Document:

<PAGE>

CONFIDENTIAL TREATMENT REQUESTED                                    EXHIBIT 10.3

CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED IS OMITTED AND IS NOTED WITH "[CONFIDENTIAL TREATMENT
REQUESTED]." AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.

--------------------------------------------------------------------------------

             AMENDED AND RESTATED MYSOLINE ASSET PURCHASE AGREEMENT

                                 by and between

                        ELAN PHARMA INTERNATIONAL LIMITED

                                       and

                           XCEL PHARMACEUTICALS, INC.

                            dated as of April 1, 2001

--------------------------------------------------------------------------------

<PAGE>

                                                          CONFIDENTIAL TREATMENT

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                Page
<S>              <C>                                                            <C>
ARTICLE I. Definitions.......................................................     1

Section 1.01     Defined Terms ..............................................     1
Section 1.02     Construction of Certain Terms and Phrases ..................     8

ARTICLE II. Purchase and Sale of Assets......................................     9

Section 2.01     Purchase and Sale of Assets ................................     9
Section 2.02     Assignability and Consents .................................     9

ARTICLE III. Assumption of Liabilities.......................................    10

Section 3.01     Assumption of Assumed Liabilities ..........................    10

ARTICLE IV. Purchase Price and Payment.......................................    10

Section 4.01     Purchase Price .............................................    10
Section 4.02     Purchase Price Adjustment ..................................    12
Section 4.03     Purchase of Product Inventory ..............................    14
Section 4.04     Payment of Sales, Use and Other Taxes ......................    14
Section 4.05     Impact of Failure to Make Payments .........................    14

ARTICLE V. Closing...........................................................    14

Section 5.01     Time and Place .............................................    14
Section 5.02     Deliveries at Closing ......................................    15

ARTICLE VI. Representations and Warranties of Seller.........................    16

Section 6.01     Books and Records ..........................................    16
Section 6.02     Corporate Organization .....................................    16
Section 6.03     Authority of Seller ........................................    16
Section 6.04     Consents and Approvals .....................................    17
Section 6.05     Non-Contravention ..........................................    17
Section 6.06     Assumed Contracts ..........................................    17
Section 6.07     Purchased Assets Generally .................................    18
Section 6.08     Intellectual Property Rights ...............................    18
Section 6.09     Litigation .................................................    18
Section 6.10     Compliance with Law ........................................    19
Section 6.11     Regulatory Matters .........................................    19
Section 6.12     Brokers ....................................................    19
Section 6.13     Disclosure .................................................    19
Section 6.14     No Other Warranties ........................................    20
</TABLE>

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                                                          CONFIDENTIAL TREATMENT

<TABLE>
<S>              <C>                                                            <C>
ARTICLE VII. Representations and Warranties of Buyer.........................    20

Section 7.01     Corporate Organization .....................................    20
Section 7.02     Authority of Buyer .........................................    20
Section 7.03     Consents and Approvals .....................................    20
Section 7.04     Non-Contravention ..........................................    21
Section 7.05     Litigation .................................................    21
Section 7.06     Brokers ....................................................    21

ARTICLE VIII. Covenants of the Parties.......................................    22

Section 8.01     Non-Assertion of Intellectual Property Rights ..............    22
Section 8.02     Cooperation ................................................     2
Section 8.03     Access .....................................................     2
Section 8.04     Public Announcements .......................................    23
Section 8.05     Non-Solicitation ...........................................    23
Section 8.06     Corporate Names ............................................    23
Section 8.07     Handling of Product Inventory ..............................    24
Section 8.08     Differentiation of Products ................................    24
Section 8.09     Regulatory Matters .........................................    24
Section 8.10     Product Returns, Chargebacks and Rebates ...................    25
Section 8.11     Adverse Experience Reports .................................    27
Section 8.12     Multi-Product Contracts ....................................    27
Section 8.13     Manner of Business .........................................    28
Section 8.14     Assumption of Ongoing Clinical Trials ......................    28
Section 8.15     Compliance Audits ..........................................    28
Section 8.16     Labeling Requirements ......................................    28
Section 8.17     Sale of Mysoline Suspension ................................    28
Section 8.18     Further Assurances .........................................    28

ARTICLE IX. Conditions to the Obligations of Seller..........................    29

Section 9.02     No Actions or Proceedings ..................................    29
Section 9.03     Consents ...................................................    29
Section 9.04     Other Closing Deliveries ...................................    29
Section 9.05     Completion of Equity Financing .............................    29

ARTICLE X. Conditions to the Obligations of Buyer............................    29

Section 10.01    Representations, Warranties and Covenants ..................    29
Section 10.02    No Actions or Proceedings ..................................    30
Section 10.03    Consents ...................................................    30
Section 10.04    Other Closing Deliveries ...................................    30

ARTICLE XI. Indemnification..................................................    30

Section 11.01    Survival of Representations, Warranties, Etc ...............    30
Section 11.02    Indemnification ............................................    30
</TABLE>

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                                                          CONFIDENTIAL TREATMENT

<TABLE>
<S>              <C>                                                            <C>
Section 11.03    Limitations ................................................    33
Section 11.04    Limitation of Liability ....................................    34

ARTICLE XII. Miscellaneous                                                       34

Section 12.01    Confidentiality ............................................     3
Section 12.02    Notices ....................................................    35
Section 12.03    Entire Agreement ...........................................    36
Section 12.04    Waiver .....................................................    36
Section 12.05    Amendment ..................................................    36
Section 12.06    Third Party Beneficiaries ..................................    36
Section 12.07    Assignment; Binding Effect .................................    36
Section 12.08    Headings ...................................................    36
Section 12.09    Severability ...............................................    37
Section 12.10    Governing Law ..............................................    37
Section 12.11    Expenses ...................................................    37
Section 12.12    Counterparts ...............................................    37
Section 12.13    Schedules, Exhibits and Other Agreements ...................    37
</TABLE>

                                      -iii-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

             AMENDED AND RESTATED MYSOLINE ASSET PURCHASE AGREEMENT

This Amended and Restated Mysoline Asset Purchase Agreement (this "Agreement")
                                                                   ---------
is made and entered into as of April 1, 2001, by and between Xcel
Pharmaceuticals, Inc., a Delaware corporation ("Buyer"), and Elan Pharma
                                                -----
International Limited, a corporation organized under the laws of the Republic of
Ireland ("Seller").
          ------

                                    RECITALS
                                    --------

WHEREAS, subject to the terms and conditions of this Agreement, Seller sold to
Buyer, and Buyer purchased from Seller, the Purchased Assets (as defined below)
pursuant to that certain Mysoline Asset Purchase Agreement (the "Prior
                                                                 -----
Agreement") dated as of April 1, 2001 by and between Buyer and Seller; and
---------

WHEREAS, the Parties desire to amend and restate the Prior Agreement as set
forth herein effective as of April 1, 2001.

                                    AGREEMENT
                                    ---------

NOW, THEREFORE, in consideration of the premises and the mutual covenants and
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the Parties agree to
amend and restate the Prior Agreement as follows:

                             ARTICLE I. Definitions
                             ----------------------

   Section 1.01 Defined Terms.

As used in this Agreement, the following defined terms have the meanings
described below:

     (a) "Action or Proceeding" means any action, suit, proceeding, arbitration,
          --------------------

Order, inquiry, hearing, assessment with respect to fines or penalties or
litigation (whether civil, criminal, administrative, investigative or informal)
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental or Regulatory Authority.

     (b) "Activity Date" has the meaning set forth in Section 8.10(d).
         --------------

     (c) "Adverse Effect" means an effect or condition that individually or in
          --------------
the aggregate or together with all other events, or changes, or occurrences is,
or reasonably could be expected to be, (i) materially adverse to the Purchased
Assets, the business, results of operations, or financial condition of the
Business, or the Product or (ii) materially adverse to the ability of the Seller
to consummate the transactions contemplated by this Agreement.

     (d) "Affiliate" means, with respect to any Person, any other Person which
          ---------
controls, is controlled by or is under common control with such person or
entity. A person or entity shall be regarded as in control of another entity if
it owns or controls, directly or indirectly, (i) in the case of corporate
entities at least fifty percent (50%) (or the maximum ownership interest
permitted by law) of the equity securities in the subject entity entitled to
vote in the

                                       -1-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

election of directors and, (ii) in the case of an entity that is not a
corporation, at least fifty percent (50%) (or the maximum ownership interest
permitted by law) of the equity securities or other ownership interests with the
power to direct the management and policies of such subject entity or entitled
to elect the corresponding management authority, provided, however, that the
term "Affiliate" shall not include subsidiaries or other entities in which a
      ---------
Party or its Affiliates owns a majority of the ordinary voting power necessary
to elect a majority of the board of directors or other governing board, but is
restricted from electing such majority by contract or otherwise, until such time
as such restrictions are no longer in effect.

     (e) "Agreement" has the meaning set forth in the Preamble hereto.
          ----------

     (f) "Assets and Properties" of any Person means all assets and properties
          ---------------------
of any kind, nature, character and description (whether real, personal or mixed,
whether tangible or intangible, whether absolute, accrued, contingent, fixed or
otherwise and wherever situated), including the goodwill related thereto,
operated, owned or leased by such Person, including cash, cash equivalents,
accounts and notes receivable, chattel paper, documents, instruments, general
intangibles, regulatory approvals, equipment, inventory, goods and intellectual
property.

     (g) "Assumed Contract" means any Contract or portion of a Contract to which
          ----------------
Seller or any of its Affiliates is a party that relates exclusively to the
manufacture, marketing, sale or distribution of the Product, including those
Contracts listed on Section 6.06 of the Seller Disclosure Schedule, but
excluding any Multi-Product Contracts.

     (h) "Assumed Liabilities" means (i) all accounts payable incurred by Buyer
          -------------------
or an Affiliate of Buyer with respect to the Business subsequent to the Closing,
(ii) all Liabilities and obligations that Buyer has expressly assumed or agreed
to assume under this Agreement, (iii) all Liabilities and obligations under or
pursuant to the Assumed Contracts to be performed following the Closing, but
only to the extent that the obligations to pay or perform under such
Liabilities, obligations or Assumed Contracts arise following the Closing and
relate to goods or services or other benefit received by Buyer after the
Closing, (iv) except as otherwise provided herein, all state and federal
Medicaid/Medicare rebates related to Product sold after Closing, (v) except as
otherwise provided herein, all credits, chargeback rebates, utilization based
rebates, reimbursements and similar payments to wholesalers and other
distributors, buying groups, insurers and otherinstitutions related to Product
that is sold after Closing, (vi) all Liabilities and obligations relating to
product liability claims or threatened claims or injuries caused by Product sold
by Buyer after the Closing, and (vii) except as otherwise provided herein, all
other Liabilities and obligations that arise out of or are related to the
ownership of the Purchased Assets (including the Regulatory Approvals) or the
Product Inventory, or operation of the Business from and after the Closing.

     (i) "Books and Records" means all files, documents, instruments, papers,
          -----------------
books and records (scientific or financial), excluding Marketing Materials,
owned by Seller or an Affiliate of Seller relating exclusively to the Business,
including any pricing lists, training materials, customer lists, vendor lists,
financial data, and all documentation relating to the Intellectual Property or
the Registered Intellectual Property, but excluding any such items to the extent
that (i) any applicable Law prohibits their transfer or (ii) any transfer
thereof would subject Seller or any of its Affiliates to any contractual or
other Liability or obligation.

                                       -2-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     (j) "Business" means the activities of manufacturing, marketing, selling
          --------
and distributing the Product in the Territory.

     (k) "Business Day" means a day other than Saturday, Sunday or any day on
          ------------
which banks located in New York are authorized or obligated to close.

     (l) "Buyer" has the meaning set forth in the Preamble to this Agreement.
          -----

     (m) "Buyer Disclosure Schedule" has the meaning set forth in Article VII
          -------------------------
hereof.

     (n) "Buyer Governmental Consent" has the meaning set forth in Section
          --------------------------
7.03(a).

     (o) "Buyer Indemnified Parties" has the meaning set forth in Section
          -------------------------
11.02(a).

     (p) "Buyer Labeling" means the printed labels, labeling and packaging
          --------------
materials, including printed carton, container label and package inserts, used
by Buyer and bearing Buyer's name for the Product.

     (q) "Buyer Third Party Consent" has the meaning set forth in Section
          -------------------------
7.03(b).

     (r) "Closing" has the meaning set forth in Section 5.01.
          -------

     (s) "Closing Date" means the date that the Closing actually occurs as
          ------------
provided in Section 5.01.

     (t) "Confidential Information" has the meaning set forth in Section 12.01.
          ------------------------

     (u) "Contract" means any and all commitments, contracts, purchase orders, l
          --------

     (v) "Corporate Names" has the meaning set forth in Section 8.06(a). eases,
          ---------------
or other agreements, whether written or oral.

     (w) "Damages" has the meaning set forth in Section 11.02(a).
          -------

     (x) "Diastat" means (x) a viscous, aqueous-based composition of diazepam
          ------
formulated by or on behalf of Buyer for rectal administration, including any
formulation covered by a Patent, and (y) any device licensed, sublicensed,
developed or owned by the Buyer for use in conjunction with the foregoing,
together, as sold by or on behalf of Buyer under the registered trademark
"Diastat."

     (y) "Disclosing Party" has the meaning set forth in Section 12.01.
          ----------------

     (z) "Dollars" and the sign "$" each means lawful money of the United
          -------
States.

     (aa) "Encumbrance" means any mortgage, pledge, assessment, security
           -----------
interest, deed of trust, lease, lien, adverse claim, levy, charge or other
encumbrance of any kind, or any conditional sale or title retention agreement or
other agreement to give any of the foregoing in the future.

                                       -3-

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                                                          CONFIDENTIAL TREATMENT

     (bb) "Excluded Assets" means all Assets and Properties of Seller and its
           ---------------
Affiliates except thePurchased Assets and the Product Inventory.

     (cc) "Excluded Liabilities" means all Liabilities of Seller and its
           --------------------
Affiliates except the Assumed Liabilities.

     (dd) "Expiration Date" means the date twelve (12) months after the Closing
           ---------------
Date.

     (ee) "Fourth Quarter" has the meaning set forth in Section 4.02.
           --------------

     (ff) "Governmental or Regulatory Authority" means any court, tribunal,
           ------------------------------------
arbitrator, authority, agency, commission, official or other instrumentality of
the United States or other country, or any supra-national organization, state,
county, city or other political subdivision thereof.

     (gg) "Gross Profit" means Net Sales for a particular product less cost of
           ------------
goods sold determined in accordance with Generally Accepted Accounting
Principles consistently applied.

     (hh) "Indemnification Claim Notice" has the meaning set forth in Section
           ----------------------------
11.02(c).

     (ii) "Indemnified Party" has the meaning set forth in Section 11.02(c).
           ----------------

     (jj) "Indemnifying Party" has the meaning set forth in Section 11.02(c).
           ------------------

     (kk) "Indemnitee" and "Indemnitees" have the respective meanings set forth
          ----------
in Section 11.02(c).

     (ll) "Intellectual Property" means any and all of the following
           ---------------------
intellectual property rights owned by or licensed to Seller and its Affiliates
and used exclusively in connection with the Business: (i) Patents, (ii)
Know-how; (iii) copyrights, copyright registrations and applications therefor,
and all other rights corresponding thereto; (iv) brand names, trade names, trade
dress, logos, common law trademarks and service marks, and trademark and service
mark registrations, renewals andapplications therefor, including all good will
of the Business symbolized thereby or associated therewith (excluding the Elan
tradename and the Elan trademark and logo); (v) any similar or equivalent rights
to any of the foregoing in the Territory; and (vi) rights to sue and recover
damages or obtain injunctive relief for infringement, dilution or
misappropriation of the items set forth in clauses (i) - (v) above.

     (mm) "Know-how" means all information and materials owned or licensed by
           --------
Seller and its Affiliates and used exclusively in connection with the Business,
including any Product specifications, technical knowledge, expertise, skill,
practice, inventions, procedures, formulae, trade secrets, confidential
information, analytical methodology, processes, preclinical,

                                       -4-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

clinical, stability, toxicology and other data, market studies and all other
experience and know-how, in tangible or intangible form, whether or not patented
or patentable; provided, however, that Know-how shall not include (i) any plant,
property, equipment or employees, and (ii) any items to the extent that any
applicable Law prohibits their transfer or any transfer thereof would subject
Seller or any of its Affiliates to any material Liability or other obligation.

     (nn) "Knowledge" with respect to any Party, means the actual knowledge of
           ---------
the senior management (or persons performing similar functions) of such Person.

     (oo) "Law" means any federal, state or local law, statute or ordinance, or
           ---
any rule, regulation, or published guidelines promulgated by any Governmental
or Regulatory Authority.

     (pp) "Liability" means any liability (whether known or unknown, asserted or
           ---------
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, and due or to become due), including any liability for Taxes.

     (qq) "Marketing Materials" means all market research, marketing plans,
           -------------------
media plans, advertising, promotional and marketing books and records owned by
Seller and its Affiliates as of the Closing and used exclusively in connection
with the marketing or promotion of the Product, other than any such items to the
extent that (i) any applicable Law prohibits their transfer or (ii) any transfer
thereof would subject Seller or any of its Affiliates to any contractual or
other Liability or obligation.

     (rr) "Maximum Returns Credit Amount" has the meaning set forth in Section
           -----------------------------
8.10(a).

     (ss) "Multi-Product Contracts" has the meaning set forth in Section 8.12.
           -----------------------

     (tt) "Mysoline Credit" has the meaning set forth in Section 4.02.
           ---------------

     (uu) "Mysoline Payment" has the meaning set forth in Section 4.02.
           ----------------

     (vv) "Mysoline Quarterly Target" has the meaning set forth in Section 4.02.
           -------------------------

     (ww) "Mysoline Rx Demand Net Sales" means, for a given period, the total
           ----------------------------
number (i.e. from both new and refill prescriptions) of equivalent 100 tablet
packs of 50mg and 250mg Product dispensed, determined based on data reported by
Scott Levin SPA (Source Prescription Audit) national level audit and increased
by [CONFIDENTIAL TREATMENT REQUESTED] to account for channels of distribution
not fully captured by Scott Levin, multiplied by either (1) [CONFIDENTIAL
TREATMENT REQUESTED], in the case of 50mg packs, or (2) [CONFIDENTIAL TREATMENT
REQUESTED], in the case of 250mg packs.

     (xx) "Mysoline Suspension" means the liquid formulation of Product sold in
           -------------------
eight (8) fluid ounce bottles and more particularly described in NDC No.
0430-08.d

     (yy) "Net Sales" means the gross amount invoiced for a specified product
           --------
for anapplicable period by Buyer or its Affiliates to third parties less:

                                       -5-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

             (i)   quantity, trade and/or cash discounts allowed or given;

             (ii)  credits or refunds allowed for the return of rejected,
     outdated, damaged or returned product;

             (iii) rebates, chargebacks and price adjustments allowed or given;
     and

             (iv)  sales and other excise taxes and duties directly related to
     the sale, transportation or delivery, to the extent that such items are
     included in the gross invoice price (but not including taxes assessed
     against the income derived from such sale).

Each of the items set forth in clauses (i)-(iv) above shall be deducted from the
gross amount invoiced only to the extent charged against Buyer or its Affiliates
and evidenced in Buyer's or its Affiliates' books and records of account.
Deductions shall be determined in accordance with U.S. Generally Accepted
Accounting Principles consistently applied. If product is sold for compensation
other than cash, Net Sales shall be calculated based on the gross list price of
the product on the date of sale.

Sales of product by and between a Party and its Affiliates are not sales to a
third party and shall be excluded from Net Sales calculations for all purposes.

     (zz)  "Non-disclosing Party" has the meaning set forth in Section 12.01.
            --------------------

     (aaa) "Non-Soliciting Party" has the meaning set forth in Section 8.05.
            --------------------

     (bbb) "Order" means any writ, judgment, decree, injunction or similar order
            ----
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).

     (ccc) "Ordinary Course of Business" means such action that is consistent
            ---------------------------
with the past practices of the Business.

     (ddd) "Parties" means Buyer and Seller.
            -------

     (eee) "Party" means each of Buyer and Seller.
            -----

     (fff) "Patent" means any patents, provisional patent applications and
            ------
similar instruments (including any divisions, continuations,
continuations-in-part, reissues, renewals, extensions or the like of any such
patent, application or instrument) as well as any foreign equivalents thereof
(including certificates of invention and any applications therefor).

     (ggg) "Permitted Encumbrance" means (i) any Encumbrance for Taxes not yet
            ---------------------
due or delinquent or for those Taxes being contested in good faith by
appropriate proceedings for which adequate reserves have been established and
(ii) any minor imperfection of title or similar Encumbrance that individually or
in the aggregate would not have an Adverse Effect.

     (hhh) "Person" means any natural person, corporation, general partnership,
            ------
limited partnership, limited liability company, proprietorship, other business
organization, trust, union, association or Governmental or Regulatory Authority.

                                       -6-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     (iii) "Prior Agreement" has the meaning set forth in the Recitals hereto.
            ---------------

     (jjj) "Product" means the chemical substance 5-ethyldehydro-5-phenyl-4,6
            -------
(1H, 5H) pyrimidinedrone, otherwise known as Primidone, as sold by or on behalf
of Seller under the registered trademark "Mysoline." Without limiting the
foregoing, Product includes each of the formulations set forth on Exhibit A.

     (kkk) "Product Acquisition Financing Agreement" means that certain Product
            --------------------------------------
Acquisition Financing Agreement between Seller and Buyer dated March 31, 2001.

     (lll) "Product Inventory" means all inventory, including all inventory of
            -----------------
finished Product in sample form, owned as of the Closing by Seller or any
Affiliate thereof of finished Product or works in progress or materials used in
the manufacture of finished Product, whether held at a location or facility of
Seller or any Affiliate (or of any other Person on behalf of Seller or any
Affiliate) or in transit to or from Seller or any Affiliate (or any such other
Person); provided, however, that "Product Inventory" shall not include any
inventory of Mysoline Suspension.

     (mmm) "Purchase Price" has the meaning set forth in Section 4.01.
            --------------

     (nnn) "Purchase Price" has the meaning set forth in Section 4.01.
            --------------

     (ooo) "Purchased Assets" means, subject to Section 2.02 and except as
            ----------------
otherwise provided on the Seller Disclosure Schedule: (i) the Intellectual
Property; (ii) the Registered Intellectual Property; (iii) the Assumed
Contracts; (iv) the Books and Records; (v) the Regulatory Approvals; and (vi)
the Marketing Materials.

     (ppp) "Quarter" has the meaning set forth in Section 4.02.
            -------

     (qqq) "Registered Intellectual Property" means, as they relate exclusively
            --------------------------------
to the Product, all of the following Intellectual Property registered in the
Territory: (i) the registered trademarks and applications to register trademarks
identified in Section 6.08(a) of the Seller Disclosure Schedule.

     (rrr) "Regulatory Approvals" means, as they relate exclusively to the
            --------------------
Product and to the extent owned or licensed by Seller, the new drug applications
and new drug submissions for the Product identified in Section 6.11 of the
Seller Disclosure Schedule, all supplements thereto and all regulatory files
relating thereto, including any and all (i) regulatory filings and supporting
documents, clinical studies and tests (excluding DEA licenses, and wholesale,
distributor and pharmacy licenses); and (ii) records maintained under Good
Manufacturing Practices ("GMPs") or other record keeping or reporting
requirements of the FDA, the Environmental Protection Agency, the Occupational
Health and Safety Administration or any other Governmental or Regulatory
Authorities, including all investigational new drug applications, abbreviated
new drug applications, drug master files, FDA approvals for export, FDA warning
letters, FDA Notices of Adverse Finding Letters, FDA audit reports (including
any responses to such reports), all other correspondence and communications with
Governmental or Regulatory Authorities in connection with the Product, adverse
event files, IND safety reports

                                       -7-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

and complaint files (as well as any foreign equivalents of the foregoing) with
respect to the Product.

     (sss)  "Royalties" has the meaning set forth in Section 4.01(c).
             ---------

     (ttt)  "Royalty Term" has the meaning set forth in Section 4.01(c).
             ------------

     (uuu)  "Second Quarter" has the meaning set forth in Section 4.02.
             --------------

     (vvv)  "Seller" has the meaning set forth in the Preamble to this
             ------
Agreement.

     (www)  "Seller Disclosure Schedule" has the meaning set forth in the
             --------------------------
preamble to Article VI of this Agreement.

     (xxx)  "Seller Governmental Consent" has the meaning set forth in Section
             ---------------------------
6.04(a).

     (yyy)  "Seller Third Party Consent" has the meaning set forth in Section
             --------------------------
6.04(b).

     (zzz)  "Soliciting Party" has the meaning set forth in Section 8.05.
             ----------------

     (aaaa) "Tax" means all of the following tax in connection with the
             ---
operations of the Business or the transactions contemplated hereby: (i) any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment imposed by
an governmental, regulatory or administrative entity or agency responsible for
the imposition of any such tax (domestic or foreign); (ii) any Liability for the
payment of any amounts of the type described in (i) as a result of being a
member of any affiliated, consolidated, combined, unitary or other group for any
Taxable period; and (iii) any Liability for the payment of any amounts of the
type described in (i) or (ii) as a result of any express or implied obligation
to indemnify any other person.

     (bbbb) "Territory" means the United States, its territories and possessions
             ---------
and the Commonwealth of Puerto Rico.

