Document:

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.

       

      
        
          
          

        

        
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      "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

              

      

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      
        	
                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  

                 

              

      

       

      
        
          
          

        

        
          29Unassociated Document

    Exhibit
      10.5

    

      COMPANY
        GENERAL SECURITY AGREEMENT

       

      This
        Company General Security Agreement (the “Agreement”)
        is
        dated as of November 9, 2005 by and among Acura Pharmaceuticals, Inc., a
        New
        York corporation with its principal place of business at 616 N. North Court,
        Palatine, Illinois, 60067 (“Debtor”),
        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

       

      Debtor
        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”).
        The
        Lenders have required, as a condition precedent to the effectiveness of the
        Loan
        Agreement, that the Debtor (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 the Debtor of the obligations owing by the Debtor
        to
        the Lenders under the Loan Agreement, the Notes, the other Transaction Documents
        and each of the agreements, documents and instruments delivered by the Debtor
        pursuant thereto or in connection therewith (collectively, the “Obligations”).

       

      AGREEMENT

       

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

       

      ARTICLE
        1

       

      CREATION
        OF SECURITY INTEREST

       

      1.1  SECURITY
        INTEREST

       

      The
        Debtor 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 the Debtor’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 the Debtor.

       

      1.2  DEBTOR
        REMAINS LIABLE

       

      Anything
        herein to the contrary notwithstanding, (a) the Debtor shall remain liable
        under
        the contracts and agreements included in the Collateral to the extent set
        forth
        therein to perform all of its 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 Debtor from any of its
        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 Debtor 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 all of the assets of the Debtor including all of the kinds and types
        of
        property described in clauses (a) through (h) of this Section 2.1, whether
        now
        owned or hereafter at any time arising, acquired or created by the Debtor
        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 the Debtor relating thereto and
        all
        Proceeds (as defined in Section 2.2 below) of Collateral:

       

      (a)  all
        of
        the Debtor’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 the Debtor’s sales of goods or
        rendition of services made under any of the Debtor’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 the Debtor 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”);

       

      (b)  all
        of
        the Debtor’s inventory, including without limitation (i) all raw materials, work
        in process, parts, components, assemblies, supplies and materials used or
        consumed in the Debtor’s businesses, wherever located and whether in the
        possession of the Debtor 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 the Debtor or any other person or entity; and
        (iii)
        all goods returned to or repossessed by the Debtor (all of the foregoing
        property being hereinafter referred to as “Inventory”);

       

      (c)  all
        of
        the equipment owned or leased by the Debtor, 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
        the Debtor’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”);

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      (e)  all
        of
        the Debtor’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 the Debtor’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 the Debtor, together with the goodwill
        of
        the business symbolized by or connected with the Debtor’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”);

       

      (f)  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; 

       

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

       

      (h)  all
        of
        the shares of stock or other securities of Acura Pharmaceutical Technologies,
        Inc. and Axiom Pharmaceutical Corporation, and the certificates, if any,
        representing such shares or other securities, and all dividends, distributions,
        return of capital, 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 such shares or securities and all subscription warrants, rights
        or
        options issued thereon or with respect thereto, and all investment property,
        all, to the extent applicable, as further set forth in the Stock Pledge
        Agreement.

       

      2.2  PROCEEDS

       

      For
        purposes of this Agreement, the term “Proceeds”
        shall
        include (a) whatever is now or hereafter received by the Debtor 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 the Debtor with any proceeds
        of
        Collateral hereunder.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        3

       

      REPRESENTATIONS
        AND WARRANTIES

       

      The
        Debtor represents and warrants as follows:

       

      3.1  ORGANIZATION
        AND EXISTENCE

       

      The
        Debtor is a corporation duly organized, validly existing and in good standing
        under the laws of the State of New York 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. The Debtor 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 the Debtor to a material liability.

       

      3.2  AUTHORIZATION

       

      (a)  The
        Debtor 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 the Debtor in, on or in respect of the Collateral.

