Document:

exv10w1

EXHIBIT
  10.1

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

between

IMPAX LABORATORIES, INC.

“Borrower”

and

WACHOVIA BANK, NATIONAL ASSOCIATION

“Bank”

Dated: December 15, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	PAGE	 
	 
	 	 	 	 	 	 	 	 
	1.	 	Definitions	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	 
	 	1.1	 	Defined Terms:	 	 	1	 
	 
	 	1.2	 	Financial Terms	 	 	21	 
	 
	 	 	 	 	 	 	 	 
	2.	 	The Credit Facility; Letters of Credit; Interest and Fees	 	 	21	 
	 
	 	 	 	 	 	 	 	 
	 
	 	2.1	 	The Credit Facility	 	 	21	 
	 
	 	2.2	 	Collections Account	 	 	21	 
	 
	 	2.3	 	Interest	 	 	22	 
	 
	 	2.4	 	Interest Rate Adjustments	 	 	23	 
	 
	 	2.5	 	Notice and Manner of Borrowing and Rate Conversion	 	 	23	 
	 
	 	2.6	 	Repayment of Loans	 	 	24	 
	 
	 	2.7	 	Additional Payment Provisions	 	 	25	 
	 
	 	2.8	 	Default Rate	 	 	26	 
	 
	 	2.9	 	Calculation of Interest	 	 	26	 
	 
	 	2.10	 	Letters of Credit	 	 	27	 
	 
	 	2.11	 	Fees	 	 	27	 
	 
	 	2.12	 	Statement of Account	 	 	28	 
	 
	 	2.13	 	Termination	 	 	28	 
	 
	 	2.14	 	USA Patriot Act Notice	 	 	28	 
	 
	 	 	 	 	 	 	 	 
	3.	 	Conditions Precedent to Extensions of Credit	 	 	28	 
	 
	 	 	 	 	 	 	 	 
	 
	 	3.1	 	Conditions Precedent to Initial Loan	 	 	28	 
	 
	 	3.2	 	Conditions Precedent to Each Revolver Loan	 	 	30	 
	 
	 	 	 	 	 	 	 	 
	4.	 	Representations and Warranties	 	 	31	 
	 
	 	 	 	 	 	 	 	 
	 
	 	4.1	 	Valid Existence and Power	 	 	31	 
	 
	 	4.2	 	Authority	 	 	31	 
	 
	 	4.3	 	Financial Condition	 	 	31	 
	 
	 	4.4	 	Litigation	 	 	32	 
	 
	 	4.5	 	Agreements, Etc.	 	 	32	 
	 
	 	4.6	 	Authorizations	 	 	32	 
	 
	 	4.7	 	Title	 	 	32	 
	 
	 	4.8	 	Collateral	 	 	32	 
	 
	 	4.9	 	Jurisdiction of Organization; Location	 	 	32	 
	 
	 	4.10	 	Taxes	 	 	33	 
	 
	 	4.11	 	Labor Law Matters	 	 	33	 
	 
	 	4.12	 	Accounts	 	 	33	 
	 
	 	4.13	 	Judgment Liens	 	 	33	 
	 
	 	4.14	 	Corporate Structure	 	 	33	 
	 
	 	4.15	 	Deposit Accounts	 	 	34	 
	 
	 	4.16	 	Environmental	 	 	34	 
	 
	 	4.17	 	ERISA	 	 	34	 
	 
	 	4.18	 	Investment Company Act	 	 	34	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	PAGE	 
	 
	 	 	 	 	 	 	 	 
	 
	 	4.19	 	Names	 	 	34	 
	 
	 	4.20	 	Insider	 	 	35	 
	 
	 	4.21	 	Sanctioned Persons; Sanctioned Countries	 	 	35	 
	 
	 	4.22	 	Compliance with Covenants; No Default	 	 	35	 
	 
	 	4.23	 	Full Disclosure	 	 	35	 
	 
	 	4.24	 	Borrower Information Certificate	 	 	35	 
	 
	 	4.25	 	Intellectual Property	 	 	35	 
	 
	 	 	 	 	 	 	 	 
	5.	 	Affirmative Covenants of Borrower	 	 	36	 
	 
	 	 	 	 	 	 	 	 
	 
	 	5.1	 	Use of Revolver Loan Proceeds	 	 	36	 
	 
	 	5.2	 	Maintenance of Business and Properties	 	 	36	 
	 
	 	5.3	 	Insurance	 	 	36	 
	 
	 	5.4	 	Notice of Default	 	 	36	 
	 
	 	5.5	 	Inspections of Books and Records and Field Examinations	 	 	37	 
	 
	 	5.6	 	Financial Information	 	 	38	 
	 
	 	5.7	 	Maintenance of Existence and Rights	 	 	40	 
	 
	 	5.8	 	Payment of Taxes, Etc.	 	 	40	 
	 
	 	5.9	 	Subordination	 	 	40	 
	 
	 	5.10	 	Compliance with Laws, Regulations,
Etc.	 	 	40	 
	 
	 	5.11	 	Compliance with ERISA	 	 	41	 
	 
	 	5.12	 	License Agreements	 	 	41	 
	 
	 	5.13	 	Additional Real Property Collateral	 	 	43	 
	 
	 	5.14	 	Further Assurances	 	 	43	 
	 
	 	5.15	 	Covenants Regarding Collateral	 	 	44	 
	 
	 	5.16	 	Material Contracts	 	 	44	 
	 
	 	5.17	 	Notices	 	 	44	 
	 
	 	5.18	 	2004 Audited Financial Statements	 	 	45	 
	 
	 	 	 	 	 	 	 	 
	6.	 	Negative Covenants of Borrower	 	 	45	 
	 
	 	 	 	 	 	 	 	 
	 
	 	6.1	 	Debt	 	 	45	 
	 
	 	6.2	 	Liens	 	 	46	 
	 
	 	6.3	 	Restricted Payments	 	 	46	 
	 
	 	6.4	 	Loans and Other Investments	 	 	47	 
	 
	 	6.5	 	Change in Business	 	 	47	 
	 
	 	6.6	 	Accounts	 	 	47	 
	 
	 	6.7	 	Transactions with Affiliates	 	 	47	 
	 
	 	6.8	 	No Change in Name, Offices or Jurisdiction of Organization; Removal of Collateral	 	 	47	 
	 
	 	6.9	 	No Sale, Leaseback	 	 	48	 
	 
	 	6.10	 	Margin Stock	 	 	48	 
	 
	 	6.11	 	Tangible Collateral	 	 	48	 
	 
	 	6.12	 	Subsidiaries	 	 	48	 
	 
	 	6.13	 	Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets, Name and Good Standing	 	 	48	 
	 
	 	6.14	 	Change of Fiscal Year or Accounting Methods	 	 	48	 
	 
	 	6.15	 	Deposit Accounts	 	 	48	 
	 
	 	6.16	 	Negative-negative Pledge	 	 	49	 

ii

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	PAGE	 
	 
	 	 	 	 	 	 	 	 
	 
	 	6.17	 	Material Adverse Contracts	 	 	49	 
	 
	 	 	 	 	 	 	 	 
	7.	 	Other Covenants of Borrower	 	 	49	 
	 
	 	 	 	 	 	 	 	 
	 
	 	7.1	 	Fixed Charge Coverage Ratio	 	 	49	 
	 
	 	7.2	 	Capital Expenditures	 	 	49	 
	 
	 	7.3	 	Effect of FAS 133 Charge	 	 	50	 
	 
	 	 	 	 	 	 	 	 
	8.	 	Default	 	 	50	 
	 
	 	 	 	 	 	 	 	 
	 
	 	8.1	 	Events of Default	 	 	50	 
	 
	 	8.2	 	Remedies	 	 	52	 
	 
	 	8.3	 	Receiver	 	 	53	 
	 
	 	8.4	 	Deposits	 	 	53	 
	 
	 	8.5	 	Insurance	 	 	53	 
	 
	 	 	 	 	 	 	 	 
	9.	 	Security Agreement	 	 	54	 
	 
	 	 	 	 	 	 	 	 
	 
	 	9.1	 	Security Interest	 	 	54	 
	 
	 	9.2	 	Financing Statements; Power of Attorney	 	 	54	 
	 
	 	9.3	 	Entry	 	 	55	 
	 
	 	9.4	 	Other Rights	 	 	55	 
	 
	 	9.5	 	Accounts	 	 	55	 
	 
	 	9.6	 	Waiver of Marshaling	 	 	56	 
	 
	 	9.7	 	Control	 	 	56	 
	 
	 	 	 	 	 	 	 	 
	10.	 	Miscellaneous	 	 	56	 
	 
	 	 	 	 	 	 	 	 
	 
	 	10.1	 	No Waiver, Remedies Cumulative	 	 	56	 
	 
	 	10.2	 	Survival of Representations	 	 	56	 
	 
	 	10.3	 	Indemnity By Borrower; Expenses	 	 	56	 
	 
	 	10.4	 	Notices	 	 	57	 
	 
	 	10.5	 	Governing Law	 	 	58	 
	 
	 	10.6	 	Successors and Assigns	 	 	58	 
	 
	 	10.7	 	Counterparts; Telecopied Signatures	 	 	58	 
	 
	 	10.8	 	No Usury	 	 	58	 
	 
	 	10.9	 	Powers	 	 	58	 
	 
	 	10.10	 	Approvals; Amendments	 	 	59	 
	 
	 	10.11	 	Participations and Assignments	 	 	59	 
	 
	 	10.12	 	Waiver of Certain Defenses	 	 	59	 
	 
	 	10.13	 	Integration; Final Agreement	 	 	59	 
	 
	 	10.14	 	LIMITATION ON LIABILITY; WAIVER OF PUNITIVE DAMAGES 	 	 	59	 
	 
	 	10.15	 	WAIVER OF JURY TRIAL	 	 	60	 
	 
	 	10.16	 	Amendment and Restatement of Existing Loan Agreement	 	 	60	 

iii

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the “Agreement”), dated as of December 15,
2005 between IMPAX LABORATORIES, INC. a Delaware corporation (“Borrower”), and WACHOVIA BANK,
NATIONAL ASSOCIATION, a national banking association (together with its successors and assigns,
“Bank”);

WITNESSETH:

In consideration of the premises and of the mutual covenants herein contained and to induce Bank to
extend credit to Borrower, intending to be legally bound hereby, the parties agree as follows:

1. Definitions. Capitalized terms that are not otherwise defined herein shall have
the meanings set forth in this Section 1.

          1.1 Defined Terms:

“Accession” has the meaning set forth in the Code.

“Account” has the meaning set forth in the Code, together with any guaranties, letters of credit,
Letter-of-Credit Rights, and other security therefore, including Supporting Obligations. “Account”
shall specifically include all Royalty Payments.

“Account Debtor” means a Person who is obligated under any Account, Chattel Paper, General
Intangible or Instrument.

“Acquisition Consideration” means the purchase consideration for any Permitted Acquisition and all
other payments by Borrower or any of its Subsidiaries in exchange for, or as part of, or in
connection with, the aggregate consideration for any Permitted Acquisition (including, without
limitation, any Debt assumed by Borrower or any of its Subsidiaries), whether paid in cash or by
exchange of properties or otherwise (but excluding consideration in the form of Subordinated Debt
or capital stock of Borrower) and whether payable at or prior to the consummation of such Permitted
Acquisition or deferred for payment at any future time, whether or not any such future payment is
subject to the occurrence of any contingency, and includes any and all payments representing the
purchase price and any incurrence or assumption of Debt, “earn-outs” and other similar agreements
to make any payment the amount of which is, or the terms of payment of which are, in any respect
subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any
Person or business acquired in such Permitted Acquisition.

“Affiliate” of a Person means (a) any Person directly or indirectly owning 5% or more of the voting
stock or equity interests of such named Person or of which the named Person owns 5% or more of such
voting stock or equity interests; (b) any Person controlling, controlled by or under common control
with such named Person; (c) any officer, director or employee of such named Person or any Affiliate
of the named Person; and (d) any family member of the named Person or any Affiliate of such named
Person.

“ANDAs” shall mean Abbreviated New Drug Applications filed by Borrower with the United States Food
and Drug Administration.

 

 

“Applicable Margin” shall mean, at any time, the applicable percentage set forth below if the Fixed
Charge Coverage Ratio for the immediately preceding fiscal quarter is at or within the amounts
indicated for such percentage:

	 	 	 	 	 	 	 	 	 
	 	 	Applicable	 	Applicable
	 	 	Margin for	 	Margin for
	Fixed Charge Coverage Ratio	 	Prime Rate Loans	 	LIBOR Loans
	 	 	 	 	 	 	 	 	 
	Less than 1.50 to 1
	 	 	0	%	 	 	2.25	%
	Greater than or equal to 1.50 to 1 but
less than or equal to 2.00 to 1
	 	 	0	%	 	 	2.00	%
	Greater than 2.00 to 1 but less than or
equal to 2.50 to 1
	 	 	0	%	 	 	1.75	%
	Greater than 2.50 to 1
	 	 	0	%	 	 	1.50	%

provided, that the Applicable Margin shall be calculated and established once each fiscal quarter
(commencing with the fiscal quarter ending on September 30, 2005) and shall remain in effect until
adjusted thereafter during the next fiscal quarter. Each change in the Applicable Margin resulting
from a change in the Fixed Charge Coverage Ratio shall be effective on and after the date of
delivery to the Bank of the financial statements and certificates required by Section 5.6(b) and
Section 5.6(d), respectively, indicating such change, and until the date immediately preceding the
next date of delivery of such financial statements and certificates indicating another such change.
In the event that Borrower has failed to deliver the financial statements and certificates required
by Sections 5.6(b) or (d), respectively, and in addition to all other rights and remedies available
to Bank, the Applicable Margin shall be the highest percentage set forth above until receipt by
Bank of such information. Prior to Borrower’s fiscal quarter ending September 30, 2005, the
Applicable Margin shall be two percent (2%).

“Banking Relationship Debt” means any Debt or other obligations of Borrower to Bank or any
Affiliate of Bank arising out of or relating to (a) credit cards; (b) merchant card services; (c)
products or services under cash management agreements; (d) Swap Agreements Obligations; and (e)
such other banking products or services provided by Bank or any Affiliate of Bank other than
Letters of Credit.

“Borrower Information Certificate” means a certificate submitted by Borrower to Bank on or before
the Closing Date pursuant to Section 3.1 hereto concerning certain factual information about
Borrower, to be substantially in the form of Exhibit 3.1.2(f) hereto.

“Borrowing Base” means, on any date of determination thereof (and after giving effect to the
limitations set forth in Section 2.1.1(b)), an amount equal to:

                    (a) up to 80% (or such lesser percentage as Bank may determine from time to time in its sole
and absolute discretion) of the total amount of Eligible Accounts, plus

                    (b) the lesser of (a) up to 65% (or such lesser percentage as Bank may determine from time to
time in its sole and absolute discretion) of the total amount of

2

 

Eligible Inventory consisting of finished goods or (b) 80% (or such lesser percentage as Bank
may determine from time to time in its sole and absolute discretion) of the NOLV of Eligible
Inventory consisting of finished goods; plus

                    (c) the lesser of 25% (or such lesser percentage as Bank may determine from time to time in
its sole and absolute discretion) of the total amount of Eligible Inventory consisting of raw
materials, or (b) 80% (or such lesser percentage as Bank may determine from time to time in its
sole and absolute discretion) of the NOLV of such Eligible Inventory consisting of raw materials;
plus

                    (d) the lesser of (a) up to 85% (or such lesser percentage as Bank may determine from time to
time in its sole and absolute discretion) of the NOLV of Eligible Equipment or (b) the Maximum
Equipment Advance Amount; minus

                    (e) any Reserves.

“Borrowing Base Certificate” has the meaning set forth in Section 5.6(a).

“Bulk Inventory” means all of Borrower’s Inventory in the form of capsules and tablets which are
not bottled, packaged or labeled but which otherwise constitute finished goods held for sale in the
ordinary course of business of Borrower.

“Bulk Inventory Loan Limit” means an amount equal to One Million Five Hundred Thousand Dollars
($1,500,000.00).

“Business Day” means a weekday on which Bank is open for business in Charlotte, North Carolina and
Philadelphia, Pennsylvania.

