 DEFEND
      AGAINST CLAIMS

     

    Such
      Guarantor will defend the Collateral against all claims and demands of all
      Persons at any time claiming the same or any interest therein unless both the
      Agent and such Guarantor determine that the claim or demand is not material
      and
      that, consequently, such defense would not be consistent with good business
      judgment. Such Guarantor will not permit any lien notices with respect to the
      Collateral or any portion thereof to exist or be on file in any public office
      except for those in favor of the Agent and those permitted under the terms
      of
      the Loan Agreement.

     

    4.2 CHANGE
      IN COLLATERAL LOCATION

     

    Such
      Guarantor will not (a) change its corporate name, (b) change the location of
      its
      chief executive office or establish any place of business other than those
      specified in Section
      3.3 of Schedule A,
      or (c)
      move or permit movement of the Collateral from the locations specified therein
      except from one such location to another such location, unless in each case
      such
      Guarantor shall have given the Agent at least thirty (30) days prior written
      notice thereof, and shall have, in advance, executed and caused to be filed
      or
      delivered to the Agent any financing statements or other documents required
      by
      the Agent to perfect the security interest of the Agent in the Collateral in
      accordance with Section 4.3 of this Agreement, all in form and substance
      satisfactory to the Agent.

     

    4.3 ADDITIONAL
      FINANCING STATEMENTS

     

    Promptly
      upon the reasonable request of the Agent, such Guarantor will execute and
      deliver or use its best efforts to procure any document, give any notices,
      execute and file any financing statements, mortgages or other documents, all
      in
      form and substance satisfactory to the Agent, mark any chattel paper, deliver
      any chattel paper or instruments to the Agent and take any other actions that
      are necessary or, in the opinion of the Agent, desirable to perfect or continue
      the perfection and the first priority of the Agent’s security interest in the
      Collateral, to protect the Collateral against the rights, claims, or interests
      of third persons, or to effect the purposes of this Agreement. Such Guarantor
      will pay the costs incurred in connection with any of the
      foregoing.

     

    4.4 ADDITIONAL
      LIENS; TRANSFERS

     

    Without
      the prior written consent of the Agent, such Guarantor will not, in any way,
      hypothecate or create or permit to exist any lien, security interest, charge
      or
      encumbrance on or other interest in the Collateral, other than those permitted
      under the terms of the Loan Agreement and the liens in favor of the holders
      of
      the Senior Note pursuant to (i) the Watson Term Loan and documents relative
      thereto and (ii) the Bridge Loan and the documents relative thereto, and such
      Guarantor will not sell, transfer, assign, pledge, collaterally assign, exchange
      or otherwise dispose of the Collateral, other than the sale of Inventory in
      the
      ordinary course of business and the sale of obsolete or worn out Equipment.
      Notwithstanding the foregoing, if the proceeds of any such sale consist of
      notes, instruments, documents of title, letters of credit or chattel paper,
      such
      proceeds shall be promptly delivered to the Agent to be held as Collateral
      hereunder. If the Collateral, or any part thereof, is sold, transferred,
      assigned, exchanged, or otherwise disposed of in violation of these provisions,
      the security interest of the Agent shall continue in such Collateral or part
      thereof notwithstanding such sale, transfer, assignment, exchange or other
      disposition, and such Guarantor will hold the proceeds thereof for the benefit
      of the Agent, and promptly transfer such proceeds to the Agent in
      kind.

     

    
      
         

      

      
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    4.5 CONTRACTUAL
      OBLIGATIONS

     

    Such
      Guarantor will not enter into any contractual obligations which may restrict
      or
      inhibit the Agent’s rights or ability to sell or otherwise dispose of the
      Collateral or any part thereof after the occurrence or during the continuance
      of
      an Event of Default.