     (cccc) "Third Party Claim" has the meaning set forth in Section 11.02(d).
             -----------------

     (dddd) "Third Quarter" has the meaning set forth in Section 4.02.
             -------------

     (eeee) "Transition Chargebacks" has the meaning set forth in Section
             ----------------------
8.10(d).

   Section 1.02  Construction of Certain Terms and Phrases.

Unless the context of this Agreement otherwise requires: (a) words of any gender
include each other gender; (b) words using the singular or plural number also
include the plural or singular number, respectively; (c) the terms "hereof,"
"herein," "hereby" and derivative or similar words refer to this entire
Agreement; (d) the terms "Article," "Section" or "Exhibit" refer to the

                                       -8-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

specified Article, Section or Exhibit of this Agreement; (e) the term "or" has,
except where otherwise indicated, the inclusive meaning represented by the
phrase, "and/or"; and (f) the term "including" means "including without
limitation." Whenever this Agreement refers to a number of days, such number
shall refer to calendar days unless Business Days are specified. All accounting
terms used but not defined herein shall have the meaning ascribed to such terms
under U.S. Generally Accepted Accounting Principles, consistently applied.

                    ARTICLE II. Purchase and Sale of Assets
                    ---------------------------------------

   Section 2.01      Purchase and Sale of Assets.

     (a) Subject to the terms and conditions of this Agreement, at the Closing,
Seller shall, or shall cause its relevant Affiliates to, sell, transfer, convey,
assign and deliver to Buyer, and Buyer shall purchase, acquire and accept from
Seller and such Affiliates, all of Seller's and each such Affiliate's right,
title and interest, as of the Closing, in and to the Purchased Assets relating
to the Territory.

     (b) Notwithstanding anything contained in this Agreement to the contrary,
(i) from and after the Closing, Seller and its Affiliates shall retain all of
their right, title and interest in and to the Excluded Assets and (ii) Seller
may retain an archival copy of all Assumed Contracts, Books and Records,
Marketing Materials and other documents or materials conveyed hereunder.

   Section 2.02      Assignability and Consents.

Notwithstanding anything to the contrary contained in this Agreement, if the
sale, assignment, transfer, conveyance or delivery or attempted sale,
assignment, transfer, conveyance or delivery to Buyer of any asset that would be
a Purchased Asset is (a) prohibited by any applicable Law or (b) would require
any authorizations, approvals, consents or waivers from a third Person or
Governmental or Regulatory Authority and such authorizations, approvals,
consents or waivers shall not have been obtained prior to the Closing, then in
either case the Closing shall proceed without the sale, assignment, transfer,
conveyance or delivery of such asset and this Agreement shall not constitute an
agreement for the sale, assignment, transfer, conveyance or delivery of such
asset; provided that nothing in this Section 2.02 shall be deemed to waive the
rights of Buyer not to consummate the transactions contemplated by this
Agreement if the conditions to its obligations set forth in Article X have not
been satisfied. In the event that the Closing proceeds without the sale,
assignment, transfer, conveyance or delivery of any such asset, then following
the Closing, the Parties shall use their reasonable best efforts, and cooperate
with each other, to obtain promptly such authorizations, approvals, consents or
waivers; provided, however, that Seller shall not be required to pay any
consideration to obtain any such authorization, approval, consent or waiver.
Pending such authorization, approval, consent or waiver, the Parties shall
cooperate with each other in any mutually agreeable, reasonable and lawful
arrangements designed to provide to Buyer the benefits of use of such asset and
to Seller the benefits, including any indemnities, that, in each case, it would
have obtained had the asset been conveyed to Buyer at the Closing. To the extent
that Buyer is provided the benefits pursuant to this Section 2.02 of any
Contract, Buyer shall (x) perform for the benefit of the other parties thereto
the obligations of Seller or any Affiliate of Seller thereunder and (y) shall
satisfy

                                       -9-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

any related Liabilities with respect to such Contract that, but for the lack of
an authorization, approval, consent or waiver to assign such obligations or
Liabilities to Buyer, would be Assumed Liabilities. Once authorization,
approval, consent or waiver for the sale, assignment, transfer, conveyance or
delivery of any such asset not sold, assigned, transferred, conveyed or
delivered at the Closing is obtained, Seller shall assign, transfer, convey and
deliver such asset to Buyer at no additional cost to Buyer.

                     ARTICLE III. ASSUMPTION OF LIABILITIES
                     --------------------------------------

   Section 3.01 Assumption of Assumed Liabilities.

     (a) Subject to the terms and conditions of this Agreement, as of the
Closing Date, Buyer agrees to assume, satisfy, perform, pay, discharge and
otherwise be responsible for the Assumed Liabilities.

     (b) Other than the Assumed Liabilities, Buyer shall not assume or be deemed
to have assumed or guaranteed, or otherwise be responsible for, any other
Liability or obligation of any nature, whether direct or indirect, of Seller or
any of its Affiliates relating to the Purchased Assets or otherwise, without
regard to whether such Liability or obligation is known, knowable, or unknown,
matured or unmatured, liquidated or unliquidated, fixed or contingent, arising
out of acts, omissions or occurrences prior to the Closing Date or any
conditions existing prior to the Closing Date.

                     ARTICLE IV. PURCHASE PRICE AND PAYMENT
                     --------------------------------------

   Section 4.01 Purchase Price.

As consideration for the Purchased Assets, Buyer shall:

        (a) [CONFIDENTIAL TREATMENT REQUESTED];

        (b) assume the Assumed Liabilities as of the Closing; and

        (c) for the period beginning on July 1, 2001, and ending on December 31,
2015 (the "Royalty Term"), pay to Seller royalties on the aggregate Net Sales of
           ------------
Product in the Territory during each calendar year as follows (the "Royalties"):
                                                                    ---------

          [CONFIDENTIAL                          [CONFIDENTIAL
            TREATMENT                               TREATMENT
            REQUESTED]                              REQUESTED]

          [CONFIDENTIAL                          [CONFIDENTIAL
            TREATMENT                               TREATMENT
            REQUESTED]                              REQUESTED]
          [CONFIDENTIAL                          [CONFIDENTIAL
            TREATMENT                               TREATMENT
            REQUESTED]                              REQUESTED]
          [CONFIDENTIAL                          [CONFIDENTIAL
            TREATMENT                               TREATMENT
            REQUESTED]                              REQUESTED]

                                      -10-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

; provided, however that Buyer shall pay to Seller royalties owing on Net Sales
of Product during the period from July 1 to December 31, 2001 equal to
[CONFIDENTIAL TREATMENT REQUESTED] of the aggregate Net Sales of Product during
such six (6) month period (and not on the aggregate Net Sales of Product during
the entire 2001 calendar year). In the event the Product is not available for
sale (whether as a result of any action or inaction of Buyer, any Governmental
or Regulatory Authority, or for any other reason) for any extended period of
time during the Royalty Term, Buyer will pay to Seller a royalty on Net Sales of
an alternative Buyer product for the remainder of the Royalty Term, such
alternative product to be identified and selected by Buyer in good faith and in
Buyer's sole discretion; provided, however, that the alternative Buyer product
and the royalty rate shall be selected so that the total royalty payments made
by Buyer to Seller on the Net Sales of such alternative product are as nearly
equivalent as possible to the estimated Royalty Payments Seller would receive if
the Product remained available for sale on an uninterrupted basis throughout the
Royalty Term.

The Purchase Price and the Royalties shall be paid by Buyer to Seller in the
amount set forth above by wire transfer of immediately available funds to the
account designated by Seller prior to the date on which such payment is due;
provided, however, that Buyer shall be entitled to finance up to sixty percent
(60%) of the Purchase Price, subject to and in accordance with the terms of the
Product Acquisition Financing Agreement. The Purchase Price is non-refundable
and not subject to any future performance obligations upon Seller nor creditable
to any future service by Seller. Buyer shall provide a report to Seller no later
than thirty (30) days after the end of each calendar quarter during the Royalty
Term setting forth (1) the aggregate Net Sales of Product in the Territory for
such quarter and for the current calendar year and (2) the Royalties payable to
Seller for such calendar quarter, all in sufficient detail to permit Seller to
determine whether the calculation of Net Sales and Royalties is accurate. Buyer
shall cause its representatives and employees to be available to Seller to
discuss any questions or comments of Seller concerning such report. The
Royalties payable to Seller for each calendar quarter shall be paid on the date
such report is delivered to Seller. Notwithstanding the foregoing, (i) the
Royalties paid by Buyer to Seller for each of the first three calendar quarters
for any calendar year shall not exceed twenty five percent (25%) of Buyer's good
faith estimate of the aggregate Royalties that will be owing to Seller for such
calendar year and (ii) the Royalties paid by Buyer to Seller for the fourth
calendar quarter of each calendar year shall be in an amount so that the
aggregate Royalties for such calendar year equal the aggregate Royalties Seller
is to receive for such calendar year. In the event that the Royalties paid by
Buyer to Seller for the first three calendar quarters of any calendar year
exceed the aggregate Royalties Seller is to receive for such calendar year, the
excess Royalties shall be treated as an advance payment of the Royalties owing
to Buyer for the next calendar year.

Buyer shall keep for a period of four (4) years from the date hereof complete
and accurate records of sales and all other information necessary to accurately
calculate Net Sales of Product as required pursuant to this Section 4.01(c).
Seller shall have the right through its representatives or an independent,
certified public accountant to audit such records at the place or places of
business where such records are customarily kept in order to verify the accuracy
of the reports of Net Sales of Product made hereunder. Such audits may be
exercised during normal business hours upon reasonable prior written notice to
Buyer. Seller shall bear the full cost of such audit unless such audit discloses
a variance of more than five percent (5%) from the amount of any royalty payment
calculated under this Agreement, in which case Buyer shall bear the full cost of

                                      -11-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

such audit. In the event that Buyer disputes the results of Seller's audit,
Buyer and Seller shall attempt to resolve such dispute in good faith. Any
amounts that are determined or agreed to be due and owing by Buyer to Seller or
by Seller to Buyer following such audit shall be paid within ten (10) days
thereafter, together with any interest due thereon (at a rate equal to seven
percent (7%) per annum).

During the Royalty Term, Seller agrees to advise Buyer on Buyer's sales and
marketing strategies as reasonably requested by Buyer.

   Section 4.02 Purchase Price Adjustment.

The Purchase Price shall be subject to adjustment as follows:

     (a) Net Sales Adjustment. In the event that total Net Sales of Product in
         --------------------
the United States for any of the following periods (x) the three months ending
June 30, 2001 (the "Second Quarter"), (y) the three months ending September 30,
                    --------------
2001 (the "Third Quarter") and (z) the three (3) months ending December 31, 2001
           -------------
(the "Fourth Quarter"; each of the Second Quarter, the Third Quarter and the
      --------------
Fourth Quarter being a "Quarter"), are less [CONFIDENTIAL TREATMENT REQUESTED]
                        -------
(the "Mysoline Quarterly Target"), Seller shall pay to Buyer (the "Mysoline
      ------------------------                                     --------
Payment"), for each Quarter for which total Net Sales of Product in the United
------
States was less than the Mysoline Quarterly Target, an amount equal to
[CONFIDENTIAL TREATMENT REQUESTED] of the difference between (i) the lesser of
the Mysoline Quarterly Target and the Mysoline Rx Demand Net Sales and (ii) the
total Net Sales of Product in the United States for such Quarter. In the event
that total Net Sales of Product in the United States for any Quarter is greater
than the Mysoline Quarterly Target, Seller shall be entitled to receive a credit
(the "Mysoline Credit") from Buyer equal [CONFIDENTIAL TREATMENT REQUESTED] of
      ---------------
the difference between (aa) the Mysoline Quarterly Target and (bb) the total Net
Sales of Product in the United States for such Quarter.

     (b) Reports; Payments; Application of Credits. In connection with the
         -----------------------------------------
adjustments set forth in Section 4.02(a) hereof, Buyer shall provide a report to
Seller no later than sixty (60) days after the end of each Quarter setting forth
the calculation of Net Sales of Product in the United States and Mysoline Rx
Demand Net Sales for the Product for such Quarter and the amount of the
applicable credit or payment due, each in sufficient detail to permit Seller to
determine whether the calculation of Net Sales in the United States, Mysoline Rx
Demand Net Sales and applicable payment or credit due is accurate. Buyer shall
cause its representatives and employees to be available to Seller to discuss any
questions or comments of Seller concerning such report. If at the end of any
Quarter a Mysoline Payment is due, Seller shall pay to Buyer within thirty (30)
days after receipt of Buyer's report for such Quarter an amount equal to such
Mysoline Payment less the amount of any Mysoline Credits accrued for a previous
Quarter or Quarters. If at the end of the Fourth Quarter a Mysoline Credit is
due, Buyer shall pay to Seller the amount of such Mysoline Credit accrued up to
the amount of any Mysoline Payments previously made. Any Mysoline Credit
outstanding at the end of the Fourth Quarter that has not been applied against a
Mysoline Payment shall be cancelled. Each payment to be made pursuant to this
Section 4.02 shall be paid by wire transfer of immediately available funds to an
account or accounts designated by Buyer or Seller, as the case may be, prior to
the date on which such payment is due.

                                      -12-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     (c) Gross Profits Adjustments.
         -------------------------

     (i)   March 31, 2003 Adjustment. For the twelve (12) month period ending
           -------------------------
March 31, 2003, Buyer shall pay to Seller [CONFIDENTIAL TREATMENT REQUESTED].
Any payments required to be made pursuant to this Section 4.02(c)(i) shall be
made on or before April 30, 2003.

     (ii)  March 31, 2004 Adjustment. For the twelve (12) month period ending
           -------------------------
March 31, 2004, Buyer shall pay to Seller [CONFIDENTIAL TREATMENT REQUESTED].
Any payments required to be made pursuant to this Section 4.02(c)(ii) shall be
made on or before April 30, 2004.

     (iii) Reports; Payments. In connection with the payment of any adjustments
           -----------------
set forth in Sections 4.02(c)(i) and (ii) hereof, Buyer shall provide a report
to Seller no later than thirty (30) days after the end of the applicable twelve
(12) month period setting forth the calculation of Gross Profits for such twelve
(12) month period and the amount of the applicable adjustment due, each in
sufficient detail to permit Seller to determine whether the calculation of Gross
Profits and the calculation of the applicable adjustment due is accurate. Buyer
shall cause its representatives and employees to be available to Seller to
discuss any questions or comments of Seller concerning such report. Each payment
to be made pursuant to this Section 4.02(c) shall be paid by wire transfer of
immediately available funds to an account or accounts designated by Seller prior
to the date on which such payment is due; provided, however that Buyer shall be
entitled to finance up to one hundred percent (100%) of each of the payments, if
any, set forth in Sections 4.02(c)(i) and (ii) above subject to and in
accordance with the terms of the Product Acquisition Financing Agreement.

     (iv)  Notwithstanding any other provision in this Agreement to the
contrary, in the event that a generic form of the 50mg formulation of Product is
approved by the United States Food and Drug Administration for marketing in the
United States prior to April 1, 2004, all amounts otherwise due and payable
under this Section 4.02(c) on or after the date of such approval shall be waived
and forgiven and no further amounts under this Section 4.02(c) shall accrue
thereafter.

     (d) Records; Access; Audit. Buyer shall keep for a period of four (4) years
         ----------------------
from the date hereof complete and accurate records of sales and all other
information necessary to accurately calculate Net Sales of Product, Mysoline
Demand Rx Net Sales, and Gross Profits as required pursuant to Section 4.02(a)
and (c) above. Seller shall have the right through its representatives or an
independent, certified public accountant to audit such records at the place or
places of business where such records are customarily kept in order to verify
the accuracy of the reports of Net Sales of Product, Mysoline Demand Rx Net
Sales, and Gross Profits made hereunder. Such audits may be exercised during
normal business hours upon reasonable prior written notice to Buyer. Seller
shall bear the full cost of such audit unless such audit discloses a variance of
more than five percent (5%) from the amount of any payment or credit calculated

                                      -13-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

with respect to Net Sales of Product, Mysoline Demand Rx Net Sales or Gross
Profits under this Agreement, in which case Buyer shall bear the full cost of
such audit. In the event that Buyer disputes the results of Seller's audit,
Buyer and Seller shall attempt to resolve such dispute in good faith. Any
amounts that are determined or agreed to be due and owing by Buyer to Seller or
by Seller to Buyer following such audit shall be paid within ten (10) days
thereafter, together with any interest due thereon (at a rate equal to seven
percent (7%) per annum).

   Section 4.03  Purchase of Product Inventory.

At a mutually agreed upon time, but no later than sixty (60) days after the
Closing, Buyer shall purchase from the appropriate Affiliate of Seller all
Product Inventory of such Affiliate with acceptable dating at a price equal to
such Affiliate's cost therefor, which amount shall be payable to Seller on or
before March 29, 2002. All of the finished Product included in Product Inventory
(a) shall be saleable in the Ordinary Course of Business, except for normal and
customary amounts of below-standard quality Product, and except with respect to
any sample inventory of finished Product, and (b) shall have been produced or
manufactured in accordance with the specifications for such Product as set forth
in the applicable Regulatory Approvals and substantially in compliance with
applicable Law. All raw materials and works in progress included in Product
Inventory shall be useable in the Ordinary Course of Business except for normal
and customary amounts of below-standard quality raw materials and works in
progress. The payment to be made pursuant to this Section 4.03 shall be paid by
wire transfer of immediately available funds to an account or accounts
designated by the appropriate Affiliate of Seller prior to the date on which
such payment is due. Until the time that such Product Inventory is transferred
to Buyer, the appropriate Affiliate of Seller shall hold, store and ship such
Product Inventory substantially in accordance with (i) all applicable Laws, (ii)
current GMPs, (iii) the applicable Regulatory Approvals, and (iv) applicable
analytical methods and procedures, material specifications, master batch records
and stability protocols. Seller represents that its Affiliate has acted in
accordance with clauses (i) through (iv) above with respect to Product Inventory
prior to the Closing.

   Section 4.04  Payment of Sales, Use and Other Taxes.

Each Party shall be responsible for all its own sales, use, transfer and value
added taxes, if any, arising out of the sale by Seller and its Affiliates of the
Purchased Assets to Buyer pursuant to this Agreement. Buyer shall provide resale
certificates and exemption forms as reasonably requested by Seller.

   Section 4.05  Impact of Failure to Make Payments.

The failure by Buyer to make any payments due to Seller pursuant to Sections
4.01, 4.02 and 4.03 shall constitute an "Event of Default" under the Product
Acquisition Financing Agreement.

                               ARTICLE V. CLOSING
                               ------------------

   Section 5.01  Time and Place.

The closing of the transactions contemplated by this Agreement, including the
purchase and sale of the Purchased Assets and the assumption of the Assumed
Liabilities (the "Closing"), shall
                  -------

                                      -14-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

take place as promptly as practicable, but no later than five (5) Business Days,
following satisfaction or waiver of the conditions set forth in Articles IX and
X, at the offices of Brobeck, Phleger & Harrison LLP, 12390 El Camino Real, San
Diego, CA 92130, unless another time or place shall be agreed to by the Parties.

   Section 5.02 Deliveries at Closing.

     (a)  Closing Deliveries by Seller.
          ----------------------------

At the Closing, Seller shall deliver or cause to be delivered to Buyer:

           (i) each of the trademark assignment and other intellectual property
   assignment documents necessary to transfer the Intellectual Property and the
   Registered Intellectual Property to Buyer in form and substance reasonably
   acceptable to Seller and Buyer;

           (ii) assignment and assumption agreements, in form and substance
   reasonably acceptable to Seller and Buyer, assigning to Buyer all rights and
   obligations of Seller and its Affiliates in and to the Assumed Contracts;

           (iii) copies of all Seller Governmental Consents and Seller Third
   Party Consents;

           (iv) a bill of sale in form and substance reasonably acceptable to
   Seller and Buyer to transfer the Books and Records and Marketing Materials to
   Buyer;

           (v) an opinion of Seller's counsel in form and substance reasonably
   satisfactory to Buyer; and

           (vi) the certificates and other documents to be delivered pursuant to
   Article X hereof.

     (b) Closing Deliveries by Buyer.
         ---------------------------

At the Closing, Buyer shall deliver or cause to be delivered to Seller:

           (i) assignment and assumption agreements, in form and substance
   reasonably acceptable to Seller and Buyer, assigning to Buyer all rights and
   obligations of Seller and its Affiliates in and to the Assumed Contracts;

           (ii) such instruments of assumption and other instruments or
   documents, in form and substance reasonable acceptable to Seller and Buyer,
   as may be necessary to effect Buyer's assumption of the Assumed Liabilities;

           (iii) copies of all Buyer Governmental Consents and Buyer Third Party
   Consents;

                                      -15-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

           (iv) an opinion of Buyer's counsel in form and substance reasonably
   acceptable to Seller; and

           (v) the certificates and other documents to be delivered pursuant to
   Article IX hereof.

              ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER
              ----------------------------------------------------

Seller represents and warrants to Buyer as of the date hereof, subject to such
exceptions as are specifically disclosed in the disclosure schedule (referencing
the appropriate Sections hereof) supplied by Seller to Buyer and dated as of the
date hereof (the "Seller Disclosure Schedule"), which Seller Disclosure Schedule
                  --------------------------
shall be deemed to be representations and warranties of Seller as if made
herein, as follows:

   Section 6.01  Books and Records.

To Seller's Knowledge, the Books and Records of the Business as made available
by Seller to Buyer are true and correct.

   Section 6.02  Corporate Organization.

Seller is a corporation duly organized and validly existing under the laws of
the Republic of Ireland and has all requisite power and authority to own its
assets and carry on the Business as currently conducted by it. Each Affiliate of
Seller selling, transferring, conveying, assigning or delivering any Purchased
Assets is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization and has all requisite power and authority to
own its assets and carry on the Business as currently conducted by it. Each of
Seller and each Affiliate selling, transferring, conveying, assigning or
delivering any Purchased Assets is duly authorized to conduct the Business and
is in good standing in each jurisdiction where such qualification is required,
except for any jurisdiction where failure to so qualify could not reasonably be
expected to have an Adverse Effect or materially impair or delay Seller's
ability to perform its obligations hereunder.

   Section 6.03  Authority of Seller.

Seller has all necessary power and authority and has taken all actions necessary
to enter into this Agreement and to carry out the transactions contemplated
hereby. The Board of Directors or Executive Committee of the Board of Directors
of Seller has taken all action required by Law, its Certificate of
Incorporation, Bylaws or other organizational documents and agreements, to be
taken by it to authorize the execution and delivery of this Agreement by the
Seller and the consummation of the transactions (including the performance by
the Seller of its obligations) contemplated hereunder. This Agreement has been
duly and validly executed and delivered by Seller and, when executed and
delivered by Buyer, will constitute a legal, valid and binding obligation of
Seller enforceable against it in accordance with its terms except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors rights generally, and
(b) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.

                                      -16-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Section 6.04  Consents and Approvals.

     (a) All consents, waivers, approvals, Orders, authorizations of,
declarations or filings with any Governmental or Regulatory Authority (each a
"Seller Governmental Consent") that are required by or with respect to Seller or
 ---------------------------
its Affiliates in connection with the execution and delivery of this Agreement
by the Seller, and its performance of its obligations hereunder are set forth on
Schedule 6.04(a). Each Seller Governmental Consent has been obtained, except to
the extent that the failure to obtain such Seller Governmental Consent would not
have an Adverse Effect.

     (b) All consents, waivers, approvals, authorizations of, or notices to, any
third party (other than a Governmental or Regulatory Authority) (each a "Seller
                                                                         ------
Third Party Consent") that are required by or with respect to Seller or its
-------------------
Affiliates in connection with the execution and delivery of this Agreement by
the Seller, and its performance of its obligations hereunder are set forth on
Schedule 6.04(b). Each Seller Third Party Consent has been obtained, except to
the extent that the failure to obtain such Seller Third Party Consent would not
have an Adverse Effect.

   Section 6.05  Non-Contravention.

The execution and delivery by Seller of this Agreement does not, and the
performance by it of its obligations under this Agreement and the consummation
of the transactions contemplated hereby will not:

     (a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the Certificate of Incorporation, Bylaws or other
applicable organizational documents of Seller;

     (b) conflict with or result in a violation or breach of any term or
provision of any Law applicable to Seller, the Business or the Purchased Assets,
other than such conflicts, violations or breaches as would not have an Adverse
Effect; or

     (c) conflict with or result in a breach or default (or an event which, with
notice or lapse of time or both, would constitute a breach or default) under, or
result in the termination or cancellation of, or accelerate the performance
required by, or result in the creation or imposition of any security interest,
lien or any other Encumbrance (other than a Permitted Encumbrance) upon any
Assumed Contract, other than such conflicts, breaches or defaults as would not
have an Adverse Effect.

   Section 6.06      Assumed Contracts.

Section 6.06 of the Seller Disclosure Schedule sets forth a complete and correct
list of each Assumed Contract where the payment obligations after the Closing
exceed Twenty-Five Thousand Dollars ($25,000). Each of the Assumed Contracts is
in effect and constitutes a legal, valid and binding agreement, enforceable in
accordance with its terms, of Seller or an Affiliate of Seller; and Seller has
performed all of its required material obligations under, and is not in material
violation or breach of or default under, any such Assumed Contract. To the
Knowledge of Seller, the other parties to the Assumed Contracts are not in
material violation or breach of or

                                      -17-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

default under any such Assumed Contract. Seller has made available to Buyer
complete and correct copies of all Assumed Contracts identified in Section 6.06
of the Seller Disclosure Schedule.

   Section 6.07  Purchased Assets Generally.