       

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

       

      3.3  PLACES
        OF BUSINESS

       

      The
        Debtor 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 the Debtor’s chief executive office 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 Watson Security Agreement, the June
        Bridge Loan Security Agreement and the September Bridge Loan Security Agreement
        (each as hereinafter defined), 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.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      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 the Debtor in the ordinary course
        of its
        business. The Accounts created are the Debtor’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 Security Agreement dated as of March 29, 2000 (the “Watson
        Security Agreement”);
        (ii)
        the lien in favor of the holders of the Secured Promissory Notes issued in
        connection with a bridge loan (the “June
        Bridge Loan”)
        extended
        pursuant to the terms of that certain Loan Agreement, dated June 22, 2005
        and
        the documents executed in connection therewith, including, without limitation,
        the Guarantors Security Agreement dated June 22, 2005 (the “June
        Bridge Loan Security Agreement”);
        and
        (iii) the lien in favor of the holders of the Secured Promissory Notes issued
        in
        connection with a bridge loan (the “September
        Bridge Loan”)
        extended
        pursuant to the terms of that certain Loan Agreement, dated September 16,
        2005
        and the documents executed in connection therewith, including, without
        limitation, the Guarantors Security Agreement dated September 16, 2005 (the
        “September
        Bridge Loan Security Agreement”)
        . To
        the best knowledge of the Debtor, the Debtor’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)  The
        Debtor 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. 

       

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

       

      (c)  Other
        than as disclosed to the Debtor’s Board of Directors, the Debtor 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 Debtor and the
        Guarantors or with respect to any license under which the Debtor or a Guarantor
        is licensor or licensee; or (ii) that the Intellectual Property Rights infringe
        upon the rights of any third party.

       

      (d)  The
        Debtor 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. The Debtor has used proper statutory notice
        in
        connection with its use of each patent, trademark and copyright.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      3.8  INVENTORY

       

      All
        Inventory of the Debtor 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 Debtor
        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 the
        Debtor.

       

      3.9  OWNERSHIP

       

      The
        Debtor 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 Security Agreement, the June Bridge Loan
        Security Agreement and the September Bridge Loan Security Agreement. No
        effective financing statement or other instrument similar in effect covering
        all
        or any part of such Collateral or listing the Debtor or any trade name of
        the
        Debtor is on file in any recording office, except such as may have been filed
        relating to the Watson Term Loan, the June Bridge Loan and the September
        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.

       

      ARTICLE
        4

       

      COVENANTS

       

      The
        Debtor agrees as follows:

       

      4.1  DEFEND
        AGAINST CLAIMS

       

      The
        Debtor 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
        the Debtor determine that the claim or demand is not material and that,
        consequently, such defense would not be consistent with good business judgment.
        The Debtor 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

       

      The
        Debtor 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
        the
        Debtor 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, the Debtor 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. The Debtor will pay
        the
        costs incurred in connection with any of the foregoing.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      4.4  ADDITIONAL
        LIENS; TRANSFERS

       

      Without
        the prior written consent of the Agent, the Debtor 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; (ii) the June Bridge Loan and the documents relative thereto; and
        (iii)
        the September Bridge Loan and the documents relative thereto, and the Debtor
        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 the Debtor will hold the proceeds thereof for the benefit
        of
        the Agent, and promptly transfer such proceeds to the Agent in
        kind.

       

      4.5  CONTRACTUAL
        OBLIGATIONS

       

      The
        Debtor 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 Debtor
        hereby agrees 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 agrees
        it
        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.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      4.7  FURTHER
        OBLIGATIONS WITH RESPECT TO ACCOUNTS

       

      In
        furtherance of the continuing assignment and security interest in the Accounts
        of the Debtor granted pursuant to this Agreement, upon the creation of Accounts,
        upon the Agent’s request, the Debtor 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, the
        Debtor shall provide the Agent with copies of agreements with, or purchase
        orders from, the customers of the Debtor 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, the Debtor 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 the Debtor,
        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.
        The
        Debtor hereby authorizes the Agent to regard the Debtor’s printed name or rubber
        stamp signature on assignment schedules or invoices as the equivalent of
        a
        manual signature by the Debtor’s authorized officers or agents.

       

      4.8  INSURANCE

       

      The
        Debtor 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. The Debtor 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

       

      The
        Debtor agrees to pay, when due, all taxes lawfully levied or assessed against
        the Debtor 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 the Debtor, 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.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      4.10  COMPLIANCE
        WITH LAWS

       

      The
        Debtor 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 the Debtor 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. The Debtor 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 the Debtor to conduct its business in all material
        respects. 