     

    4.6 AGENT’S
      RIGHT TO PROTECT COLLATERAL

     

    Upon
      the
      occurrence or continuance of an Event of Default, the Agent shall have the
      right
      at any time to make any payments and do any other acts the Agent may deem
      necessary to protect the security interests of the Lenders in the Collateral,
      including, without limitation, the rights to pay, purchase, contest or
      compromise any encumbrance, charge or lien which, in the reasonable judgment
      of
      the Agent, appears to be prior to or superior to the security interests granted
      hereunder, and appear in and defend any action or proceeding purporting to
      affect its security interests in, or the value of, the Collateral. The
      Guarantors hereby jointly and severally agree to reimburse the Agent for all
      payments made and expenses incurred under this Agreement including reasonable
      fees, expenses and disbursements of attorneys and paralegals acting for the
      Agent, including any of the foregoing payments under, or acts taken to protect
      its security interests in, the Collateral, which amounts shall be secured under
      this Agreement, and agree they shall be bound by any payment made or act taken
      by the Agent hereunder absent the Agent’s gross negligence or willful
      misconduct. The Agent shall have no obligation to make any of the foregoing
      payments or perform any of the foregoing acts.

     

    4.7 FURTHER
      OBLIGATIONS WITH RESPECT TO ACCOUNTS

     

    In
      furtherance of the continuing assignment and security interest in the Accounts
      of such Guarantor granted pursuant to this Agreement, upon the creation of
      Accounts, upon the Agent’s request, such Guarantor will execute and deliver to
      the Agent in such form and manner as the Agent may require, solely for its
      convenience in maintaining records of Collateral, such confirmatory schedules
      of
      Accounts, and other appropriate reports designating, identifying and describing
      the Accounts as the Agent may reasonably require. In addition, upon the Agent’s
      request, such Guarantor shall provide the Agent with copies of agreements with,
      or purchase orders from, the customers of such Guarantor and copies of invoices
      to customers, proof of shipment or delivery and such other documentation and
      information relating to such Accounts and other Collateral as the Agent may
      reasonably require. Furthermore, upon the Agent’s request, such Guarantor shall
      deliver to the Agent any documents or certificates of title issued with respect
      to any property included in the Collateral, and any promissory notes, letters
      of
      credit or instruments related to or otherwise in connection with any property
      included in the Collateral, which in any such case came into the possession
      of
      such Guarantor, or shall cause the issuer thereof to deliver any of the same
      directly to the Agent, in each case with any necessary endorsements in favor
      of
      the Agent. Failure to provide the Agent with any of the foregoing shall in
      no
      way affect, diminish, modify or otherwise limit the security interests granted
      herein. Each Guarantor hereby authorizes the Agent to regard such Guarantor’s
      printed name or rubber stamp signature on assignment schedules or invoices
      as
      the equivalent of a manual signature by such Guarantor’s authorized officers or
      agents.

     

    
      
         

      

      
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    4.8 INSURANCE

     

    Such
      Guarantor agrees to maintain public liability insurance, third party property
      damage insurance and replacement value insurance on the Collateral under such
      policies of insurance, with such insurance companies, in such amounts and
      covering such risks as are at all times satisfactory to the Agent in its
      commercially reasonable judgment. All policies covering the Collateral are
      to
      name the Agent as an additional insured and the loss payee in case of loss,
      and
      are to contain such other provisions as the Agent may reasonably require to
      fully protect the Agent’s interest in the Collateral and to any payments to be
      made under such policies. Without limiting the generality of the foregoing,
      all
      such policies shall contain standard lender’s loss payable clauses in favor of
      the Agent and shall provide that the same may not be cancelled, terminated
      or
      revised without giving the Agent at least 30 days prior written notice of such
      cancellation, termination or revision. Proceeds of such insurance policy or
      policies will be applied to the Obligations unless written consent to the
      contrary is obtained from the Agent. Such Guarantor will furnish the Agent
      with
      certificates of insurance or such other evidence satisfactory to the Agent
      so as
      to evidence compliance with the provisions of this Section.

     

    4.9 TAXES

     

    Such
      Guarantor agrees to pay, when due, all taxes lawfully levied or assessed against
      such Guarantor or any of the Collateral before any penalty or interest accrues
      thereon; provided,
      however,
      that,
      unless such taxes have become a federal tax or ERISA lien on any of the assets
      of such Guarantor, no such tax need be paid if the same is being contested,
      in
      good faith, by appropriate proceedings promptly instituted and diligently
      conducted and if an adequate reserve or other appropriate provision shall have
      been made therefor as required in order to be in conformity with
      GAAP.