“Capital Stock” shall mean, with respect to any Person, any and all shares, interests,
participations or other equivalents (however designated) of such Person’s capital stock or
partnership, limited liability company or other equity interests at any time outstanding, and any
and all rights, warrants or options exchangeable for or convertible into such capital stock or
other interests (but excluding any debt security that is exchangeable for or convertible into such
capital stock).

“Cash Equivalents” shall mean, with respect to any Person, (a) securities issued, or directly,
unconditionally and fully guaranteed or insured, by the United States or any agency or
instrumentality thereof having maturities of not more than one year from the date of acquisition by
such Person; (b) time deposits, certificates of deposit and bankers’ acceptances of Bank or any
commercial bank, or which is the principal banking subsidiary of a bank holding company, in each
case, organized under the laws of the United States, any state thereof or the District of Columbia
having, capital and surplus aggregating in excess of $500 million with maturities of not more than
one year from the date of acquisition by such Person; (c) repurchase obligations with a term of not
more than 30 days for underlying securities of the types described in clause (a) above entered into
with any bank meeting the qualifications specified in clause (b) above, which repurchase
obligations are secured by a valid perfected security interest in the underlying securities; (d)
commercial paper issued by any Person incorporated in the United States rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s and in each case
maturing not more than one year after the date of acquisition by such Person; (e) direct
obligations issued by any state of the United States or any political subdivision thereof

3

 

having one of the two highest rating categories obtainable from either S&P or Moody’s with
maturities of not more than one year from the date of acquisition thereof, (t) demand deposit
accounts maintained in the ordinary course of business; and (g) investments in money market funds
substantially all of whose assets are comprised of securities of the types described in clauses (a)
through (f) above.

“Change of Control” shall mean (a) the transfer (in one transaction or a series of transactions) of
all or substantially all of the assets of Borrower to any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act); (b) the liquidation or dissolution of Borrower or the
adoption of a plan by the stockholders of Borrower relating to the dissolution or liquidation of
Borrower; (c) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) of beneficial ownership, directly or indirectly, of a majority of the voting
power of the total outstanding Voting Stock of Borrower or the Board of Directors of Borrower; or
(d) during any period of two (2) consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of Borrower (together with any new directors whose nomination
for election by the stockholders of Borrower was approved by a vote of at least sixty-six and
two-thirds (66 2/3%) percent of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of Borrower then still in
office.

“Chattel Paper” has the meaning set forth in the Code, including Electronic Chattel Paper and
Tangible Chattel Paper, together with any guaranties, letters of credit, Letter-of-Credit Rights,
and other security therefore, including Supporting Obligations.

“Closing Date” means the date on which all of the conditions precedent in Section 3 of this
Agreement are satisfied and the initial Loans are made under this Agreement.

“Code” means the Uniform Commercial Code (or any successor statute), as adopted and in force in the
Jurisdiction or, when the laws of any other state govern the method or manner of the perfection or
enforcement of any security interest in any of the Collateral, the Uniform Commercial Code (or any
successor statute) of such state. Any term used in this Agreement and in any financing statement
filed in connection herewith which is defined in the Code and not otherwise defined in this
Agreement or in any other Loan Document has the meaning given to the term in the Code.

“Collateral” means all property of Borrower, wherever located and whether now owned by Borrower or
hereafter acquired, including but not limited to: (a) all Inventory; (b) all General Intangibles;
(c) all Accounts; (d) Chattel Paper; (e) all Instruments and Documents and any other instrument or
intangible representing payment for goods or services; (f) all Equipment, provided however,
specifically excluding all fixtures that would be defined as “Building Equipment” in that certain
Beneficiary Agreement dated October 23, 2002 executed by Cathay Bank in favor of Congress; (g) all
Investment Property; (h) all Commercial Tort Claims; (i) all Letter-of-Credit Rights; (j) all
Deposit Accounts and funds on deposit therein, including but not limited to any Disbursements
Account, Collections Account or funds otherwise on deposit with or under the control of Bank or its
agents or correspondents; (k) all Fixtures; and (l) all parts, replacements, substitutions,
profits, products, Accessions and cash and non-cash Proceeds and Supporting Obligations of any of
the foregoing (including, but not limited to, insurance proceeds) in any form and wherever located.
The foregoing Fixtures collateral is located at or affixed to the real

4

 

property known as 3775 Kensington Avenue, Philadelphia, Pennsylvania, Philadelphia County, PA, 1502
Crocker Avenue, Hayward, CA, 31153 San Antonio Street, Hayward, CA and 30831 Huntwood Avenue,
Hayward, CA. Collateral shall include all written or electronically recorded books and records
relating to any such Collateral and other rights relating thereto. Collateral shall specifically
exclude all Intellectual Property.

“Collateral Location” means any location where Collateral is located, as identified and certified
by Borrower on the Borrower Information Certificate.

“Collections Account” means any Deposit Account maintained by Borrower at Bank to which
collections, deposits and other payments on or with respect to Collateral may be made pursuant to
the terms hereof, to which only Bank shall have access to withdraw or otherwise direct the
disposition of funds on deposit therein.

“Commercial Tort Claim” has the meaning set forth in the Code.

“Debt” means all liabilities of a Person as determined under GAAP and all obligations which such
Person has guaranteed or endorsed or is otherwise secondarily or jointly liable for, and shall
include, without limitation (a) all obligations for borrowed money or purchased assets, (b)
obligations secured by assets whether or not any personal liability exists, (c) the capitalized
amount of any capital or finance lease obligations, (d) the unfunded portion of pension or benefit
plans or other similar liabilities, (e) obligations as a general partner, (f) contingent
obligations pursuant to guaranties, endorsements, letters of credit and other secondary
liabilities, (g) obligations for deposits, and (h) obligations under Swap Agreements.

“Default” has the meaning set forth in the definition of Event of Default.

“Default Rate” on any date, means a rate per annum that is equal to (i) in the case of each Loan
outstanding on such date, 3.0% in excess of the rate otherwise applicable to such Loan on such
date, and (ii) in the case of any other Obligations outstanding on such date, 3.0% in excess of the
Prime Rate in effect on such date, provided that Obligations under Swap Agreements shall bear
interest at the Default Rate determined in accordance with the terms of said Swap Agreements.

“Deposit Account” has the meaning set forth in the Code.

“Disbursement Account” means any Deposit Account maintained by Borrower with Bank for the purpose
of depositing the proceeds of Loans made pursuant hereto.

“Document” has the meaning set forth in the Code.

“Electronic Chattel Paper” has the meaning set forth in the Code.

“Eligible Accounts” means all Accounts in U.S. dollars evidenced by a paper invoice or electronic
equivalent (valued at the face amount of such invoice, less maximum discounts, credits and
allowances which may be taken by Account Debtors on such Accounts, net of any sales tax, finance
charges or late payment charges included in the invoiced amount, net of any accruals for
adjustments, returns, rebates, chargebacks and discounts and net of Borrower’s “chargeback/wac”
accrual) created or acquired by Borrower arising from the sale of Inventory and/or the provision of
certain services in Borrower’s ordinary course of business (as approved by Bank) in which Bank has
a first (and only) priority, perfected security interest, but excluding, without duplication

5

 

                    (a) Accounts outstanding for longer than (i) with respect to Accounts owing by Teva, (A) sixty
(60) days from the original invoice date or (B) thirty (30) days from the original due date,
whichever is shorter and (ii) with respect to all Account Debtors other than Teva, ninety (90) days
from original invoice date or (iii) sixty (60) days from the original due date, which ever is
shorter;

                    (b) all Accounts owed by an Account Debtor if more than fifty percent (50%) of the Accounts
owed by such Account Debtor to Borrower are deemed ineligible hereunder pursuant to clause (a);

                    (c) Accounts owing from any Affiliate of Borrower;

                    (d) Accounts owed by a creditor of Borrower to the extent of the amount of the indebtedness of
Borrower to such creditor;

                    (e) Accounts which are in dispute or subject to any counterclaim, contra-account, volume
rebate, cooperative advertising accrual, deposit or offset, to the extent of the amount of such
counterclaim, contra-account, volume rebate, cooperative advertising accrual, deposit or offset;

                    (f) Accounts owing by any Account Debtor which is not Solvent;

                    (g) Accounts arising from a sale on a bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or similar basis or which is subject to repurchase, return,
rejection, repossession, loss or damage;

                    (h) Accounts owed by an Account Debtor that (1) is a Sanctioned Person or (2) except with
respect to Teva, is located outside of the United States of America or Canada, unless in its sole
and absolute discretion Bank agrees to allow such Account to be an Eligible Account and such
Account is supported by a letter of credit or credit insurance assigned to Bank and which is issued
by a financial institution and in an amount and on terms which are acceptable to Bank in its sole
and absolute discretion;

                    (i) Accounts owed by the United States of America or other governmental or quasi-governmental
unit, agency or subdivision unless Borrower shall have complied with all applicable federal and
state assignment of claims laws;

                    (j) Accounts as to which the goods giving rise to the Account have not been delivered to and
accepted by the Account Debtor or the service giving rise to the Account has not been completely
performed or which do not represent a final sale;

                    (k) Accounts evidenced by a note or other Instrument or Chattel Paper or reduced to judgment;

                    (l) such Accounts of a single account debtor or its Affiliates (other than Cardinal Health,
Inc., Amerisource Bergen Corp., McKesson Corp., Teva, Schering Corporation and Walgreen Co.) which
constitute more than ten (10%) percent of all otherwise

6

 

Eligible Accounts, or in the case of Cardinal Health, Inc., Walgreen Co., Schering
Corporation, Amen source Bergen Corp. or McKesson Corp., such Accounts of each such Person which
constitute more than thirty (30%) percent of all otherwise Eligible Accounts, or in the case of
Teva, such Accounts of such Person which constitute more than the Teva Percentage of all otherwise
Eligible Accounts (but the portion of the Accounts not in excess of such percentages may be deemed
Eligible Accounts); provided, however, that Bank may reduce the percentages for Cardinal Health,
Inc., Amerisource Bergen Corp., McKesson Corp., Teva, Schering Corporation and/or Walgreen Co. set
forth above to a percentage not less than ten (10%) percent of all otherwise Eligible Accounts of
such Person as determined by Bank in good faith based on either: (i) an event, condition or other
circumstance arising after the date hereof, or (ii) an event, condition or other circumstance
existing on the date hereof to the extent Bank has no written notice thereof from Borrower prior to
the date hereof, in either case under clause (i) or (ii) which adversely affects or could
reasonably be expected to adversely affect the Accounts in the good faith determination of Bank;

                    (m) Accounts which, by contract, subrogation, mechanics’ lien laws or otherwise, are subject
to claims by Borrower’s creditors or other third parties or which are owed by Account Debtors as to
whom any creditor of Borrower (including any bonding company) has lien or retainage rights;

                    (n) Accounts owed by an Account Debtor which is located in a jurisdiction where Borrower is
required to qualify to transact business or to file reports, unless Borrower has so qualified or
filed;

                    (o) Accounts owed by an Account Debtor who disputes the liability therefor;

                    (p) Accounts owed by an Account Debtor that shall be the subject of any proceeding of the type
described in Section 8.1(g) or (h)

                    (q) Accounts consisting of Royalty Payments that have been outstanding more than thirty (30)
days from the due date therefore or with respect to which Bank has not received a copy of the
written confirmation of the account debtor with respect to such Royalty Payment of such account
debtor’s obligation to Borrower to pay such Royalty Payment.

                    (r) Any other Account which Bank otherwise in its sole and absolute discretion deems to be
ineligible.

No Account shall be an Eligible Account if any representation, warranty or covenant herein relating
thereto shall be untrue, misleading or in default.

“Eligible Equipment” means “Eligible Equipment” shall mean all Equipment owned by Borrower and is
in good order, repair, running and marketable condition, located at Borrower’s premises and
acceptable to Lender in all respects. In general, Eligible Equipment shall not include: (i)
Equipment at premises other than those owned and controlled by Borrower, except for Equipment at
locations leased by Borrower if either Bank shall have received a Third Party Waiver duly
authorized, executed and delivered by the owner or operator of such premises in form and substance
satisfactory to Bank, or if Bank shall not have received such an agreement

7

 

(or Bank shall determine to accept a Third Party Waiver that does not include all required
provisions or provisions in the form otherwise required by Bank), Bank shall have established a
reserve against availability of Revolver Loans with respect to amounts at any time payable by
Borrower to the owner and lessor of such premises as Bank shall determine; (ii) Equipment subject
to a security interest or lien in favor of any person other than Bank, except for Permitted Liens;
(iii) Equipment which is not located in the continental United States of America; (iv) Equipment
which is not subject to the first priority, valid and perfected security interest of Bank; (v)
worn-out, obsolete, damaged or defective Equipment or Equipment not used or usable in the ordinary
course of Borrower’s business as presently conducted; (vi) computer hardware, furniture, fixtures
and soft-costs; or (vii) Equipment that is or becomes a fixture to any Real Property unless such
Real Property is encumbered by a first priority mortgage lien in favor of Bank. General criteria
for Eligible Equipment may be established and revised from time to time by Bank in good faith based
on an event, condition or other circumstance arising after the date hereof, or existing on the date
hereof to the extent Bank has no written notice thereof from Borrower, which adversely affects or
could reasonably be expected to adversely affect the Equipment in the good faith determination of
Bank. Any Equipment which is not Eligible Equipment shall nevertheless be part of the Collateral.

“Eligible Inventory” means all Inventory acquired by Borrower in the ordinary course of its
business as presently conducted consisting of raw materials and finished goods (but specifically
excluding work-in-process) which Bank has determined to be eligible for credit extensions
hereunder, valued at the lower of cost or market on a first-in, first-out basis and consistent with
the most recent appraisal received by Bank, but excluding, however, in any event, without
limitation of the foregoing, unless otherwise approved by Bank, any such Inventory which

                    (a) is not at all times subject to a duly perfected, first priority (and only) security
interest in favor of Bank;

                    (b) is not in good and saleable condition;

                    (c) is on consignment from, or subject to, any repurchase agreement with any supplier;

                    (d) constitutes returned, repossessed, damaged, defective, obsolete, or slow-moving goods as
determined by Bank;

                    (e) does not conform in all respects to the warranties and representations set forth in the
Loan Documents in respect of inventory Collateral or Collateral generally;

                    (f) is subject to a negotiable document of title (unless issued or endorsed to Bank);

                    (g) is subject to any license or other agreement that limits or restricts Borrower’s or Bank’s
right to sell or otherwise dispose of such inventory (unless the licensor and Borrower enter into a
licensor waiver in form and substance satisfactory to Bank);

                    (h) is not located at a Collateral Location;

8

 

                    (i) constitutes inventory-in-transit;

                    (j) is located at a Collateral Location with respect to which, if not owned and controlled by
Borrower, Bank has not received from the Person owning such property or in control thereof a Third
Party Waiver (unless Reserves are imposed with regard thereto as determined by Bank in its sole and
absolute discretion);

                    (k) consists of any packaging materials, supplies or promotional materials;

                    (l) consists of samples;

                    (m) consists of trial, test, unapproved or developmental products including, without
limitation, products which are not FDA Approved Products;

                    (n) consists of Inventory which is not readily saleable in accordance with, or does not meet
all standards imposed by, applicable law, including, without limitation, the Federal Food, Drug and
Cosmetic Act and all rules and regulations and orders related thereto;

                    (o) consists of Short Dated Inventory;

                    (p) has been returned to, or repossessed by, Borrower;

                    (q) consists of Inventory which Bank otherwise in its sole and absolute discretion deems to
not be Eligible Inventory.

“Eligible Royalty Payments” means all Royalty Payments that have not been outstanding more than
thirty (30) days from their respective due date and with respect to which Bank has received a copy
of the written confirmation of the account debtor with respect to such Royalty Payment of the
account debtor’s obligation to pay such Royalty Payment to Borrower.

“Environmental Laws” means, collectively the following acts and laws, as amended: the Comprehensive
Environmental Response, Compensation and Liability Act of 1980; the Superfund Amendments and
Reauthorization Act of 1986; the Resource Conservation and Recovery Act; the Toxic Substances Act;
the Clean Water Act; the Clean Air Act; the Oil Pollution and Hazardous Substances Control Act of
1978; and any other “Superfund” or “Superlien” law or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as
now or at any time hereafter in effect.