Seller has good and marketable title to the Books and Records and Marketing
Materials, free and clear of all Encumbrances (other than Permitted
Encumbrances). The Purchased Assets and the Product Inventory include all
material assets and properties that are owned, licensed or controlled by Seller
with respect to the Product and that are reasonably required for Buyer to
operate the Business after the Closing in substantially the manner and
substantially to the extent operated by Seller prior to the Closing; provided,
however, that Buyer acknowledges and agrees that (a) the Purchased Assets
exclude any items to the extent that (i) any applicable Law prohibits their
transfer or (ii) any transfer thereof would subject Seller or any of its
Affiliates to any contractual or other Liability or obligation and (b) certain
items have been expressly excluded from the definition of Purchased Assets and
the components thereof.

   Section 6.08  Intellectual Property Rights.

     (a) Section 6.08(a) of the Seller Disclosure Schedule sets forth a complete
and correct list of all Intellectual Property that is registered in the
Territory, is owned or licensed by Seller and is related exclusively to the
Product. Seller or its Affiliates own all right, title and interest in and to,
or have a license, sublicense or other permission to use, all of the Registered
Intellectual Property, free and clear of all Encumbrances except Permitted
Encumbrances. All necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant copyright, trademark or
other Governmental or Regulatory Authorities for the purposes of maintaining
such Registered Intellectual Property, except to the extent that failure to take
any such action would not have an Adverse Effect.

     (b) Without limiting Section 6.08(a) above, to the Knowledge of Seller,
Seller or its Affiliates own all right, title and interest in and to, or have a
license, sublicense or other permission to use, all of the Intellectual
Property, free and clear of all Encumbrances except Permitted Encumbrances.

     (c) Neither Seller nor any of its Affiliates has received any written
notice from any person, or has Knowledge, (i) that the operation of the Business
as currently conducted infringes or misappropriates the intellectual property
rights of any third party, or (ii) that any third party has infringed or
misappropriated or is infringing or misappropriating any of the Intellectual
Property, except where such infringement or misappropriation would not have an
Adverse Effect.

   Section 6.09  Litigation.

There are no Actions or Proceedings pending or, to the Knowledge of Seller,
threatened, or reasonably anticipated, against, relating to, affecting or
arising in connection with (a) the Purchased Assets or the Business, (b) this
Agreement, or (c) the transactions contemplated by

                                      -18-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

this Agreement. Seller is not subject to any Order that could reasonably be
expected to materially impair or delay the ability of Seller to perform its
obligations hereunder.

   Section 6.10  Compliance with Law.

Since January 1, 2001, Seller and its Affiliates have operated the Business
substantially in compliance with all applicable Laws, except where failure to so
comply could not reasonably be expected to result in an Adverse Effect and
neither Seller nor any of its Affiliates has received any written notice
alleging any violation of such Laws except for violations which could not
reasonably be expected to result in an Adverse Effect.

   Section 6.11  Regulatory Matters.

Section 6.11 of the Seller Disclosure Schedule sets forth a complete and correct
list of all new drug applications and supplements thereto, new drug submissions
and investigational new drug applications for the Product in the Territory.
Seller or its Affiliates own all right, title and interest in and to each of the
new drug applications and supplements thereto, new drug submissions and
investigational new drug applications listed in Section 6.11 of the Seller
Disclosure Schedule. All of the Regulatory Approvals are in full force and
effect and have been duly and validly issued. All required reports have been
made to appropriate Governmental or Regulatory Authorities, all appropriate
actions have been taken and communications with third parties have been made and
all required investigations of adverse drug experiences, contamination,
tampering and/or product defects have been made and appropriate follow-up
actions have been taken, except where the failure to do so would not have an
Adverse Effect. There is no Action or Proceeding by any Governmental or
Regulatory Authority pending or, to the Knowledge of Seller, threatened with
respect to any Product or any Regulatory Approval, which could reasonably be
expected to have an Adverse Effect. Seller has made available to Buyer complete
and correct copies of all Regulatory Approvals.

   Section 6.12  Brokers.

Seller has not retained any broker in connection with the transactions
contemplated hereunder. Buyer has no, and will have no, obligation to pay any
brokers, finders, investment bankers, financial advisors or similar fees in
connection with this Agreement or the transactions contemplated hereby by reason
of any action taken by or on behalf of Seller.

   Section 6.13  Disclosure.

None of the representations or warranties made by the Seller herein as of the
date of such representations and warranties, and none of the statements
contained in any other written materials with respect to the Purchased Assets
furnished by Seller to Buyer in connection with this Agreement, contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.

                                      -19-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Section 6.14  No Other Warranties.

EXCEPT AS SET FORTH IN THIS ARTICLE VI, SELLER IS SELLING THE PURCHASED ASSETS
AND PRODUCT INVENTORY HEREUNDER ON AN "AS IS" BASIS WITHOUT REPRESENTATION OR
WARRANTY AS TO THE PRODUCT, THE PRODUCT INVENTORY, THE PURCHASED ASSETS OR THE
BUSINESS WHETHER EXPRESS OR IMPLIED INCLUDING WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, OR INFRINGEMENT OF THIRD PARTY RIGHTS, AND ALL
SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED.

              ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF BUYER
              ----------------------------------------------------

Buyer represents and warrants to Seller as of the date hereof, subject to such
exceptions as are specifically disclosed in the disclosure schedule (referencing
the appropriate Sections hereof) supplied by Buyer to Seller and dated as of the
date hereof (the "Buyer Disclosure Schedule"), which Buyer Disclosure Schedule
                  -------------------------
shall be deemed to be representations and warranties of Buyer as if made herein,
as follows:

   Section 7.01  Corporate Organization.

Buyer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite power and
authority to own its assets and carry on its business as currently conducted by
it. Buyer is duly authorized to conduct its business and is in good standing in
each jurisdiction where such qualification is required, except for any
jurisdiction where failure to so qualify could not reasonably be expected,
individually or in the aggregate, to have a material adverse effect on Buyer or
materially impair or delay Buyer's ability to perform its obligations hereunder.

   Section 7.02  Authority of Buyer.

Buyer has all necessary power and authority and has taken all actions necessary
to enter into this Agreement and to carry out the transactions contemplated
hereby. The Board of Directors of Buyer has taken all action required by Law,
its Certificate of Incorporation, Bylaws or otherwise to be taken by it to
authorize the execution and delivery of this Agreement by Buyer and the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Buyer and, when executed and
delivered by Seller, will constitute a legal, valid and binding obligation of
Buyer enforceable against it in accordance with its terms except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors rights generally, and
(b) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.

   Section 7.03  Consents and Approvals.

     (a) All consents, waivers, approvals, Orders, authorizations of,
declarations or filings with any Governmental or Regulatory Authority (each a
"Buyer Governmental Consent") that are required by or with respect to Buyer in
 --------------------------
connection with the execution and delivery of this Agreement by Buyer, and its
performance of its obligations hereunder are set forth on

                                      -20-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     Schedule 7.03(a). Each Buyer Governmental Consent has been obtained, except
to the extent that the failure to obtain such Buyer Governmental Consent would
not have an Adverse Effect.

     (b) All consents, waivers, approvals, authorizations of, or notices to, any
third party (other than a Governmental or Regulatory Authority) (each a "Buyer
                                                                         -----
Third Party Consent") that are required by or with respect to Buyer in
-------------------
connection with the execution and delivery of this Agreement by Buyer, and its
performance of its obligations hereunder are set forth on Schedule 7.03(b). Each
Buyer Third Party Consent has been obtained, except to the extent that the
failure to obtain such Buyer Third Party Consent would not have an Adverse
Effect.

   Section 7.04  Non-Contravention.

The execution and delivery by Buyer of this Agreement does not, and the
performance by it of its obligations under this Agreement and the consummation
of the transactions contemplated hereby will not:

     (a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the Certificate of Incorporation, Bylaws or other
organizational documents of Buyer;

     (b) conflict with or result in a violation or breach of any term or
provision of any Law applicable to Buyer other than such conflicts, violations
or breaches as would not have an Adverse Effect; or

     (c) conflict with or result in a breach or default (or an event which, with
notice or lapse of time or both, would constitute a breach or default) under, or
result in the termination or cancellation of, or accelerate the performance
required by, or result in the creation or imposition of any security interest,
lien or any other Encumbrance (other than a Permitted Encumbrance) upon any
Contract to which Buyer is a party or by which Buyer or any of its assets is
bound, other than such conflicts, breaches or defaults as would not have an
Adverse Effect.

   Section 7.05  Litigation.

There are no Actions or Proceedings pending, or to the Knowledge of Buyer
threatened or reasonably anticipated, against, relating to, affecting or arising
in connection with (i) this Agreement or (ii) the transactions contemplated by
this Agreement. Buyer is not subject to any Order that could reasonably be
expected to materially impair or delay the ability of Buyer to perform its
obligations hereunder.

   Section 7.06  Brokers.

Buyer has not retained any broker in connection with the transactions
contemplated hereunder. Seller has no, and will have no, obligation to pay any
brokers, finders, investment bankers, financial advisors or similar fees in
connection with this Agreement or the transactions contemplated hereby by reason
of any action taken by or on behalf of Buyer.

                                      -21-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

                     ARTICLE VIII. COVENANTS OF THE PARTIES
                     --------------------------------------

   Section 8.01 Non-Assertion of Intellectual Property Rights.

     (a) Seller agrees that neither it nor any Affiliate will assert against
Buyer, under any patent, trade secret, copyright, trademark or other proprietary
right owned or controlled by Seller and used by Seller in the operation of the
Business as of the Closing, a claim that the Product or the operation of the
Business, infringes such rights owned or controlled by Seller or its Affiliates,
excluding, however, the Elan tradename and the Elan trademark and logo upon the
exhaustion of the Product Inventory.

     (b) Buyer agrees that it will not alter or deface the Elan tradename or the
Elan trademark or logo in the operation of the Business while exhausting the
Product Inventory.

     (c) Buyer further agrees that it will maintain the same quality of the
Product as used by Seller in the operation of the Business as of the Closing for
the Product sold under the Elan tradename and the Elan trademark and logo and
will do nothing to diminish the value of the Elan tradename and the Elan
trademark and logo

   Section 8.02  Cooperation.

Each Party shall cooperate fully with the other in preparing and filing all
notices, applications, submissions, reports and other instruments and documents
that are necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated by this Agreement, including
Seller's cooperation in the efforts of Buyer to obtain any consents and
approvals of any Governmental or Regulatory Authority required for Buyer to be
able to own the Purchased Assets. Each Party shall cooperate fully with the
other in connection with the delivery to Buyer of physical possession of all
tangible personal property included in the Purchased Assets.

   Section 8.03  Access.

     (a) Upon the request of Seller, Buyer shall at all times following the
Closing, to the extent permitted by Law, grant to Seller and its representatives
the right, during normal business hours, to inspect and copy the Books and
Records and other documents in Buyer's possession to the extent pertaining to
the operation of the Business prior to the Closing Date for Tax purposes and in
connection with Actions or Proceedings.

     (b) For a period of five (5) years following the Closing, Buyer agrees to
keep and maintain all Books and Records and other documents in existence on the
Closing Date and make personnel of Buyer or its Affiliates available to Seller
or its representatives to the extent such access is reasonably related to any
Excluded Assets or otherwise necessary for Seller to comply with or enforce the
terms of this Agreement or comply with any applicable Law; it being understood
that Seller shall reimburse Buyer promptly for its reasonable and necessary out
of pocket expenses incurred in complying with any such request by or on behalf
of Seller.

                                      -22-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Section 8.04  Public Announcements.

Neither Seller nor Buyer shall issue any press release or make any public
announcement with respect to this Agreement and the transactions contemplated
hereby without obtaining the prior written consent of the other Party, except as
may be required by applicable Law upon the advice of counsel and only if the
disclosing Party provides the non-disclosing Party with an opportunity to first
review the release or other public announcement.

  Section 8.05  Non-Solicitation.

Each Party (the "Soliciting Party") agrees that, without the prior written
                 ----------------
consent of the other Party (the "Non-soliciting Party"), for a period commencing
                                 -------------------
on the date hereof and expiring on the second (2nd) anniversary of the Closing
Date, the Soliciting Party will not directly or indirectly (a) induce, encourage
or solicit any officer or employee of the Non-soliciting Party or any of its
Affiliates to leave such employment or to accept any other position or
employment with the Soliciting Party or (b) assist any Affiliate or
representative of the Soliciting Party in hiring such employee. However, nothing
in this Section 8.05 shall prohibit the Soliciting Party from indirectly
inducing, encouraging or soliciting such officers or employees to leave the
Non-soliciting Party through the use of general advertisements in trade journals
and the like; provided, that in the event that an officer or employee of the
Non-soliciting Party responds to such advertisement, the Soliciting Party shall
not further induce, encourage or solicit such person to leave such employment or
to accept any other position or employment with the Soliciting Party, without
the prior written consent of the Non-soliciting Party.

   Section 8.06  Corporate Names.

     (a) Except as set forth in this Section 8.06, following the Closing, Buyer
shall not have any rights by virtue of this Agreement or any of the transactions
or agreements contemplated hereby to any names, trademarks, trade names, trade
dress or logos relating to Seller or any of the Affiliates of Seller or any of
their products other than those included in the Intellectual Property (the
"Corporate Names").
 ---------------

     (b) Buyer may use in connection with its operation of the Business
following the Closing (until such time, if any, as any Governmental or
Regulatory Authority shall otherwise not permit Buyer to do so), items of
Product Inventory that bear any of the Corporate Names, it being understood that
Buyer will use its reasonable best efforts to use or sell such items of Product
Inventory prior to selling any other product under the trademark or trade name
of the Product.

     (c) Buyer may use Marketing Materials that were transferred to Buyer as
Purchased Assets that bear any of the Corporate Names in connection with its
operation of the Business following the Closing and for up to thirty (30) days
thereafter; and thereafter, Buyer may use such Marketing Materials only if Buyer
completely removes all Corporate Names from, or completely covers all Corporate
Names on, such materials. Buyer acknowledges and agrees that Seller shall have
no Liability or other obligation arising out of or in connection with Buyer's or
it Affiliate's use of the Marketing Materials.

                                      -23-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Section 8.07  Handling of Product Inventory.

From and after the Closing, Buyer shall hold, store, and ship any Product
Inventory substantially in accordance with (i) all applicable Laws, (ii) current
GMPs, (iii) the applicable Regulatory Approvals, and (iv) applicable analytical
methods and procedures, material specifications, master batch records, and
stability protocols.

   Section 8.08  Differentiation of Products.

From and after the Closing, Buyer shall use commercially reasonable efforts to
promptly institute appropriate procedures to ensure that products and goods of
the Business manufactured, finished or sold by, or on behalf of, Buyer can be
distinguished from products and goods manufactured, finished or sold by, or on
behalf of, Seller and its Affiliates.

   Section 8.09  Regulatory Matters.

     (a) From and after the transfer by Seller to Buyer of each Regulatory
Approval pursuant to the terms hereof, Buyer, at its cost, shall be solely
responsible and liable for (i) taking all actions, paying all fees and
conducting all communication with the appropriate Governmental or Regulatory
Authority required by Law in respect of such Regulatory Approval, including
preparing and filing all reports (including adverse drug experience reports)
with the appropriate Governmental or Regulatory Authority, and (ii) taking all
actions and conducting all communication with third parties in respect of
Product sold pursuant to such Regulatory Approval (whether sold before or after
transfer of such Regulatory Approval), including responding to all complaints in
respect thereof, including complaints related to tampering or contamination, and
(iii) investigating all complaints and adverse drug experiences in respect of
Product sold pursuant to such Regulatory Approval (whether sold before or after
transfer of such Regulatory Approval). Seller shall cooperate with Buyer's
reasonable requests and use commercially reasonable efforts to assist Buyer in
connection with any of the foregoing.

     (b) From and after the transfer by Seller to Buyer of each Regulatory
Approval pursuant to the terms hereof, Seller promptly (and in any event within
the time periods required by law) shall notify Buyer if Seller receives a
complaint or a report of an adverse drug experience in respect of a Product sold
pursuant to such Regulatory Approval. In addition, Seller shall cooperate with
Buyer's reasonable requests and use commercially reasonable efforts to assist
Buyer in connection with the investigation of and response to any complaint or
adverse drug experience related to a Product sold by Seller or its Affiliates.

     (c) From and after the transfer by Seller to Buyer of each Regulatory
Approval pursuant to the terms hereof, Buyer, at its cost, shall be solely
responsible and liable for conducting all voluntary and involuntary recalls of
units of Product sold pursuant to such Regulatory Approval (whether sold before
or after transfer of such Regulatory Approval), including recalls required by
any Governmental or Regulatory Authority and recalls of units of Product sold by
Seller or its Affiliates deemed necessary by Buyer in its reasonable discretion;
provided, however, that in the event that any such recall is attributable to
Product sold by Seller or its Affiliates prior to the Closing, then Seller shall
reimburse Buyer for all reasonable expenses in connection with the recall of
such Product. Each Party promptly (and in any event

                                      -24-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

within the time periods required by law) shall notify the other Party in the
event that a recall of Product sold by Seller or its Affiliates is necessary.

   Section 8.10  Product Returns, Chargebacks and Rebates.

     (a) Product Returns. For the period from the Closing through [CONFIDENTIAL
         ---------------
TREATMENT REQUESTED], Seller will, at its sole cost and expense, process and
issue credits (or render payment in such other form as Seller may determine) for
all returned Product bearing Seller's NDC numbers and evidenced as being sold by
Seller. Such handling of returned Products by Seller, and the issuance of any
credits or other form of reimbursement in connection therewith, shall be in
accordance with Seller's then current returned goods policy. Buyer will process,
and be solely responsible for reimbursements with respect to Product returns
arising with respect to, or resulting from, shipping errors, damage in transit
and shortages relating to Buyer's sales of Products after the Closing and
Product with Buyer's NDC number.

           (i)   Buyer agrees and acknowledges that Seller's maximum liability
   for credits or other reimbursement for returned Product under this Section
   shall be [CONFIDENTIAL TREATMENT REQUESTED] (the "Maximum Returns Credit
                                                     ----------------------
   Amount"), and further agrees that Seller's obligation to issue credits or
   ------
   other reimbursement for returned Products bearing Seller's NDC numbers shall
   terminate upon the date on which Seller has issued credits or otherwise
   reimbursed the Maximum Returns Credit Amount or [CONFIDENTIAL TREATMENT
   REQUESTED], whichever shall be the first to occur. For purposes of this
   Section, the dollar value of returned Products processed by Seller, shall be
   determined in accordance with Seller's then current returned goods policy.

           (ii)  Upon Seller's issuance of credits or other reimbursement for
   returned Products bearing Seller's NDC's in an aggregate dollar amount equal
   to the Maximum Returns Credit Amount, any such credits or other reimbursement
   issued thereafter by Seller shall be the sole and exclusive liability and
   obligation of Buyer, for which Buyer will be invoiced by Seller on a monthly
   basis. Each such invoice shall set forth the number of units processed for
   each Product's NDC, together with such information as shall be necessary to
   support the invoice. Buyer shall, within thirty (30) days of its receipt of
   invoice, pay to Buyer the full invoiced amount.

           (iii) All Products returned to Buyer through [CONFIDENTIAL TREATMENT
   REQUESTED], bearing Seller's NDC numbers and evidenced as sold by Seller
   shall be the financial responsibility of Seller, subject to the Maximum
   Returns Credit Amount set forth in this Section.

           (iv) Effective as of [CONFIDENTIAL TREATMENT REQUESTED], Buyer shall
   be solely and exclusively responsible for processing any and all returned
   Products (including all returned Products bearing Seller's NDC's) and for the
   issuance of any and all credits or other reimbursement therefor. Any and all
   returned Products received by Seller after [CONFIDENTIAL TREATMENT REQUESTED]
   will be destroyed by Seller, and Seller will, after such destruction, forward
   to Buyer any necessary accompanying documentation to determine the
   appropriate credit. Except as otherwise provided herein, Buyer and Seller
   will not bill one another for costs incurred strictly for the processing of
   claims for returned Products.

                                      -25-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Seller and Buyer will use reasonable efforts in requesting that customers
   direct all Product returns after [CONFIDENTIAL TREATMENT REQUESTED] to Buyer.

           (v) Buyer and Seller shall be responsible for handling the
   destruction of any Product returned to their respective returns handling
   facility. If Buyer or Seller destroys Product for which the other was
   financially responsible as set forth in this Section, that party shall bill
   the other party for the cost of the destruction. Each such invoice shall set
   forth the number of units processed, together with such other information as
   shall be necessary to support the invoice. Each party shall, within thirty
   (30) days of its receipt of invoice, pay the other party for the full
   invoiced amount.

       (b) Government Rebates. Except as limited in Section 8.10(e) below,
           ------------------
Seller shall be responsible for all rebates pursuant to any government rebate
programs with respect to government claims for the Products indicating Seller's
NDC numbers and dispensed prior to [CONFIDENTIAL TREATMENT REQUESTED]. Buyer
shall reimburse Seller for all rebates that Seller is obligated to pay with
respect to government claims for the Product dispensed after [CONFIDENTIAL
TREATMENT REQUESTED] (it being understood and agreed that the dispense date
contained in any report from a state rebate program shall be used for purposes
of determining the date of such claim). All payments due Seller under this
Section shall be made within thirty (30) days of submission to Buyer of invoices
that describe the requested payments in reasonable detail.

       (c) Commercial Rebates. Except as limited in Section 8.10(e) below,
           ------------------
Seller shall be responsible for all commercial rebates with respect to the
Product dispensed prior to [CONFIDENTIAL TREATMENT REQUESTED]. Notwithstanding
the foregoing, Buyer and Seller agree that (a) Seller's financial liability for
the commercial rebates during the period from Closing through [CONFIDENTIAL
TREATMENT REQUESTED] shall be limited to those commercial customers with which
Seller has a rebate obligation as of the Closing and (b) any such payments by
Seller shall be made on the terms and conditions comparable to Seller's rebate
obligations as of the Closing with respect to each commercial customer and shall
be based on Seller's terms of agreement with the respective contract. Any
rebates for Product dispensed subsequent to [CONFIDENTIAL TREATMENT REQUESTED]
will be the liability of Buyer. To the extent that Seller processes such claims,
Buyer shall reimburse Seller within thirty (30) days of receipt of invoices that
describe the requested payments in reasonable detail.

       (d) Chargeback Claims. Except as limited in Section 8.10(e) below, Seller
           -----------------
shall be financially responsible for all chargeback claims for the Products with
a chargeback invoice dated (i.e. date of sale from the wholesaler to the
wholesaler customer, subsequently referred to as the "Activity Date") prior to
[CONFIDENTIAL TREATMENT REQUESTED] (the "Transition Chargebacks"). Buyer shall
                                         ----------------------
process and be financially liable for all chargeback claims with an Activity
Date subsequent to [CONFIDENTIAL TREATMENT REQUESTED]. Notwithstanding the
foregoing, the parties acknowledge that the VA National Acquisition Center must
approve the removal of the Products from Seller's Federal Supply Schedule
("FSS") before the responsibility of processing such rebates is transferred from
Seller to Buyer. Accordingly, in the event such approval is not obtained prior
to [CONFIDENTIAL TREATMENT REQUESTED], Seller shall continue to be responsible
for processing the FSS chargebacks on Buyer's behalf, and Buyer shall reimburse
Seller for same. Buyer and Seller agree that (a) Seller's financial liability
for the Transition Chargebacks shall be limited to those commercial customers
with which Seller has chargeback obligations as of the Closing, and (b) any such
chargebacks issued by Seller shall be made on terms and conditions comparable to
Seller's

                                      -26-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

obligations as of the Closing with respect to each customer and shall be based
on Seller's terms of respective agreements as of the Closing.

       (e) Maximum Rebate and Chargeback Amount. Notwithstanding the
           ------------------------------------
requirements of Sections 8.10(b), (c) and (d), Buyer and Seller agree that
Seller's financial liability for government rebates, commercial rebates, and
chargeback claims shall under no circumstances exceed [CONFIDENTIAL TREATMENT
REQUESTED] in the aggregate. Seller shall provide Buyer monthly reports in
reasonable detail setting forth the amount of rebates and chargeback claims for
which it was financially responsible for the current month and on a cumulative
basis. Seller shall cause its representatives and employees to be available to
Buyer, during normal business hours and upon reasonable prior written notice to
Seller, to discuss any questions or comments of Buyer concerning such report.

    Section 8.11  Adverse Experience Reports.

At a mutually agreed upon time after the Closing, Seller shall provide Buyer
with information relating to the investigation and reporting of adverse
experiences regarding the Product since March 31, 1998 and all information which
is materially relevant to the safe use of the Product in Seller's possession as
of the Closing. After the Closing, Seller shall promptly submit to Buyer all
adverse drug experience information or customer complaints brought to the
attention of Seller in respect of the Product, as well as any material events
and matters concerning or affecting the safety or efficacy of the Product. After
the Closing, Buyer shall have all responsibility for required reporting of
adverse experiences for the Product.

     Section 8.12  Multi-Product Contracts.