     

    4.10 COMPLIANCE
      WITH LAWS

     

    Such
      Guarantor agrees to comply in all material respects with all Legal Requirements
      applicable to the Collateral or any part thereof, or to the operation of its
      business or its assets generally, unless such Guarantor contests in good faith,
      by appropriate legal, administrative or other proceedings promptly instituted
      and diligently conducted, any such Legal Requirements in a reasonable manner
      and
      in good faith. Such Guarantor agrees to maintain in full force and effect,
      its
      respective licenses and permits granted by any governmental authority as may
      be
      necessary or advisable for such Guarantor to conduct its business in all
      material respects. 

     

    
      
         

      

      
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    4.11 MAINTENANCE
      OF PROPERTY

     

    Such
      Guarantor agrees to keep all property useful and necessary to its business
      in
      good working order and condition (ordinary wear and tear excepted) and not
      to
      commit or suffer any waste with respect to any of its properties.

     

    4.12 ENVIRONMENTAL
      AND OTHER MATTERS

     

    Such
      Guarantor will conduct its business so as to comply in all respects with all
      environmental, land use, occupational, safety or health Legal Requirements
      in
      all jurisdictions in which it is or may at any time be doing business, except
      to
      the extent that such Guarantor is contesting, in good faith by appropriate
      legal, administrative or other proceedings, promptly instituted and diligently
      conducted, any such Legal Requirement; provided,
      further,
      that
      such Guarantor shall comply with the order of any court or other governmental
      authority relating to such Legal Requirements unless such Guarantor shall
      currently be prosecuting an appeal, proceedings for review or administrative
      proceedings and shall have secured a stay of enforcement or execution or other
      arrangement postponing enforcement or execution pending such appeal, proceedings
      for review or administrative proceedings.

     

    4.13 INTELLECTUAL
      PROPERTY

     

    With
      respect to each item of its Intellectual Property, each of the Guarantors agrees
      to take, at its expense, all necessary steps, including, without limitation,
      in
      the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other
      governmental authority, to (a) maintain the validity and enforceability of
      such
      Intellectual Property and maintain such Intellectual Property in full force
      and
      effect, and (b) pursue the registration and maintenance of each patent,
      trademark, or copyright registration or application, now or hereafter included
      in such Intellectual Property of the Guarantors, including, without limitation,
      the payment of required fees and taxes, the filing of responses to office
      actions issued by the U.S. Patent and Trademark Office, the U.S. Copyright
      Office or other governmental authorities, the filing of applications for renewal
      or extension, the filing of affidavits under Sections 8 and 15 of the U.S.
      Trademark Act, the filing of divisional, continuation, continuation-in-part,
      reissue and renewal applications or extensions, the payment of maintenance
      fees
      and the participation in interference, reexamination, opposition, cancellation,
      infringement and misappropriation proceedings. Neither Guarantor shall, without
      the prior written consent of the Agent, discontinue use of or otherwise abandon
      any Intellectual Property, or abandon any right to file an application for
      any
      patent, trademark or copyright, unless such Guarantor shall have previously
      determined that such use or the pursuit or maintenance of such Intellectual
      Property is no longer desirable in the conduct of such Guarantor’s business and
      that the loss thereof would not be reasonably likely to have a Material Adverse
      Effect, in which case, such Guarantor will give prompt notice of any such
      abandonment to the Agent.

     

    4.14 FURTHER
      ASSURANCES

     

    Such
      Guarantor shall take all such further actions and execute all such further
      documents and instruments (including, but not limited to, collateral assignments
      of Intellectual Property and Intangibles or any portion thereof) as the Agent
      may at any time reasonably determine in its sole discretion to be necessary
      or
      desirable to further carry out and consummate the transactions contemplated
      by
      the Loan Agreement and the documentation relating thereto, including this
      Agreement, and to perfect or protect the liens (and the priority status thereof)
      of the Agent in the Collateral.