“ERISA” has the meaning set forth in Section 4.17.

“ERISA Affiliate” shall mean any person required to be aggregated with Borrower or any of its
Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the IRS Code.

“ERISA Event” shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA or the
regulations issued thereunder, with respect to a Plan; (b) the adoption of any amendment to a Plan
that would require the provision of security pursuant to Section 401(a)(29) of the IRS Code

9

 

or Section 307 of ERISA; (c) the existence with respect to any Plan of an “accumulated funding
deficiency” (as defined in Section 412 of the IRS Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412 of the IRS Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any Plan; (e) the
occurrence of a “prohibited transaction” with respect to which Borrower or any of its Subsidiaries
is a “disqualified person” (within the meaning of Section 4975 of the IRS Code) or with respect to
which Borrower or any of its Subsidiaries could otherwise be liable; (f) a complete or partial
withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or a cessation of
operations which is treated as such a withdrawal or notification that a Multiemployer Plan is in
reorganization; (g) the filing of a notice of intent to terminate, the treatment of a Plan
amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings
by the Pension Benefit Guaranty Corporation to terminate a Plan; (h) an event or condition which
might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan; (i) the imposition of any liability
under Title IV of ERISA, other than the Pension Benefit Guaranty Corporation premiums due but not
delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate in excess of
$1,000,000; and (j) any other event or condition with respect to a Plan including any Plan subject
to Title IV of ERISA maintained, or contributed to, by any ERISA Affiliate that could reasonably be
expected to result in liability of Borrower in excess of$1,000,000.

“Equipment” has the meaning set forth in the Code.

“Eurodollar Reserve Percentage” means, for any day, the percentage (expressed as a decimal and
rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as
prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve
requirement (including without limitation any basic, supplemental or emergency reserves) in respect
of eurocurrency liabilities or any similar category of liabilities for a member bank of the Federal
Reserve System in New York City.

“Event of Default” means any event specified as such in Section 8.1 hereof (“Events of Default”),
provided that there shall have been satisfied any requirement in connection with such event for the
giving of notice or the lapse of time, or both; “Default” or “default” means any of such events,
whether or not any such requirement for the giving of notice or the lapse of time or the happening
of any further condition, event or act shall have been satisfied.

“Excess Availability” means, on any date, the difference derived when (a) the principal amount of
Revolver Loans and Letter of Credit Obligations then outstanding (including any amounts that Bank
may have paid for the account of Borrower pursuant to any of the Loan Documents and that have not
been reimbursed by Borrower), plus all sums due and owing Borrower’s trade creditor which are more
than sixty (60) days past due, is subtracted from (b) the lesser of the (i) Revolver Commitment and
(ii) Borrowing Base on such date.

“Exchange Act” shall mean the Securities Exchange Act of 1934, together with all rules, regulations
and interpretations thereunder or related thereto.

“Existing Loan Agreement” means that certain Loan and Security Agreement dated as of October 22,
2002 between Borrower and Bank (as successor in interest to Congress Financial Corporation), as the
same may have been modified, amended and or restated.

10

 

“Existing Loan Documents” means the Financing Agreements, as such term is defined in the Existing
Loan Agreement, as the same may have been modified, amended or restated.

“Existing Loans” means those certain loans made by Bank to Borrower under the Existing Loan
Agreement.

“FDA” means the Food and Drug Administration.

“FDA Approved Products” means Inventory of Borrower which has been approved for sale with no
restrictions by the FDA and each other governmental agency, authority, bureau or subdivision which
has jurisdiction thereover.

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal, for each
day during such period, to the weighted average of the rates on overnight Federal Funds
transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as
published for such day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such transactions received by Bank from
three Federal Funds brokers of recognized standing selected by it.

“Field Exam Cost Limit” shall mean Ten Thousand Dollars ($10,000.00) per field exam during the 2006
calendar year, and, for each calendar year subsequent to the 2006 calendar year, one hundred two
percent of the Field Exam Cost Limit for the immediately preceding calendar year.

“Fixtures” has the meaning set forth in the Code.

“GAAP” means generally accepted accounting principles as in effect in the Unites States from time
to time.

“General Intangibles” has the meaning set forth in the Code, and includes, without limitation,
general intangibles of Borrower, whether now owned or hereafter created or acquired by Borrower,
including all choses in action, causes of action, company or other business records, inventions,
blueprints, designs, patents, patent applications, trademarks, trademark applications, trade names,
trade secrets, service marks, goodwill, brand names, copyrights, registrations, licenses,
franchises, customer lists, permits, tax refund claims, computer programs, operational manuals,
internet addresses and domain names, insurance refunds and premium rebates, all claims under
guaranties, security interests or other security held by or granted to Borrower to secure payment
of any of any of Borrower’s Accounts by an Account Debtor, all rights to indemnification and all
other intangible property of Borrower of every kind and nature (other than Accounts).

“Instrument” has the meaning set forth in the Code.

“Intellectual Property” shall mean Borrower’s now owned and hereafter arising or acquired: patents,
patent rights, patent applications, copyrights, works which are the subject matter of copyrights,
copyright registrations, trademarks, trade names, trade styles, trademark and service mark
applications, and licenses and rights to use any of the foregoing; all extensions, renewals,
reissues, divisions, continuations, and continuations-in-part of any of the foregoing; all rights
to sue for past, present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports, manuals,
and operating standards; goodwill (including any goodwill associated with any trademark or the
license of any trademark); customer and other lists in whatever form maintained; and trade secret

11

 

rights, copyright rights, rights in works of authorship, domain names and domain name
registrations; software and contract rights relating to software, in whatever form created or
maintained.

“Interest Period” means, in respect of each LIBOR Loan, a period of one, two, three or six months
with respect to such LIBOR Loan; provided that:

                    (a) the Interest Period shall commence on the date of advance of or conversion to an LIBOR
Loan and, in the case of immediately successive Interest Periods, each successive Interest Period
shall commence on the date on which the next preceding Interest Period expires;

                    (b) if any Interest Period would otherwise expire on a day that is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day; provided, that if any Interest
Period with respect to a LIBOR Loan would otherwise expire on a day that is not a Business Day but
is a day of the month after which no further Business Day occurs in such month, such Interest
Period shall expire on the next preceding Business Day;

                    (c) any Interest Period with respect to a LIBOR Loan that begins on the last Business Day of a
calendar month (or on a day for which there is not numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last Business Day of the relevant
calendar month at the end of such Interest Period;

                    (d) no Interest Period shall extend beyond the Termination Date.

“Inventory” has the meaning set forth in the Code.

“Inventory Loan Limit” means an amount equal to Fifteen Million Dollars ($15,000,000.00).

“Inventory Reliance” means, as of the last day of each month, calculated on a rolling six (6) month
period ending on such date, the quotient (expressed as a percentage) obtained by dividing (a) the
average outstanding Revolver Loans, plus the average outstanding Letter of Credit Obligations, in
each case supported by Borrower’s Eligible Inventory by (b) the average total outstanding Revolver
Loans, plus the average outstanding Letter of Credit Obligations. During any such period during
which no Revolver Loans are outstanding, the Inventory Reliance shall be zero.

“IRS Code” means the Internal Revenue Code of 1986, as the same now exists or may from time to time
hereafter be amended, modified, recodified or supplemented, together with all rules, regulations
and interpretations thereunder or related thereto.

“Investment Property” has the meaning set forth in the Code.

“Item” means any “item” as defined in Section 4-104 of the Code, and shall also mean and include
checks, drafts, money orders or other media of payment.

“Jurisdiction” means the Commonwealth of Pennsylvania.

“Letter of Credit” means a letter of credit issued by Bank for the account of Borrower as provided
in Sections 2.1.1 and 2.10 hereof.

12

 

“Letter of Credit Obligations” means, at any time, (a) the undrawn face amount of each outstanding
Letter of Credit and (b) all obligations of Borrower to Bank, including but not limited to
reimbursement obligations, commissions and fees, incurred by Borrower in connection with Bank’s
issuance, amendment, renewal or extension of Letters of Credit hereunder.

“Letter-of-Credit Right” has the meaning set forth in the Code.

“Lien” means any mortgage, deed of trust, deed to secure debt, pledge, statutory lien or other lien
arising by operation of law, security interest, trust arrangement, security deed, financing lease,
collateral assignment or other encumbrance, conditional sale or title retention agreement, or any
other interest in property designed to secure the repayment of Obligations, whether arising by
agreement or under any statute or law or otherwise.

“LIBOR” means the rate of interest per annum determined on the basis of the rate for deposits in
U.S. dollars in minimum amounts of at least Five Million Dollars ($5,000,000.00) for a period equal
to the applicable Interest Period which appears on Telerate page 3750 at approximately 11:00 a.m.
(London time) two (2) LIBOR Business Days prior to the first day of the applicable Interest Period
(rounded upward, if necessary, to the nearest one-sixteenth of one percent (1/16%)). If, for any
reason, such rate does not appear on Telerate page 3750, then “LIBOR” shall be determined by Bank
to be the arithmetic average of the rate per annum at which deposits in U.S. dollars in minimum
amounts of at least $5,000,000 would be offered by first class banks in the London interbank market
to Bank at approximately 11:00 a.m. (London time) two (2) LIBOR Business Days prior to the first
day of the applicable Interest Period for a period equal to such Interest Period. Each calculation
by Bank of LIBOR shall be conclusive and binding for all purposes, absent demonstrated error.

“LIBOR Business Day” means with respect to all notices and determinations in connection with, and
payments of principal and interest on, any LIBOR Loan, any day that is a Business Day and that is
also a day for trading by and between banks in Dollar deposits in the London interbank market.

“LIBOR Loan” means a Loan or portion thereof, during any period in which it bears interest at a
rate based upon the LIBOR Rate.

“LIBOR Rate” means a rate per annum (rounded upwards, if necessary, to the next higher
1/100th of 1%) determined by Bank pursuant to the following formula:

	 	 	 
	“LIBOR RATE” =

	 	LIBOR
	 

	 	 

1.00 — Eurodollar Reserve Percentage

“Loans” means the Revolver Loans.

“Loan Documents” means this Agreement, each other Security Agreement, the Note, the Notice of
Borrowings, the Borrower Information Certificate, Borrowing Base Certificates, UCC-1 financing
statements and all other documents and instruments now or hereafter evidencing, describing,
guaranteeing or securing the Obligations contemplated hereby or delivered in connection herewith,
as they maybe modified, amended, extended, renewed or substituted from time to time, but does not
include Swap Agreements.

“Material Adverse Effect” means any (a) material adverse effect upon the validity, performance or
enforceability of any of the Loan Documents or any of the transactions contemplated hereby or
thereby, (b) material adverse effect upon the properties, business, prospects or condition

13

 

(financial or otherwise) of Borrower and/or any other Person obligated under any of the Loan
Documents, (c) material adverse effect upon the ability of Borrower or any other Person to fulfill
any obligation under any of the Loan Documents, or (d) material adverse effect on the Collateral;
provided, however, any change in the stock price or trading volume of the capital stock of Borrower
shall not be taken into account in determining whether there has been or would be a Material
Adverse Effect.

“Material Agreement” means an agreement to which Borrower is a party (other than the Loan
Documents) (a) which is deemed to be a material contract as provided in Regulation S-K promulgated
by the Securities and Exchange Commission under the Securities Act of 1933 or (b) for which breach,
termination, cancellation, nonperformance or failure to renew could reasonably be expected to have
a Material Adverse Effect.

“Material ANDA” shall mean any ANDA the breach, nonperformance, cancellation or failure to renew by
any party thereto would have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of Borrower or the validity or enforceability of
this Agreement, any of the other Loan Documents, or any of the rights and remedies of Bank
hereunder or thereunder.

“Material Contract” shall mean any contract or other agreement (excluding the Loan Documents but
specifically including each Material Agreement), whether written or oral, to which Borrower is a
party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto
would have a material adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of Borrower or the validity or enforceability of this Agreement, any of the
other Loan Documents, or any of the rights and remedies of Bank hereunder or thereunder.

“Material License Agreement” shall mean any Material Contract of Borrower pursuant to which
Borrower has a license or other right to use any patents, trademarks, logos, designs,
representations or other Intellectual Property owned by another Person.

“Material Licensor License Agreement” shall mean any Material Contract of Borrower pursuant to
which Borrower has granted a license or other right to use any patents, trademarks, logos, designs,
representations or other Intellectual Property owned by Borrower.

“Maximum Equipment Advance Amount” shall mean, initially Six Million Dollars ($6,000,000.00).
Commencing on May 1, 2006, the Maximum Equipment Advance Amount shall permanently reduce on a
monthly basis on the first day of each month by $200,000.00 per month.

“Mortgage” means the Amended and Restated Open-End Mortgage and Security Agreement of even date
herewith by Borrower in favor of Bank with respect to real property located at 3775 Kensington
Avenue, Philadelphia, PA and related assets of Borrower, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced in accordance with its
respective terms.

“Multiemployer Plan” shall mean a “multi-employer plan” as defined in Section 4001(a)(3) of ERISA
which is or was at any time during the current year or the immediately preceding six (6) years
contributed to by Borrower.

“Net Cash Position” means, as of any date, Borrower’s cash and Cash Equivalents on such date
(specifically excluding any deposit accounts, certificates of deposit or other similar items

14

 

maintained with a financial institution other than Bank unless Bank has received a satisfactory
control agreement with respect to such account or otherwise obtained a first priority perfected
security interest in such account or certificate of deposit), minus outstanding Revolver Loans on
such date.

“NOLV” means, with respect to any Inventory or Equipment, the expected net dollar amount to be
realized at an orderly negotiated sale of such Inventory or Equipment, expressed as a percentage of
the original cost of such Inventory or Equipment net of operating expenses, liquidation expenses
and commissions, as determined by Bank from time to time based upon the most recent appraisals of
Bank or its agents in form and substance satisfactory to Bank in all respects.

“Net Proceeds” means, with respect to a disposition of any Collateral, proceeds (including cash
receivable (when received) by way of deferred payment) received by Borrower in cash from the sale,
lease, transfer or other disposition of such Collateral, including insurance proceeds and awards of
compensation received with respect to the destruction or condemnation of all or part of such
Collateral, net of: (a) the reasonable and customary costs and expenses of such sale, lease,
transfer or other disposition (including legal fees and sales commissions); (b) amounts applied to
repayment of Debt for borrowed money (other than the Obligations) secured by a Permitted Lien on
such Collateral disposed of that is senior to Bank’s Liens; and (c) in connection with any sale of
Collateral, a reasonable reserve for post-closing adjustments to the purchase price, provided that
upon the expiration of not more than ninety (90) days after the sale, any remaining reserve balance
is remitted to Bank for application to the Obligations.

“Note” shall mean the Revolver Note and any other promissory note now or hereafter evidencing any
Obligations, and all modifications, extensions and renewals thereof.

“Notice of Borrowing” with respect to Revolver Loans means the written request for a Revolver Loan
as identified in Section 2.5.2 hereof.

“OFAC” means the United States Department of the Treasury’s Office of Foreign Assets Control or any
successor thereto.

“Obligations” means all obligations now or hereafter owed to Bank or any Affiliate of Bank by
Borrower, whether related or unrelated to the Loans, this Agreement or the Loan Documents,
including, without limitation, amounts owed or to be owed under the terms of the Loan Documents, or
arising out of the transactions described therein, including, without limitation, the Loans, any
Debt arising out of or relating to any Deposit Accounts of Borrower at Bank or any Affiliate of
Bank or any cash management services or other products or services, including merchant card and ACH
transfer services, Letter of Credit Obligations for outstanding Letters of Credit, obligations for
banker’s acceptances issued for the account of Borrower or its Subsidiaries, amounts paid by Bank
under Letters of Credit or drafts accepted by Bank for the account of Borrower or its Subsidiaries,
together with all interest accruing thereon, including any interest on pre-petition Debt accruing
after bankruptcy, all existing and future obligations under any Swap Agreements between Bank or any
Affiliate of Bank and Borrower whenever executed (including obligations under Swap Agreements
entered into prior to any transfer or sale of Bank’s interests hereunder if Bank ceases to be a
party hereto), all fees, all costs of collection, attorneys’ fees and expenses of or advances by
Bank which Bank pays or incurs in discharge of obligations of Borrower or to inspect, repossess,
protect, preserve, store or dispose of any Collateral, whether such amounts are now due or
hereafter become due, direct or indirect and

15

 

whether such amounts due are from time to time reduced or entirely extinguished and thereafter
re-incurred.