Section 8.12 of the Seller Disclosure Schedule sets forth a complete and correct
list of each Contract to which Seller or any of its Affiliates is a party and
pursuant to which Seller or its Affiliates sells Product, together with other
pharmaceutical products of Seller and its Affiliates, to a third party (the
"Multi-Product Contracts"). Seller has made available to Buyer copies of all
 -----------------------
Multi-Product Contracts; provided that such copies have been redacted to prevent
disclosure of information not related to the Product. From and after the
transfer by Seller to Buyer of each Regulatory Approval pursuant to the terms
hereof, Buyer shall honor and perform all obligations and Liabilities of Seller
and its Affiliates under and pursuant to each Multi-Product Contract with
respect to supplying Product to the applicable third party pursuant to such
Regulatory Approval. Seller agrees that after the transfer of such Regulatory
Approval it will not take any action with respect to any Multi-Product Contract
that would extend the term of such Multi-Product Contract with respect to any
Product, create or agree to any additional obligations with respect to the
Product, or otherwise adversely affect Buyer or the Business (other than to
terminate any such Multi-Product Contract), without the prior written consent of
Buyer. Seller further agrees that, at the direction of Buyer (to be given
promptly following the Closing), Seller shall either terminate or assign to
Buyer the rights and obligations with respect to the Product under each such
Multi-Product Contract, to the extent permitted by the terms thereof, as soon as
practicable after obtaining Buyer's direction.

                                      -27-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Section 8.13 Manner of Business.

From and after the Closing Date, Buyer shall not, by any action or omission
cause sales of the Product to occur later than they would otherwise have
occurred during the ordinary course of business or cause returns of the Product
to occur earlier than they would otherwise have occurred.

   Section 8.14 Assumption of Ongoing Clinical Trials.

From and after the Closing Date, Buyer shall assume control of, and
responsibility for all costs, obligations and Liabilities arising after the
Closing from or related to, the ongoing clinical trials involving the Products
identified on Section 8.14 of the Seller Disclosure Schedule.

   Section 8.15 Compliance Audits.

From time to time as either Party may elect during the period commencing with
the Closing Date and ending on December 31, 2004, during normal business hours
and upon reasonable prior written notice to the other Party, each Party shall
permit duly authorized representatives of the other Party to review and inspect
the premises, facilities, inventory, records and documentation maintained by the
other Party for the purpose of determining compliance with the obligations under
this Agreement.

   Section 8.16 Labeling Requirements.

Following the Closing, Buyer shall at its own expense and as expeditiously as
possible use all reasonable efforts to obtain such FDA approvals necessary for
Buyer Labeling for the Product to be manufactured after the Closing.

   Section 8.17 Sale of Mysoline Suspension.

From and after the Closing Date, Seller shall not sell or offer for sale any
form of Mysoline Suspension, be it finished product, work in progress, or
otherwise.

   Section 8.18 Further Assurances.

       (a) On and after the Closing, Seller shall from time to time, at the
request of Buyer, (i) execute and deliver, or cause to be executed and
delivered, such other instruments of conveyance and transfer and take such other
actions as Buyer may reasonably request, in order to more effectively consummate
the transactions contemplated hereby and to vest in Buyer good and marketable
title to the Purchased Assets (including assistance in the collection or
reduction to possession of any of the Purchased Assets) and (ii) use its
commercially reasonable efforts to obtain all consents and waivers and to
resolve all material impracticalities of assignment or transfer necessary to
convey the Purchased Assets to Buyer.

       (b) On and after the Closing, Buyer shall from time to time, at the
request of Seller, take such actions as Seller may reasonably request, in order
to more effectively consummate the transactions contemplated hereby, including
Buyer's assumption of the Assumed Liabilities.

                                      -28-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

              ARTICLE IX. CONDITIONS TO THE OBLIGATIONS OF SELLER
              ---------------------------------------------------

The obligation of Seller to effect the transactions contemplated hereby is
subject to the satisfaction (or waiver by Seller), at or before the Closing, of
each of the following conditions:

   Section 9.01 Representations, Warranties and Covenants.

All representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date, as
though given on such date, excluding for such purpose any representations and
warranties that are by their terms given only as of a specific date, and Buyer
shall have performed all agreements and covenants required by this Agreement to
be performed by it prior to or on the Closing Date, and Seller shall have
received a certificate to such effect dated the Closing Date and executed by a
duly authorized officer of Buyer.

   Section 9.02 No Actions or Proceedings.

No Actions or Proceedings that question the validity or legality of the
transactions contemplated hereby shall have been instituted or threatened and
not settled or otherwise terminated.

   Section 9.03 Consents.

All Seller Governmental Consents, Seller Third Party Consents, Buyer
Governmental Consents and Buyer Third Party Consents shall have been obtained or
made, as the case may be.

   Section 9.04 Other Closing Deliveries.

Buyer shall have delivered to Seller such other certificates and documents
customary in transactions similar to those contemplated hereby that are
reasonably requested by Seller.

   Section 9.05 Completion of Equity Financing.

Buyer shall have completed the sale of shares of its Series A-1 Preferred Stock
with an aggregate purchase price of no less than Sixty-Seven Million Five
Hundred Thousand Dollars ($67,500,000), including the sale to Seller or its
Affiliate of shares of its Series A-1 Preferred Stock with an aggregate purchase
price of no less than Fifteen Million Dollars ($15,000,000), on terms and
conditions satisfactory to Seller.

               ARTICLE X. CONDITIONS TO THE OBLIGATIONS OF BUYER
               -------------------------------------------------

The obligation of Buyer to effect the transactions contemplated hereby is
subject to the satisfaction (or waiver by Buyer), at or before the Closing, of
each of the following conditions:

   Section 10.01 Representations, Warranties and Covenants.

All representations and warranties of Seller contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date, as
though given on and as of such date, excluding for such purpose any
representations and warranties that are by their terms given only

                                      -29-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

as of a specific date, and Seller shall have performed all agreements and
covenants required by this Agreement to be performed by it prior to or on the
Closing Date, and Buyer shall have received a certificate to such effect dated
the Closing Date and executed by a duly authorized officer of Seller.

   Section 10.02 No Actions or Proceedings.

No Actions or Proceedings that question the validity or legality of the
transactions contemplated hereby shall have been instituted or threatened and
not settled or otherwise terminated.

   Section 10.03 Consents.

All Seller Governmental Consents, Seller Third Party Consents, Buyer
Governmental Consents and Buyer Third Party Consents shall have been obtained or
made, as the case may be.

   Section 10.04 Other Closing Deliveries.

Seller shall have delivered to Buyer such other certificates and documents
customary in transactions similar to those contemplated hereby that are
reasonably requested by Buyer.

                          ARTICLE XI. INDEMNIFICATION
                          ---------------------------

   Section 11.01 Survival of Representations, Warranties, Etc.

The representations, warranties and covenants of Seller and Buyer contained in
this Agreement shall survive the Closing and remain in full force and effect
indefinitely; provided, however, that the representations and warranties of
Seller and Buyer set forth in Article VI and Article VII hereof shall survive
the Closing and remain in full force and effect until the Expiration Date. All
representations and warranties contained in Article VI and Article VII of this
Agreement and all claims with respect thereto shall terminate on the Expiration
Date; provided that if notice of any claim for indemnification pursuant to
Section 11.02(a) or 11.02(b) shall have been given prior to the Expiration Date
and such notice describes with specificity the circumstances with respect to
which such indemnification claim relates, such indemnification claim shall
survive until such time as such claim is finally resolved.

   Section 11.02 Indemnification.

       (a) By Seller. Subject to Sections 11.03 and 11.04, from and after the
           ---------
Closing, Seller shall indemnify, reimburse, defend and hold harmless Buyer, its
Affiliates, and their respective officers, directors, employees, agents,
successors and assigns (collectively, the "Buyer Indemnified Parties") from and
                                           -------------------------
against any and all costs, losses, Liabilities, damages, lawsuits, deficiencies,
claims and expenses (including interest, penalties and reasonable fees and
disbursements of attorneys paid in connection with the investigation, defense or
settlement of any of the foregoing) (collectively, the "Damages"), to the extent
                                                        -------
incurred in connection with, arising out of, resulting from or incident to (i)
any inaccuracy or breach of any covenant, representation, warranty or other
agreement of Seller herein, (ii) Seller's conduct of the Business prior to the
Closing, including the development, manufacturing, marketing, sale or
distribution of the Product prior to the Closing; (iii) the failure of Seller to
pay, perform or discharge any

                                      -30-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

Excluded Liabilities; or (iv) the failure of Seller or the transactions
contemplated herein to comply with the Bulk Sales laws.

       (b) By Buyer. Subject to Sections 11.03 and 11.04, from and after the
           --------
Closing, Buyer shall indemnify, defend and hold harmless Seller, its Affiliates
and their respective officers, directors, employees, agents, successors and
assigns from and against any and all Damages incurred in connection with,
arising out of, resulting from or incident to (i) any inaccuracy or breach of
any covenant, representation, warranty or other agreement of Buyer herein, (ii)
Buyer's conduct of the Business from and after the Closing, including the
development, manufacturing, marketing, sale or distribution of the Product from
and after the Closing; and (iii) the failure of Buyer to pay, perform or
discharge any Assumed Liabilities.

       (c) Procedures. The indemnified Party (the "Indemnified Party") shall
           ----------                              -----------------
give the indemnifying Party (the "Indemnifying Party") prompt written notice (an
"Indemnification Claim Notice") of any Damages or discovery of fact upon which
 ----------------------------
such Indemnified Party intends to base a request for indemnification under
Section 11.02(a) or Section 11.02(b), but in no event shall the Indemnifying
Party be liable for any Damages that result from any delay in providing such
notice. Each Indemnification Claim Notice must contain a reasonable description
of the claim and the nature and amount of such Damages (to the extent that the
nature and amount of such Damages are known at such time). The Indemnified Party
shall furnish promptly to the Indemnifying Party copies of all papers and
official documents received in respect of any Damages. All indemnification
claims in respect of a Party, its Affiliates or their respective directors,
officers, employees and agents (collectively, the "Indemnitees" and each an
                                                   -----------
"Indemnitee") shall be made solely by such Party to this Agreement.
 ----------

       (d) Third Party Claims. The obligations of an Indemnifying Party under
           ------------------
this Section 11.02 with respect to Damages arising from claims of any third
party that are subject to indemnification as provided for in Section 11.02(a) or
Section 11.02(b) (a "Third Party Claim") shall be governed by and be contingent
                     -----------------
upon the following additional terms and conditions:

           (i) At its option, the Indemnifying Party may assume the defense of
   any Third Party Claim by giving written notice to the Indemnified Party
   within thirty (30) days after the Indemnifying Party's receipt of an
   Indemnification Claim Notice. The assumption of the defense of a Third Party
   Claim by the Indemnifying Party shall not be construed as an acknowledgment
   that the Indemnifying Party is liable to indemnify any Indemnitee in respect
   of the Third Party Claim, nor shall it constitute a waiver by the
   Indemnifying Party of any defenses it may assert against any Indemnitee's
   claim for indemnification. Upon assuming the defense of a Third Party Claim,
   the Indemnifying Party may appoint as lead counsel in the defense of the
   Third Party Claim any legal counsel selected by the Indemnifying Party that
   is reasonably acceptable to the Indemnified Party. In the event the
   Indemnifying Party assumes the defense of a Third Party Claim, the
   Indemnified Party shall promptly deliver to the Indemnifying Party all
   original notices and documents (including court papers) received by any
   Indemnitee in connection with the Third Party Claim. Should the Indemnifying
   Party assume the defense of a Third Party Claim, except as provided in
   subsection (ii) below, the Indemnifying Party shall not be liable to the
   Indemnified Party or any other Indemnitee for any legal expenses subsequently
   incurred by such Indemnified Party or other

                                      -31-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Indemnitee in connection with the analysis, defense or settlement of the
   Third Party Claim. In the event that it is ultimately determined that the
   Indemnifying Party is not obligated to indemnify, defend or hold harmless an
   Indemnitee from and against the Third Party Claim, the Indemnified Party
   shall reimburse the Indemnifying Party for any and all costs and expenses
   (including attorneys' fees and costs of suit) and any Damages incurred by the
   Indemnifying Party in its defense of the Third Party Claim with respect to
   such Indemnitee.

           (ii) Without limiting Section 11.02(d)(i), any Indemnitee shall be
   entitled to participate in, but not control, the defense of such Third Party
   Claim and to employ counsel of its choice for such purpose; provided,
   however, that such employment shall be at the Indemnitee's own expense unless
   (A) the employment thereof has been specifically authorized by the
   Indemnifying Party in writing, (B) the Indemnifying Party has failed to
   assume the defense and employ counsel in accordance with Section 11.02(d)(i)
   (in which case the Indemnified Party shall control the defense) or (C) if the
   Indemnified Party and the Indemnifying Party are both named parties to the
   proceeding and the Indemnified Party has reasonably concluded that there may
   be one or more legal defenses that are different from or in addition to those
   available to the Indemnifying Party (in which case the Indemnifying Party
   shall not have the right to assume the defense of such action on behalf of
   the Indemnified Party and the Indemnifying Party shall be liable for all
   legal expenses incurred by the Indemnified Party in furtherance thereof).

           (iii) With respect to any Damages relating solely to the payment of
   money damages in connection with a Third Party Claim and that will not result
   in the Indemnitee's becoming subject to injunctive or other relief or
   otherwise adversely affect the business of the Indemnitee in any manner, and
   as to which the Indemnifying Party shall have acknowledged in writing the
   obligation to indemnify the Indemnitee hereunder, the Indemnifying Party
   shall have the sole right to consent to the entry of any judgment, enter into
   any settlement or otherwise dispose of such Damages, on such terms as the
   Indemnifying Party, in its sole discretion, shall deem appropriate. With
   respect to all other Damages in connection with Third Party Claims, where the
   Indemnifying Party has assumed the defense of the Third Party Claim in
   accordance with Section 11.02(d)(i), the Indemnifying Party shall have
   authority to consent to the entry of any judgment, enter into any settlement
   or otherwise dispose of such Damages; provided that it obtains the prior
   written consent of the Indemnified Party (which consent shall not be
   unreasonably withheld or delayed). The Indemnifying Party shall not be liable
   for any settlement or other disposition of Damages by an Indemnitee that is
   reached without the written consent of the Indemnifying Party (which consent
   shall not be unreasonably withheld or delayed). Regardless of whether the
   Indemnifying Party chooses to defend or prosecute any Third Party Claim, no
   Indemnitee shall admit any liability with respect to, or settle, compromise
   or discharge, any Third Party Claim without the prior written consent of the
   Indemnifying Party.

           (iv) Regardless of whether the Indemnifying Party chooses to defend
   or prosecute any Third Party Claim, the Indemnified Party shall, and shall
   cause each other Indemnitee to, cooperate in the defense or prosecution
   thereof and shall furnish such records, information and testimony, provide
   such witnesses and attend such conferences,

                                      -32-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   discovery proceedings, hearings, trials and appeals as may be reasonably
   requested in connection therewith. Such cooperation shall include access
   during normal business hours afforded to the Indemnifying Party to, and
   reasonable retention by the Indemnified Party of, records and information
   that are reasonably relevant to such Third Party Claim, and making
   Indemnitees and other employees and agents available on a mutually convenient
   basis to provide additional information and explanation of any material
   provided hereunder, and the Indemnifying Party shall reimburse the
   Indemnified Party for all its reasonable out-of-pocket expenses in connection
   therewith.

       (e) Expenses. Except as provided above, the costs and expenses, including
           --------
fees and disbursements of counsel, incurred by the Indemnified Party in
connection with any claim shall be reimbursed on a quarterly basis by the
Indemnifying Party, without prejudice to the Indemnifying Party's right to
contest the Indemnified Party's right to indemnification and subject to refund
in the event the Indemnifying Party is ultimately held not to be obligated to
indemnity the Indemnified Party.

Section 11.03     Limitations.

       (a) In no event shall Seller be liable for any Damages pursuant to
Section 11.02(a) unless and until the aggregate amount of all such Damages
exceeds [CONFIDENTIAL TREATMENT REQUESTED], in which case Seller shall be
liable for all such Damages in excess of [CONFIDENTIAL TREATMENT REQUESTED];
provided that Damages shall not be subject to the limitations set
forth in this Section 11.03(a) to the extent that such Damages are payable in
connection with (i) Seller's breach of Section 8.01; (ii) Seller's failure to
pay Buyer amounts due under Sections 4.02(a) and (b), 8.09, and 8.10; and (iii)
Seller's failure to pay or otherwise satisfy any Excluded Liabilities.

       (b) In no event shall the aggregate liability of Seller for any Damages
pursuant to Section 11.02(a) (other than Damages due to Seller's failure to pay
or otherwise satisfy any Excluded Liabilities) exceed the aggregate amount of
cash consideration received from Buyer pursuant to Section 4.01(a) hereof.

       (c) The amount of any Damages under Sections 11.02(a) and 11.02(b) shall
be reduced by the amount of any insurance proceeds paid to the Indemnified Party
relating to such claim.

       (d) Except with respect to claims based on fraud, after the Closing, the
right of the Buyer Indemnified Parties to indemnification under this Article XI
shall be the exclusive remedy of the Buyer Indemnified Parties with respect to
claims incurred in connection with, arising out of, resulting from or incident
to (i) any inaccuracy or breach of any covenant, representation, warranty or
other agreement of Seller herein, (ii) Seller's conduct of the Business prior to
the Closing, including Seller's development, manufacturing, marketing, sale or
distribution of the Product prior to the Closing; (iii) the failure of Seller to
pay, perform or discharge any Excluded Liabilities; or (iv) the failure of
Seller or the transactions contemplated herein to comply with the Bulk Sales
laws.

                                      -33-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Section 11.04 Limitation of Liability.

NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NEITHER PARTY NOR
ANY OF THEIR RESPECTIVE AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY BY REASON
OF ANY REPRESENTATION OR WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON
LAW, OR UNDER THE EXPRESS TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL,
SPECIAL OR INCIDENTAL OR PUNITIVE LOSS OR DAMAGE (WHETHER FOR LOSS OF CURRENT OR
FUTURE PROFITS, LOSS OF ENTERPRISE VALUE OR OTHERWISE) AND WHETHER OCCASIONED BY
THE NEGLIGENCE OF SUCH PARTY OR ITS AFFILIATES OR ANY OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES.

                           ARTICLE XII. MISCELLANEOUS
                           --------------------------

   Section 12.01 Confidentiality.

       (a) In addition to the restrictions contained in Section 8.04, after the
Closing, no Party (a "Disclosing Party") shall, without the prior written
                      ----------------
consent of the other Party (the "Non-disclosing Party"), disclose to any Person
                                 --------------------
Confidential Information (as defined below) of the Non-disclosing Party, except
to a Disclosing Party's employees or representatives who need to know such
information for any reason contemplated by this Agreement (and then only to the
extent that such persons are under an obligation to maintain the confidentiality
of the Confidential Information), or use any Confidential Information of the
Non-disclosing Party for any reason other than contemplated by this Agreement
unless such Disclosing Party has used its best efforts to (i) consult with the
Non-disclosing Party and obtain the Non-disclosing Party's prior written consent
in a timely manner, and (ii) the Disclosing Party has been advised by counsel
that disclosure is required to be made under applicable Law or the requirements
of a national securities exchange or another similar regulatory body. In the
event that the Disclosing Party is requested or required by documents subpoena,
civil investigative demand, interrogatories, requests for information, or other
similar process to disclose any Confidential Information, the Disclosing Party
shall provide the Non-disclosing Party with prompt written notice of such
request or demands or other similar process so that the Non-disclosing Party may
seek an appropriate protective order or, if such request, demand or other
similar process is mandatory, waive the Disclosing Party's compliance with the
provisions of this Section 12.01(a) as appropriate.

       (b) The term "Confidential Information" as used in this Section 12.01
                     ------------------------
means (i) as to Buyer, all confidential information relating to Buyer's
business, the Purchased Assets and the Assumed Liabilities, and (ii) as to
Seller, all confidential information relating to the Business (other than the
Purchased Assets) and the business and operations of the Seller and its
Affiliates, including the Excluded Assets and the Excluded Liabilities or other
obligations other than the Assumed Liabilities, in each of (i) and (ii) whether
disclosed prior to or after the date hereof. The term "Confidential Information"
                                                       ------------------------
does not include information which becomes generally available to the public
other than as a result of disclosure by the Disclosing Party, or becomes
available to the Disclosing Party on a non-confidential basis from a source
other than the Non-

                                      -34-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

disclosing Party, provided that such source is not bound by a confidentiality
agreement with the Non-disclosing Party.

       (c) This Section 12.01 supercedes and replaces in its entirety that
certain letter agreement relating to confidentiality dated March 28, 2001
between Seller or its Affiliate and Buyer.

   Section 12.02 Notices.

All notices, requests and other communications hereunder must be in writing and
will be deemed to have been duly given only if delivered personally against
written receipt or by facsimile transmission with answer back confirmation or
mailed (postage prepaid by certified or registered mail, return receipt
requested) or by nationally recognized overnight courier that maintains records
of delivery to the Parties at the following addresses or facsimile numbers:

         If to Buyer to:       Xcel Pharmaceuticals, Inc.
                               6363 Greenwich Drive, Suite 100
                               San Diego, CA 92122
                               Attention:  Corporate Secretary
                               Facsimile:  (858) 202-2799

         With copies to:       Pillsbury Winthrop LLP
                               101 W. Broadway, Suite 1800
                               San Diego, CA 92101
                               Attention:  David R. Snyder, Esq.
                               Facsimile:  (619) 236-1995

         If to Seller to:      Elan Pharma International Limited
                               WIL House
                               Shannon Business Park
                               Shannon
                               Co Clare, Ireland
                               Attention:  Company Secretary
                               Facsimile:  +353 61 362 097

         With copies to:       Brobeck, Phleger & Harrison LLP
                               12390 El Camino Real
                               San Diego, CA 92130
                               Attention:  Faye H. Russell, Esq.
                               Facsimile:  (858) 720-2555

All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
receipt, (ii) if delivered by facsimile to the facsimile number as provided in
this Section, be deemed given upon receipt by the sender of the answer back
confirmation and (ii) if delivered by mail in the manner described above or by
overnight courier to the address as provided in this Section, be deemed given
upon receipt (in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice,
request or other communication is to be delivered

                                      -35-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

pursuant to this Section). Any Party from time to time may change its address,
facsimile number or other information for the purpose of notices to that Party
by giving notice specifying such change to the other Parties hereto in
accordance with the terms of this Section.

   Section 12.03 Entire Agreement.

This Agreement, together with the Product Acquisition Financing Agreement (and
all Exhibits and Schedules attached hereto and thereto and all other documents
delivered in connection herewith and therewith) supersedes all prior discussions
and agreements among the Parties with respect to the subject matter hereof and
thereof and contains the sole and entire agreement among the Parties hereto and
thereto with respect to the subject matter hereof and thereof.

   Section 12.04 Waiver.

Any term or condition of this Agreement may be waived at any time by the Party
that is entitled to the benefit thereof, but no such waiver shall be effective
unless set forth in a written instrument duly executed by or on behalf of the
Party waiving such term or condition. No waiver by any Party hereto of any term
or condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion. All remedies, either under this Agreement or
by law or otherwise afforded, will be cumulative and not alternative.

   Section 12.05 Amendment.

This Agreement may be amended, supplemented or modified only by a written
instrument duly executed by each Party hereto.

   Section 12.06 Third Party Beneficiaries.

The terms and provisions of this Agreement are intended solely for the benefit
of each Party hereto (including, in the case of Seller, Seller's Affiliates) and
their respective successors or permitted assigns and it is not the intention of
the Parties to confer third-party beneficiary rights upon any other Person.

   Section 12.07 Assignment; Binding Effect.

Neither this Agreement nor any right, interest or obligation hereunder may be
assigned by any Party hereto without the prior written consent of the other
Party hereto (which consent shall not be unreasonably withheld) and any attempt
to do so will be void. This Agreement is binding upon, inures to the benefit of
and is enforceable by the Parties hereto and their respective successors and
permitted assigns.

   Section 12.08 Headings.

The headings used in this Agreement have been inserted for convenience of
reference only and do not define or limit the provisions hereof.

                                      -36-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

   Section 12.09 Severability.

If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any present or future law, and if the rights or obligations
of any Party hereto under this Agreement will not be materially and adversely
affected thereby, (a) such provision will be fully severable, (b) this Agreement
will be construed and enforced as if such illegal, invalid or unenforceable
provision had never compromised a part hereof, (c) the remaining provisions of
this Agreement will remain in full force and effect and will not be affected by
the illegal, invalid or unenforceable provision or by its severance herefrom,
and (d) in lieu of such illegal, invalid or unenforceable provision, there will
be added automatically as a part of this Agreement a legal, valid and
enforceable provision as similar to terms to such illegal, invalid or
unenforceable provision as may be possible and reasonably acceptable to the
Parties herein.

   Section 12.10 Governing Law.

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED IN SUCH
STATE, WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES.

   Section 12.11 Expenses.

Except as otherwise provided in this Agreement, each Party hereto shall pay its
own expenses and costs incidental to the preparation of this Agreement and to
the consummation of the transactions contemplated hereby.

   Section 12.12 Counterparts.

This Agreement may be executed in any number of counterparts and by facsimile,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument.

   Section 12.13 Schedules, Exhibits and Other Agreements.

The Exhibits, Schedules, other agreements, certificates and notices specifically
referred to herein, and delivered pursuant hereto, are an integral part of this
Agreement. Any disclosure that is made in any of the Schedules or certificates
delivered pursuant to this Agreement shall be deemed responsive to any other
applicable disclosure obligation hereunder.

                            [Signature Page Follows]

                                      -37-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto all
as of the date first above written.

                               ELAN PHARMA INTERNATIONAL LIMITED

                               By:      /s/ Kevin Insley
                                        ----------------------------------------
                               Title:   Authorised Signatory
                                        ----------------------------------------

                               XCEL PHARMACEUTICALS, INC.