     

    
      
         

      

      
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    ARTICLE
      5

     

    REMEDIES

     

    5.1 OBTAINING
      COLLATERAL UPON DEFAULT

     

    If
      any
      Event of Default shall have occurred and be continuing, then and in every such
      case, subject to the terms of the Loan Agreement and any mandatory requirements
      of applicable law then in effect, the Agent, in addition to any rights now
      or
      hereafter existing under applicable law, shall have all rights as a secured
      creditor under the Uniform Commercial Code in all relevant jurisdictions and
      may:

     

    (a) personally,
      or by agents or attorneys, immediately retake possession of the Collateral
      or
      any part thereof, from any Guarantor or any other Person who then has possession
      of any part thereof, with or without notice or process of law, and for that
      purpose may enter upon such Guarantor’s premises where any of the Collateral is
      located and remove the same and use in connection with such removal any and
      all
      services, supplies, aids and other facilities of such Guarantor;

     

    (b) instruct
      the obligor or obligors on any agreement, instrument or other obligation
      (including, without limitation, the Accounts) constituting the Collateral to
      make any payment required by the terms of such instrument or agreement directly
      to the Agent;

     

    (c) withdraw
      all monies, securities and instruments held pursuant to any pledge arrangement
      for application to the Obligations;

     

    (d) sell,
      assign or otherwise liquidate, or direct any Guarantor to sell, assign or
      otherwise liquidate, any or all of the Collateral or any part thereof, and
      take
      possession of the proceeds of any such sale or liquidation;

     

    (e) take
      possession of the Collateral or any part thereof, by directing any Guarantor
      in
      writing to deliver the same to the Agent at any place or places designated
      by
      the Agent, in which event such Guarantor shall at its own expense:

     

    (1) forthwith
      cause the same to be moved to the place or places so designated by the Agent
      and
      there delivered to the Agent,

     

    (2) store
      and
      keep any Collateral so delivered to the Agent at such place or places pending
      further action by the Agent as provided in Section 5.2, and

     

    
      
         

      

      
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    (3) while
      the
      Collateral shall be so stored and kept, provide such guards and maintenance
      services as shall be necessary to protect the same and to preserve and maintain
      the Collateral in good condition;

     

    it
      being
      understood that any Guarantor’s obligation to so deliver the Collateral is of
      the essence of this Agreement and that, accordingly, upon application to a
      court
      of equity having jurisdiction, the Agent shall be entitled to a decree requiring
      specific performance by such Guarantor of said obligation.

     

    5.2 DISPOSITION
      OF COLLATERAL

     

    Any
      Collateral repossessed by the Agent under or pursuant to Section 5.1 and any
      other Collateral whether or not so repossessed by the Agent may be sold,
      assigned, leased or otherwise disposed of under one or more contracts or as
      an
      entirety, and without the necessity of gathering at the place of sale the
      property to be sold, and in general in such manner, at such time or times,
      at
      such place or places and on such terms as the Agent may, in compliance with
      any
      mandatory requirements of applicable law, determine to be commercially
      reasonable. Any of the Collateral may be sold, leased or otherwise disposed
      of,
      in the condition in which the same existed when taken by the Agent or after
      any
      overhaul or repair which the Agent shall determine to be commercially
      reasonable. Any such disposition which shall be a private sale or other private
      proceedings permitted by such requirements shall be made upon not less than
      ten
      (10) days’ written notice to such Guarantor specifying the time at which such
      disposition is to be made and the intended sale price or other consideration
      therefor, and shall be subject, for the ten (10) days after the giving of such
      notice, to the right of such Guarantor or any nominee of such Guarantor to
      acquire the Collateral involved at a price or for such other consideration
      at
      least equal to the intended sale price or other consideration so specified.
      Any
      such disposition which shall be a public sale permitted by such requirements
      shall be made upon not less than ten (10) days’ written notice to such Guarantor
      specifying the time and place of such sale and, in the absence of applicable
      requirements of law, shall be by public auction (which may, at the option of
      the
      Agent, be subject to reserve), after publication at least once in The
      New York Times
      not less
      than ten (10) days prior to the date of sale. If The
      New York Times
      is not
      then being published, publication may be made in lieu thereof in any newspaper
      then being circulated in the City of New York, New York, as the Agent may elect.
      All requirements of reasonable notice under this Section 5.2 shall be met if
      such notice is mailed, postage prepaid at least ten (10) days before the time
      of
      such sale or disposition, to the Guarantor at its address set forth herein
      or
      such other address as the Guarantor may have, in writing, provided to the Agent.
      The Agent may, if it deems it reasonable, postpone or adjourn any sale of any
      Collateral from time to time by an announcement at the time and place of the
      sale to be so postponed or adjourned without being required to give a new notice
      of sale. The proceeds realized from the sale of any Collateral shall be applied
      as follows: first, to the reasonable costs, expenses and attorneys’ fees and
      expenses incurred by Agent for collection and for acquisition, completion,
      protection, removal, storage, sale and delivery of the Collateral; second,
      to
      interest due on any of the Obligations and any fees payable under this
      Agreement; and third, to the principal of the Obligations. If any deficiency
      shall arise, Guarantors shall remain liable to Agent and Lenders
      therefor.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    5.3 POWER
      OF ATTORNEY