       

      4.11  MAINTENANCE
        OF PROPERTY

       

      The
        Debtor 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

       

      The
        Debtor 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 the Debtor is contesting, in good faith by appropriate legal,
        administrative or other proceedings, promptly instituted and diligently
        conducted, any such Legal Requirement; provided,
        further,
        that
        the Debtor shall comply with the order of any court or other governmental
        authority relating to such Legal Requirements unless the Debtor 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, the Debtor 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 Debtor, 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. The Debtor shall not, 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 the Debtor shall have previously
        determined that such use or the pursuit or maintenance of such Intellectual
        Property is no longer desirable in the conduct of the Debtor’s business and that
        the loss thereof would not be reasonably likely to have a Material Adverse
        Effect, in which case, the Debtor will give prompt notice of any such
        abandonment to the Agent.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      4.14  FURTHER
        ASSURANCES

       

      The
        Debtor 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.

       

      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 regarding the exercise of
        remedies 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 the Debtor 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 the Debtor’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 the Debtor;

       

      (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 the Debtor 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 the Debtor
        in
        writing to deliver the same to the Agent at any place or places designated
        by
        the Agent, in which event the Debtor 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

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (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 the Debtor’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 the Debtor 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 the Debtor 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 the Debtor or any nominee of the Debtor 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 the Debtor 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 Debtor at its address set forth herein or
        such
        other address as the Debtor 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, the Debtor shall remain liable to Agent and Lenders
        therefor.

       

      5.3  POWER
        OF ATTORNEY

       

      The
        Debtor hereby irrevocably authorizes and appoints the Agent, or any Person
        or
        agent the Agent may designate, as the Debtor’s attorney-in-fact, at the Debtor’s
        cost and expense, subject to the terms of the Loan Agreement regarding the
        exercise of remedies, 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 the Debtor shall have been paid and satisfied in
        full:

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (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 the Debtor 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 the Debtor’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 the Debtor’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 the Debtor’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 the Debtor’s name on a proof of claim in
        bankruptcy or similar document against any customer of the Debtor, 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 the Debtor.

       

      5.4  WAIVER
        OF CLAIMS

       

      Except
        as
        otherwise provided in this Agreement, THE DEBTOR 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 THE DEBTOR
        WOULD
        OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
        OR OF
        ANY STATE, and the Debtor hereby further waives, to the extent permitted
        by
        law:

       

      (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

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (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 the Debtor, 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 the Debtor therein and thereto, and shall
        be a
        perpetual bar both at law and in equity against the Debtor 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 the
        Debtor.

       

      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 Debtor, then to the 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.

       

      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.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      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 the Debtor 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 the Debtor,
        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 Debtor 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.

       

      6.8  SURVIVAL
        OF PROVISIONS

       

      All
        representations, warranties and covenants of the Debtor 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 Debtor
        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, the Debtor
        hereby
        irrevocably authorizes and appoints the Agent, or any Person or agent the
        Agent
        may designate, as the Debtor’s attorney-in-fact, at the Debtor’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:

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (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 the Debtor, 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 the Debtor 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. The Debtor 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 full and final indefeasible payment and performance of all
        the
        Obligations owing by the Debtor. At such time, the Agent shall, at the request
        of the Debtor, reassign and redeliver to the Debtor 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 the Debtor.

       

      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.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      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

       

      THE
        DEBTOR 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 THE DEBTOR AT
        ITS
        ADDRESS SET FORTH IN SECTION 6.1 HEREOF. 

       

      6.17  LIMITATION
        OF LIABILITY

       

      THE
        AGENT
        AND THE LENDERS SHALL NOT HAVE ANY LIABILITY TO THE DEBTOR (WHETHER SOUNDING
        IN
        TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE DEBTOR 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.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      6.19  JURY
        TRIAL

       

      THE
        DEBTOR 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]

    

     

    
      

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

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

       

       

      
        	 	 	 
	 	ACURA
                PHARMACEUTICALS, INC.
	 
 	 
 	 
 
	Date: 	By:  	/s/ Andrew
                D. Reddick
	 	
                
                  
Name:
                  Andrew D. Reddick 

              
	 	Title:
                President and Chief Executive Office

      

      

      

      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

              
	 
 	 
 	 
 
	Date: 	By:  	/s/ Srini
                Conjeevaram
	 	
                
                  
Name:
                  Srini Conjeevaram, its General Partner 

              
	 	Title:
                President and Chief Executive Officer

      

      
 

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      

      SCHEDULE
        A

      

      Section
        3.3  Places
        of Business

      

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

       

       

      
        
          
          

        

        
          19

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