                               By:      /s/ Michael Borer
                                        ----------------------------------------
                               Title:   President & CEO
                                        ----------------------------------------

                                      -38-

<PAGE>

                                                          CONFIDENTIAL TREATMENT

                                    SCHEDULES
                                    ---------

Schedules
---------

Exhibit A - Product

Seller Disclosure Schedule

Buyer Disclosure Schedule

The exhibits and schedules have been omitted from this Agreement as filed with
the Securities and Exchange Commission (the "SEC"). The omitted information is
filed as a separately numbered exhibit to the Registration Statement or is
considered immaterial from an investor's perspective. The Registrant will
furnish supplementally a copy of any of the documents to the SEC upon request of
the SEC.

                                      -39-<PAGE>

CONFIDENTIAL TREATMENT REQUESTED                                    EXHIBIT 10.4

CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED IS OMITTED AND IS NOTED WITH "[CONFIDENTIAL TREATMENT
REQUESTED]." AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.

          AMENDED AND RESTATED PRODUCT ACQUISITION FINANCING AGREEMENT
          ------------------------------------------------------------

     THIS AMENDED AND RESTATED PRODUCT ACQUISITION FINANCING AGREEMENT (this
"Agreement"), dated as of March 31, 2001, is made by and between ELAN PHARMA
INTERNATIONAL LIMITED, a corporation organized under the laws of the Republic of
Ireland (together with its permitted successors and assigns, called the
"Lender"), and XCEL PHARMACEUTICALS, INC., a Delaware corporation (together with
its permitted successors and assigns, the "Purchaser").

     A. Purchaser and Lender are parties to that certain Product Acquisition
Financing Agreement dated as of March 31, 2001 (the "Prior Agreement").

     B. The Prior Agreement provided that Purchaser and Lender are or will be
parties to (i) that certain Diastat Purchase Agreement, (defined below) and (ii)
that certain Mysoline Asset Purchase Agreement (defined below) which are
together referred to herein as the "Purchase Agreement" pursuant to which
Purchaser is to buy all of such Lender's and its affiliates' right, title, and
interest in certain products commonly referred to as Diastat(R) and Mysoline(R)
(the "Products"). In consideration thereof, Purchaser is to pay the purchase
price in installments as and when set forth in the Purchase Agreement, plus
certain other payments, also as set forth in the Purchase Agreement.

     C. The Prior Agreement further provided that Purchaser has requested that
it be permitted on each date that an installment of the purchase price (or
certain adjustments thereto) is payable to Lender, to finance certain portions
of such payments, and to pay the remaining portion in cash. Lender is willing to
make such financing alternative available to Purchaser subject to the terms and
conditions set forth in this Agreement.

     D. The Prior Agreement further provided that, in addition to financing the
acquisition price, Purchaser has requested that Lender provide to Purchaser a
loan of up to $10,000,000 to finance certain working capital needs of the
Purchaser. Lender is willing to make such financing alternative available to
Purchaser, also subject to the terms and conditions set forth in this Agreement.

     E. The Purchaser and the Lender desire to amend and restate the Prior
Agreement as set forth herein effective as of March 31, 2001.

     WHEREFORE, for fair and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree to amend and restate the Prior
Agreement as follows:

                                       1

<PAGE>

                                                          CONFIDENTIAL TREATMENT

                                   ARTICLE I.
                                   DEFINITIONS

     SECTION 1.01 Certain Defined Terms. Capitalized terms shall have the
                  ---------------------
meanings assigned to them in this Agreement. In addition, as used in this
Agreement, the following terms shall have the following meanings:

     "Acquisition Financing Documents" means this Agreement, the Collateral
      -------------------------------
Documents, the Diastat Purchase Agreement, the Mysoline Purchase Agreement, the
Acquisition Notes (if any), the Line of Credit Note, each Request, each Notice
of Borrowing, and all other certificates, documents, agreements and instruments
delivered to the Lender under or in connection with any of the foregoing.

     "Acquisition Installment Payment" means any installments of the purchase
      -------------------------------
price payable by Purchaser for the purchase of the Products as set forth in each
agreement comprising the Purchase Agreement.

     "Acquisition Loan" has the meaning set forth in Section 2.01(a).
      ----------------

     "Acquisition Note" has the meaning set forth in Section 2.01(c).
      ----------------

     "Acquisition Payment Due Date" means each of the dates upon which Purchaser
      ----------------------------
must pay one of the installments of the purchase price for the Products as
provided in Section 4.01 of each of the agreements comprising the Purchase
Agreement.

     "Advance" has the meaning set forth in Section 2.02(a).
      -------

     "Affiliate" means any Person which, directly or indirectly, controls, is
      ---------
controlled by or is under common control with another Person. For purposes of
the foregoing, "control," "controlled by" and "under common control with" with
respect to any Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.

     "Business Day" means a day of the year on which commercial banks are not
      ------------
required or authorized by law to close in San Diego, California.

     "Capital Expenditures" means the expenditure of funds or the incurrence of
      --------------------
liabilities which may be capitalized in accordance with GAAP.

     "Cash on Hand" shall mean all of the Purchaser's (i) cash on hand, plus
      ------------
(ii) all cash on deposit in each demand deposit account opened and maintained in
the name of the Purchaser minus the amount of any checks written against each
such account, whether or not cashed, plus (iii) cash equivalents, plus (iv)
short term investments that are in compliance with the Purchaser's investment
policy duly approved by its board of directors; in each case under clauses (i)
through (iv), solely to the extent such items are not subject to any Liens,
other than Liens in favor of the Lender and other than Liens securing
obligations that are not in default.

                                       2

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     "Change in Control" means the acquisition, by any group of persons (within
      -----------------
the meaning of the Securities Exchange Act of 1934, as amended) or by any
Person, of beneficial ownership (within the meaning of Rule 13d-3 of the SEC),
directly or indirectly, of fifty percent (50%) or more of the issued and
outstanding capital stock of the Purchaser having the right to vote for the
election of directors of the Purchaser.

     "Closing Date" has the meaning set forth in Section 3.01.
      ------------

     "Collateral" means the property described in the Collateral Documents, and
      ----------
all other property now existing or hereafter acquired which may at any time be
or become subject to a Lien in favor of the Lender pursuant to the Collateral
Documents or otherwise, securing the payment and performance of the Obligations.

     "Collateral Documents" means the Security Agreement, the Patent and
      --------------------
Trademark Security Agreement, and any other agreement pursuant to which the
Purchaser or any other Person provides a Lien on its assets in favor of the
Lender and all filings, documents and agreements made or delivered pursuant
thereto.

     "Commitment Term" means the term that commences on the Closing Date and
      ---------------
ends at close of business on the later of (i) the last of the Acquisition
Payment Due Dates set forth in each of the agreements comprising the Purchase
Agreement, which is currently December 31, 2001, and (ii) the date upon which
the last of the Supplemental Acquisition Payments is due and payable to Lender.

     "Contract Rate" means a rate of interest equal to the lesser of (i) 7% per
      -------------
annum, and (ii) the highest lawful rate of interest.

     "Covenant Compliance Certificate" has the meaning set forth in Section
      -------------------------------
5.02(a)(iv).

     "Covenant Compliance Test Date" has the meaning set forth in Section 5.04.
      -----------------------------

     "Credit Line" has the meaning set forth in Section 2.02(a).
      -----------

     "Credit Line Commitment Term" means the period commencing with the Closing
      ---------------------------
Date and lasting until the first to occur of (i) the first anniversary of the
Closing Date, (ii) Lender's acceleration of the Obligations outstanding after an
Event of Default; and (iii) the occurrence of an Event of Default specified in
Section 6.01(h) or (i).

     "Credit Line Maturity Date" has the meaning set forth in Section 2.02(d).
      -------------------------

     "Default" means an Event of Default or an event or condition which with
      -------
notice or lapse of time or both would constitute an Event of Default.

     "Diastat Purchase Agreement" means that certain Diastat Asset Purchase
      --------------------------
Agreement by and among Elan Pharmaceuticals, Inc. and Elan Pharma International
Limited as "Seller" and Purchaser.

                                       3

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     "Disclosure Letter" means the letter, if any, of even date herewith from
      -----------------
the Purchaser to the Lender setting forth exceptions to, and disclosures with
respect to, Article IV (it being understood that for any disclosure set forth in
the Disclosure Letter having relevance to more than one of the Sections of
Article IV, such item shall also suffice for other Sections of Article IV where
the relevance to such other Section is reasonably apparent).

     "Dollars" and the sign "$" each means lawful money of the United States.
      -------

     "EBITDA" means the Purchaser's consolidated earnings (excluding
      ------
extraordinary gains and gains from the sale of assets other than in the ordinary
course of business) before interest, taxes, depreciation, amortization and other
non-cash charges that are of an unusual and non-recurring nature, properly
deducted in determining earnings in accordance with GAAP, each as determined in
accordance with GAAP.

     "Environmental Laws" means all federal, state or local laws, statutes,
      ------------------
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directives, requests, licenses, authorizations and
permits of, and agreements with (including consent decrees), any governmental
agencies or authorities, in each case relating to or imposing liability or
standards of conduct concerning public health, safety and environmental
protection matters.

     "ERISA" means the Employee Retirement Income Security Act of 1974,
      -----
including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.

     "ERISA Affiliate" means any trade or business (whether or not incorporated)
      ---------------
which is under common control with the Purchaser within the meaning of Section
4001(a)(14) of ERISA and Sections 414(b), (c) and (m) of the Internal Revenue
Code.

     "Event of Default" has the meaning set forth in Section 6.01.
      ----------------

     "Fiscal Year" means the Purchaser's fiscal year for financial accounting
      -----------
purposes. The current Fiscal Year of the Purchaser will end on December 31,
2001.

     "GAAP" means generally accepted accounting principles in the United States,
      ----
consistently applied.

     "Hazardous Substances" means any toxic or hazardous substances, materials,
      --------------------
wastes, contaminants or pollutants, including asbestos, PCBs, petroleum products
and byproducts, and any substances defined or listed as "hazardous substances,"
"hazardous materials," "hazardous wastes" or "toxic substances" (or similarly
identified), regulated under or forming the basis for liability under any
applicable Environmental Law.

     "Indebtedness" means, for any Person, (i) all indebtedness or other
      ------------
obligations of such Person for borrowed money or for the deferred purchase price
of property or services; (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person; (iv) all
reimbursement and other obligations of such

                                        4

<PAGE>

                                                          CONFIDENTIAL TREATMENT

Person in respect of letters of credit and bankers acceptances and all net
obligations in respect of interest rate swaps, caps, floors and collars,
currency swaps, and other similar financial products; (v) all obligations under
leases which shall have been or should be, in accordance with GAAP, recorded as
capital leases; and (vi) all indebtedness of another Person of the types
referred to in clauses (i) through (v) guaranteed directly or indirectly in any
manner by the Person for whom Indebtedness is being determined, or in effect
guaranteed directly or indirectly by such Person through an agreement to
purchase or acquire such indebtedness, to advance or supply funds for the
payment or purchase of such indebtedness or otherwise assure a creditor against
loss, or secured by any Lien upon or in property owned by the Person for whom
Indebtedness is being determined, whether or not such Person has assumed or
become liable for the payment of such indebtedness of such other Person.

     "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
      ---------------------
including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.

     "Lender" has the meaning set forth in the recital of parties to this
      ------
Agreement.

     "Lien" means any mortgage, pledge, security interest, assignment, deposit
      ----
arrangement, charge or encumbrance, lien or other type of preferential
arrangement (other than a financing statement filed by a lessor in respect of an
operating lease not intended as security).

     "Line of Credit Note" has the meaning set forth in Section 2.02(b).
      -------------------

     "Loans" shall mean the Acquisition Loans, and the Credit Line and each
      -----
Advance thereunder.

     "Material Adverse Effect" means any event, matter, condition or
      -----------------------
circumstance which (i) has or would reasonably be expected to have a material
adverse effect on the business, properties, results of operations or condition
(financial or otherwise) of the Purchaser and its Subsidiaries taken as a whole;
(ii) would materially impair the ability of the Purchaser or any other Person
(excluding Lender) to perform or observe its obligations under or in respect of
the Acquisition Financing Documents; or (iii) affects the legality, validity,
binding effect or enforceability of any of the Acquisition Financing Documents
(except for events, matters, conditions or circumstances caused solely by the
action or inaction of the Lender) or the perfection or priority of any Lien
granted to the Lender under any of the Collateral Documents (other than due to
an action or inaction that was solely the fault of Lender, and not the
consequence of some other default or breach of Purchaser under any of the
Acquisition Financing Documents).

     "Mysoline Purchase Agreement" means that certain Mysoline Asset Purchase
      ---------------------------
Agreement by and among Elan Pharma International Limited as "Seller" and
Purchaser.

     "Notice of Borrowing" has the meaning set forth in Section 2.02(c)(i).
      -------------------

     "Obligations" means the indebtedness, liabilities and other obligations of
      -----------
the Purchaser to the Lender under or in connection with the Acquisition
Financing Documents, including, without limitation, all principal and accrued
interest on the Acquisition Notes, all principal and accrued

                                       5

<PAGE>

                                                          CONFIDENTIAL TREATMENT

interest on the Line of Credit Note, all fees due under this Agreement and all
other amounts payable by the Purchaser to the Lender under the Acquisition
Financing Documents or in connection therewith.

     "Patent and Trademark Security Agreement" means a Patent and Trademark
      ---------------------------------------
Security Agreement between the Purchaser and the Lender, in substantially the
form of Exhibit D attached hereto and otherwise in form and substance
satisfactory to the Lender.

     "Permitted Liens" means: (i) Liens in favor of the Lender; (ii) Liens for
      ---------------
taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings and which
are adequately reserved for in accordance with GAAP, provided the same does not
have priority over any of the Lender's Liens and no notice of tax lien has been
filed of record; and (iii) Liens of materialmen, mechanics, warehousemen,
carriers or employees or other similar Liens provided for by mandatory
provisions of law and securing obligations either not delinquent or being
contested in good faith by appropriate proceedings and which do not in the
aggregate materially impair the use or value of the property or risk the loss or
forfeiture thereof.

     "Person" means an individual, corporation, partnership, joint venture,
      ------
trust, unincorporated organization or any other entity of whatever nature or any
governmental agency or authority.

     "Plan" means any employee pension benefit plan as defined in Section 3(2)
      ----
of ERISA (including any multiemployer plan) and any employee welfare benefit
plan, as defined in Section 3(1) of ERISA (including any plan providing benefits
to former employees or their survivors).

     "Projected Cash on Hand" means the Cash on Hand that Purchaser, on the
      ----------------------
Covenant Compliance Test Date, projects in good faith and consistent with
historic experience that it will have on the last day of the quarter in which
the Covenant Compliance Test Date falls, taking into account the Projected Net
Cash Usage over that approximately two month period.

     "Projected Net Cash Usage" shall mean, for any period, projected cash
      ------------------------
receipts from operations and available or existing equity or debt financings (so
long as the latter is not in default) for the period, less the projected cash
expenditures of the Purchaser and its Subsidiaries on a consolidated basis over
that same period, whether due and payable during such period or, to the extent
not yet paid, any prior period, including projected expenditures for (i)
expenses which, in accordance with GAAP, would be treated as operating or
administrative expenses (other than any depreciation of fixed assets or
amortization of intangibles), (ii) any payments on account of any Indebtedness,
including principal, interest (or provision for interest) fees and other charges
in connection with any Indebtedness, (iii) taxes, and (iv) Capital Expenditures.

     "Purchaser's Bank Account" means [CONFIDENTIAL TREATMENT REQUESTED].
      ------------------------

     "Responsible Officer" means, with respect to any Person, the chief
      -------------------
executive officer, the president, the chief financial officer or the treasurer
of such Person, or any other senior officer of such Person having substantially
the same authority and responsibility.

                                       6

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     "Request" has the meaning set forth in Section 2.01(b).
      -------

     "Security Agreement" means a Security Agreement between the Purchaser and
      ------------------
the Lender, in substantially the form of Exhibit A attached hereto and otherwise
                                         ---------
in form and substance satisfactory to the Lender.

     "Subsidiary" means any corporation, association, partnership, joint venture
      ----------
or other business entity of which more than 50% of the voting stock or other
equity interest is owned directly or indirectly by any Person or one or more of
the other Subsidiaries of such Person or a combination thereof.

     "Supplemental Acquisition Payments" means such additional amounts as
      ---------------------------------
Purchaser must pay to Lender under the terms of the Mysoline Purchase Agreement
as a result of adjustments that are made as specified therein based on the
"Gross Profits" (as defined in the Mysoline Purchase Agreement) generated by the
Products during the periods set forth in the Mysoline Purchase Agreement.

     "United States" and "U.S." each means the United States of America.
      -------------       ----

     SECTION 1.02 Accounting Terms. Unless otherwise defined or the context
                  ----------------
otherwise requires, all accounting terms not expressly defined herein shall be
construed, and all accounting determinations and computations required under
this Agreement or any other Acquisition Financing Document shall be made, in
accordance with GAAP.

     SECTION 1.03 Interpretation. In the Acquisition Financing Documents, except
                  --------------
to the extent the context otherwise requires: (i) any reference to an Article, a
Section, a Schedule or an Exhibit is a reference to an article or section
thereof, or a schedule or an exhibit thereto, respectively, and to a subsection
or a clause is, unless otherwise stated, a reference to a subsection or a clause
of the Section or subsection in which the reference appears; (ii) the words
"hereof," "herein," "hereto," "hereunder" and the like mean and refer to this
Agreement or any other Acquisition Financing Document as a whole and not merely
to the specific Article, Section, subsection, paragraph or clause in which the
respective word appears; (iii) the meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined; (iv) the
words "including," "includes" and "include" shall be deemed to be followed by
the words "without limitation;" (v) references to agreements and other
contractual instruments shall be deemed to include all subsequent amendments and
other modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of the Acquisition Financing
Documents; (vi) references to statutes or regulations are to be construed as
including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation referred to; (vii) any table of contents,
captions and headings are for convenience of reference only and shall not affect
the construction of this Agreement or any other Acquisition Financing Documents;
and (viii) in the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words "to"
and "until" each mean "to but excluding"; and the word "through" means "to and
including."

                                       7

<PAGE>

                                                          CONFIDENTIAL TREATMENT

                                  ARTICLE II.
                                   THE LOANS

     SECTION 2.01 The Financed Acquisition Payments.
                  ---------------------------------

         (a) Portion of Acquisition Payments Financed. During the Commitment
             ----------------------------------------
Term, and so long as no Default or Event of Default has occurred and is
continuing, the Lender agrees, on the terms and conditions hereinafter set
forth, to (a) finance on each Acquisition Payment Due Date so much of the
Acquisition Installment Payment due on such date as Purchaser may elect, not to
exceed sixty percent (60%) thereof (provided that, notwithstanding the
foregoing, (1) the first Acquisition Loan made on the Closing Date shall be in
an amount of up to [CONFIDENTIAL TREATMENT REQUESTED] and (2) Purchaser may
elect to finance up to eighty percent (80%) of the Acquisition Installment
Payment due on September 28, 2001), and (b) finance on each date that a
Supplemental Acquisition Payment is due to Lender so much of such Supplemental
Acquisition Payment as Purchaser may elect, not to exceed one hundred percent
(100%) of the Supplemental Acquisition Payment due on such date. The portion of
any Acquisition Installment Payment or of any Supplemental Acquisition Payment
which Purchaser seeks to finance as provided above is referred to herein as an
"Acquisition Loan" and the date upon which either the Acquisition Installment
Payment or the Supplemental Acquisition Payment is due under the Purchase
Agreement shall be the date that the Acquisition Loan is deemed to have been
made, if all conditions to the making of such loan have been satisfied.

         (b) Procedure for Acquisition Loans. Before the applicable Acquisition
             -------------------------------
Payment Due Date and/or the date when any Supplemental Acquisition Payment is
due, Purchaser shall provide to Lender, a request in substantially the form of
Exhibit B attached hereto (the "Request") confirming in writing the dollar
---------
amount of the requested Acquisition Loan (i.e., up to 60% of the applicable
Acquisition Installment Payment [provided that (1) the initial Acquisition Loan
shall be in an amount of up to [CONFIDENTIAL TREATMENT REQUESTED] and (2) up to
eighty percent (80%) of the Acquisition Installment Payment due on September 28,
2001, may be financed] and/or up to 100% of the applicable Supplemental
Acquisition Payment due on such date) which Request shall contain a
certification signed by a Responsible Officer of Purchaser stating that no Event
of Default has occurred and is continuing, that the amount of the Acquisition
Loan requested does not exceed the amount the Purchaser is permitted to finance,
and that the representations and warranties in Section 4.02 of this Agreement
are and remain true and correct.

         (c) Evidence Acquisition Loans. The Acquisition Loans shall be
             --------------------------
evidenced by one or more loan accounts maintained by Lender. The loan accounts
maintained by the Lender shall be rebuttable presumptive evidence of the amount
of the Acquisition Loans for which Purchaser is indebted to Lender and the
interest and payments thereon. Any failure so to record or any error in doing so
shall not, however, limit or otherwise affect the obligation of the Purchaser
hereunder to pay any amount owing with respect to the Acquisition Loans or any
other indebtedness relating thereto. At the request of the Lender, the Purchaser
shall also execute and deliver to the Lender, as evidence of any given
Acquisition Loan, a promissory note in substantially the form of Exhibit C
                                                                 ---------
attached hereto (an "Acquisition Note") as additional evidence of the applicable
Acquisition Loan. The principal amount of any such Acquisition Note shall be

                                       8

<PAGE>

                                                          CONFIDENTIAL TREATMENT

the amount stated in the applicable Request (i.e., not more than 60% of the
Acquisition Installment Payment due on the particular Acquisition Payment Due
Date to Lender [provided that up to 80% of the Acquisition Installment Payment
due on September 28, 2001, may be financed] and not more than 100% of any
applicable Supplemental Acquisition Payment). Each Acquisition Note shall be
dated as of the relevant Acquisition Payment Due Date with regard to the portion
of any Acquisition Installment Payment that is financed, and shall be dated as
of the date that the Supplemental Acquisition Payment is due under the terms of
the Purchase Agreement with regard to the portion of any Supplemental
Acquisition Payment that is financed.

         (d) Termination of Obligation to Make Acquisition Loans. The obligation
             ---------------------------------------------------
of Lender to finance Acquisition Installment Payments through Acquisition Loans
as set forth herein shall terminate upon the first to occur of (i) the close of
business of the last day of the Commitment Term, (ii) the occurrence of an Event
of Default if the cure period therefor (if any) has passed without a cure having
been effected, and (iii) the occurrence of an Event of Default described in
Sections 6.01(h) or (i).

         (e) Maturity Date of Acquisition Loans. Absent acceleration after an
             ----------------------------------
Event of Default, all Acquisition Loans (whether or not evidenced by an
Acquisition Note) shall mature and become fully due and payable on the date (the
"Acquisition Loan Maturity Date") that is the seventh (7th) anniversary of the
Closing Date, regardless of the date upon which the Acquisition Loan is made.

         (f) Quarterly Repayment of Principal and Interest. Payments under the
             ---------------------------------------------
Acquisition Loans shall be due quarterly on the last Business Day of each
calendar quarter commencing with June 29, 2001. From and after the Closing Date
until the quarter ending on the third (3rd) anniversary of the Closing Date
payments on account of all Acquisition Loans then outstanding shall be for
accrued and unpaid interest only, in arrears at the applicable rate set forth in
Section 2.03. From the third (3rd) anniversary of the Closing Date, until (but
not including) the Acquisition Loan Maturity Date, the quarterly payments shall
be of accrued and unpaid interest together with equal principal installments
based on a seven (7) year, straight-line amortization schedule. Then, on the
Acquisition Loan Maturity Date there shall be a "balloon" payment (the "Balloon
Payment") due and payable to Lender in an amount sufficient to pay off all
unpaid principal, together with all accrued and unpaid interest at the
applicable rate, and together with any other sums that may be due and payable
hereunder or under any of the other Acquisition Financing Documents.

         (g) Adjustments to Acquisition Loans and Payments Thereunder. The
             --------------------------------------------------------
principal amount of each Acquisition Loan made by Lender to finance a portion of
the purchase price installments under the Diastat Purchase Agreement is subject
to retroactive reduction under the circumstances set forth in Section 4.01(d) of
the Diastat Purchase Agreement. If the principal amount of a particular
Acquisition Loan is reduced in this manner, interest shall be recalculated based
on the new principal amount and refunded to Purchaser unless an Event of Default
has occurred and Lender chooses to accelerate the Obligations, in which case the
"rebate" of interest shall be applied to the Obligations of Purchaser to Lender.

                                       9

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     SECTION 2.02 Credit Line.
                  -----------

         (a) Amount of Loan. During the Credit Line Commitment Term, Lender
             --------------
shall be committed to make loans or advances in integer multiples of not less
than $1,000,000 (each an "Advance") pursuant to a line of credit (the "Credit
Line") up to an aggregate amount for principal of all Advances not to exceed Ten
Million and no/100s US Dollars (US $10,000,000) pursuant to the procedures set
forth below. Sums repaid or pre-paid on the Credit Line may not be reborrowed.

         (b) Line of Credit Note. The Credit Line shall be evidenced by one or
             -------------------
more loan accounts maintained by Lender. The loan accounts maintained by the
Lender shall be rebuttable presumptive evidence of the amount of the amount of
the Credit Line for which Purchaser is indebted to Lender and the interest and
payments thereon. Any failure so to record or any error in doing so shall not,
however, limit or otherwise affect the obligation of the Purchaser hereunder to
pay any amount owing with respect to the Credit Line or any other indebtedness
relating thereto. As additional evidence of the Credit Line, the Purchaser shall
also execute and deliver to the Lender a promissory note in substantially the
form of Exhibit E attached hereto (the "Line of Credit Note") in the original
        ---------
principal amount of $10,000,000 against which Lender shall make Advances.