     

    Each
      Guarantor hereby irrevocably authorizes and appoints the Agent, or any Person
      or
      agent the Agent may designate, as such Guarantor’s attorney-in-fact, at such
      Guarantor’s cost and expense, subject to the terms of the Loan Agreement, to
      exercise all of the following powers upon and at any time after the occurrence
      and during the continuance of an Event of Default, which powers, being coupled
      with an interest, shall be irrevocable until all of the Obligations owing by
      such Guarantor shall have been paid and satisfied in full:

     

    (a) accelerate
      or extend the time of payment, compromise, issue credits, bring suit or
      administer and otherwise collect Accounts or proceeds of any
      Collateral;

     

    (b) receive,
      open and dispose of all mail addressed to such Guarantor and notify postal
      authorities to change the address for delivery thereof to such address as the
      Agent may designate;

     

    (c) give
      customers indebted on Accounts notice of the Agent’s interest therein, or to
      instruct such customers to make payment directly to the Agent for such
      Guarantor’s account;

     

    (d) convey
      any item of Collateral to any purchaser thereof;

     

    (e) give
      any
      notices or record any liens under Section 4.3 hereof; and 

     

    (f) make
      any
      payments or take any acts under Section 4.6 hereof.

     

    The
      Agent’s authority under this 5.3 shall include, without limitation, the
      authority to execute and give receipt for any certificate of ownership or any
      document, transfer title to any item of Collateral, sign such Guarantor’s name
      on all financing statements or any other documents deemed necessary or
      appropriate to preserve, protect or perfect the security interest in the
      Collateral and to file the same, prepare, file and sign such Guarantor’s name on
      any notice of lien, assignment or satisfaction of lien or similar document
      in
      connection with any Account and prepare, file and sign such Guarantor’s name on
      a proof of claim in bankruptcy or similar document against any customer of
      such
      Guarantor, and to take any other actions arising from or incident to the rights,
      powers and remedies granted to the Agent in this Agreement. This power of
      attorney is coupled with an interest and is irrevocable by such
      Guarantor.

     

    5.4 WAIVER
      OF CLAIMS

     

    Except
      as
      otherwise provided in this Agreement, EACH GUARANTOR HEREBY WAIVES, TO THE
      EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION
      WITH THE AGENT’S OR ANY LENDER’S TAKING POSSESSION OF OR DISPOSING OF ANY OF THE
      COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
      FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH ANY GUARANTOR
      WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
      OR OF ANY STATE, and each Guarantor hereby further waives, to the extent
      permitted by law:

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (a) all
      damages occasioned by such taking of possession except any damages which are
      the
      direct result of the Agent’s or Lender’s gross negligence or willful
      misconduct;

     

    (b) all
      other
      requirements as to the time, place and terms of sale or other requirements
      with
      respect to the enforcement of the Agent’s or Lender’s rights hereunder, except
      as expressly provided herein; and

     

    (c) all
      rights of redemption, appraisement, valuation, stay, extension or moratorium
      now
      or hereafter in force under any applicable law in order to prevent or delay
      the
      enforcement of this Agreement or the absolute sale of the Collateral or any
      portion thereof, and such Guarantor, for itself and all who may claim under
      it,
      insofar as it or they now or hereafter lawfully may, hereby waives the benefit
      of all such laws.