“Permitted Acquisition” means any acquisition by Borrower or any wholly-owned Subsidiary, whether
by purchase, merger or otherwise, of all or substantially all of the assets of, all of the equity
interests of, or a business line or unit or a division of, any Person which is organized in and
whose operations and assets are conducted and located in the United States of America; provided
that,

          (i) immediately prior to, and after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing or would result therefrom;

          (ii) all transactions in connection therewith shall be consummated, in all material respects,
in accordance with all applicable laws and in conformity with all applicable laws;

          (iii) in the case of the acquisition of equity interests, all of the equity interests (except
for any such securities in the nature of directors’ qualifying shares required pursuant to
applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of
Borrower in connection with such acquisition shall be owned 100% by Borrower or such newly formed
Subsidiary;

          (iv) Borrower shall have delivered to Bank at least ten (10) Business Days prior to such
proposed acquisition (A) a compliance certificate and supporting calculations evidencing compliance
with Sections 7.1 and 7.2 both before and after giving effect to such acquisition and pro form
compliance with Sections 7.1 and 7.2 for the twelve (12) month period following such acquisition,
(B) all relevant financial information with respect to such acquired assets or equity interests
(and any issuer thereof), including, without limitation, the Acquisition Consideration for such
acquisition and any other information required to demonstrate compliance with Sections 7.1 and 7.2,
(C) projections for Borrower after giving effect to such acquisition, in form and content
satisfactory to Bank for the next succeeding twelve (12) month period, which projections must
demonstrate, inter alia, that the proposed acquisition will be accretive to Borrower’s earnings,
and (D) copies of all material documents and agreements in connection with such acquisition;

          (v) any Person or assets or division as acquired in accordance herewith shall be in same
business or lines of business in which Borrower and its Subsidiaries are engaged or a similar or
related business or line of business or such other lines of businesses as may be consented to by
Bank;

          (vi) Borrower’s Net Cash Position after giving effect to such acquisition shall be at least
Twenty Million Dollars ($20,000,000.00);

          (vii) Borrower shall have Excess Availability (specifically excluding any acquired assets) of
at least Twenty-Five Million Dollars ($25,000,000.00) both before and after giving effect to such
acquisition;

          (viii) if such acquisition is structured as a purchase of equity interests by Borrower or a
newly formed Subsidiary of Borrower, both the Person acquired as well as any

16

 

newly formed Subsidiary of Borrower shall (A) have joined this Agreement as a Borrower and
shall have executed such documentation in connection therewith as may be required by Bank and (B)
be deemed to have made and joined in all of the representations, warranties and covenants set forth
in this Agreement and each of the other Loan Documents, all of which shall be true and correct for
such Person and any newly formed subsidiary on and as of the date of such acquisition and at all
times thereafter;

          (ix) such acquisition shall be funded solely by Borrower’s cash and/or Subordinated Debt and
no Revolver Loans may be used to fund such acquisition;

          (x) if such acquisition is structured as a purchase of assets, such assets shall not be
included in the calculation of the Borrowing Base until Bank has completed an audit and/or field
exam with respect to such assets which is satisfactory to Bank; and

          (xi) the total Acquisition Consideration paid (A) in connection with any one acquisition shall
not exceed Twenty Million Dollars ($20,000,000.00) and (B) for all Permitted Acquisitions during
the Term shall not exceed Forty Million Dollars ($40,000,000.00); and

          (xii) within ten (10) days of the closing of such acquisition, Borrower shall have delivered
to Bank copies of all material documents and agreements in connection with such acquisition.

“Permitted Debt” has the meaning set forth in Section 6.1 hereof.

“Permitted Dispositions” means, collectively, each of the following:

          (a) dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in
the ordinary course of business;

          (b) dispositions of inventory in the ordinary course of business; and

          (c) dispositions of equipment to the extent that, within ninety (90) days, (i) such property
is exchanged for credit against the purchase price of similar replacement property or (ii) the
proceeds of such disposition are applied to the purchase price of such replacement property.

“Permitted Liens” has the meaning set forth in Section 6.2 hereof.

“Person” means any natural person, corporation, unincorporated organization, trust, joint-stock
company, joint venture, association, company, limited or general partnership, limited liability
company, any government or any agency or political subdivision of any government, or any other
entity or organization.

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) which Borrower
sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in
the case of a Multiemployer Plan has made contributions at any time during the immediately
preceding six (6) plan years.

“Prime Rate” means that rate announced by Bank from time to time as its prime rate and is one of
several interest rate bases used by Bank. Bank lends at rates both above and below Bank’s

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Prime Rate, and Borrower acknowledges that Bank’s Prime Rate is not represented or intended to be
the lowest or most favorable rate of interest offered by Bank.

“Prime Rate Loan” means a Loan, or portion thereof, during any period in which it bears interest at
a rate based upon the Prime Rate.

“Proceeds” has the meaning set forth in the Code.

“Properly Contested” means, in the case of any Debt of Borrower (including any taxes) that is not
paid as and when due or payable by reason of Borrower’s bona fide dispute concerning its liability
to pay same or concerning the amount thereof, (a) such Debt is being properly contested in good
faith by appropriate proceedings promptly instituted and diligently conducted; (b) Borrower has
established appropriate reserves as shall be required in conformity with GAAP; (c) the non-payment
of such Debt will not have a Material Adverse Effect and will not result in a forfeiture or sale of
any assets of Borrower; (d) no Lien is imposed upon any of Borrower’s assets with respect to such
Debt unless such Lien is at all times junior and subordinate in priority to the Liens in favor of
Bank (except only with respect to property taxes that have priority as a matter of applicable state
law) and enforcement of such Lien is stayed during the period prior to the final resolution or
disposition of such dispute; (e) if the Debt results from, or is determined by the entry, rendition
or issuance against Borrower or any of its assets of a judgment, writ, order or decree, enforcement
of such judgment, writ, order or decree is stayed pending a timely appeal or other judicial review;
and (f) if such contest is abandoned, settled or determined adversely (in whole or in part) to
Borrower, Borrower forthwith pays such Debt and all penalties, interest and other amounts due in
connection therewith.

“Raw Materials Inventory Loan Limit” means at any time the amount of Seven Million Dollars
($7,000,000.00).

“Regulated Materials” means any hazardous, toxic or dangerous waste, substance or material, the
generation, handling, storage, disposal, treatment or emission of which is subject to any
Environmental Law.

“Reserves” means, on any date of determination thereof, an amount equal to the sum of the following
(without duplication): (a) such reserves as may be established from time to time by Bank to reflect
changes in the salability of any Eligible Inventory in the ordinary course of business of Borrower
or such other factors as may negatively impact the value of any Eligible Inventory, including
reserves based on obsolescence, seasonality, theft or other shrinkage, imbalance, change in
composition or mix, or markdowns; (b) all amounts of past due rent, fees or other charges owing at
such time by Borrower to any landlord of any premises where any of the Collateral is located or to
any processor, repairman, mechanic or other Person who is in possession of any Collateral or has
asserted any Lien or claim thereto; (c) any amounts which Borrower is obligated to pay pursuant to
the provisions of any of the Loan Documents that Bank elects to pay for the account of Borrower in
accordance with authority contained in any of the Loan Documents; (d) any amount received by Bank
from an assignment of business interruption insurance and applied to the Revolver Loans; (e) the
aggregate amount of reserves established by Bank in its reasonable discretion in respect of Banking
Relationship Debt; (f) all customer deposits or other prepayments held by Borrower; (g) the
aggregate amount of all liabilities and obligations that are secured by Liens upon any of the
Collateral that are senior in priority to Bank’s Liens if such Liens are not Permitted Liens
(provided that the imposition of a reserve hereunder on account of such Liens shall not be deemed a
waiver of the Event of Default that

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arises from the existence of such Liens); (h) such reserves as may be established from time to time
by Bank as a result of dilution with respect to the Accounts (based on the ratio of the aggregate
amount of non-cash reductions in Accounts for any period to the aggregate dollar amount of the
sales of Borrower for such period) as calculated by Bank for any period exceeding six (6%) percent
of the aggregate dollar amount of the sales of Borrower for such period, (i) such reserves as may
be established from time to time by Bank with regard to chargebacks and/or rebates with respect to
the Accounts, (j) such reserves may be established from time to time by Bank with regard to
discounts, claims, credits and allowances of any nature with respect to Accounts, (k) amounts due
or to become due to owners and licensors of Intellectual Property used by Borrower; and (l) such
additional reserves, in such amounts and with respect to such matters, as Bank in its sole and
absolute discretion may elect to impose from time to time.

“Revolver Commitment” means the commitment of Bank, subject to the terms and conditions herein, to
make Revolver Loans and issue Letters of Credit in accordance with the provisions of Section 2
hereof in an aggregate amount not to exceed Thirty-Five Million Dollars ($35,000,000.00) at any one
time.

“Revolver Loan” means a loan made by Bank as provided in Section 2.1.1 hereof.

“Revolver Note” has the meaning set forth in Section 2.1.2 hereof.

“Royalty Payments” means all royalty payments or other similar payments, however characterized or
defined, which are payable to Borrower by any Person.

“Sanctioned Country” means a country subject to the sanctions program identified on the list
maintained by OFAC and available at http://www.treas.gov/offices/eotffc/ofac/sanctions/index.html
or as otherwise published from time to time.

“Sanctioned Person” means (i) a Person named on the list of Specially Designated Nationals or
Blocked Persons maintained by OFAC available at
http://www.treas.gov/offices/eotffc/ofac/sdn/index.html or as otherwise published from time to
time, or (ii) (A) an agency of the government of a Sanctioned Country, (B) an organization
controlled by a Sanctioned Country, or (C) a Person resident in a Sanctioned Country, to the extent
subject to a sanctions program administered by OFAC.

“Security Agreement” means this Agreement as it relates to a security interest in the Collateral,
and any other mortgage instrument, security agreement or similar instrument now or hereafter
executed by Borrower or other Person granting Bank a security interest in any Collateral to secure
the Obligations.

“Senior Officer” means the chairman of the board of directors, the president or the chief financial
officer of, or in-house legal counsel to, Borrower.

“Short Dated Inventory” means, at any time of determination, Inventory having an expiration date of
less than twelve (12) months from such date.

“Solvent” means, as to any Person, that such Person has capital sufficient to carry on its business
and transactions in which it is currently engaged and all business and transactions in which it is
about to engage, is able to pay its debts as they mature, and has assets having a fair value
greater than its liabilities, at fair valuation.

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“Subordinated Debt” means any Debt of Borrower or any of its Subsidiaries that is subordinated
to the Obligations pursuant to a written agreement by and among Borrower, Bank and the applicable
subordinated lender, which agreement must be in form and content satisfactory to Bank.

“Subsidiary” means any corporation, partnership or other entity in which Borrower, directly or
indirectly, owns more than fifty percent (50%) of the stock, capital or income interests, or other
beneficial interests, or which is effectively controlled by such Person.

“Supporting Obligation” has the meaning set forth in the Code.

“Swap Agreement” has the meaning for swap agreement as defined in 11 U.S.C. § 101, as in effect
from time to time, or any successor statute, and includes, without limitation, any rate swap
agreement, forward rate agreement, commodity swap, commodity option, interest rate option, forward
foreign exchange agreement, spot foreign exchange agreement, rate cap agreement, rate floor
agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement,
currency option and any other similar agreement.

“Tangible Chattel Paper” has the meaning set forth in the Code.

“Term” means the period from and including the Closing Date to but not including the Termination
Date.

“Termination Date” means the earliest of (a) October 31, 2008, (b) the date on which Borrower
terminates this Agreement and the credit facilities provided hereunder pursuant to Section 2.13
hereof, and (c) the date on which Bank terminates its obligation to make Loans and other extensions
of credit to Borrower pursuant to Section 8.2(a) hereof.

“Teva” means Teva Pharmaceuticals Curacao N.V., a corporation organized under the laws of the
Netherlands Antilles.

“Teva Percentage” means thirty percent (30%). The Teva Percentage may be increased in connection
with new product launches by Borrower to up to fifty percent (50%) as determined by Bank in good
faith, in each case no more than twice per year for no more than sixty (60) days each time.

“Third Par Waiver” means a waiver or subordination of Liens satisfactory to Bank from any lessors,
mortgages, warehouse operators, processors or other third parties that might have lienholders’
enforcement rights against any Collateral, waiving or subordinating those rights in favor of Bank
and assuring Bank’s access to the Collateral in exercise of Bank’s rights hereunder.

“USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001.

“Voting Stock” shall mean with respect to any Person, (a) one (1) or more classes of Capital Stock
of such Person having general voting powers to elect at least a majority of the board of directors,
managers or trustees of such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of any contingency, and
(b) any Capital Stock of such Person convertible or exchangeable without restriction at the option
of the holder thereof into Capital Stock of such Person described in clause (a) of this definition.

20

 

          1.2 Financial Terms. All financial terms used herein shall have the meanings assigned
to them under GAAP unless another meaning shall be specified.

     2. The Credit Facility; Letters of Credit; Interest and Fees.

          2.1 The Credit Facility.

               2.1.1 Revolver Commitment.

                    (a) Bank agrees, on the terms and conditions set forth in this Agreement, to make Revolver
Loans to Borrower and to issue letters of credit on behalf of Borrower from time to time during the
Term in amounts such that the aggregate principal amount of Revolver Loans and the face amount of
any letters of credit at any one time outstanding will not exceed the lesser of (i) the Revolver
Commitment and (ii) the Borrowing Base, subject to the limitations set forth in Section 2.1.1(b).
Revolver Loans may be Prime Loans or LIBOR Loans. Within the foregoing limit, Borrower may borrow,
prepay and reborrow Revolver Loans at any time during the Term.

                    (b) The aggregate amount of Revolver Loans, plus Letter of Credit Obligations
outstanding at any time (i) based upon Eligible Inventory, shall not exceed the inventory Loan
Limit, (ii) based upon Eligible Inventory constituting Bulk Inventory, shall not exceed the Bulk
Inventory Loan Limit and (iii) based upon Eligible Inventory consisting of raw materials, shall not
exceed the Raw Materials Inventory Loan Limit.

                    (c) No Revolver Loans supported by Eligible Inventory or Eligible Equipment shall be available
to Borrower until Bank receives a current appraisal of all of Borrower’s Inventory (in the case of
Revolver Loans supported by Eligible Inventory) or Equipment (in the case of Revolver Loans
supported by Eligible Equipment) which appraisal shall be in form and content satisfactory to Bank
and prepared by an appraiser satisfactory to Bank.

                    (d) The aggregate amount of Revolver Loans supported by Eligible Royalty Payments shall at no
time exceed One Million Five Hundred Thousand Dollars ($1,500,000.00).

               2.1.2 Revolver Note. Borrower shall execute and deliver to Bank, on the Closing Date, a
promissory note in the form of Exhibit A-1 attached hereto and made a part hereof (the “Revolver
Note”), which Revolver Note, in addition to the records of Bank, shall evidence the Revolver Loans
and interest accruing thereon. All outstanding principal amounts and accrued interest under the
Revolver Note shall be due and payable in accordance with the terms of the Revolver Note and this
Agreement.

          2.2 Collections Account.

               2.2.1 Collections Account. Borrower shall establish a lockbox under the control of
Bank to which all Account Debtors shall forward payments on the Accounts. Borrower shall pay all of
Bank’s standard fees and charges in connection with such lockbox arrangement and Collections
Account as such fees and charges may change from time to time.