         (c) Procedures for Requesting Advances. From and after the date that
             ----------------------------------
all conditions precedent set forth in Section 3.01 have been satisfied, the
procedure for Purchaser to request Advances under the Credit Line shall be as
follows:

             (i)   Not fewer than five (5) days before the date that Purchaser
     desires to have an Advance funded, Purchaser shall provide notice to Lender
     of its desire for an Advance pursuant to a "Notice of Borrowing" in the
     form of Exhibit F attached hereto, which notice shall specify the proposed
             ---------
     date (the "Proposed Funding Date") upon which Purchaser seeks to have the
     funding of the Advance occur. Upon such submission of a Notice of Borrowing
     to Lender, the request for the Advance shall be irrevocable.

             (ii)  Provided that the Notice of Borrowing is timely submitted,
     the requested Advance together with all previous Advances made does not
     exceed $10,000,000 and the Proposed Funding Date is on or before the last
     day of the Credit Line Commitment Term, Lender shall fund the Advance by
     wire transfer in the amount of the requested Advance (which must be in
     integer multiples of $1,000,000) to Purchaser's Bank Account on or before
     the Proposed Funding Date. The date that that Advance is funded and
     deposited in the Purchaser's Bank Account shall be referred to herein as
     the "Funding Date."

             (iii) So long as an Advance is funded by wire transfer into
     Purchaser's Bank Account, Lender shall have no obligation to investigate
     whether the request for an Advance nor the execution and delivery of the
     Notice of Borrowing was duly executed or executed by a duly authorized
     representative of Purchaser.

                                       10

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     It shall be deemed additional conditions precedent to the making of each
Advance that prior to the Funding Date of the requested Advance, the foregoing
procedures have been strictly followed, unless waived in writing by Lender, that
the provisos in subsection (ii) above have been satisfied.

         (d) Maturity Date of Credit Line. Absent acceleration after an Event of
             ----------------------------
Default, the Credit Line shall mature and all sums owing thereunder shall become
fully due and payable on the date (the "Credit Line Maturity Date") that is the
sixth (6th) anniversary of the Closing Date.

         (e) Payments. Principal owing under the Credit Line and the interest
             --------
that accrues thereon at the applicable rate set forth in Section 2.03, shall be
payable quarterly as follows:

             (i)  From the Closing Date until the second (2nd) anniversary of
     the Closing Date, payments shall be only of the interest that has accrued
     on the outstanding principal of the Credit Line and shall be due and
     payable to Lender on the last day of each calendar quarter (each a "Credit
     Line Payment Date") commencing with June 30, 2001, which is the first
     Credit Line Payment Date.

             (ii) Commencing with the second (2nd) anniversary of the Closing
     Date through the Credit Line Maturity Date, payments shall continue to be
     due on the last day of each calendar quarter (each of which is also
     referred to as a "Credit Line Payment Date"), but such quarterly payments
     shall consist of both (A) accrued and unpaid interest outstanding as of
     each such Credit Line Payment Date, together with (B) a payment of
     principal calculated by fully amortizing on a straight line basis the
     principal outstanding on the second (2nd) anniversary of the Closing Date
     over the next four year period such that Purchaser would make 16 equal
     principal payments on the last day of each quarter with the last payment of
     principal (and accrued and unpaid interest) falling due on the Credit Line
     Maturity Date.

     SECTION 2.03 Interest.
                  --------

         (a) Contract Rate. Subject to Section 2.03(b) below, and absent
             -------------
acceleration following an Event of Default, interest shall accrue at the
Contract Rate on (i) the unpaid principal amount of any Acquisition Loan
(whether or not evidenced by an Acquisition Note) from the date the same is made
until the Acquisition Loan Maturity Date, and (ii) the unpaid principal amount
of each Advance under the Credit Line from the Funding Date of such Advance
until the Credit Line Maturity Date.

         (b) Default Rate of Interest. In the event that any amount of
             ------------------------
principal, interest, or any other amount payable hereunder or under any of the
Acquisition Financing Documents, is not paid in full when due (whether on the
stated maturity date thereof, by acceleration or otherwise), Purchaser shall pay
interest on such unpaid principal or other amount, from the date such amount
becomes due until the date such amount is paid in full, payable on demand, at a
rate per annum equal at all times to the lesser of (i) the Contract Rate plus
5%, and (ii) the highest lawful rate.

                                       11

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         (c) Computations. All computations of interest hereunder shall be made
             ------------
on the basis of a year of 365 or 366 days, as the case may be, for the actual
number of days occurring in the period for which any such interest is payable.

         (d) Highest Lawful Rate. Anything herein to the contrary
             -------------------
notwithstanding, if during any period for which interest is computed hereunder,
the applicable interest rate, together with all fees, charges and other payments
which are treated as interest under applicable law, as provided for herein or in
any other Acquisition Financing Document, would exceed the maximum rate of
interest which may be charged, contracted for, reserved, received or collected
by the Lender in connection with this Agreement under applicable law (the
"Maximum Rate"), the Purchaser shall not be obligated to pay, and the Lender
shall not be entitled to charge, collect, receive, reserve or take, interest in
excess of the Maximum Rate, and during any such period the interest payable
hereunder shall be limited to the Maximum Rate.

     SECTION 2.04 General Provisions Regarding Payments.
                  -------------------------------------

         (a) Unconditional Obligation. The Purchaser shall make each payment
             ------------------------
under this Agreement, the Acquisition Notes (if any), the Line of Credit Note,
and each payment on account of the purchase price of the Purchased Assets under
the Purchase Agreement, unconditionally in full without set-off, counterclaim
or, to the extent permitted by applicable law, other defense. Each payment shall
be made not later than 11:00 a.m. (San Diego time) on the day when due to the
Lender in Dollars and in same day funds, or such other funds as shall be
separately agreed upon by the Purchaser and the Lender, in accordance with the
Lender's payment instructions.

         (b) Extension. Whenever any payment hereunder shall be stated to be
             ---------
due, or whenever any interest payment date or any other date specified hereunder
would otherwise occur, on a day other than a Business Day, then, except as
otherwise provided herein, such payment shall be made, and such interest payment
date or other date shall occur, on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest.

     SECTION 2.05 Prepayments of the Loans. The Purchaser may pre-pay all or any
                  ------------------------
portion of any of the Acquisition Loans and/or the Credit Line without penalty
or premium. If Purchaser elects to make such a prepayment, then together with
such prepayment the Purchaser shall also pay to Lender such interest as may have
accrued on such principal through the date of such prepayment at the applicable
rate of interest. Any partial prepayment shall be applied to the installments of
principal hereof in reverse order of maturity. Prepayments of Acquisition Loans
and amounts owing under the Credit Line may not be reborrowed.

     SECTION 2.06 Waiver of Presentment, Etc. Unless otherwise expressly
                  --------------------------
provided herein, the Purchaser waives presentment, and notice of demand or
dishonor and protest as to any instrument, notice of intent to accelerate the
payment Obligations and notice of acceleration of the payment Obligations, as
well as any and all other notices to which it might otherwise be entitled. No
notice to or demand on the Purchaser which the Lender may elect to give shall
entitle the Purchaser to any or further notice or demand in the same, similar or
other circumstances.

                                       12

<PAGE>

                                                          CONFIDENTIAL TREATMENT

                                  ARTICLE III.
                              CONDITIONS PRECEDENT

     SECTION 3.01 Conditions Precedent. Lender shall have no obligation to make
                  --------------------
the first Acquisition Loan nor to fund the Credit Line until the date (the
"Closing Date") when each of the following conditions precedent has been
satisfied:

         (a) Acquisition Financing Documents. The Lender shall have received
             -------------------------------
duly executed originals or counterpart originals of the following Acquisition
Financing Documents:

             (i)   this Agreement;

             (ii)  the first Request specifying the amount of the requested
     Acquisition Loan;

             (iii) the Line of Credit Note in the form of Exhibit E;
                                                          ---------

             (iv)  the Security Agreement in the form of Exhibit A;
                                                         ---------

             (v) a Patent and Trademark Security Agreement in the form of
     Exhibit D attached hereto; and
     ---------

             (vi) any other Collateral Documents (including all UCC-1 Financing
     Statements and other documents necessary to perfect Lender's Liens).

     SECTION 3.02 Diastat Purchase Agreement. Lender shall have received a duly
                  --------------------------
executed original or counterpart original of the Diastat Purchase Agreement and
all conditions precedent to the effectiveness of the Diastat Purchase Agreement
shall have been satisfied or waived in writing by the "Seller" thereunder.

     SECTION 3.03 Documents and Actions Relating to Collateral. The Lender shall
                  --------------------------------------------
have received, in form and substance satisfactory to it, results of such Lien
searches as it shall reasonably request, and evidence that all filings,
registrations and recordings have been made in the appropriate governmental
offices, and all other action has been taken, which shall be necessary to
create, in favor of the Lender, a perfected first priority Lien on the
Collateral.

     SECTION 3.04 Additional Closing Documents. The Lender shall have received
                  ----------------------------
the following, in form and substance satisfactory to it:

             (i) a copy of the Disclosure Letter, if any, which shall be in form
     and substance satisfactory to Lender;

             (ii) an opinion of counsel to the Purchaser as to the
     enforceability of this Agreement and the other Acquisition Financing
     Documents (exclusive of the Purchase Agreement which shall be the subject
     of a different opinion);

             (iii) evidence that all (A) authorizations or approvals of any
     governmental agency or authority, and (B) approvals or consents of any
     other Person,

                                       13

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     required in connection with the execution, delivery and performance of the
     Acquisition Financing Documents shall have been obtained; and

             (iv) a certificate of the Secretary or other appropriate officer of
     the Purchaser, dated the Closing Date, certifying (A) copies of the
     articles or certificate of incorporation, and bylaws, of the Purchaser and
     the resolutions and other actions taken or adopted by the Purchaser
     authorizing the execution, delivery and performance of the Acquisition
     Financing Documents, and (B) the incumbency, authority and signatures of
     each officer of the Purchaser authorized to execute and deliver the
     Acquisition Financing Documents and act with respect thereto.

     SECTION 3.05 Conditions Precedent to All Acquisition Loans Following the
                  -----------------------------------------------------------
Closing Date. The obligation of the Lender to make any Acquisition Loan after
------------
the first Acquisition Loan is made on the Closing Date shall be subject to the
satisfaction of each of the following conditions precedent:

         (a) Additional Acquisition Financing Documents. The Lender shall have
             ------------------------------------------
received a duly executed original or counterpart original of the Mysoline
Purchase Agreement and all conditions precedent to the effectiveness thereof
shall have been satisfied or waived in writing by the "Seller" thereunder.

         (b) No Default. No Event of Default shall have occurred hereunder.
             ----------

         (c) Documentation. The Purchaser shall have submitted the appropriate
             -------------
Request in the form of Exhibit B as provided in Section 2.01(b) and, if
                       ---------
requested by Lender, a duly executed Acquisition Note substantially in the form
of Exhibit C attached hereto; provided that the condition of executing and
   ---------
delivering an Acquisition Note shall become a condition subsequent and subject
to satisfaction within 10 days after notice from Lender made in the event
Purchaser fails to timely deliver the Acquisition Note, provided that a written
Request was timely submitted by Purchaser.

         (d) Representations and Warranties; No Default. On the date of such
             ------------------------------------------
Acquisition Loan, both before and after giving effect thereto and to the
application of proceeds therefrom: (i) the representations and warranties
contained in Section 4.02 shall be true, correct and complete on and as of the
date of such Acquisition Loan; and (ii) no Event of Default shall have occurred
and be continuing or shall result from the making of such Acquisition Loan . For
purposes of this Section 3.02(d), clause (i) shall take into account, the
Disclosure Letter, any amendments to the Schedules attached to any of the
Acquisition Financing Documents and other disclosures made in writing by the
Purchaser to the Lender after the Closing Date and approved in writing by the
Lender. The acceptance of any Acquisition Loan by Purchaser, and/or the delivery
of any Request following the Closing Date shall each be deemed a certification
to the Lender that on and as of the date of such Acquisition Loan the statements
in this Section 3.02(d) are true.

                                       14

<PAGE>

                                                          CONFIDENTIAL TREATMENT

                                  ARTICLE IV.
                         REPRESENTATIONS AND WARRANTIES

     SECTION 4.01 Representations and Warranties of the Purchaser. The Purchaser
                  -----------------------------------------------
represents and warrants to the Lender that, except as set forth in the
Disclosure Letter:

         (a) Organization and Powers. The Purchaser is a corporation duly
             -----------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all requisite power and authority to
execute, deliver and perform its obligations under the Acquisition Financing
Documents. Purchaser is qualified to do business and is in good standing in each
jurisdiction in which the failure to so qualify or be in good standing would
result in a Material Adverse Effect and has all requisite power and authority to
own its assets and carry on its business.

         (b) Authorization; No Conflict. The execution, delivery and performance
             --------------------------
by the Purchaser of each of the Acquisition Financing Documents have been duly
authorized by all necessary corporate action of the Purchaser and do not and
will not (i) contravene the terms of the articles or certificate of
incorporation, or bylaws, of the Purchaser, or result in a breach of or
constitute a default under any material lease, instrument, contract or other
agreement to which the Purchaser is a party or by which it or its properties may
be bound or affected; (ii) violate any provision of any law, rule, regulation,
order, judgment, decree or the like binding on or affecting the Purchaser; or
(iii) except as contemplated by this Agreement, result in, or require, the
creation or imposition of any Lien upon or with respect to any of the
Collateral.

         (c) Binding Obligation. The Acquisition Financing Documents constitute,
             ------------------
or when delivered under this Agreement will constitute, legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or
other equitable remedies.

         (d) Consents. No authorization, consent, approval, license, exemption
             --------
of, or filing or registration with, any governmental agency or authority, or
approval or consent of any other Person, is required for (a) the due execution,
delivery or performance by the Purchaser of any of the Acquisition Financing
Documents, nor for (ii) commercialization or exploitation of the Products.

         (e) No Defaults. Neither the Purchaser nor any of its Subsidiaries is
             -----------
in default under any material contract, lease, agreement, judgment, decree or
order to which it is a party or by which it or its properties may be bound.

         (f) Litigation. There are no actions, suits or proceedings pending or,
             ----------
to the best of the Purchaser's knowledge, threatened against or affecting the
Purchaser or any of its Subsidiaries or the properties of the Purchaser or any
of its Subsidiaries before any governmental agency or authority or arbitrator
which if determined adversely to the Purchaser or any such Subsidiary would
result in a Material Adverse Effect.

                                       15

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         (g) Liabilities. Neither the Purchaser nor any of its Subsidiaries has
             -----------
any material Indebtedness or liabilities, fixed or contingent in excess of
$500,000.

         (h) Other Rights. Purchaser possesses all material permits, franchises,
             ------------
and governmental licenses, free from burdensome restrictions, that are necessary
for the ownership, maintenance and operation of its business and Purchaser is
not in material violation of any of the foregoing.

         (i) Insurance. The properties of the Purchaser and its Subsidiaries are
             ---------
insured, with financially sound and reputable insurance companies, in such
amounts, with such deductibles and covering such risks as is customarily carried
by companies engaged in similar businesses and owning similar properties in the
localities where the Purchaser or such Subsidiary operates.

         (j) Liens. There is no Lien upon or with respect to any of the
             -----
Collateral, except for Permitted Liens.

         (k) Subsidiaries. Purchaser has no Subsidiaries. Except as disclosed in
             ------------
writing, on the date of this Agreement the Purchaser has no material equity
interest in any Person.

         (l) Disclosure. None of the representations or warranties made by the
             ----------
Purchaser in the Acquisition Financing Documents (including the Disclosure
Letter) as of the date of such representations and warranties, and none of the
statements contained in any other information with respect to the Purchaser and
its Subsidiaries, including each exhibit or report, furnished by or on behalf of
the Purchaser to the Lender in connection with the Acquisition Financing
Documents, contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading.

     SECTION 4.02 Representations and Warranties Dated Down for Subsequent
                  --------------------------------------------------------
Acquisition Loans. The Purchaser represents and warrants to the Lender as of the
-----------------
date of each Acquisition Loan made after the first such loan on the Closing Date
that, except as set forth in the Disclosure Letter, and subject to any
amendments to the Schedules attached to any of the Acquisition Financing
Documents and other disclosures made in writing by the Purchaser to the Lender
after the Closing Date and approved in writing by the Lender:

         (a) Organization and Powers. The Purchaser is a corporation duly
             -----------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all requisite power and authority to
execute, deliver and perform its obligations under the Acquisition Financing
Documents. Purchaser is qualified to do business and is in good standing in each
jurisdiction in which the failure so to qualify or be in good standing would
result in a Material Adverse Effect and has all requisite power and authority to
own its assets and carry on its business.

         (b) Authorization; No Conflict. The execution, delivery and performance
             --------------------------
by the Purchaser of the Acquisition Financing Documents have been duly
authorized by all necessary corporate action of the Purchaser and do not and
will not (i) contravene the terms of

                                       16

<PAGE>

                                                          CONFIDENTIAL TREATMENT

the articles or certificate of incorporation, or bylaws, of the Purchaser; (ii)
result in a breach of or constitute a default under any material lease,
instrument, contract or other agreement to which the Purchaser is a party or by
which it or its properties may be bound or affected, except to the extent that
the same does not have a Material Adverse Effect on Purchaser; (iii) violate any
provision of any law, rule, regulation, order, judgment, decree or the like
binding on or affecting the Purchaser, except to the extent that the same does
not have a Material Adverse Effect on Purchaser; or (iv) except as contemplated
by this Agreement or the Collateral Documents, result in, or require, the
creation or imposition of any Lien upon or with respect to any of the
Collateral.

         (c) Binding Obligation. The Acquisition Financing Documents constitute,
             ------------------
or when delivered under this Agreement will constitute, legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or
other equitable remedies.

         (d) Consents. No authorization, consent, approval, license, exemption
             --------
of, or filing or registration with, any governmental agency or authority, or
approval or consent of any other Person, is required for (a) the due execution,
delivery or performance by the Purchaser of any of the Acquisition Financing
Documents, nor for (ii) commercialization or exploitation of the Products,
except to the extent that any of the same would not have a Material Adverse
Effect on Purchaser.

         (e) Indebtedness. Purchaser has no Indebtedness other than Indebtedness
             ------------
permitted under Section 5.05(a).

         (f) Other Rights. Each of the Purchaser and its Subsidiaries possesses
             ------------
all material permits, franchises, and licenses from governmental agencies or
authorities, free from burdensome restrictions, that are necessary for the
ownership, maintenance and operation of its business, except to the extent the
same would not have a Material Adverse Effect on Purchaser, and neither the
Purchaser nor any such Subsidiary is in material violation of any of the
foregoing.

         (g) Insurance. The properties of the Purchaser and its Subsidiaries are
             ---------
insured, with financially sound and reputable insurance companies, in such
amounts, with such deductibles and covering such risks as is customarily carried
by companies engaged in similar businesses and owning similar properties in the
localities where the Purchaser or such Subsidiary operates.

         (h) Liens. There is no Lien upon or with respect to any of the
             -----
Collateral, except for Permitted Liens.

         (i) Subsidiaries. Purchaser has no Subsidiaries other than those that
             ------------
have been disclosed in writing to Lender and it (or they) have no material
equity interest in any Person.

                                       17

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         (j) Disclosure. None of the representations or warranties made by the
             ----------
Purchaser in the Acquisition Financing Documents (including the Disclosure
Letter, but excluding the Purchase Agreement) as of the date of such
representations and warranties, and none of the statements contained in any
other information with respect to the Purchaser and its Subsidiaries, including
each exhibit or report, furnished by or on behalf of the Purchaser to the Lender
in connection with the Acquisition Financing Documents (including the Disclosure
Letter, but excluding the Purchase Agreement), contains any untrue statement of
a material fact or omits any material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they are made, not misleading.

     SECTION 4.03 Representations and Warranties of the Lender. The Lender
                  --------------------------------------------
represents and warrants to the Purchaser that the Lender: (i) will acquire the
Acquisition Notes (if any) or its own account for investment and not with a view
to any resale or other distribution of the Acquisition Notes in a transaction
constituting a public offering or otherwise requiring registration under the
U.S. Securities Act of 1933, as amended (the "Securities Act") or in a
transaction that would result in noncompliance with applicable state securities
laws, (ii) has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and the risks of its acquisition of
the Acquisition Notes and credit extensions to the Purchaser, (iii) is an
accredited investor as such term is defined in Rule 501 of Regulation D under
the Securities Act, and (iv) understands that the Acquisition Notes have not
been, and will not be, registered under the Securities Act or any state
securities laws.

                                   ARTICLE V.
                                   COVENANTS

     SECTION 5.01 Books and Records. The Purchaser shall maintain, at all times,
                  -----------------
correct and complete books, records and accounts in which complete, correct and
timely entries are made of its transactions in accordance with GAAP applied
consistently with the audited financial statements required to be delivered
pursuant to Section 5.02. The Purchaser shall, by means of appropriate entries,
reflect in such accounts and in all financial statements proper liabilities and
reserves for all taxes and proper provision for depreciation and amortization of
property and bad debts, all in accordance with GAAP. The Purchaser shall
maintain at all times books and records pertaining to its assets and to the
Collateral in such detail, form and scope as Lender shall reasonably request in
writing, including, but not limited to, records of all dealings affecting the
Products and/or the Collateral.

     SECTION 5.02 Reporting Covenants. So long as any of the Obligations shall
                  -------------------
remain unpaid or the Lender shall have any commitment to make additional
Acquisition Loans or to make additional Advances under the Credit Line, the
Purchaser agrees that:

         (a) Financial Statements and Other Reports. The Purchaser shall
             --------------------------------------
promptly furnish to Lender, all such financial information as Lender shall
reasonably request. Without limiting the foregoing:

             (i) Monthly Reports. On a monthly basis, and until the first to
                 ---------------
occur of the date that Purchaser has consummated an initial public offering of
its securities or paid off the Obligations in full, the Purchaser will furnish
to Lender by the 30th calendar day of each

                                       18

<PAGE>

                                                          CONFIDENTIAL TREATMENT

month for the previous month ending, consolidated unaudited balance sheets of
the Purchaser and its consolidated Subsidiaries as at the end of such month, and
consolidated unaudited income statements and cash flow statements for the
Purchaser and its consolidated Subsidiaries for such month, all in reasonable
detail, fairly presenting the financial position and results of operations of
the Purchaser and its consolidated Subsidiaries as at the date thereof and for
such periods, and prepared in accordance with GAAP applied consistently with the
audited financial statements required to be delivered pursuant to Section
5.02(a)(iii).

             (ii) Quarterly Reports. As soon as available, but in any event not
                  -----------------
later than thirty (30) days after the end of each fiscal quarter, the Purchaser
will furnish to Lender (both before and after an initial public offering is
consummated by Purchaser and so long as any Obligation remains outstanding)
consolidated and consolidating unaudited balance sheets of the Purchaser and its
consolidated Subsidiaries as at the end of such quarter, and consolidated and
consolidating unaudited income statements and cash flow statements for the
Purchaser and its consolidated Subsidiaries for such quarter and for the period
from the beginning of the Fiscal Year to the end of such quarter, all in
reasonable detail, fairly presenting the financial position and results of
operations of the Purchaser and its consolidated Subsidiaries as at the date
thereof and for such periods, and prepared in accordance with GAAP applied
consistently with the audited financial statements required to be delivered
pursuant to Section 5.02(a)(iii). The Purchaser shall certify by a certificate
signed by its Responsible Officer that all such statements have been prepared in
accordance with GAAP and present fairly the Purchaser's financial position as at
the dates thereof and its results of operations for the periods then ended,
subject to normal year-end adjustments.

             (iii) Annual Reports. As soon as available, but in any event not
                   --------------
later than ninety (90) days after the close of each Fiscal Year, the Purchaser
will furnish to Lender (both before and after an initial public offering is
consummated by Purchaser and so long as any Obligation remains outstanding)
consolidated audited balance sheets, and income statements, cash flow statements
and changes in stockholders' equity for the Purchaser and its Subsidiaries for
such Fiscal Year, and the accompanying notes thereto, setting forth in each case
in comparative form figures for the previous Fiscal Year, all in reasonable
detail, fairly presenting the financial position and the results of operations
of the Purchaser and its consolidated Subsidiaries as at the date thereof and
for the Fiscal Year then ended, and prepared in accordance with GAAP. Such
statements shall be examined in accordance with generally accepted auditing
standards by and, accompanied by a report thereon of independent certified
public accountants of nationally recognized standing selected by the Purchaser.

             (iv) Other Reports. Commencing with the quarter ending on June 30,
                  -------------
2002, together with the quarterly reports delivered pursuant to Section
5.02(a)(ii), the Purchaser will furnish to Lender (both before and after an
initial public offering is consummated by Purchaser and so long as any
Obligation remains outstanding) a certificate (the "Covenant Compliance
Certificate") of the Responsible Officer of the Purchaser setting forth in
reasonable detail the calculations required under Section 5.04 to determine
whether or not as of the test dates and for the periods set forth in Section
5.04, Purchaser is or is not in compliance with each of the financial covenants
set forth in Sections 5.04(a), 5.04(b) and 5.04(c).