     

    Any
      sale
      of, or the grant of options to purchase, or any other realization upon any
      Collateral shall operate to divest all right, title, interest, claim and demand,
      either at law or in equity, of such Guarantor therein and thereto, and shall
      be
      a perpetual bar both at law and in equity against such Guarantor and against
      any
      and all persons claiming or attempting to claim the Collateral so sold, optioned
      or realized upon, or any part thereof, from, through and under such
      Guarantor.

     

    5.5 REMEDIES
      CUMULATIVE

     

    Each
      and
      every right, power and remedy hereby specifically given to the Agent shall
      be in
      addition to every other right, power and remedy specifically given under this
      Agreement, under the Loan Agreement or under other documentation relating
      thereto or now or hereafter existing at law or in equity, or by statute, and
      each and every right, power and remedy whether specifically herein given or
      otherwise existing may be exercised from time to time or simultaneously and
      as
      often and in such order as may be deemed expedient by the Agent. All such
      rights, powers and remedies shall be cumulative and the exercise or the
      beginning of exercise of one shall not be deemed a waiver of the right to
      exercise of any other or others. No delay or omission of the Agent in the
      exercise of any such right, power or remedy and no renewal or extension of
      any
      of the Obligations shall impair any such right, power or remedy or shall be
      construed to be a waiver of any default or Event of Default or any acquiescence
      therein.

     

    ARTICLE
      6

     

    MISCELLANEOUS
      PROVISIONS

     

    6.1 NOTICES

     

    All
      notices, approvals, consents or other communications required or desired to
      be
      given hereunder shall be delivered in person, by facsimile transmission followed
      promptly by first class mail, by a nationally recognized courier service marked
      for next business day delivery or by overnight mail, and delivered if to the
      Agent, then to the attention of Bruce F. Wesson, c/o Galen Partners III, L.P.,
      610 Fifth Avenue, Fifth Floor, New York, New York, 10020, fax no. (212)
      218-4990, with a copy to George N. Abrahams, Esq., c/o Blank Rome, LLP, Chrysler
      Building, 405 Lexington Avenue, New York, New York 10174, fax no. (917)
      332-3763, and if to the Guarantors, then to c/o Acura Pharmaceuticals, Inc.,
      attention of Mr. Andrew D. Reddick, 616 N. North Court, Suite 120, Palatine,
      Illinois 60067, with a copy to John P. Reilly, Esq., St. John & Wayne,
      L.L.C., 2 Penn Plaza East, Newark, New Jersey, 07105, fax no. (973)
      491-3555.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    6.2 HEADINGS

     

    The
      headings in this Agreement are for purposes of reference only and shall not
      affect the meaning or construction of any provision of this
      Agreement.

     

    6.3 SEVERABILITY

     

    The
      provisions of this Agreement are severable, and if any clause or provision
      shall
      be held invalid or unenforceable in whole or in part in any jurisdiction, then
      such invalidity or unenforceability shall affect, in that jurisdiction only,
      such clause or provision, or part thereof, and shall not in any manner affect
      such clause or provision in any other jurisdiction or any other clause or
      provision of this Agreement in any jurisdiction.

     

    6.4 AMENDMENTS,
      WAIVERS AND CONSENTS

     

    Any
      amendment or waiver of any provision of this Agreement and any consent to any
      departure by any Guarantor from any provision of this Agreement shall be
      effective only if made or given in writing signed by the Agent.

     

    6.5 INTERPRETATION
      OF AGREEMENT

     

    All
      terms
      not defined herein or in the Loan Agreement shall have the meaning set forth
      in
      the applicable Uniform Commercial Code. Acceptance of or acquiescence in a
      course of performance rendered under this Agreement shall not be relevant in
      determining the meaning of this Agreement even though the accepting or
      acquiescing party had knowledge of the nature of the performance and opportunity
      for objection.

     

    6.6 CONTINUING
      SECURITY INTEREST

     

    This
      Agreement shall create a continuing security interest in the Collateral and
      shall (a) remain in full force and effect, (b) be binding upon each Guarantor,
      and its successors and assigns and (b) inure to the benefit of the Agent and
      its
      successors and assigns.