21

 

Borrower shall notify Account Debtors on the Accounts to forward payments on the Accounts to
the lockbox; provided, however, that, after the occurrence and during the continue of an Event of
Default, Bank shall have the right to directly contact Account Debtors at any time to ensure that
payments on the Accounts are directed to the lockbox. All payment items received by Borrower on
Accounts and sale of Inventory and other Collateral shall be held by Borrower in trust for Bank and
not commingled with Borrower’s funds and shall be deposited promptly by Borrower to the Collections
Account. All such items shall be the exclusive property of Bank upon the earlier of the receipt
thereof by Bank or by Borrower. Borrower hereby grants to Bank a security interest in and lien upon
all items and balances held in any lockbox, the Disbursements Account and the Collections Account
as Collateral for the Obligations, in addition to and cumulative with the general security interest
in all assets of Borrower (including all Deposit Accounts) contained in Section 9.1 hereof.

               2.2.2 Power of Attorney. Borrower hereby irrevocably appoints Bank (and any duly
authorized Person designated by Bank) as Borrower’s attorney-in-fact to endorse Borrower’s name on
any checks, drafts, money orders or other media of payment which come into Bank’s possession or
control; this power being coupled with an interest is irrevocable so long as any of the Obligations
remain outstanding. Such endorsement by Bank under power of attorney shall, for all purposes, be
deemed to have been made by Borrower (prior to any subsequent endorsement by Bank) in negotiation
of the item.

               2.2.3 Application of Payments. Payment items received shall be deposited into the
Collections Account, subject to chargebacks for uncollected payment items, and if no Event of
Default exists and no Revolver Loans are then outstanding or have been repaid, Bank shall pay over
such of the proceeds of such payments to a Deposit Account maintained by Borrower at Bank and
designated in writing by Borrower. All funds deposited into the Collections Account on any Business
Day shall be deemed to have been applied by Bank, for interest calculation purposes and for the
purpose of determining the availability of Revolver Loans hereunder, one (1) Business Day following
deposit of such funds, to reduce the then outstanding balance of the Revolver Loans and to pay
accrued interest thereon and to pay any other outstanding Obligations which are then due and
payable hereunder. All amounts received directly by Borrower from any Account Debtor, in addition
to all other cash received from any other source including but not limited to proceeds from any
realization on any Collateral (but excluding the proceeds of any Revolver Loans made hereunder)
shall be held by Borrower pursuant to an express trust (which is hereby created) for the benefit of
Bank, shall be held by Borrower separate and segregated from all other funds of Borrower and shall
be deposited into the Collection Account within one (1) Business Day of receipt thereof by
Borrower. No payment item received by Bank shall constitute payment to Bank until such item is
actually collected by Bank and credited to the Collections Account; provided, however, that Bank
shall have the right to charge back to the Collections Account (or any other account of Borrower
maintained at Bank) an item which is returned for inability to collect, plus accrued interest
during the period of Bank’s provisional credit for such item prior to receiving notice of dishonor.

          2.3 Interest. Borrower agrees to pay interest in respect of all unpaid principal
amounts of the Loans from the respective dates such principal amounts are advanced until paid
(whether at stated maturity, on acceleration or otherwise) at a rate per annum equal to the
applicable rate indicated below:

22

 

               2.3.1 Prime Rate Loans. For Loans made or outstanding as Prime Rate Loans, the
Applicable Margin in effect from time to time for such Prime Rate Loans plus the Prime Rate in
effect from time to time.

               2.3.2 LIBOR Loans. For Loans made or outstanding as LIBOR Loans, the Applicable Margin
in effect from time to time for such LIBOR Loans plus the LIBOR Rate.

               2.3.3 Indemnification. Borrower shall indemnify Bank against Bank’s loss or expense
as a consequence of (a) Borrower’s failure to make any payment when due on a LIBOR Loan, (b) any
payment, prepayment or conversion of any LIBOR Loan on a day other than the last day of the
Interest Period, or (c) any failure to make a borrowing or conversion of a LIBOR Loan after giving
notice thereof, in each case whether voluntarily, by reason of acceleration or otherwise
(“Indemnified Loss or Expense”). The amount of such Indemnified Loss or Expense shall be determined
by Bank based upon the assumption that Bank funded 100% of the applicable LIBOR Loan in the London
interbank market.

          2.4 Interest Rate Adjustments.

               2.4.1 Prime Rate Loan. When a Prime Rate Loan is selected, the interest rate shall be
adjusted from time to time, effective as of the date of each change in Bank’s Prime Rate and the
Prime-based Rate shall continue to apply until another interest rate option is selected by Borrower
for that Loan.

               2.4.2 LIBOR Loan. When a LIBOR Loan is selected, such interest rate shall be fixed for
each Interest Period for which it is determined and shall apply for that Loan until another
interest rate option is selected by Borrower for that Loan.

          2.5 Notice and Manner of Borrowing and Rate Conversion.

               2.5.1 Revolver Loans. Borrower shall give Bank irrevocable telephonic notice of each
proposed Revolver Loan or permitted rate conversion not later than 11:00 a.m. (local time in
Philadelphia, Pennsylvania) (a) on the same business day as each proposed Loan or rate conversion
to a Prime Rate Loan and (b) at least two (2) LIBOR Business Days before each proposed Loan at or
rate conversion to a LIBOR Loan. For each Revolver Loan each such notice shall specify (i) the date
of such Loan or rate conversion, which shall be a Business Day or in the case of a LIBOR Loan, a
LIBOR Business Day and, in the case of a conversion from a LIBOR Loan, shall be the last day of an
Interest Period, (ii) the amount of each Loan or the amount to be converted, (iii) the interest
rate selected by Borrower from the interest rate options set forth in this Agreement, and (iv)
except for a Prime Loan, the Interest Period applicable thereto, which period must correspond to
one of the interest rate options set forth in the definition of LIBOR Rate. Notices received after
11:00 a.m. (local time in Philadelphia, Pennsylvania) shall be deemed received on the next Business
Day. Bank’s acceptance of such a request shall be indicated by its making the Loan requested. Such
a Loan shall be made available to Borrower in immediately available funds by deposit into the
Disbursement Account. Borrower may not request any LIBOR Loans if a Default or Event of Default
exists. In no event may the number of LIBOR Loans outstanding at any time exceed four (4). Each
LIBOR Loan requested shall be in a

23

 

minimum amount of $1,000,000.00 and integral multiples of $100,000.00 in excess of that
amount.

               2.5.2 Additional Provisions for Requests for Revolver Loans. Bank, in its discretion,
may require from Borrower a signed written request for a Revolver Loan in form of a Notice of
Borrowing satisfactory to Bank, which request shall be irrevocable and shall be delivered to Bank
no later than 11:00 a.m. (local time in Philadelphia, Pennsylvania) on the date determined in
accordance with Section 2.5.1, and shall set forth the calculation of the Borrowing Base and a
reconciliation to the previous request or Borrowing Base Certificate, specify the information
required by Section 2.5.1 for the proposed Revolver Loan and provide such other information as Bank
may reasonably require.

                    (a) Subject to Section 2.5.2(c) below, unless payment is otherwise timely made by Borrower,
the becoming due of any amount required to be paid with respect to any of the Obligations (whether
as principal, accrued interest, fees or other charges owed to Bank or any Affiliate of Bank) shall
be deemed irrevocably to be a request (without the requirement for the submission of a Notice of
Borrowing) for Revolver Loans on the due date of, and in an aggregate amount required to pay, such
Obligations, and Bank may disburse the proceeds of such Revolver Loans by way of direct payment of
the relevant Obligations, and such Revolver Loans shall bear interest as Prime Rate Loans.

                    (b) Subject to Section 2.5.2(c) below, the presentation for payment of any check or other item
of payment drawn on the Disbursement Account at a time when there are insufficient funds in such
account to cover such item shall be deemed irrevocably to be a request (without any requirement for
the submission of a Notice of Borrowing) for Revolver Loans on the date of such presentation in an
amount equal to the aggregate amount of the items presented for payment, and Bank may disburse the
proceeds of such Revolver Loans to the Disbursement Account and such Revolver Loans shall bear
interest as Prime Rate Loans.

                    (c) Bank shall have no obligation to Borrower to honor any deemed request for a Revolver Loan
under Section 2.5.2(a) or Section 2.5.2(b) above after the Termination Date or when the principal
amount of such Revolver Loan, when added to the aggregate outstanding principal amount of all
Revolver Loans and the Letter of Credit Obligations would exceed the lesser of the Revolver
Commitment and the Borrowing Base at such time or when any condition precedent in Section 3.2
hereof is not satisfied, but may do so in its discretion and without regard to the existence of,
and without being deemed to have waived, any Default or Event of Default.

               2.5.3 Excess Outstandings. Notwithstanding the foregoing, Bank may, in its sole and
absolute discretion, make or permit to remain outstanding Revolver Loans which, when added to the
principal amount of all other Revolver Loans and Letter of Credit Obligations, exceed the Revolver
Commitment or the Borrowing Base, and all such amounts shall (a) be part of the Obligations
evidenced by the Revolver Note, (b) bear interest as provided herein, (c) be payable upon demand by
Bank, and (d) be secured by the Collateral and be entitled to all rights and security as provided
under the Loan Documents.

          2.6 Repayment of Loans.

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               2.6.1 Repayment of Revolver Loans.

                    (a) The outstanding principal amount of the Revolver Loans shall be repaid as follows: Any
portion of the Revolver Loans shall be paid by Borrower to Bank immediately upon each receipt by
Bank or Borrower of any proceeds of any Accounts or Inventory, to the extent of such proceeds.
Unless otherwise specified by Borrower, all principal repayments of Revolver Loans shall be applied
by Bank, first, to outstanding Prime Rate Loans and, second, to any outstanding LIBOR Loans. After
the occurrence and during the continuance of an Event of Default, Bank may apply all proceeds of
Accounts or other Collateral received by Bank and all other payments in respect of the Obligations
to the Revolver Loans whether or not then due or to any other Obligations then due, in whatever
order or manner Bank shall determine. In any event, the outstanding principal amount of Revolver
Loans shall be due and payable on the Termination Date.

                    (b) Interest accrued on the Revolver Loans shall be due and payable as follows: (i) in the
case of a Prime Rate Loan, on the first day of each month for the immediately preceding month),
computed through the last calendar day of the preceding month, (ii) in the case of LIBOR Loan, on
the last day of the Interest Period for such loan, except that in the case of a LIBOR Loan having a
six (6) month Interest Period, interest shall also be payable on the last day of the third month of
the Interest Period; and (iii) in the case of all Revolver Loans, on the Termination Date.

          2.7 Additional Payment Provisions.

               2.7.1 Payment of Other Obligations. The balance of the Obligations under the Loan
Documents requiring the payment of money shall be repaid by Borrower to Bank as and when provided
in the relevant Loan Documents, or, if no date of payment is otherwise specified in the Loan
Documents, on demand.

               2.7.2 Authorization to Debit. Bank may debit the Disbursement Account, the Collections
Account and any account subject to Bank’s control (as such term is used in Article 9 of the Code)
and/or make Revolver Loans to Borrower (whether or not in excess of the lesser of the Revolver
Commitment and the Borrowing Base) and apply such amounts to the payment of interest, fees,
expenses and other amounts to which Bank may be entitled from time to time and Bank is hereby
irrevocably authorized to do so without the consent of Borrower. Bank shall provide Borrower
contemporaneous notice of all such debits other than debits for interest payment.

               2.7.3 Time and Location of Payment. Borrower shall make each payment of principal of
and interest on the Loans and fees hereunder not later than 1:00 p.m. (local time Philadelphia,
Pennsylvania) on the date when due, without set off, counterclaim or other deduction, in
immediately available funds to Bank at its address referred to in Section 10.4. Whenever any
payment of principal of, or interest on, the Loans or of fees shall be due on a day which is not a
Business Day, the date for payment thereof shall be extended to the next succeeding Business Day.
If the date for any payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.

25

 

               2.7.4 Late Charge. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to five percent (5%) of each payment past due for ten (10) or more days.

               2.7.5 Excess Over Borrowing Base. To the extent that the aggregate amount of all
Revolver Loans and the Letter of Credit Obligations exceeds the Borrowing Base (after giving effect
to all sublimits and reserves then in effect), the amount of such excess will be paid immediately
to Bank.

               2.7.6 Swaps Are Independent. Any prepayment shall not affect Borrower’s obligation to
continue making payments under any Swap Agreement, which shall remain in full force and effect
notwithstanding such prepayment, subject to the terms of such Swap Agreement.

               2.7.7 Capital Requirements. If either (a) the introduction of, or any change in, or in
the interpretation of, any applicable law or (b) compliance with any guideline or request from any
central bank or comparable agency or other governmental authority (whether or not having the force
of law) made or promulgated after the date hereof, has or would have the effect of reducing the
rate of return on the capital of, or has affected or would affect the amount of capital required to
be maintained by Bank or any corporation controlling Bank as a consequence of, or with reference
to, the Revolver Commitment and other commitments of this type, below the rate which Bank or such
other corporation could have achieved by for such introduction, change or compliance, then within
five (5) Business Days after written demand by Bank, Borrower shall pay to Bank from time to time
as specified by Bank additional amounts sufficient to compensate Bank or such other corporation for
such reduction; provided, however, Borrower shall not be obligated to compensate Bank under this
Section 2.7.7 for sums due for any period which is more than one hundred eighty (180) days prior to
such written demand by Bank. A certificate as to such amounts submitted to Borrower by Bank shall,
in the absence of demonstrated error, be presumed to be correct and binding for all purposes. Bank
shall determine the applicability of and the amount due under this Section 2.7.7 substantially
consistent with the manner in which it applies similar provisions and calculates similar amounts
payable to it by other similarly situated borrowers having comparable provisions in their credit
agreements.

          2.8 Default Rate. In addition to all other rights contained in the Loan Documents, if
an Event of Default occurs, the principal amount of all outstanding Obligations, other than
Obligations under any Swap Agreements between Borrower and Bank or its affiliates, may, at Bank’s
option, bear interest at the Default Rate. The Default Rate shall apply from acceleration until
such Obligations or any judgment thereon is paid in full.

          2.9 Calculation of Interest. All fees and other charges provided for in this Agreement
that are calculated as a per annum percentage of any amount and all interest shall be calculated
daily and shall be computed on the actual number of days elapsed over a year of 360 days. For
purposes of computing interest and other charges hereunder, all payment items and other forms of
payment received by Bank (other than immediately available funds) shall be deemed applied by Bank
on account of the Obligations (subject to final payment of such items) on the second Business Day
after Bank receives such items in the Collections Account. Each

26

 

determination by Bank of interest and fees hereunder shall be presumptive evidence of the
correctness of such interest and fees.

          2.10 Letters of Credit.

               2.10.1 Issuance of Letters of Credit. Bank shall from time to time issue, upon five
(5) Business Days prior written notice, extend or renew letters of credit for the account of
Borrower or its Subsidiaries; provided that (a) the aggregate face amount of Letters of Credit
issued by Bank which are outstanding at any one time shall not exceed Five Million Dollars
($5,000,000.00), (b) Bank shall have no obligation to issue any Letter of Credit if, after giving
effect thereto, the principal amount of all Revolver Loans and the Letter of Credit Obligations
would exceed the lesser of the Borrowing Base and the Revolver Commitment, and (c) all other
conditions precedent to the issuance of each such Letter or Credit as set forth herein are
satisfied or waived in writing by Bank. All payments made by Bank under any such Letters of Credit
(whether or not Borrower is the account party) and all fees, commissions, discounts and other
amounts owed or to be owed to Bank in connection therewith, shall be paid on demand, unless
Borrower instructs Bank to make a Revolver Loan to pay such amount, Bank agrees to do so, and the
necessary amount remains available to be drawn as a Revolver Loan hereunder. All Letter of Credit
Obligations shall be secured by the Collateral. Borrower shall complete and sign such applications
and supplemental agreements and provide such other documentation as Bank may reasonably require.
The form and substance of all Letters of Credit, including expiration dates, shall be subject to
Bank’s approval, and Bank shall have no obligation to issue any Letter of Credit or accept which
has a maturity date later than the Termination Date. Bank may charge certain fees or commissions
for the issuance, handling, renewal or extension of a Letter of Credit. Borrower unconditionally
guarantees all obligations of any Subsidiary with respect to Letters of Credit issued by Bank for
the account of such Subsidiary. Upon a Default, Borrower shall, on demand, deliver to Bank good
funds equal to one hundred five percent (105%) of Bank’s maximum liability under all outstanding
Letters of Credit, to be held as cash Collateral for Borrower’s reimbursement obligations and other
Obligations.