                                       19

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         (b) Annual Forecasts. No sooner than sixty (60) days and not less than
             ----------------
thirty (30) days prior to the beginning of each Fiscal Year, Purchaser shall
deliver to Lender annual forecasts (to include forecasted consolidated and
consolidating balance sheets, income statements and cash flow statements) for
the Purchaser and its Subsidiaries as at the end of and for each quarter of such
Fiscal Year.

         (c) Additional Information. The Purchaser will furnish to the Lender:
             ----------------------

             (i) promptly after the Purchaser has knowledge or becomes aware
     thereof, notice of the occurrence of any Default;

             (ii) prompt written notice of all actions, suits and proceedings
     before any governmental agency or authority or arbitrator pending, or to
     the best of the Purchaser's knowledge, threatened against or affecting the
     Purchaser or any of its Subsidiaries, including any actions, suits, claims,
     notices of violation, hearings, investigations or proceedings pending, or
     to the best of the Purchaser's knowledge, threatened against or affecting
     the Purchaser or any of its Subsidiaries, or with respect to the ownership,
     use, maintenance and operation of their respective properties, or with
     respect to the Products, or relating to FDA or other regulatory matters or
     relating to Environmental Laws or Hazardous Substances, which (A) involve
     an aggregate liability of $100,000 or more, or (B) otherwise could
     reasonably be expected to have a Material Adverse Effect;

             (iii) prompt written notice of any other condition or event which
     has resulted, or that could reasonably be expected to result, in a Material
     Adverse Effect;

             (iv) promptly after the same are released, copies of all press
     releases;

             (v) promptly after the giving, sending or filing thereof, copies of
     all reports and financial information, if any, which the Purchaser or any
     of its Subsidiaries sends to the holders of its respective capital stock or
     other securities, and the holders, if any, of any other Indebtedness, and
     of all reports or filings, if any, by the Purchaser or any of its
     Subsidiaries with the Securities and Exchange Commission or any national
     securities exchange; and

             (vi) such other information respecting the operations, properties,
     business or condition (financial or otherwise) of the Purchaser or its
     Subsidiaries (including with respect to the Collateral) as the Lender may
     from time to time reasonably request.

     Each notice pursuant to clauses (i) through (iii) of this subsection (c)
shall be accompanied by a written statement by a Responsible Officer of the
Purchaser setting forth details of the occurrence referred to therein.

     SECTION 5.03 Affirmative Covenants. So long as any of the Obligations shall
                  ---------------------
remain unpaid or the Lender shall have any commitment to make an Acquisition
Loan or to make additional Advances under the Credit Line, the Purchaser agrees
that:

                                       20

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         (a) Preservation of Existence, Etc.
             ------------------------------

             (i) The Purchaser will, and will cause each of its Subsidiaries to,
     maintain and preserve its corporate existence.

             (ii) The Purchaser will, and will cause each of its Subsidiaries
     to, maintain and preserve its rights to transact business and all other
     rights, franchises, permits, licenses and privileges necessary in the
     normal course of its business and operations and the ownership of its
     properties, except in connection with any transactions expressly permitted
     by this Agreement, or where the failure to so maintain or preserve such
     rights, franchises, permits, licenses and privileges would not result in a
     Material Adverse Effect. Notwithstanding the foregoing, this covenant will
     not be breached by the fact that the Purchaser has not yet obtained a
     license to sell pharmaceutical products in California (or any jurisdiction
     where the same may be necessary or desirable) so long as Purchaser uses its
     best efforts to diligently obtain such license or licenses, and the lack of
     the same does not cause a Material Adverse Effect.

         (b) Payment of Taxes, Etc. The Purchaser will, and will cause each of
             ---------------------
its Subsidiaries to, pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it or upon its properties or assets
prior to the date on which penalties attach thereto, and all lawful claims for
labor, materials and supplies which, if unpaid, might become a Lien upon any
properties or assets of the Purchaser or any Subsidiary, except to the extent
such taxes, fees, assessments or governmental charges or levies, or such claims,
are being contested in good faith by appropriate proceedings and are adequately
reserved against in accordance with GAAP.

         (c) Maintenance of Insurance. The Purchaser will, and will cause each
             ------------------------
of its Subsidiaries to, carry and maintain in full force and effect, at its own
expense and with financially sound and reputable insurance companies, insurance
in such amounts, with such deductibles and covering such risks as is customarily
carried by companies engaged in the same or similar businesses and owning
similar properties in the localities where the Purchaser or such Subsidiary
operates. Insurance on the Collateral shall name Lender as additional insured
and as loss payee. Upon the request of Lender, Purchaser shall furnish Lender
from time to time with full information as to the insurance carried by it and,
if so requested, copies of all such insurance policies. Purchaser shall also
furnish to Lender from time to time upon the request of Lender a certificate of
Purchaser's insurance broker or other insurance specialist stating that all
premiums then due on the policies relating to Purchaser's insurance have been
paid and that such policies are in full force and effect. All insurance policies
required under this subsection (c) shall provide that they shall not be
terminated or cancelled nor shall any such policy be materially changed without
at least 30 days' prior written notice to Purchaser and Lender.

         (d) Keeping of Records and Books of Account. The Purchaser will, and
             ---------------------------------------
will cause each of its Subsidiaries to, keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP.

         (e) Inspection Rights. The Purchaser will at any reasonable time and
             -----------------
from time to time upon reasonable notice and subject to the Purchaser's
reasonable security measures,

                                       21

<PAGE>

                                                          CONFIDENTIAL TREATMENT

permit the Lender or any of its agents or representatives to visit and inspect
any of the properties of the Purchaser and its Subsidiaries and to examine the
records and books of account of the Purchaser and its Subsidiaries, and to
discuss the business affairs, finances and accounts of the Purchaser and any
such Subsidiary with any of the officers, employees or accountants of the
Purchaser or such Subsidiary.

         (f) Compliance with Laws, Etc. The Purchaser will, and will cause each
             -------------------------
of its Subsidiaries to, comply in all material respects with the requirements of
all applicable laws, rules, regulations and orders of any governmental agency or
authority, including all Environmental Laws and ERISA, and the terms of any
indenture, contract or other instrument to which it may be a party or under
which it or its properties may be bound. Notwithstanding the foregoing, this
covenant will not be breached by the fact that the Purchaser has not yet
obtained a license to sell pharmaceutical products in California (or any
jurisdiction where the same may be necessary or desirable) so long as Purchaser
uses its best efforts to diligently obtain such license or licenses, and the
lack of the same does not cause a Material Adverse Effect.

         (g) Maintenance of Properties, Etc. The Purchaser will, and will cause
             ------------------------------
each of its Subsidiaries to, maintain and preserve all of its properties
necessary or useful in the proper conduct of its business in good working order
and condition in accordance with the general practice of other corporations of
similar character and size, ordinary wear and tear excepted.

         (h) Licenses. The Purchaser will, and will cause each of its
             --------
Subsidiaries to, obtain and maintain all licenses, authorizations, consents,
filings, exemptions, registrations and other governmental approvals of any
governmental agency or authority necessary in connection with the execution,
delivery and performance of the Acquisition Financing Documents, the
consummation of the transactions therein contemplated or the operation and
conduct of its business and ownership of its properties, provided that it shall
not be a breach of this covenant that Purchaser has not yet obtained a license
to sell pharmaceutical products in California (or any jurisdiction where the
same may be necessary or desirable) so long as Purchaser uses its best efforts
to diligently obtain such licenses, and the lack of the same does not cause a
Material Adverse Effect.

         (i) Affiliate Security Agreement. In the event Purchaser transfers any
             ----------------------------
of the assets or rights relating to or constituting the Products or any
Collateral to any Affiliate of Purchaser (subject to the terms and conditions of
this Agreement), then within two Business Days of such transfer, Purchaser shall
cause to be delivered to Lender a security agreement (relating to the Collateral
transferred to such Affiliate) and a guaranty of the Obligations duly executed
by such Affiliate and otherwise in form and substance satisfactory to the Lender
and shall cause such Affiliate to have executed and filed any UCC-1 financing
statements furnished by the Lender in each jurisdiction in which such filing is
necessary to perfect the security interest of the Lender in the Collateral of
such Affiliate and in which the Lender requests that such filing be made.
Additionally, the Purchaser and such Affiliate shall have executed and delivered
to the Lender such other items as reasonably requested by the Lender in
connection with the foregoing, including resolutions, incumbency and officers'
certificates, opinions of counsel, search reports and other certificates and
documents.

                                       22

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         (j) Further Assurances and Additional Acts. The Purchaser will execute,
             --------------------------------------
acknowledge, deliver, file, notarize and register at its own expense all such
further agreements, instruments, certificates, documents and assurances and
perform such acts as the Lender shall reasonably deem necessary or appropriate
to effectuate the purposes of the Acquisition Financing Documents, and promptly
provide the Lender with evidence of the foregoing satisfactory in form and
substance to the Lender.

         (k) Protection of Collateral. The Purchaser shall comply in all
             ------------------------
material respects with all laws, regulations and ordinances, and all policies of
insurance, relating in a material way to the possession, operation, maintenance
and control of the Collateral. The Purchaser shall not surrender or lose
possession of (other than to Lender), sell, lease, rent, or otherwise dispose of
or transfer any of the Collateral or any right or interest therein, except as
otherwise permitted by this Agreement.

     SECTION 5.04 Financial Covenants. Commencing with the quarter ending on
                  -------------------
June 30, 2002, Purchaser shall submit each quarter not later than the 30th
calendar day after such quarter (e.g., for the quarter ending June 30, 2002, by
July 30, 2002) the quarterly reports required under Section 5.02(a)(ii) to be
delivered by such 30th day (in each quarter, such date being referred to as the
"Covenant Compliance Test Date"), together with the Compliance Certificate
required under Section 5.02(a)(iv), together with such other reports as
Purchaser desires to submit (collectively, the "Covenant Compliance Reports") in
order to demonstrate whether each of the following is true:

         (a) Cash Maintenance. That as of the applicable Covenant Compliance
             ----------------
Test Date, the Purchaser projects in good faith that as of the last day of the
quarter in which the relevant Covenant Compliance Test Date has occurred, its
Projected Cash on Hand will equal or exceed the Projected Net Cash Usage during
the quarter immediately following the quarter in which the relevant Covenant
Compliance Test Date has occurred. For example, the Purchaser must demonstrate
with the Covenant Compliance Reports submitted on or before July 30, 2002, that
its Projected Cash on Hand as of September 30, 2002 is sufficient to meet or
exceed the Projected Net Cash Usage for the quarter ending December 31, 2002.

         (b) Minimum EBITDA. That as of the last day of the quarter just ending,
             --------------
Purchaser's EBITDA was not less than $0.00 for that quarter nor was it less than
$0.00 for the quarter immediately previous to the quarter just ending (i.e., for
two consecutive quarters).

         (c) Working Capital. That as of the last day of the quarter just
             ---------------
ending, Purchaser's Working Capital was not less than $0.00, with "Working
Capital" defined as total current assets minus total current liabilities
(excluding the Balloon Payment referred to in Section 2.01(f)) tested at the end
of such fiscal quarter.

     SECTION 5.05 Negative Covenants. So long as any of the Obligations shall
                  ------------------
remain unpaid or the Lender shall have any commitment to make any Acquisition
Loans to Purchaser or to make additional Advances under the Credit Line, the
Purchaser agrees that:

                                       23

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         (a) Indebtedness. The Purchaser will not, and will not permit any of
             ------------
its Subsidiaries to, create, incur, assume or otherwise become liable for or
suffer to exist any Indebtedness, whether secured or unsecured, other than:

             (i) Indebtedness of the Purchaser to the Lender hereunder; and

             (ii) accounts payable to trade creditors for goods and services and
     current operating liabilities (not the result of the borrowing of money)
     incurred in the ordinary course of the Purchaser's or such Subsidiary's
     business in accordance with customary terms and paid within the specified
     time, unless contested in good faith by appropriate proceedings and
     reserved for in accordance with GAAP; and

             (iii) Absent the consent of Lender (which consent shall not be
     unreasonably withheld), Indebtedness in addition to that falling within the
     categories described in any of subsections (i), (ii), (iv), (v) or (vi) of
     this Section 5.05(a) aggregating no more than (A) $3,000,000 so long as any
     payment obligation of Purchaser to Lender for the purchase of inventory as
     provided for in the Purchase Agreement remains unpaid and outstanding, and
     (B) $6,500,000 thereafter; and

             (iv) Indebtedness directly related to the acquisition by Purchaser
     of a product or product line, provided that such Indebtedness is owed to
     the seller of such product or product line or to a Person financing the
     acquisition of the same, but only to the extent the portion of the purchase
     price for the assets thus acquired is financed by Indebtedness; and if such
     Indebtedness is secured, then such Indebtedness shall be secured solely by
     the assets for which the acquisition financing was provided; and

             (v) Indebtedness consisting of a refinancing of the Indebtedness
     permitted in subsection (iv) above, provided that the principal amount of
     such Indebtedness that is being refinanced does not increase; and

             (vi) Indebtedness for capital leases as determined in accordance
     with GAAP not to exceed $1,000,000.

         (b) Liens. The Purchaser will not, and will not permit any of its
             -----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties, revenues or assets, whether now owned or
hereafter acquired which comprise any of the Collateral (or proceeds) of Lender,
other than Permitted Liens.

         (c) Change in Nature of Business. The Purchaser will not, and will not
             ----------------------------
permit any of its Subsidiaries to, engage in any material line of business
substantially different from the pharmaceutical business.

         (d) Restrictions on Fundamental Changes. The Purchaser will not, and
             -----------------------------------
will not permit any of its Subsidiaries to,

             (i) consummate any acquisition of any Person by means of merger or
     other form of corporate reorganization in which outstanding shares of such
     Person are exchanged for securities or other consideration issued, or
     caused to be issued, by the

                                       24

<PAGE>

                                                          CONFIDENTIAL TREATMENT

Purchaser or any of its Subsidiaries, or consummate a purchase of substantially
all of any Person's assets unless (A) Purchaser is the surviving entity, and (B)
both immediately before and after such merger, reorganization or acquisition, no
Event of Default shall have occurred or be caused by virtue thereof;

             (ii) sell, transfer, lease or otherwise dispose of (whether in one
     transaction or in a series of transactions) all or substantially all of its
     assets without the consent of Lender, such consent not to be unreasonably
     withheld.

         (e) Sales of Collateral. The Purchaser will not, and will not permit
             -------------------
any of its Subsidiaries to, sell, lease, transfer, license, or otherwise dispose
of, or part with control of (whether in one transaction or a series of
transactions) any of the Collateral, except: sales or other dispositions of
inventory in the ordinary course of business and except with the consent of
Lender.

         (f) Distributions.
             -------------

             (i)   Purchaser will not declare or pay any dividends in respect of
     its capital stock, or purchase, redeem, retire or otherwise acquire for
     value any of its capital stock now or hereafter outstanding, return any
     capital to its shareholders as such, or make any loan of assets to its
     shareholders as such, or permit any of its Subsidiaries to purchase,
     redeem, retire, or otherwise acquire for value any stock of the Purchaser,
     except that the Purchaser may:

                   A   declare and deliver dividends and loans payable only in
             capital stock of the Purchaser; and

                   B   purchase, redeem, retire, or otherwise acquire shares of
             its capital stock with the proceeds received from a substantially
             concurrent issue of new shares of its capital stock and

                   C   so long as either (i) no Event of Default has occurred
             and is continuing, or (ii) the amount paid by Purchaser does not
             exceed $50,000 in cash or value per year, repurchase unvested stock
             from any of the Purchaser's employees, directors or consultants
             upon the termination of service of such person or repurchase shares
             in connection with the Purchaser's stock option or compensation
             plans.

             (ii)  The Purchaser will not permit any Subsidiary of the Purchaser
     to grant or otherwise agree to or suffer to exist any consensual
     restrictions on the ability of such Subsidiary to pay dividends and make
     other distributions to the Purchaser, or to pay any Indebtedness owed to
     the Purchaser or transfer properties and assets to the Purchaser.

             (iii) No Subsidiary shall purchase, redeem, retire or otherwise
     acquire for value any of its capital stock now or hereafter outstanding.

         (g) Loans and Investments. The Purchaser will not, and will not permit
             ---------------------
any of its Subsidiaries to, purchase or otherwise acquire the capital stock,
assets (constituting a business

                                       25

<PAGE>

                                                          CONFIDENTIAL TREATMENT

unit), obligations or other securities of or any interest in any Person, or
otherwise extend any credit to or make any additional investments in any Person,
other than as is consistent with the Purchaser's investment policy duly approved
by its board of directors.

         (h) Transactions with Related Parties. The Purchaser will not (absent
             ---------------------------------
Lenders' prior written consent), and will (absent Lenders' prior written
consent) not permit any of its Subsidiaries to, enter into any transaction,
including the purchase, sale or exchange of property or the rendering of any
services, with any Affiliate, any officer or director thereof or any Person
which beneficially owns or holds 5% or more of the equity securities, or 5% or
more of the equity interest, thereof (a "Related Party"), or enter into, assume
or suffer to exist, or permit any Subsidiary to enter into, assume or suffer to
exist, any employment or consulting contract with any Related Party, except a
transaction or contract which is in the ordinary course of the Purchaser's or
such Subsidiary's business and which is upon fair and reasonable terms not less
favorable to the Purchaser or such Subsidiary than it would obtain in a
comparable arm's length transaction with a Person not a Related Party; provided,
however, that nothing in this subsection shall prohibit any transactions between
the Purchaser and its wholly owned Subsidiaries or between the Purchaser's
wholly owned Subsidiaries, or between Purchaser and Lender.

         (i) Payment of other Indebtedness. The Purchaser will not, and will not
             -----------------------------
permit any of its Subsidiaries to, make any voluntary or optional prepayment in
excess of $1,000,000 of any Indebtedness owed to any Person except indebtedness
to Lender.

         (j) Change in Ownership or Control. Purchaser shall not suffer a Change
             ------------------------------
in Control, except to the extent consented to by Lender, which consent shall not
be unreasonably withheld.

                                  ARTICLE VI.
                                EVENTS OF DEFAULT

     SECTION 6.01 Events of Default. Any of the following events which shall
                  -----------------
occur shall constitute an "Event of Default" once any specified cure period (if
any) has passed:

         (a) Covenants that are Curable Within Ten (10) Calendar Days.
             --------------------------------------------------------

             (i) Payments. The failure of Purchaser to pay when due or in the
                 --------
appropriate currency any amount of principal of, or interest on, any Acquisition
Loan or Acquisition Note, the Credit Line or the Line of Credit Note, or the
failure to pay any other amount payable under any of the Acquisition Financing
Documents, including without limitation all payment obligations under the
Purchase Agreement (including, without limitation, the payment obligations
relating to the purchase of inventory as set forth in Section 4.03 of each
agreement comprising the Purchase Agreement, and for indemnification if the
indemnity obligation has been liquidated), if the same shall not be cured within
ten (10) calendar days of their due date, shall constitute an Event of Default.

             (ii) Other Covenants. Breaches of the covenants set forth in the
                  ---------------
following Sections shall become Events of Default once ten (10) days have passed
from their occurrence without the same having been cured:

                                       26

<PAGE>

                                                          CONFIDENTIAL TREATMENT

             Sections of this Agreement        Short Name
             --------------------------        ----------
             Section 5.03(j)                   "Further Assurances"
             Section 5.03(k)                   "Protection of Collateral"

             Other Acquisition Financing Documents
             -------------------------------------

             Section 5(b) of the Security Agreement ("Relocation")
             Section 5 of the Patent and Trademark Security Agreement ("Further
                 Assurances")
             Section 6 of the Patent and Trademark Security Agreement
                 ("Authorization to Supplement")

         (b) Covenants that are Curable Within Thirty (30) Calendar Days.
             -----------------------------------------------------------
Breaches of the covenants set forth in the following Sections, and breaches of
any other covenant set forth in the Acquisition Financing Documents (excluding
the Purchase Agreement) which is not elsewhere specifically enumerated in this
Section 6.01, shall become Events of Default once thirty (30) days have passed
from their occurrence without the same having been cured:

       Sections of this Agreement              Short Name
       --------------------------              ----------
             5.01                              "Books and Records"
             5.02                              "Reporting Covenants"
             5.03(a)(ii)(subject toss.6.01(m)) "Preservation of Permits, Etc."
             5.03(b)(subject toss.6.01(f))     "Payment of Taxes"
             5.03(c)                           "Maintenance of Insurance"
             5.03(d)                           "Keeping of Records"
             5.03(f)(subject toss.6.01(m))     "Compliance With Laws"
             5.03(g)                           "Maintenance of Properties"
             5.03(h)(subject toss.6.01(m))     "Licenses"
             5.03(i)                           "Affiliate Security Agreement"
             5.05(g)                           "Loans and Investments"
             5.05(h)                           "Transactions With Affiliates"

         (c) Covenants that are Not Curable. The occurrence of any of the
             ------------------------------
following shall become Events of Default immediately upon their occurrence:

       Sections of this Agreement              Short Name
       --------------------------              ----------

             5.03(a)(i)                        "Preservation of Corp. Existence"
             5.03(e)                           "Inspection Rights"
             5.05(a)                           "Indebtedness"
             5.05(b)                           "Liens"
             5.05(c)                           "Change in Nature of Business"
             5.05(d)                           "Fundamental Changes"
             5.05(e)                           "Sales of Assets"
             5.05(f)                           "Distributions"

                                       27

<PAGE>

                                                          CONFIDENTIAL TREATMENT

             5.05(i)                            "Payment of Other Debt"
             5.05(j)                            "Change in Control"

         (d) Representations and Warranties. Any representation or warranty by
             ------------------------------
the Purchaser under or in connection with the Acquisition Financing Documents
(including, without limitation, the Purchase Agreement) shall prove to have been
incorrect in any material respect when made or deemed made. There is no cure
period for this eventuality; an Event of Default occurs immediately upon breach.

         (e) Consequences of Breaches of Financial Covenants.
             -----------------------------------------------

             (i) In the event that on or after the Covenant Compliance Test Date
     for any particular quarter commencing with the quarter ending June 30,
     2002, it is determined that Purchaser has breached all three of the
     covenants set forth in Sections 5.04(a), 5.04(b) and 5.04(c) for such
     quarter, that eventuality shall constitute an Event of Default on the date
     the three covenants are determined to be in breach, without opportunity to
     cure and entitling Lender to exercise each and all of its rights and
     remedies hereunder, under the Security Agreement, and under applicable law.

             (ii) In the event that on or after the Covenant Compliance Test
     Date for any particular quarter commencing with the quarter ending June 30,
     2002, it is determined that Purchaser has breached any two (but not all
     three) of the covenants set forth in Sections 5.04(a), 5.04(b) and 5.04(c),
     then no "Event of Default" shall be deemed to have occurred, but the
     repayment schedule of the Acquisition Loans and the Credit Line (and any
     new Acquisition Loans or Advances as shall be made during a time when any
     two [but not all three] of the covenants in Sections 5.04(a), 5.04(b) and
     5.04(c) have been breached) shall be immediately modified until a Covenant
     Compliance Test Date occurs whereby it is determined that only one or none
     of the three covenants set forth in Sections 5.04(a), 5.04(b) and 5.04(c)
     are in breach as follows:

                 1) The payments to be made by Purchaser shall cease to be
             quarterly, and instead shall be monthly. The first such payment
             shall be due on or retroactive to the Covenant Compliance Test Date
             for which two (but not all three) of the covenants in Sections
             5.04(a), 5.04(b) and 5.04(c) were found to be in breach. Ensuing
             monthly payments shall then fall due on the last day of each month
             thereafter until only one or none of the three covenants set forth
             in Sections 5.04(a), 5.04(b) and 5.04(c) are in breach.

                 2) The amount of the monthly payments shall be composed of the
             following:

             a) all accrued and unpaid interest owing on the outstanding
         principal of all Acquisition Loans and all Advances outstanding under
         the Credit Line as of the last day of the applicable month;

                                       28

<PAGE>

                                                          CONFIDENTIAL TREATMENT

             (b) plus, a principal payment calculated by identifying what
         principal payment would be due (if any) to Lender on the last day of
         the quarter in which the Covenant Compliance Test Date occurred for
         which two (but not all three) of the covenants in Sections 5.04(a),
         5.04(b) and 5.04(c) were found to be in breach, and dividing that
         principal payment by 3. That calculation yields the principal amount
         that must be paid each month of that quarter. In the next quarter, if
         Purchaser remains out of compliance with any two of the covenants in
         Sections 5.04(a), 5.04(b) and 5.04(c), the principal payments due at
         the end of that quarter shall be similarly identified, and amortized
         over the three months of that quarter, and so on for each quarter until
         one or none of the covenants in Sections 5.04(a), 5.04(b) and 5.04(c)
         are in breach (or all three fall out of compliance and Lender exercises
         its right to accelerate or exercise other remedies due to an Event of
         Default).

                 3) Interest shall accrue and be payable (monthly) at the
             Contract Rate, unless or until all three of the covenants in
             Sections 5.04(a), 5.04(b) and 5.04(c) have been breached.

         (f) Levy. Notwithstanding anything to the contrary contained above
             ----
regarding the ability to cure defaults, should any levy upon, seizure or
attachment of any of the Collateral which shall not have been rescinded or
withdrawn within 10 calendar days occur, including on account of any liens or
tax claims listed in Section 5.03(b), it shall then constitute an Event of
Default after the tenth day if no cure is effected.