     

    6.7 REINSTATEMENT

     

    To
      the
      extent permitted by law, this Agreement shall continue to be effective or be
      reinstated if at any time any amount received by the Agent in respect of the
      Obligations owing by the Guarantors is rescinded or must otherwise be restored
      or returned by the Agent upon the occurrence or during the pendency of any
      Event
      of Default, all as though such payments had not been made.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    6.8 SURVIVAL
      OF PROVISIONS

     

    All
      representations, warranties and covenants of the Guarantors contained herein
      shall survive the execution and delivery of this Agreement, and shall terminate
      only upon the full and final indefeasible payment and performance by the
      Guarantors of the Obligations secured hereby.

     

    6.9 SETOFF

     

    The
      Agent
      shall have all rights of setoff available at law or in equity.

     

    6.10 POWER
      OF ATTORNEY

     

    In
      addition to the powers granted to the Agent under Section 5.3, each Guarantor
      hereby irrevocably authorizes and appoints the Agent, or any Person or agent
      the
      Agent may designate, as such Guarantor’s attorney-in-fact, at such Guarantor’s
      cost and expense, to exercise all of the following powers, which being coupled
      with an interest, shall be irrevocable until all of the Obligations shall have
      been indefeasibly paid and satisfied in full:

     

    (a) after
      the
      occurrence of an Event of Default, to receive, take, endorse, sign, assign
      and
      deliver, all in the name of the Agent or such Guarantor, any and all checks,
      notes, drafts, and other documents or instruments relating to the Collateral;
      and

     

    (b) to
      request, at any time from customers indebted on Accounts, verification of
      information concerning the Accounts and the amounts owing thereon.

     

    6.11 INDEMNIFICATION;
      AUTHORITY OF AGENT

     

    Neither
      the Agent or any Lender nor any director, officer, employee, attorney or agent
      of the Agent or any Lender shall be liable to any Guarantor for any action
      taken
      or omitted to be taken by it or them hereunder, except for its or their own
      gross negligence or willful misconduct, nor shall the Agent or any Lender be
      responsible for the validity, effectiveness or sufficiency of this Agreement
      or
      of any document or security furnished pursuant hereto. The Agent, the Lenders
      and their respective directors, officers, employees, attorneys and agents shall
      be entitled to rely on any communication, instrument or document reasonably
      believed by it or them to be genuine and correct and to have been signed or
      sent
      by the proper person or persons. Each Guarantor agrees to indemnify and hold
      harmless the Agent, the Lenders and any other person from and against any and
      all costs, expenses (including reasonable fees, expenses and disbursements
      of
      attorneys and paralegals (including, without duplication, reasonable charges
      of
      inside counsel)), claims or liability incurred by the Agent, any Lender or
      such
      person hereunder, unless such claim or liability shall be due to willful
      misconduct or gross negligence on the part of the Agent, the Lender or such
      person.

     

    6.12 RELEASE;
      TERMINATION OF AGREEMENT

     

    Subject
      to the provisions of Section 6.7 of this Agreement, this Agreement shall
      terminate upon the termination of the Guaranties and the full and final
      indefeasible payment and performance of all the Obligations owing by each
      Guarantor. At such time, the Agent shall, at the request of any Guarantor,
      reassign and redeliver to such Guarantor all of the Collateral hereunder which
      has not been sold, disposed of, retained or applied by the Agent in accordance
      with the terms hereof. Such reassignment and redelivery shall be without
      warranty by or recourse to the Agent, except as to the absence of any prior
      assignments by the Agent of its interest in the Collateral, and shall be at
      the
      expense of such Guarantor.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    6.13 COUNTERPARTS

     

    This
      Agreement may be executed in one or more counterparts, including by facsimile
      copy, each of which shall be deemed an original but all of which shall together
      constitute one and the same agreement.