               2.10.2 Law Governing Letter of Credit. Any Letter of Credit issued hereunder shall be
governed, as applicable, by the Uniform Customs and Practice for Documentary Credits International
Chamber of Commerce (“ICC”) Publication 500 or any subsequent revision or restatement thereof
adopted by the ICC and in use by Bank or the International Standby Practices, ICC Publication No.
590 or any subsequent revision or restatement thereof adopted by the ICC and in use by Bank, except
to the extent that the terms of such publication would limit or diminish rights granted to Bank
hereunder or in any other Loan Document.

          2.11 Fees.

               2.11.1 Servicing Fee. Borrower shall pay to Bank a monthly non-refundable servicing
fee in the amount of One Thousand Five Hundred Dollars ($1,500.00) with respect to any month during
which Revolver Loans are outstanding and Seven Hundred Fifty Dollars ($750.00) with respect to any
month during which no Revolver Loans are outstanding, payable on the first day of each month with
respect to the preceding month.

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               2.11.2 Unused Line Fee. Borrower shall pay to Bank an Unused Line Fee for each day
equal to the product of (i) 25 basis points per annum multiplied by (ii) the difference between (A)
the Revolver Commitment and (B) the aggregate average monthly outstanding principal amount of the
Revolver Loans and Letter of Credit Obligations on such day, payable monthly on the first day of
each month with respect to the immediately preceding month.

               2.11.3 Letter of Credit Fees. Borrower shall pay to Bank, at such times as Bank shall
require, Bank’s standard fees in connection with Letters of Credit, as in effect from time to time,
and with respect to standby Letters of Credit, at the time of issuance of each standby Letter of
Credit, a fee equal to the Applicable Margin for LIBOR Loans then in effect per annum on the face
amount of the Letter of Credit for the period of time the standby Letter of Credit will be
outstanding.

          2.12 Statement of Account. If Bank provides Borrower with a statement of account on a
periodic basis, such statement will be presumed complete and accurate and will be definitive and
binding on Borrower, unless objected to with specificity by Borrower in writing within forty-five
(45) days after receipt.

          2.13 Termination. Upon at least thirty (30) days prior written notice to Bank,
Borrower may, at its option, terminate this Agreement and the Revolver Commitment in its entirety
but not partially; provided however, no such termination by Borrower shall be effective until the
full, final and indefeasible payment of the Obligations in cash or immediately available funds and
in the case of any Obligations consisting of contingent obligations, Bank’s receipt of either cash
or a direct pay letter of credit naming Bank as beneficiary and in form and substance and from an
issuing bank acceptable to Bank, in each case in an amount not less than one hundred five percent
(105%) of the aggregate amount of all such contingent obligations. Any notice of termination given
by Borrower shall be irrevocable unless Bank otherwise agrees in writing. Bank may terminate this
Agreement and the Revolver Commitment by written notice to Borrower, upon or at any time after the
occurrence of an Event of Default.

          2.14 USA Patriot Act Notice. To help fight the funding of terrorism and money
laundering activities, Federal law requires all financial institutions to obtain, verify, and
record information that identifies each Person who open an account. For purposes of this section,
account shall be understood to include loan accounts.

     3. Conditions Precedent to Extensions of Credit.

          3.1 Conditions Precedent to Initial Loan. In addition to any other requirement set
forth in this Agreement, Bank shall not be required to fund any Loan or make any other extension of
credit hereunder unless and until the following conditions shall have been satisfied, in the sole
opinion of Bank and its counsel:

               3.1.1 Loan Documents. Borrower and each other party to any Loan Document, as
applicable, shall have executed and delivered this Agreement, the Note, and other required Loan
Documents, all in form and substance satisfactory to Bank.

               3.1.2 Supporting Documents and Other Conditions. Borrower shall cause to be delivered
to Bank the following documents and shall satisfy the following conditions:

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                    (a) A copy of the governing instruments of Borrower and each Subsidiary, and good standing
certificates of Borrower and each Subsidiary, certified by the appropriate official of their
respective states of incorporation and each state in which Borrower or such Subsidiary is qualified
to do business;

                    (b) Incumbency certificate and certified resolutions of the board of directors (or other
appropriate governing body) of Borrower and each other Person executing any Loan Documents, signed
by the Secretary or another authorized officer of Borrower or such other Person, authorizing the
execution, delivery and performance of the Loan Documents;

                    (c) The legal opinion of Borrower’s legal counsel addressed to Bank regarding such matters as
Bank and its counsel may request;

                    (d) A satisfactory Borrowing Base Certificate duly completed by Borrower, together with all
supporting statements, schedules and reconciliations as required by Bank;

                    (e) UCC-1 searches and other Lien searches showing no existing security interests in or Liens
on the Collateral except for Permitted Liens;

                    (f) A satisfactory Borrower Information Certificate duly completed by Borrower;

                    (g) Satisfactory evidence of insurance meeting the requirements of Section 5.3;

                    (h) UCC-1 financing statements and the Mortgage shall duly have been recorded or filed in the
manner and places required by law to establish, preserve, protect and perfect the interests and
rights created or intended to be created by the Security Agreement; and all taxes, fees and other
charges in connection with the execution, delivery and filing of the Security Agreement and the
financing statements shall duly have been paid;

                    (i) Subordinations satisfactory to Bank from all Affiliates, if any, as required by Section
5.9;

                    (j) Third Party Waivers as required by Section 5.12 (c);

                    (k) All required field exams shall have been completed to Bank’s satisfaction;

                    (l) All additional opinions, documents, certificates and other assurances that Bank or its
counsel may reasonably require;

                    (m) Satisfactory evidence of payment of all fees due and reimbursement of all costs incurred
by Bank, and evidence of payment to other parties of all fees or costs which Borrower is required
under the Loan Documents to pay by the date of the initial Loan;

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                    (n) There shall be no litigation in which Borrower or any Subsidiary is a party defendant,
which Bank determines may have a Material Adverse Effect;

                    (o) Bank shall have received Borrower’s financial statements for its most recently concluded
fiscal quarter and such other financial reports and information concerning Borrower as Bank shall
reasonably request, and Bank shall be satisfied therewith, including in connection with the initial
Revolver Loan made hereunder the audited financial statements of Borrower for its most recently
concluded fiscal year 2003; and

                    (p) Bank shall have determined that after the making of the initial Loan to be made on the
Closing Date, the issuance of any Letters of Credit to be issued on the Closing Date and the
payment of all fees and closing costs incurred on or prior to the Closing Date, Excess Availability
is not less than Nine Million Dollars ($9,000,000.00).

          3.2 Conditions Precedent to Each Revolver Loan. In addition to any other requirements
set forth in this Agreement, Bank shall not be required to fund any Revolver Loan or issue any
Letter of Credit unless and until the following conditions shall have been satisfied, in the sole
opinion of Bank and its counsel, and each Notice of Borrowing (whether or not a written Notice of
Borrowing is required) shall be deemed to be a representation that all such conditions have been
satisfied:

               3.2.1 Notice of Borrowing. Borrower shall have delivered to Bank a Notice of Borrowing
and such other information, as Bank may reasonably request.

               3.2.2 No Default. No Default shall have occurred and be continuing or could occur upon
the making of the Revolver Loan in question and, if Borrower is required to deliver a written
Notice of Borrowing, Borrower shall have delivered to Bank an officer’s certificate to such effect,
which may be incorporated in the Notice of Borrowing.

               3.2.3 Correctness of Representations. All representations and warranties made by
Borrower herein or otherwise in writing in connection herewith shall be true and correct in all
material respects with the same effect as though the representations and warranties had been made
on and as of date of the proposed Revolver Loan or Letter of Credit, and, if Borrower is required
to deliver a written Notice of Borrowing, Borrower shall have delivered to Bank an officer’s
certificate to such effect, which may be incorporated in the Notice of Borrowing.

               3.2.4 No Adverse Change. There shall have been no change which could have a Material
Adverse Effect since the date of the most recent financial statements of such Borrower delivered to
Bank from time to time.

               3.2.5 Limitations Not Exceeded. The proposed Revolver Loan or Letter of Credit shall
not cause the aggregate outstanding principal balance of the Revolver Loans plus Letter of Credit
Obligations to exceed the lesser of the Revolver Commitment and the Borrowing Base.

               3.2.6 No Termination. Bank shall not have received notice from any surety terminating
or repudiating such Person’s guaranty of the Obligations incurred by Borrower.

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               3.2.7 Further Assurances. Borrower shall have delivered such further documentation or
assurances as Bank may reasonably require.

     4. Representations and Warranties. In order to induce Bank to enter into this
Agreement and to make the Loans or extend credit as provided for herein, Borrower makes the
following representations and warranties, all of which shall survive the execution and delivery of
the Loan Documents. Unless otherwise specified, such representations and warranties shall be deemed
made as of the date hereof and as of the date of each request for a Loan or extension of credit
hereunder:

          4.1 Valid Existence and Power. Each of Borrower and each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the jurisdiction of its
organization and is duly qualified or licensed to transact business in all places where the failure
to be so qualified would have a Material Adverse Effect on it. Each of Borrower and each other
Person which is a party to any Loan Document (other than Bank) has the power to make and perform
the Loan Documents executed by it and all such instruments will constitute the legal, valid and
binding obligations of such Person, enforceable in accordance with their respective terms, subject
only to bankruptcy and similar laws affecting creditors’ rights generally. Borrower is organized
under the laws of Delaware and has not changed the jurisdiction of its organization within the five
years preceding the date hereof except as previously reported to Bank in writing.

          4.2 Authority. The execution, delivery and performance thereof by Borrower and each
other Person (other than Bank) executing any Loan Document have been duly authorized by all
necessary actions of such Person, and do not and will not violate any provision of law or
regulation, or any writ, order or decree of any court or governmental or regulatory authority or
agency or any provision of the governing instruments of such Person, and do not and will not, with
the passage of time or the giving of notice, result in a breach of, or constitute a default or
require any consent under, or result in the creation of any Lien upon any property or assets of
such Person pursuant to, any law, regulation, instrument or agreement to which any such Person is a
party or by which any such Person or its respective properties may be subject, bound or affected.

          4.3 Financial Condition. Other than as disclosed in financial statements delivered on
or prior to the date hereof to Bank, neither Borrower nor any Subsidiary has any direct or
contingent obligations or liabilities (including any guarantees or leases) or any material
unrealized or anticipated losses from any commitments of such Person. All such financial statements
have been prepared in accordance with GAAP and fairly present the financial condition of Borrower
or Subsidiary, as the case may be, as of the date thereof. Borrower is not aware of any material
adverse fact (other than facts which are generally available to the public and not particular to
Borrower, such as general economic trends) concerning the conditions or future prospects of
Borrower or any Subsidiary which has not been fully disclosed to Bank, including any adverse change
in the operations or financial condition of such Person since the date of the most recent financial
statements delivered to Bank. Borrower is Solvent, and after consummation of the transactions set
forth in this Agreement and the other Loan documents, Borrower will be Solvent.

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          4.4 Litigation. Except as disclosed on Schedule 8.6 to the Borrower Information
Certificate, there are no suits or proceedings pending, or to the knowledge of Borrower threatened,
before any court or by or before any governmental or regulatory authority, commission, bureau or
agency or public regulatory body against or affecting Borrower or any Subsidiary, or their assets,
which if adversely determined would have a Material Adverse Effect.

          4.5 Agreements, Etc. Neither Borrower nor any Subsidiary is a party to any agreement
or instrument or subject to any court order, governmental decree or any charter or other corporate
restriction, adversely affecting its business, assets, operations or condition (financial or
otherwise) in a material manner, nor is any such Person in default in the performance, observance
or fulfillment of any of the material obligations, covenants or conditions contained in any
agreement or instrument to which it is a party, or any law, regulation, decree, order or the like.

          4.6 Authorizations. All authorizations, consents, approvals and licenses required
under applicable law or regulation for the ownership or operation of the property owned or operated
by Borrower or any Subsidiary or for the conduct of any business in which it is engaged have been
duly issued and are in full force and effect, and it is not in default, nor has any event occurred
which with the passage of time or the giving of notice, or both, would constitute a default, under
any of the terms or provisions of any part thereof, or under any order, decree, ruling, regulation,
closing agreement or other decision or instrument of any governmental commission, bureau or other
administrative agency or public regulatory body having jurisdiction over such Person, which default
would have a Material Adverse Effect. Except as noted herein, no approval, consent or authorization
of, or filing or registration with, any governmental commission, bureau or Other regulatory
authority or agency is required with respect to the execution, delivery or performance of any Loan
Document.

          4.7 Title. Each of Borrower and each Subsidiary has good title to all of the assets
shown in its financial statements free and clear of all Liens, except Permitted Liens, Borrower
alone has full ownership rights in all Collateral.

          4.8 Collateral. The security interests granted to Bank herein and pursuant to any
other Security Agreement (a) constitute and, as to subsequently acquired property included in the
Collateral covered by the Security Agreement, will constitute, security interests under the Code
entitled to all of the rights, benefits and priorities provided by the Code and (b) are, and as to
such subsequently acquired Collateral will be, fully perfected, superior and prior to the rights of
all third persons, now existing or hereafter arising, except for Permitted Liens. All of the
Collateral is intended for use solely in Borrower’s business.

          4.9 Jurisdiction of Organization; Location. The jurisdiction in which Borrower is
organized, existing and in good standing, the chief executive office of Borrower where Borrower’s
business records are located, all of Borrower’s other places of business and any other places where
any Collateral is kept, are all correctly and completely indicated on the Borrower Information
Certificate. The Collateral is located and shall at all times be kept and maintained only at
Borrower’s location or locations as described on the Borrower Information Certificate. No such
Collateral is attached or affixed to any real property so as to be classified as a fixture unless
Bank has otherwise agreed in writing. Borrower has not changed it legal status or

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the jurisdiction in which it is organized or moved its chief executive office within the five
(5) years preceding the date hereof.

          4.10 Taxes. Borrower and each Subsidiary have filed all federal and state income and
other tax returns which are required to be filed, and have paid all taxes as shown on said returns
and all taxes, including withholding, FICA and ad valorem taxes, shown on all assessments received
by it to the extent that such taxes have become due. Neither Borrower nor any Subsidiary is subject
to any federal, state or local tax Liens nor has such Person received any notice of deficiency or
other official notice to pay any taxes. Borrower and each Subsidiary have paid all sales and excise
taxes payable by it.

          4.11 Labor Law Matters. No goods or services have been or will be produced by Borrower
or any Subsidiary in violation of any applicable labor laws or regulations or any collective
bargaining agreement or other labor agreements or in violation of any minimum wage, wage-and-hour
or other similar laws or regulations except for violations that could not reasonably be expected to
result in a Material Adverse Effect.

          4.12 Accounts. Each Account, Instrument, Chattel Paper and other writing constituting
any portion of the Collateral (a) is genuine and enforceable in accordance with its terms except
for such limits thereon arising from bankruptcy and similar laws relating to creditors’ rights; (b)
is not subject to any deduction, discount, defense, set off, claim or counterclaim of a material
nature against Borrower except those arising in the ordinary course of Borrower’s business; (c) is
not subject to any other circumstances that would impair the validity, enforceability or amount of
such Collateral except as to which Borrower has notified Bank in writing; (d) arises from a bona
fide sale of goods or delivery of services in the ordinary course and in accordance with the terms
and conditions of any applicable purchase order, contract or agreement; (e) is free of all Liens,
except for Permitted Liens; and (f) is for a liquidated amount maturing as stated in the invoice
therefor. Each Account included in any Notice of Borrowing, Borrowing Base Certificate, report or
other document as an Eligible Account meets all the requirements of an Eligible Account set forth
herein.

          4.13 Judgment Liens. Neither Borrower nor any Subsidiary, nor any of their assets, are
subject to any unpaid judgments (whether or not stayed) or any judgment liens in any jurisdiction.