         (g) Theft or Loss. Notwithstanding anything to the contrary contained
             -------------
above regarding the ability to cure defaults, should any loss, theft or
substantial damage to, or destruction of, any material portion of the
Collateral, it shall similarly constitute an Event of Default unless within 10
days after the occurrence of any such event, Purchaser furnishes to Lender
evidence satisfactory to Lender that the amount of any such loss, theft, damage
to or destruction of the Collateral is fully insured under policies naming
Lender as an additional named insured or loss payee or such Collateral is
otherwise replaced by comparable Collateral of similar value.

         (h) Insolvency. (i) The Purchaser or any of its Subsidiaries shall (A)
             ----------
admit in writing its inability to, or shall fail generally or be generally
unable to, pay its debts (including its payrolls) as such debts become due, (B)
make a general assignment for the benefit of creditors, (C) be dissolved,
liquidated, wound up or cease its corporate existence; or (ii) the Purchaser or
any Subsidiary (A) shall file a voluntary petition in bankruptcy or a petition
or answer seeking reorganization, to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Reform Act of 1978 (the
"Bankruptcy Code") or under any other state or federal law relating to
bankruptcy or reorganization granting relief to debtors, whether now or
hereafter in effect, or (B) shall file an answer admitting the jurisdiction of
the court and the material allegations of any involuntary petition filed against
the Purchaser or any Subsidiary pursuant to the Bankruptcy Code or any such
other state or federal law; or (iii) the Purchaser or any Subsidiary shall be
adjudicated a bankrupt, or shall make an assignment for the benefit of
creditors, or shall apply for or consent to the appointment of any custodian,
receiver or trustee for all or any substantial part of the Purchaser's or any
Subsidiary's property, or shall take any

                                       29

<PAGE>

                                                          CONFIDENTIAL TREATMENT

action to authorize any of the actions or events set forth above in this
subsection; or (iv) an involuntary petition seeking any of the relief specified
in this subsection shall be filed against the Purchaser or any Subsidiary and
shall not have been dismissed with forty-five (45) days of the filing of the
petition; or (v) any order for relief shall be entered against the Purchaser or
any Subsidiary in any involuntary proceeding under the Bankruptcy Code or any
such other state or federal law referred to in this subsection.

         (i) Dissolution, Etc. The Purchaser or any of its Subsidiaries shall
             ----------------
(i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or
dissolution), (ii) suspend its operations other than in the ordinary course of
business, or (iii) take any corporate action to authorize any of the actions or
events set forth above in this subsection (i).

         (j) Default Under Other Indebtedness. The Purchaser or any of its
             --------------------------------
Subsidiaries shall

             (i) fail to make any payment of any principal of, or interest or
     premium on, any Indebtedness (other than in respect of the Acquisition
     Loans or the Credit Line) in an aggregate principal amount outstanding of
     at least $1,000,000 (or its equivalent in another currency) when due
     (whether by scheduled maturity, required prepayment, acceleration, demand
     or otherwise) and such failure shall continue after the applicable grace
     period, if any, specified in the agreement or instrument relating to such
     Indebtedness as of the date of such failure, provided that so long as such
     Indebtedness or the non-payment thereof is being diligently contested in
     good faith by Purchaser, no Event of Default shall be triggered unless the
     party claiming that Purchaser has defaulted exercises some right or remedy
     or takes some action that would otherwise be a Default or Event of Default
     under any of the Acquisition Financing Documents.

             (ii) fail to perform or observe any term, covenant or condition on
     its part to be performed or observed under any agreement or instrument
     relating to any Indebtedness in an aggregate principal amount outstanding
     of at least $1,000,000, when required to be performed or observed, and such
     failure shall continue after the applicable grace period, if any, specified
     in such agreement or instrument, if the effect of such failure to perform
     or observe is to accelerate, or to permit the acceleration of, the maturity
     of such Indebtedness; or any Indebtedness in an aggregate principal amount
     outstanding of at least $1,000,000 or more shall be declared to be due and
     payable, or required to be prepaid (other than by a regularly scheduled
     required prepayment), prior to the stated maturity thereof provided that if
     such non-performance is being diligently contested in good faith by
     Purchaser, no Event of Default shall be triggered unless the party claiming
     that Purchaser has defaulted exercises some right or remedy or takes some
     action that would otherwise be a Default or Event of Default under any of
     the Acquisition Financing Documents.

         (k) Judgments.
             ---------

             (i) final judgment or order for the payment of money, where the
     portion payable by Purchaser (or any Subsidiary) and not a third-party
     insurance carrier is

                                       30

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     in excess of $1,000,000 (or its equivalent in another currency) shall be
     rendered against the Purchaser or any of its Subsidiaries (or its
     equivalent in another currency); or

             (ii) any non-monetary judgment or court order shall be rendered
     against the Purchaser or any Subsidiary which has or could be reasonably
     expected to have a Material Adverse Effect;

     and in each case there shall be any period of fifteen (15) consecutive days
during which such judgment continues unsatisfied or during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect.

         (l) Collateral Documents. It shall be an immediate Event of Default
             --------------------
hereunder and not susceptible of cure should any of the Collateral Documents
after delivery thereof for any reason be revoked or invalidated, or otherwise
cease to be in full force and effect (other than due to an action or inaction
that was solely the fault of Lender, and not the consequence of some other
default or breach of Purchaser under any of the Acquisition Financing
Documents), or the Purchaser or any other Person shall contest in any manner the
validity or enforceability thereof, or the Purchaser or any other Person shall
deny that it has any further liability or obligation thereunder; or any of the
Collateral Documents for any reason, except to the extent permitted by the terms
thereof, shall cease to create a valid and perfected first priority Lien subject
only to Permitted Liens in any of the Collateral purported to be covered thereby
(other than due to an action or inaction that was solely the fault of Lender,
and not the consequence of some other default or breach of Purchaser under any
of the Acquisition Financing Documents).

         (m) Violation of Regulations, Etc. Notwithstanding anything to the
             -----------------------------
contrary in this Agreement, and despite any representation, warranty and
covenant to the contrary set forth herein or in the other Acquisition Financing
Documents or the Disclosure Letter, in the event that Purchaser

             (i) is in violation of any law, rule, regulation, order, judgment,
     decree or the like binding on or affecting the Purchaser;

             (ii) lacks any authorization, consent, approval, license, exemption
     of, or filing or registration with, any governmental agency or authority,
     or

             (iii) lacks any material permits, franchises, and governmental
     licenses, free from burdensome restrictions, that are necessary for the
     ownership, maintenance or operation of Purchaser's business,

     then so long as any of the same, (A) if known on the Closing Date, have
been disclosed in the Disclosure Letter, and/or (B) if not known on the Closing
Date, are promptly disclosed to Lender once Purchaser has notice thereof,
Purchaser shall have 120 days from the date Purchaser learns (or should have
learned) that the foregoing events have caused or can reasonably be expected to
cause a Material Adverse Effect within which to effectuate a cure and reverse
the Material Adverse Effect, thereby postponing the occurrence of an Event of
Default until such 120th day (if no cure is effected), notwithstanding that
Purchaser may be in breach of the covenants contained in any of Sections
5.03(a)(ii), 5.03(f) and/or 5.03(h) or any similar

                                       31

<PAGE>

                                                          CONFIDENTIAL TREATMENT

covenants relating to the matters referred to in subsections (i), (ii), or (iii)
of this Section 6.01(m).

     SECTION 6.02 Effect of Event of Default. If any Event of Default shall
                  --------------------------
occur, the Lender may (i) by notice to the Purchaser, (A) declare its commitment
to make additional Acquisition Loans to be terminated (but not its commitment to
make additional Advances under the Credit Line unless Lender has accelerated the
payment of Acquisition Loans and the outstanding Credit Line), upon which
declaration such commitment to make additional Acquisition Loans shall forthwith
terminate, and/or (B) declare the entire unpaid principal amount of the
Acquisition Loans and the Acquisition Notes, the amounts owing under the Credit
Line and the Line of Credit Note, all interest accrued and unpaid on the
foregoing and all other Obligations to be forthwith due and payable, whereupon
the Acquisition Loans and the Acquisition Notes, the Credit Line and the Line of
Credit Note, all such accrued interest and all such other Obligations shall
become and be forthwith due and payable (and the Credit Line Commitment Term
shall terminate), without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Purchaser, provided that
if an event described in Section 6.01(h) or (i) shall occur, the result which
would otherwise occur only upon giving of notice by the Lender to the Purchaser
as specified in this clause (i) shall occur automatically, without the giving of
any such notice; and (ii) whether or not the actions referred to in clause (i)
have been taken, (A) exercise any or all of the Lender's rights and remedies
under the Collateral Documents, and (B) proceed to enforce all other rights and
remedies available to the Lender under the Acquisition Financing Documents and
applicable law.

                                  ARTICLE VII.
                                  MISCELLANEOUS

     SECTION 7.01 Amendments and Waivers. No amendment to any provision of the
                  ----------------------
Acquisition Financing Documents shall be effective unless it is in writing and
has been signed by the Lender and the Purchaser, and no waiver of any provision
of any Acquisition Financing Document, or consent to any departure by the
Purchaser therefrom, shall be effective unless it is in writing and has been
signed by the Lender. Any such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.

     SECTION 7.02 Notices. All notices and other communications provided for
                  -------
hereunder and under the other Acquisition Financing Documents shall, unless
otherwise stated herein, be in writing (including by facsimile transmission) and
mailed, sent or delivered to the respective parties hereto at or to their
respective addresses or facsimile numbers set forth below their names on the
signature pages hereof, or at or to such other address or facsimile number as
shall be designated by any party in a written notice to the other party hereto.
All such notices and communications shall be effective (i) if delivered by hand,
when delivered; (ii) if sent by mail, upon the earlier of the date of receipt or
five Business Days after deposit in the mail, first class, postage prepaid; and
(iii) if sent by facsimile transmission, when sent; provided, however, that
notices and communications to the Lender pursuant to Article II shall not be
effective until received.

     SECTION 7.03 No Waiver; Cumulative Remedies. No failure on the part of the
                  ------------------------------
Lender to exercise, and no delay in exercising, any right, remedy, power or
privilege under any

                                       32

<PAGE>

                                                          CONFIDENTIAL TREATMENT

Acquisition Financing Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, remedy, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights and remedies under the Acquisition
Financing Documents are cumulative and not exclusive of any rights, remedies,
powers and privileges that may otherwise be available to the Lender.

     SECTION 7.04 Costs and Expenses; Indemnity.
                  -----------------------------

         (a) Costs and Expenses. The Purchaser agrees to pay on demand all costs
             ------------------
and expenses of the Lender and its Affiliates, and fees and disbursements of
counsel, in connection with (A) any Default, (B) the enforcement or attempted
enforcement of, and preservation of any rights or interests under, the
Acquisition Financing Documents (excluding the Purchase Agreement because the
cost and expense provisions contained therein shall govern the Purchase
Agreement), (C) any out-of-court workout or other refinancing or restructuring
or any bankruptcy or insolvency case or proceeding, and (D) the preservation of
and realization upon any of the Collateral.

         (b) Treatment of Tax Liabilities. Each of Lender and Purchaser shall be
             ----------------------------
responsible for paying its own sales, use, transfer and value added and other
related taxes, if any, relating to this Agreement.

         (c) Indemnification. Whether or not the transactions contemplated
             ---------------
hereby (or in the other Acquisition Financing Documents) shall be consummated,
the Purchaser hereby agrees to indemnify the Lender, any Affiliate thereof and
their respective officers, directors, employees, agents, successors and assigns
(each an "Indemnified Person") against, and hold each of them harmless from, any
and all liabilities, obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including the reasonable fees and disbursements of counsel to an
Indemnified Person (including allocated costs of internal counsel), which may be
imposed on, incurred by, or asserted against any Indemnified Person,

             (i) in any way relating to or arising out of any of the Acquisition
     Financing Documents (excluding the Purchase Agreement), or the transactions
     contemplated by any of the Acquisition Financing Documents (excluding the
     Purchase Agreement),

             (ii) with respect to any investigation, litigation or other
     proceeding relating to any of the foregoing, irrespective of whether the
     Indemnified Person shall be designated a party thereto, or

             (iii) in any way relating to or arising out of the use, generation,
     manufacture, installation, treatment, storage or presence, or the spillage,
     leakage, leaching, migration, dumping, deposit, discharge, disposal or
     release, at any time, of any Hazardous Substances on, under, at or from any
     properties of the Purchaser or any of its Subsidiaries (the "Premises"),
     including any personal injury or property damage suffered by any Person,
     and any investigation, site assessment, environmental audit, feasibility
     study, monitoring, clean-up, removal, containment, restoration, remedial
     response or

                                       33

<PAGE>

                                                          CONFIDENTIAL TREATMENT

     remedial work undertaken by or on behalf of the any Indemnified Person at
     any time, voluntarily or involuntarily, with respect to the Premises (the
     "Indemnified Liabilities");

     provided that the Purchaser shall not be liable to any Indemnified Person
     --------
for any portion of such Indemnified Liabilities to the extent they are found by
a final decision of a court of competent jurisdiction to have resulted from such
Indemnified Person's gross negligence or willful misconduct. If and to the
extent that the foregoing indemnification is for any reason held unenforceable,
the Purchaser agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Any indemnification obligation relating solely to the Purchase
Agreement or to the sale or manufacture of the Products shall be governed by the
indemnification provisions of the Purchase Agreement.

         (d) Procedures Relating to Indemnification. The Lender shall give the
             --------------------------------------
Purchaser prompt written notice of any damages claim asserted against Lender or
discovery of fact upon which the Lender intends to base a request for
indemnification under Section 7.04(c). If such damages claim or the
circumstances giving rise to Lender's belief that a legal action or proceeding
will be commenced, the Purchaser may, at its option assume the defense of any
claim in such legal action or proceeding by giving written notice to the Lender
within thirty (30) days of receipt of a notice of such claim from the Lender and
appoint as lead counsel in such defense any legal counsel that is reasonably
acceptable to the Lender. In such event, the Lender shall be entitled to
participate in, but not control, (unless Lender in good faith believes its
rights will otherwise be prejudiced) the defense and to employ counsel of its
choice for such purpose; provided, however, that such employment shall be at the
Lender's own expense (unless Lender's counsel is employed because of Lender's
good faith belief that its rights may be prejudiced) unless the Lender and the
Purchaser are both named parties to the proceeding and the Lender has reasonably
concluded that there may be one or more legal defenses which are different from
or in addition to those available to the Purchaser. The Purchaser shall not be
liable for any settlement, compromise, discharge or other disposition of damages
by the Lender that Lender obtains without the prior written consent of the
Purchaser, which shall not be unreasonably withheld or denied. The parties shall
cooperate in the defense of any claim and shall furnish such records,
information and testimony, provide such witnesses and attend such conferences
and proceedings as may be reasonably requested in connection therewith.

     SECTION 7.05 Currency. The United States dollar is the currency of account
                  --------
and payment for each and every sum at any time due from the Purchaser hereunder
provided that each payment in respect of costs and expenses or Taxes shall be
made in the currency in which the same were incurred.

     SECTION 7.06 Survival. All covenants, agreements, representations and
                  --------
warranties made in any Acquisition Financing Documents (excluding the Purchase
Agreement which shall not be governed or limited by this provision) shall,
except to the extent otherwise provided therein, survive the execution and
delivery of this Agreement, the making of the Acquisition Loans and/or the
Credit Line and the execution and delivery of the Acquisition Notes and the Line
of Credit Note, and shall continue in full force and effect so long as the
Lender has any commitment to make any Acquisition Financing Loans to Purchaser,
any Acquisition Financing Loan and/or the Credit Line remain outstanding or any
other Obligations

                                       34

<PAGE>

                                                          CONFIDENTIAL TREATMENT

remain unpaid or any obligation to perform any other act hereunder or under any
other Acquisition Financing Document remains unsatisfied. Without limiting the
generality of the foregoing, the obligations of the Purchaser under Section
7.04, and all similar obligations under the other Acquisition Financing
Documents (including all obligations to pay costs and expenses and all indemnity
obligations, excluding the Purchase Agreement which shall not be governed or
limited by this provision), and all confidentiality obligations shall survive
the repayment of the Acquisition Financing Loans and the Credit Line and the
termination of the commitment or Lender to make Acquisition Financing Loans and
Advances under the Credit Line.

     SECTION 7.07 Benefits of Agreement. The Acquisition Financing Documents are
                  ---------------------
entered into for the sole protection and benefit of the parties hereto and
thereto and their successors and assigns, and no other Person shall be a direct
or indirect beneficiary of, or shall have any direct or indirect cause of action
or claim in connection with, any Acquisition Financing Document.

     SECTION 7.08 Binding Effect; Assignment. This Agreement shall become
                  --------------------------
effective when it shall have been executed by the Purchaser and the Lender and
thereafter shall be binding upon, inure to the benefit of and be enforceable by
the Purchaser, the Lender and their respective successors and assigns. The
Purchaser shall not have the right to assign its rights and obligations
hereunder or under the other Acquisition Financing Documents or any interest
herein or therein without the prior written consent of the Lender, which consent
shall not be unreasonably withheld. Any such purported assignment, transfer,
hypothecation or other conveyance by Purchaser without the prior express written
consent of Lender shall be void. The Lender reserves the right to sell, assign,
transfer or grant participations in all or any portion of the Lender's rights
and obligations hereunder and under the other Acquisition Financing Documents to
any other Person. Except in the case of assignments to an Affiliate of the
Lender, any sale, assignment, transfer or grant (including of participation
interests) by Lender shall be subject to the prior written consent of the
Purchaser at all times other than during the existence of an Event of Default,
which consent shall not be unreasonably withheld. In the event of any such sale,
assignment, transfer or grant (including of participation interests), the
assignee shall be deemed the "Lender" for all purposes of the Acquisition
Financing Documents with respect to the rights and obligations assigned to it,
and the obligations of the Lender so assigned shall thereupon terminate. The
Purchaser shall, from time to time upon request of the Lender, enter into such
amendments to the Acquisition Financing Documents and execute and deliver such
other documents as shall be necessary to effect any such sale, assignment,
transfer or grant (including of participation interests). The Purchaser agrees
that in connection with any such sale, assignment, transfer or grant (including
of participation interests), the Lender may deliver to the prospective
participant, assignee, purchaser, transferee or grantee financial statements and
other relevant information relating to the Purchaser and its Subsidiaries. The
Lender shall obtain from any such prospective participant, assignee, purchaser,
transferee or grantee a confidentiality agreement in which such participant or
assignee agrees to an obligation of confidentiality substantially similar to the
terms of Section 7.09 of this Agreement and Section 12.01 of the Purchase
Agreement.

     SECTION 7.09 Confidentiality.
                  ---------------

                                       35

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         (a) In addition to the restrictions contained in Section 7. 3 of this
Agreement, after the Closing Date no party to this Agreement (a "Disclosing
                                                                 ----------
Party") shall, without the prior written consent of the other Party (the
-----
"Non-disclosing Party"), disclose to any Person and Confidential Information (as
 --------------------
defined below) of the Non-disclosing party, except to a Disclosing Party's
employees or representatives who need to know such information in connection
with the transactions contemplated hereby (and then only to the extent that such
persons are under an obligation to maintain the confidentiality of the
Confidential Information) or use any Confidential Information of the
Non-disclosing Party for any reason other than contemplated by this Agreement
unless such Disclosing Party has used its best efforts to (i) consult with the
Non-disclosing Party and obtain the Non-disclosing Party's prior written consent
in a timely manner, and (ii) the Disclosing Party has been advised by counsel
that disclosure is required to be made under applicable law or the requirements
of a national securities exchange or another similar regulatory body. In the
event that the Disclosing Party is requested or required by documents subpoena,
civil investigative demand, interrogatories, requests for information, or other
similar process to disclose any Confidential Information, the Disclosing Party
shall provide the Non-disclosing Party with prompt notice of such request or
demands or other similar process so that the Non-disclosing Party may seek an
appropriate protective order or, if such request, demand or other similar
process is mandatory, waive the Disclosing Party's compliance with the
provisions of this Section 7.09(a) as appropriate.

         (b) The term "Confidential Information" as used in this Section 7. 9
means (i) as to Purchaser, all confidential information relating to Purchaser's
business, and the Purchased Assets, and the Assumed Liabilities (as defined in
the Purchase Agreement), and (ii) as to Lender, all confidential information
relating to the Business (as defined in the Purchase Agreement) other than the
Purchased Assets, and the business and operations of the Lender and its
Affiliates, including the Excluded Assets and the Excluded Liabilities (as those
terms are defined in the Purchase Agreement) or other obligations other than the
Assumed Liabilities, in each of (i) and (ii) whether disclosed prior to or after
the date hereof. The term "Confidential Information" does not include
information which becomes generally available to the public other than as a
result of disclosure by the Disclosing Party, or becomes available to the
Disclosing Party on a non-confidential basis from a source other than the
Non-disclosing Party, provided that such source is not bound by a
confidentiality agreement with the Non-disclosing Party.

     SECTION 7.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
                  -------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO
CONFLICTS OF LAWS PRINCIPLES.

     SECTION 7.11 Waiver of Jury Trial. THE PURCHASER AND THE LENDER EACH WAIVE
                  --------------------
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER ACQUISITION
FINANCING DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE. THE PURCHASER AND THE LENDER EACH AGREE THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE

                                       36

<PAGE>

                                                          CONFIDENTIAL TREATMENT

TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER ACQUISITION FINANCING DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER
ACQUISITION FINANCING DOCUMENTS.

     SECTION 7.12 Submission to Jurisdiction.
                  --------------------------

         (a) Submission to Jurisdiction. The Purchaser hereby (i) submits to the
             --------------------------
non-exclusive jurisdiction of the courts of the State of California and the
Federal courts of the United States sitting in the State of California for the
purpose of any action or proceeding arising out of or relating to the
Acquisition Financing Documents, (ii) agrees that all claims in respect of any
such action or proceeding may be heard and determined in such courts, (iii)
irrevocably waives (to the extent permitted by applicable law) any objection
which it now or hereafter may have to the laying of venue of any such action
or proceeding brought in any of the foregoing courts in and of the State of
California, and any objection on the ground that any such action or proceeding
in any such court has been brought in an inconvenient forum, and (iv) 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 in any other
manner permitted by law.

         (b) No Limitation. Nothing in this Section 7.12 shall affect the right
             -------------
of the Lender to serve legal process in any other manner permitted by law or
limit the right of the Lender to bring any action or proceeding against the
Purchaser or its property in the courts of other jurisdictions.

     SECTION 7.13 Public Announcements. Neither Lender nor Purchaser shall issue
                  --------------------
any press release or make any public announcement with respect to this Agreement
and the transactions contemplated hereby without obtaining the prior written
consent of the other parties, except as may be required by applicable law upon
the advice of counsel and only if the disclosing party to this Agreement
provides the non-disclosing party with an opportunity to first review the press
release or other public announcement.

     SECTION 7.14 Entire Agreement. The Acquisition Financing Documents reflect
                  ----------------
the entire agreement between the Purchaser and the Lender with respect to the
matters set forth herein and therein and supersede any prior agreements,
commitments, drafts, communication, discussions and understandings, oral or
written, with respect thereto.

     SECTION 7.15 Severability. Whenever possible, each provision of the
                  ------------
Acquisition Financing Documents shall be interpreted in such manner as to be
effective and valid under all applicable laws and regulations. If, however, any
provision of any of the Acquisition Financing Documents shall be prohibited by
or invalid under any such law or regulation in any jurisdiction, it shall, as to
such jurisdiction, be deemed modified to conform to the minimum requirements of
such law or regulation, or, if for any reason it is not deemed so modified, it
shall

                                       37

<PAGE>

                                                          CONFIDENTIAL TREATMENT

be ineffective and invalid only to the extent of such prohibition or
invalidity without affecting the remaining provisions of such Acquisition
Financing Document, or the validity or effectiveness of such provision in any
other jurisdiction.

     SECTION 7.16 Counterparts. This Agreement may be executed in any number of
                  ------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.

                                       38

<PAGE>

                                                          CONFIDENTIAL TREATMENT

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.

                                        THE PURCHASER
                                        -------------

                                        XCEL PHARMACEUTICALS, INC.
                                        a Delaware corporation

                                        By /s/ Michael T. Borer
                                           -------------------------------------
                                           Title:  President and CEO

                                        7475 Lusk Boulevard
                                        San Diego, CA 92121
                                        Attn.:  Corporate Secretary
                                        Fax No.  858-657-0981

                                        THE LENDER
                                        ----------

                                        ELAN PHARMA INTERNATIONAL LIMITED, a
                                        corporation organized under the laws of
                                        the Republic of Ireland

                                        By /s/ David Hurley
                                           -------------------------------------
                                           Title: Director

                                        WIL House
                                        Shannon Business Park
                                        Shannon
                                        Co Clare, Ireland
                                        Attention:  Company Secretary
                                        Facsimile:  +353 61 362 097

[Signature Page to Amended and Restated Diastat Asset Purchase Agreement]

<PAGE>

                                                          CONFIDENTIAL TREATMENT

                                    EXHIBITS
                                    --------

Exhibit                    Document
-------                    --------
Exhibit A                  Security Agreement
Exhibit B                  Borrowing Request
Exhibit C                  Acquisition Note
Exhibit D                  Patent and Trademark Security Agreement
Exhibit E                  Line of Credit Note
Exhibit F                  Notice of Borrowing

The exhibits and schedules have been omitted from this Agreement as filed with
the Securities and Exchange Commission (the "SEC"). The omitted information is
filed as a separately numbered exhibit to the Registration Statement or is
considered immaterial from an investor's perspective. The Registrant will
furnish supplementally a copy of any of the documents to the SEC upon request of
the SEC.

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