     

    6.14 GOVERNING
      LAW

     

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

     

    6.15 SUBMISSION
      TO JURISDICTION

     

    (a) Each
      of
      the parties hereto hereby irrevocably and unconditionally submits, for itself
      and its property, to the nonexclusive jurisdiction of any New York State court
      or United States Federal court sitting in New York City, and any appellate
      court
      from any thereof, in any action or proceeding arising our of or relating to
      this
      Agreement or any of the other Transaction Documents to which it is a party,
      or
      for recognition or enforcement of any judgment, and each of the parties hereto
      irrevocably and unconditionally agrees that all claims in respect of any such
      action or proceeding may be heard and determined in any such New York State
      court or, to the fullest extent permitted by law, in such United States Federal
      court. Each of the parties hereto agrees that a final judgment in any such
      action or proceeding shall be conclusive and may be enforced in other
      jurisdictions by suit on the right that any party may otherwise have to bring
      any action or proceeding relating to this Agreement or any of the other
      Transaction Documents in the courts of any other jurisdiction. 

     

    (b) Each
      of
      the parties hereto irrevocably and unconditionally waives, to the fullest extent
      it may legally and effectively do so, any objection that it may now or hereafter
      have to the laying of venue of any suit, action or proceeding arising out of
      or
      in relation to this Agreement or any other Transaction Document to which it
      is a
      party in any such New York State or United States Federal court sitting in
      New
      York City. Each of the parties hereto hereby irrevocably waives, to the fullest
      extent permitted by law, the defense of an inconvenient forum to the maintenance
      of such action or proceeding in any such court.

     

    6.16 SERVICE
      OF PROCESS

     

    EACH
      GUARANTOR HEREBY IRREVOCABLY AGREES THAT SERVICE OF PROCESS IN ANY LEGAL ACTION
      OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE EFFECTED BY MAILING A COPY
      THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH GUARANTOR
      AT
      ITS ADDRESS SET FORTH IN SECTION 6.1 HEREOF. 

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    6.17 LIMITATION
      OF LIABILITY

     

    THE
      AGENT
      AND THE LENDERS SHALL NOT HAVE ANY LIABILITY TO ANY GUARANTOR (WHETHER SOUNDING
      IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY ANY GUARANTOR IN
      CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS
      OR
      RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT
      OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
      NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON THE AGENT OR LENDER, AS
      APPLICABLE, THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING
      GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

     

    6.18 DELAYS;
      PARTIAL EXERCISE OF REMEDIES

     

    No
      delay
      or omission of the Agent to exercise any right or remedy hereunder, whether
      before or after the happening of any Event of Default, shall impair any such
      right or shall operate as a waiver thereof or as a waiver of any such Event
      of
      Default. No single or partial exercise by the Agent of any right or remedy
      shall
      preclude any other or further exercise thereof, or preclude any other right
      or
      remedy.

     

    6.19 JURY
      TRIAL

     

    EACH
      OF
      THE GUARANTORS AND THE AGENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
      JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
      TORT
      OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT OR THE
      ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
      ENFORCEMENT THEREOF.

    

    [SIGNATURE
      PAGE TO FOLLOW]

    

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

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

     

    

    
      	 	
              ACURA
                PHARMACEUTICAL 
TECHNOLOGIES,
                INC.

            
	 	 
	 	
              By:
                /s/ Andrew D.
                Reddick                                 
                

              Name:
                Andrew D. Reddick

              Title:
                President and Chief Executive Officer

            
	 	 
	 	 
	 	
              AXIOM
                PHARMACEUTICAL
CORPORATION

            
	 	 
	 	
              By:
                /s/ Andrew D.
                Reddick                                 
                 

              Name:
                Andrew D. Reddick

              Title:
                President and Chief Executive
                Officer

            

    

     

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

     

    
      	 	
              GALEN
                PARTNERS III, L.P. 

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

              610
                Fifth Avenue, 5th
                Fl.

              New
                York, New York 10019

            
	 	
            
	 	
              By: /s/
                Srini
                Conjeevaram                                
                

              Name: Srini Conjeevaram, its General
                Partner

              Title: President and Chief Executive
                Officer

            

    

    
       

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
      A

    

    Section
      3.3

    

    ·APT

    

    16235
      State Road 17, Culver, Indiana 46511.

    

    

    ·Axiom

    

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

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