          4.14 Corporate Structure. As of the date hereof, Schedule 8.12 of the Borrower
Information Certificate sets forth (a) the correct name of each Subsidiary, its jurisdiction of
organization and the percentage of its equity interests having voting powers owned by each Person,
(b) the name of each of Borrower’s corporate or joint venture Affiliates and the nature of the
affiliation, (c) the number, nature and holder of all outstanding equity interests of Borrower and
each of its Subsidiaries and (d) the number of authorized and issued equity interests (and treasury
shares) of Borrower and each Subsidiary. Borrower has good title to all of the shares it purports
to own of the equity interests of each of its Subsidiaries, free and clear in each case of any Lien
other than Permitted Liens. All such equity interests have been duly issued and are fully paid and
non-assessable. Since the date of the last audited financial statements of Borrower delivered to
Bank, Borrower has not made, or obligated itself to make, any dividends (other than stock
dividends) or other distribution on or with respect to, or any purchase, redemption,

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retirement or other acquisition of, any equity interests of Borrower, except as otherwise
permitted hereunder. There are no outstanding options to purchase, or any rights or warrants to
subscribe for, or any commitments or agreements to issue or sell, or any equity interests or
obligations convertible into, or any powers of attorney relating to, equity interests of Borrower
or any of its Subsidiaries. Except as set forth on Schedule 8.12 of the Borrower Information
Certificate, there are no outstanding agreements or instruments binding upon the holders of any of
Borrower’s equity interests relating to the ownership of its equity interests.

          4.15 Deposit Accounts. Borrower and its Subsidiaries have no Deposit Accounts other
than (a) on the Closing Date, those listed in the Borrower Information Certificate and (b) after
the Closing Date, those otherwise permitted by Section 6.15.

          4.16 Environmental. Except for ordinary and customary amounts of solvents, cleaners
and similar materials used in the ordinary course of Borrower’s business and in strict compliance
with all Environmental Laws, neither Borrower, nor to Borrower’s best knowledge any other previous
owner or operator of any real property currently owned or operated by Borrower, has generated,
stored or disposed of any Regulated Material on any portion of such property, or transferred any
Regulated Material from such property to any other location in violation of any applicable
Environmental Laws. No Regulated Material has been generated, stored or disposed of on any portion
of the real property currently owned or operated by Borrower by any other Person, or is now located
on such property. Borrower is in full compliance with all applicable Environmental Laws except for
noncompliance which could not reasonably be expected to result in a Material Adverse Effect and
Borrower has not been notified of any action, suit, proceeding or investigation which calls into
question compliance by Borrower with any Environmental Laws or which seeks to suspend, revoke or
terminate any license, permit or approval necessary for the generation, handling, storage,
treatment or disposal of any Regulated Material.

          4.17 ERISA. Borrower has furnished to Bank true and complete copies of the latest
annual report required to be filed pursuant to Section 104 of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), with respect to each employee benefit plan or other
plan maintained for employees of Borrower or any Subsidiary and covered by Title IV of ERISA (a
“Plan”), and no Termination Event (as hereinafter defined) with respect to any Plan has occurred
and is continuing. For the purposes of this Agreement, a “Termination Event” shall mean a
“reportable event” as defined in Section 4043(b) of ERISA, or the filing of a notice of intent to
terminate under Section 4041 of ERISA. Neither Borrower nor any Subsidiary has any unfunded
liability with respect to any such Plan.

          4.18 Investment Company Act. Neither Borrower nor any Subsidiary is an “investment company” as
defined in the Investment Company Act of 1940, as amended.

          4.19 Names. Borrower currently conducts all business only under its legal name as set
forth above in the introductory section of this Agreement. Except as disclosed in the Borrower
Information Certificate, during the preceding five (5) years Borrower has not (a) been known as or
used any other corporate, fictitious or trade name, (b) been the surviving entity of a merger or
consolidation or (c) acquired all or substantially all of the assets of any Person.

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          4.20 Insider. Borrower is not, and no Person having “control” (as that term is defined
in 12 U.S.C. § 375(b)(5) or in regulations promulgated pursuant thereto) of Borrower is, an
“executive officer,” “director,” or “principal shareholder” (as those terms are defined in 12
U.S.C. §375(b) or in regulations promulgated pursuant thereto) of Bank, of a bank holding company
of which Bank is a subsidiary, or of any subsidiary of a bank holding company of which Bank is a
subsidiary.

          4.21 Sanctioned Persons; Sanctioned Countries. None of Borrower, its Subsidiaries or
its Affiliates (a) is a Sanctioned Person or (b) does business in a Sanctioned Country or with a
Sanctioned Person in violation of the economic sanctions of the United States administered by OFAC,
The proceeds of any Loan will not be used to fund any operation in, finance any investments or
activities in or make any payments to, a Sanctioned Person or a Sanctioned Country.

          4.22 Compliance with Covenants; No Default. Borrower is, and upon funding of the
initial Loans on the Closing Date will be, in compliance with all of the covenants hereof. No
Default has occurred, and the execution, delivery and performance of the Loan Documents and the
funding of the initial Loans on the Closing Date will not cause a Default.

          4.23 Full Disclosure. There is no material fact which is known or which should be
known by Borrower that Borrower has not disclosed to Bank which could have a Material Adverse
Effect. No Loan Document, nor any agreement, document, certificate or statement delivered by
Borrower to Bank, contains any untrue statement of a material fact or omits to state any material
fact which is known or which should be known by Borrower necessary to keep the other statements
from being misleading.

          4.24 Borrower Information Certificate. All representations, warranties and statements
made by Borrower in the Borrower Information Certificate executed and delivered by Borrower to Bank
are true and correct as of the date hereof.

          4.25 Intellectual Property . Borrower owns or licenses or otherwise has the right to
use all Intellectual Property and Material ANDAs necessary for the operation of its business as
presently conducted or proposed to be conducted. As of the date hereof, Borrower does not have any
Intellectual Property registered in the United States Patent and Trademark Office or any similar
office or agency in the United States, any State thereof, any political subdivision thereof or in
any other country, other than those described in Schedule 8.11 of the Borrower Information
Certificate. Borrower has not granted any licenses with respect any Intellectual Property
registered or subject to pending applications in the United States Patent and Trademark Office or
any similar office or agency in the United States, any State thereof, any political subdivision
thereof or in any other country, other than as set forth in Schedule 8.11 of the Borrower
Information Certificate. No event has occurred which permits or would permit after notice or
passage of time or both, the revocation, suspension or termination of such rights. To the best of
Borrower’s knowledge, no slogan or other advertising device, product, process, method, substance or
other Intellectual Property or goods bearing or using any Intellectual Property presently
contemplated to be sold by or employed by Borrower infringes any patent, trademark, servicemark,
tradename, copyright, license or other Intellectual Property owned by any other Person presently
and no claim or litigation is pending or threatened against or affecting Borrower

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contesting its right to sell or use any such Intellectual Property. Schedule 8.11 of the
Borrower Information Certificate sets forth all of the Material License Agreements of Borrower in
effect on the date hereof. Schedule 8.11 of the Borrower Information Certificate sets forth all of
the Material Licensor License Agreements of Borrower in effect on the date hereof. No trademark,
servicemark or other Intellectual Property at any time used by Borrower which is owned by another
person, or owned by Borrower subject to any security interest, lien, collateral assignment, pledge
or other encumbrance in favor of any person other than Bank, is affixed to or used in the
production or sale of any Eligible Inventory, except to the extent permitted under the terms of the
Material License Agreements listed in Schedule 8.11 of the Borrower Information Certificate.

     5. Affirmative Covenants of Borrower. Borrower covenants and agrees that from the date
hereof and until payment in full of the Obligations and the formal termination of this Agreement,
Borrower and each Subsidiary:

          5.1 Use of Revolver Loan Proceeds. Shall use the proceeds of the Revolver Loans for
working capital for the operation of Borrower’s business and shall furnish Bank all evidence that
it may require with respect to such use.

          5.2 Maintenance of Business and Properties. Shall at all times maintain, preserve and
protect all Collateral and all the remainder of its property used or useful in the conduct of its
business, and keep the same in good repair, working order and condition, and from time to time
make, or cause to be made, all material needful and proper repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in connection therewith may be
conducted properly and in accordance with standards generally accepted in businesses of a similar
type and size at all times, and maintain and keep in full force and effect all licenses and permits
necessary to the proper conduct of its business, except where the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.

          5.3 Insurance. Shall maintain such liability insurance, workers’ compensation
insurance, business interruption insurance and casualty insurance in amounts as may be required by
law, if applicable, or as are customary and usual for prudent businesses in its industry and any
other insurance that may be reasonably required by Bank and shall insure and keep insured all
Collateral and other properties with insurance companies reasonably satisfactory to Bank. All
hazard insurance covering Collateral shall be in amounts acceptable to Bank, shall name and
directly insure Bank as secured party and loss payee under a long-form lender loss payee and
standard mortgagee clause acceptable to Bank, or its equivalent, and shall not be terminable except
upon thirty (30) days’ written notice to Bank. Borrower shall furnish to Bank copies of all such
policies and shall provide evidence of insurance on an annual basis or such more frequent basis as
may be reasonably requested by Bank from time to time.

          5.4 Notice of Default. Shall provide to Bank immediate notice of (a) the occurrence of
a Default and what action (if any) Borrower is taking to correct the same, (b)any litigation
involving an amount at issue in excess of Five Hundred Thousand Dollars ($500,000.00) or material
changes in any such existing litigation or any judgment against it or its assets in excess of Five
Hundred Thousand Dollars ($500,000.00), (c) any damage or loss to property in excess of Five
Hundred Thousand Dollars ($500,00.00), (d) any notice from taxing

36

 

authorities as to claimed deficiencies or any tax lien or any notice relating to alleged ERISA
violations, (e) any Reportable Event, as defined in ERISA, (f) any rejection, return, offset,
dispute, loss or other circumstance having a Material Adverse Effect on any Collateral, (g) the
cancellation or termination of, or any default under, any Material Agreement to which Borrower is a
party or by which any of its properties are bound, or any acceleration of the maturity of any Debt
of Borrower; and (h) any loss or threatened loss of material licenses or permits if such loss could
reasonably be expected to result in a Material Adverse Effect.

          5.5 Inspections of Books and Records and Field Examinations.

                    (a) Inspections. Shall permit inspections of the Collateral and the records of such
Person pertaining thereto and verification of the Accounts, at such times and in such manner as may
be required by Bank and shall further permit such inspections, reviews and field examinations of
its other books and records and properties (with such frequency and at such times as Bank may
desire) by Bank as Bank may deem necessary or desirable from time to time. The cost of such field
examinations, reviews, verifications and inspections shall be borne by Borrower, provided that (i)
the cost of field examinations shall not exceed Eight Hundred Fifty Dollars ($850.00) per examiner
per day, plus Bank’s reasonable out-of-pocket expenses and (ii) as long as no Default or Event of
Default shall have occurred and be continuing, Borrower shall only be responsible for the cost of
(A) one field examination occurring in any calendar year if Borrower maintained average Excess
Availability of at least Ten Million Dollars ($10,000,000.00) as of the end of each month during
such calendar year, and (B) two field examinations occurring in any calendar year if Borrower
maintained average Excess Availability of at least Five Million Dollars ($5,000,000.00) as of the
end of each month during such calendar year. In addition, provided that no Event of Default shall
have occurred and be continuing, Borrower shall not be obligated to pay more than the Field Exam
Cost Limit towards daily field examination costs (specifically excluding all out-of-pocket costs
and expenses). For purposes of this Section 5.5(a), average Excess Availability shall be calculated
monthly using Borrower’s Excess Availability for the six month rolling period ending on the last
day of each such month.

                    (b) Inventory Appraisals. Cooperate with appraisals of Borrower’s Inventory at such
times and in such manner as may be required by Bank. The cost of such appraisals shall be borne by
Borrower, provided, that, as long as no Default or Event of Default shall have occurred and be
continuing, (i) Borrower shall not be responsible for the cost of any such appraisals occurring
during any fiscal year of Borrower during which the Inventory Reliance is at all times less than or
equal to fifteen percent (15%), and (ii) Borrower shall only be responsible for the cost of one
such appraisal occurring during any fiscal year of Borrower during which Borrower’s Inventory
Reliance is at all times more than fifteen percent (15%) but less than twenty-five percent (25%).
The foregoing limitations on appraisal costs shall not be applicable to the appraisals required by
Schedule 2.1.1(c) hereof the costs of which appraisals shall be borne solely by Borrower.

                    (c) If Borrower’s Excess Availability at any time falls below Nine Million Dollars
($9,000,000.00), cooperate with audits and/or appraisals of Borrower’s Equipment at such times and
in such manner as may be required by Bank. The costs of such audits and/or appraisals shall be
borne by Borrower.

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          5.6 Financial Information. Shall maintain books and records in accordance with GAAP and shall
furnish to Bank the following periodic financial information:

                    (a) Periodic Borrowing Base Information. A completed Borrowing Base Certificate in the
form attached hereto as Exhibit 5.6(a) (a “Borrowing Base Certificate”) (which shall be certified
by the chief financial officer or president of Borrower to be accurate and complete and in
compliance with the terms of the Loan Documents) (i) each Business Day of each month if the
immediately prior month’s average Excess Availability was less than or equal to Five Million
Dollars ($5,000,000.00), (ii) on the last Business Day of each week of each month if the
immediately prior month’s average Excess Availability was greater than Five Million Dollars
($5,000,000.00) but less than Ten Million Dollars ($10,000,000.00) and (iii) within three (3) days
of the end of each month if the immediately prior month’s average Excess Availability was Ten
Million Dollars ($10,000,000.00) or more. Bank may, but shall not be required to, rely on each
Borrowing Base Certificate delivered hereunder as accurately setting forth the available Borrowing
Base for all purposes of this Loan Agreement until such time as a new Borrowing Base Certificate is
delivered to Bank in accordance herewith.

                    (b) Collateral Reporting. On the fifteenth (15th) day of each month (or if
such day is not a Business Day, then on the next succeeding Business Day), Borrower shall furnish a
written report to Bank setting forth the following, information (i) a Borrowing Base Certificate,
(ii) the detailed accounts receivable aged trial balance on a due date basis as of the immediately
preceding month end for each account debtor, (iii) an accounts payable aged trial balance
(including royalty and other payables with respect to licenses (including under the Material
License Agreements)) and accruals with respect thereto at the end of such month, (iv) inventory
listing, ineligible calculations, obsolete/damaged inventory report, a chargeback report, a report
of Inventory at outside contractors, a report of Inventory broken down by location and broken down
by an indication of which Inventory consists of FDA Approved Products, as of the immediately
preceding month, (v) a reconciliation of accounts receivable against the Borrowing Base and then to
the general ledger, (vi) a reconciliation of Inventory to the Borrowing Base and then to the
general ledger, (vii) and any other supporting documentation reasonably required by Bank, all
certified by the Borrower’s chief executive officer or chief financial officer, such certificate to
include a certification by such officer that, to the best of his knowledge, no items other than
those identified in the above reports, have expirations less than 90 days. In addition, with each
such monthly report, Borrower shall certify that each Material License Agreement is in fill force
and effect and there are no outstanding defaults thereunder and no past due royalty or other
payments to be made pursuant to such Material License Agreements.

                    (c) Interim Statements. Within thirty (30) days (or forty-five (45) days with respect
to each quarterly report) after the end of (1) each fiscal quarter of Borrower and (2) each month
if Revolver Loans were outstanding during such month, a balance sheet of Borrower and its
Subsidiaries at the end of that period and an income statement and statement of cash flows for that
period (and for the portion of the fiscal year ending with such period), together with all
supporting schedules, setting forth in comparative form the figures for the same period of the
preceding fiscal year. The foregoing statements and report shall be certified by the chief
financial officer of Borrower as true and correct and fairly representing the financial condition
of Borrower and its Subsidiaries and that such statements are prepared in

38

 

accordance with GAAP, except without footnotes and subject to normal year-end audit
adjustments.

                    (d) Annual Statements. Within ninety (90) days after the end of each fiscal year, a
detailed audited financial report of Borrower and its Subsidiaries containing a consolidated and
consolidating balance sheet at the end of that period and a consolidated and consolidating income
statement and statement of cash flows for that period, setting forth in comparative form the
figures for the preceding fiscal year, together with all supporting schedules and footnotes, and
containing an unqualified audit opinion of independent certified public accountants acceptable to
Bank that the financial statements were prepared in accordance with GAAP.

                    (e) Compliance and No Default Certificates. Together with each report required by
Subsection (d) and each report for the months of March, June and September required by Subsection
(c), a compliance certificate in the form annexed hereto as Exhibit 5.6(e) and a certificate of its
president or chief financial officer certifying that no Default then exists or if a Default exists,
the nature and duration thereof and Borrower’s intention with respect thereto.

                    (f) Auditor’s Management Letters. Promptly upon receipt thereof, copies of each
report submitted to Borrower by independent public accountants in connection with any annual,
interim or special audit made by them of the books of Borrower including, without limitation, each
report submitted to Borrower concerning its accounting practices and systems and any final comment
letter submitted by such accountants to management in connection with the annual audit of Borrower.

                    (g) Stockholder and SEC Reports. Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Bank copies of all reports which Borrower sends to its
stockholders generally and copies of all reports (other than routine 8-K reports) and registration
statements which Borrower files with the Securities and Exchange Commission, any national
securities exchange or the National Association of Securities Dealers, Inc.

                    (h) Pending Suits/Investigations Status Reports. As soon as possible after the end of
each fiscal quarter of Borrower (but in any event within forty-five (45) days after the end
thereof) or more frequently as Bank may reasonably request, reports summarizing the status of any
and all pending or threatened investigations, actions, suits, proceedings or claims by or against
Borrower relating to (1) products liability and (2) any patents, patent rights, patent applications
or any approved or pending new drug applications or Material ANDAs.

                    (i) Other Information. Such other information reasonably requested by Bank from time
to time concerning the business, properties or financial condition of Borrower and its
Subsidiaries.

                    (j) Projections. Not later than the thirtieth (30th) day before the commencement of
each fiscal year, deliver Projections to Bank for Borrower for such fiscal

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year. “Projections” means Borrower’s forecasted consolidated and consolidating (i) balance
sheets, (ii) profit and loss statements, (iii) cash flow statements, (iv) capitalization
statements, and (v) Borrowing Base availability calculations, all prepared on a quarterly basis and
on a consistent basis with Borrower’s historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.

          5.7 Maintenance of Existence and Rights. Shall preserve and maintain its corporate
existence, authorities to transact business, rights and franchises, trade names, patents,
trademarks and permits necessary to the conduct of its business.

          5.8 Payment of Taxes, Etc. Shall pay before delinquent all of its debts and taxes,
except and to the extent only that such taxes are being Property Contested.

          5.9 Subordination. Shall cause all debt and other obligations now or hereafter owed
to any Affiliate to be subordinated in right of payment and security to the Obligations in
accordance with subordination agreements satisfactory to Bank.

          5.10 Compliance with Laws, Regulations. Etc.

                    (a) Borrower shall, and shall cause any Subsidiary to, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and orders applicable to
it and duly observe all requirements of any foreign, Federal, State or local Governmental
Authority, including ERISA, the IRS Code, the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, the Federal Food, Drug and Cosmetic Act,
and all statutes, rules, regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including all of the Environmental Laws except where the
failure to so comply could not reasonably be expected to result in a Material Adverse Effect.

                    (b) Borrower shall give written notice to Bank immediately upon Borrower’s receipt of any
notice of, or Borrower’s otherwise obtaining knowledge of, (i) the occurrence of any event
involving the release, spill or discharge, threatened or actual, of any Regulated Materials or (ii)
any investigation, proceeding, complaint, order, directive, claims, citation or notice with respect
to: (A) any non-compliance with or violation of any applicable Environmental Law by Borrower or (B)
the release, spill or discharge, threatened or actual, of any Regulated Materials other than in the
ordinary course of business and other than as permitted under any applicable Environmental Law.
Copies of all environmental surveys, audits, assessments, feasibility studies and results of
remedial investigations shall be promptly furnished, or caused to be furnished, by Borrower to
Bank. Borrower shall take prompt and appropriate action to respond to any non-compliance with any
of the Environmental Laws and shall regularly report to Bank on such response.

                    (c) Without limiting the generality of the foregoing, whenever Bank reasonably determines that
there is material non-compliance, or any condition which requires any action by or on behalf of
Borrower in order to avoid any material non-compliance, with any Environmental Law, Borrower shall,
at Bank’s request and Borrower’s expense: (i) cause an independent environmental engineer
acceptable to Bank to conduct such tests of the site

40

 

where Borrower’s material non-compliance or alleged material non-compliance with such
Environmental Laws has occurred as to such non-compliance and prepare and deliver to Bank a report
as to such non-compliance setting forth the results of such tests, a proposed plan for responding
to any environmental problems described therein, and an estimate of the costs thereof and (ii)
provide to Bank a supplemental report of such engineer whenever the scope of such non-compliance,
or Borrower’s response thereto or the estimated costs thereof, shall change in any material
respect.

                    (d) Borrower shall indemnify and hold harmless Bank, its directors, officers, employees,
agents, invitees, representatives, successors and assigns, from and against any and all losses,
claims, damages, liabilities, costs, and expenses (including attorneys’ fees and legal expenses)
directly or indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal or presence of any
Regulated Materials, including the costs of any required or necessary repair, cleanup or other
remedial work with respect to any property of Borrower and the preparation and implementation of
any closure, remedial or other required plans. All representations, warranties, covenants and
indemnifications in this Section 5.10 shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.

          5.11 Compliance with ERISA. Borrower shall and shall cause each ERISA Affiliate to:
(a) maintain each Plan (other than a Multiemployer Plan) in compliance in all material respects
with the applicable provisions of ERISA, the IRS Code and other Federal and State law; (b) cause
each Plan which is qualified under Section 401(a) of the IRS Code to maintain such qualification;
(c) not terminate any of such Plans so as to incur any liability to the Pension Benefit Guaranty
Corporation; (d) not allow or suffer to exist any prohibited transaction involving any of such
Plans or any trust created thereunder which would subject Borrower or such ERISA Affiliate to a tax
or penalty or other liability on prohibited transactions imposed under Section 4975 of the IRS Code
or ERISA; (e) make all required contributions to any Plan which it is obligated to pay under
Section 302 of ERISA, Section 412 of the IRS Code or the terms of such Plan; (f) not allow or
suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such
Plan; or (g) not allow or suffer to exist any occurrence of a reportable event or any other event
or condition which presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such Plan that is a single employer plan, which termination could result in any
liability to the Pension Benefit Guaranty Corporation.

          5.12 License Agreements.

                    (a) Borrower shall (i) promptly and faithfully observe and perform all of the material terms,
covenants, conditions and provisions of the Material License Agreements to be observed and
performed by it, at the times set forth therein, if any, (ii) not do, permit, suffer or refrain
from doing anything that could reasonably be expected to result in a default under or breach of any
of the terms of any Material License Agreement, (iii) not cancel, surrender, modify, amend, waive
or release any Material License Agreement in any material respect or any term, provision or right
of the licensee thereunder in any material respect, or consent to or permit to occur any of the
foregoing; except, that, subject to subsection (b) below, Borrower may amend, wave, cancel,
surrender or release any Material License Agreement in the ordinary course of the business of
Borrower; provided, that, Borrower shall give Bank not less

41

 

than thirty (30) days prior written notice of its intention to so cancel, surrender and
release any such Material License Agreement, (iv) give Bank prompt written notice of any Material
License Agreement entered into by Borrower after the date hereof, together with a true, correct and
complete copy thereof and such other information with respect thereto as Bank may request, (v) give
Bank prompt written notice of any material breach of any obligation, or any default, by any party
under any Material License Agreement, and deliver to Bank (promptly upon the receipt thereof by
Borrower in the case of a notice to Borrower, and concurrently with the sending thereof in the case
of a notice from Borrower) a copy of each notice of default and every other notice and other
communication received or delivered by Borrower in connection with any Material License Agreement
which relates to the right of Borrower to continue to use the property subject to such Material
License Agreement, and (vi) furnish to Bank, promptly upon the request of Bank, such information
and evidence as Bank may require from time to time concerning the observance, performance and
compliance by Borrower or the other party or parties thereto with the terms, covenants or
provisions of any Material License Agreement.

                    (b) Borrower will either exercise any option to renew or extend the term of each Material
License Agreement in such manner as will cause the term of such Material License Agreement to be
effectively renewed or extended for the period provided by such option and give prompt written
notice thereof to Bank or give Bank prior written notice that Borrower does not intend to renew or
extend the term of any such Material License Agreement or that the term thereof shall otherwise be
expiring, not less than thirty (30) days prior to the date of any such non-renewal or expiration.
In the event of the failure of Borrower to extend or renew any Material License Agreement, Bank
shall have, and is hereby granted, the irrevocable right and authority, at its option, to renew or
extend the term of such Material License Agreement, whether in its own name and behalf, or in the
name and behalf of a designee or nominee of Bank or in the name and behalf of Borrower, as Bank
shall determine at any time that an Event of Default shall exist or have occurred and be
continuing. Bank may, but shall not be required to, perform any or all of such obligations of
Borrower under any of the Material License Agreements, including, but not limited to, the payment
of any or all sums due from Borrower thereunder. Any sums so paid by Bank shall constitute part of
the Obligations.

                    (c) Borrower shall (i) promptly and faithfully observe and perform all of the material terms,
covenants, conditions and provisions of the Material Licensor License Agreements to be observed and
performed by it, at the times set forth therein, if any, (ii) not do, permit, suffer or refrain
from doing anything that could reasonably be expected to result in a default under or breach of any
of the terms of any Material Licensor License Agreement, (iii) give Bank prompt written notice of
any Material Licensor License Agreement entered into by Borrower after the date hereof, together
with a true, correct and complete copy thereof and such other information with respect thereto as
Bank may request, (iv) give Bank prompt written notice of any material breach of any obligation, or
any default, by any party under any Material Licensor License Agreement, and deliver to Bank
(promptly upon the receipt thereof by Borrower in the case of a notice to Borrower, and
concurrently with the sending thereof in the case of a notice from Borrower) a copy of each notice
of default and every other notice and other communication received or delivered by Borrower in
connection with any Material Licensor License Agreement, and (v) furnish to Bank, promptly upon the
request of Bank, such information and evidence as Bank may require from time to time concerning the
observance,

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performance and compliance by Borrower or the other party or parties thereto with the terms,
covenants or provisions of any Material Licensor License Agreement.

                    (d) Borrower shall (i) keep in full force and effect and take all actions necessary to keep in
full force and effect all existing Material ANDAs, (ii) not do, permit, suffer or refrain from
doing anything that could reasonably be expected to result in revocation, termination, cancellation
or other event which would limit or prohibit Borrower’s use of any Material ANDA, (iii) give Bank
prompt written notice of any new Material ANDA, together with a true, correct and complete copy
thereof and such other information with respect thereto as Bank may reasonably request, (iv) give
Bank prompt written notice of each notice and other communication received or delivered by Borrower
in connection with any Material ANDA which relates to the right of Borrower to continue to use such
Material ANDA and (v) furnish to Bank, promptly upon the request of Bank, such information and
evidence as Bank may reasonably require from time to time concerning Borrower’s right to use and
continue to use each of the Material ANDAs.

                    (e) Borrower will either exercise any option to renew or extend the each Material ANDA in such
manner as will cause the term of such Material ANDA to be effectively renewed or extended for the
period provided by such option and give prompt written notice thereof to Bank or give Bank prior
written notice that Borrower does not intend to renew or extend the term of any such Material ANDA
or that the term thereof shall otherwise be expiring, not less than thirty (30) days prior to the
date of any such non-renewal or expiration. In the event of the failure of Borrower to extend or
renew any Material ANDA, Bank shall have, and is hereby granted, the irrevocable right and
authority, at its option, to renew or extend the term of such Material ANDA, whether in its own
name and behalf, or in the name and behalf of a designee or nominee of Bank or in the name and
behalf of Borrower, as Bank shall determine at any time that an Event of Default shall exist or
have occurred and be continuing. Bank may, but shall not be required to, perform any or all of such
obligations of Borrower under any of the Material ANDAs, including, but not limited to, the payment
of any or all sums due from Borrower thereunder. Any sums so paid by Bank shall constitute part of
the Obligations.

          5.13 Additional Real Property Collateral. If Borrower’s Excess Availability at any
time falls below Nine Million Dollars ($9,000,000.00), without limiting any other rights of Bank or
duties or obligations of Borrower, upon Bank’s request, Borrower shall execute and deliver to Bank
a mortgage, deed of trust or deed to secure debt with respect to such Real Property of Borrower as
Bank may require, in form and substance reasonably satisfactory to Bank and in form appropriate for
recording in the real estate records of the jurisdiction in which such Real Property or other
property is located granting to Bank a lien and mortgage on and security interest in such Real
Property, fixtures or other property (with such priority as Bank may require) and such other
agreements, documents and instruments as Bank may reasonably require in connection therewith.

          5.14 Further Assurances. Shall take such further action and provide to Bank such
further assurances as may be reasonably requested to ensure compliance with the intent of this
Agreement and the other Loan Documents.

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          5.15 Covenants Regarding Collateral. Borrower makes the following covenants with Bank
regarding the Collateral for itself and each Subsidiary. Borrower and each Subsidiary:

                    (a) will use the Collateral only in the ordinary course of its business and will not permit
the Collateral to be used in violation of any applicable law or policy of insurance;

                    (b) as agent for Bank, will defend the Collateral against all claims and demands of all
Persons, except for Permitted Liens;

                    (c) will, at Bank’s request, obtain and deliver to Bank such Third Party Waivers as Bank may
require;

                    (d) will promptly deliver to Bank all promissory notes, drafts, trade acceptances, chattel
paper, Instruments or documents of title which are Collateral in tangible form, appropriately
endorsed to Bank’s order, and Borrower will not create or permit any Subsidiary to create any
Electronic Chattel Paper without taking all steps deemed necessary by Bank to confer control of the
Electronic Chattel Paper upon Bank in accordance with the Code;

                    (e) except for Permitted Dispositions and the voluntary termination of Swap Agreements to
which Borrower or such Subsidiary is a party, will not sell, assign, lease, transfer, pledge,
hypothecate or otherwise dispose of or encumber any Collateral or any interest therein;

                    (f) shall promptly notify Bank of any future patents, trademarks or copyrights owned by
Borrower or any Subsidiary, any Material License Agreements and any Material Licensor License
Agreements; and

                    (g) shall give Bank at least thirty (30) days prior written notice of any new trade or
fictitious name. Borrower’s or any Subsidiary’s use of any trade or fictitious name shall be in
material compliance with all laws regarding the use of such names.

          5.16 Material Contracts. Borrower will deliver to Bank promptly after execution,
copies of each new Material Contract to which it is a party and any amendment to any Material
Contract to which it is a party.

          5.17 Notices. Borrower agrees to promptly notify Bank of and provide Bank with a copy
of (i) any FDA warning letters or other similar notice, letters or reports received by Borrower
from the FDA or any other governmental entity that concerned with is quality, identity, strength,
purity, safety, efficacy, marketing or manufacturing of the pharmaceutical compounds or products
manufactured or sold by Borrower, (ii) any reports sent by Borrower to the FDA or other
governmental entity concerning complaints or reports regarding products manufactured by Borrower
involving death or serious injury and (iii) any civil penalty actions against Borrower or any other
party involving products manufactured or sold by Borrower.

Borrower shall promptly notify Bank in writing of the details of (i) any loss, damage,
investigation, action, suit, proceeding or claim relating to the Collateral or any other property

44

 

which is security for the Obligations or which could reasonably be expected to result in a Material
Adverse Affect (ii) any Material Contract of Borrower being terminated or amended or any new
Material Contract entered into (in which event Borrower shall provide Bank with a copy of such
Material Contract), (iii) any order, judgment or decree in excess of $250,000 shall have been
entered against Borrower or any of its properties or assets, (iv) any notification of violation of
laws or regulations received by Borrower which could reasonably be expected to result in a Material
Adverse Affect, (v) any ERISA Event, (vi) any action, suit, proceeding or claim by or against
Borrower relating to (A) any patents, patent rights, patent applications or any approved or pending
new drug applications or Material ANDAs or (B) products liability and (vii) the occurrence of any
Default or Event of Default.

          5.18 2004 Audited Financial Statements. On or before December 31, 2005, Borrower shall
deliver to Bank its audited financial statements for its fiscal year ended December 31, 2004 in the
form required by Section 5.6(d) hereof.

     6. Negative Covenants of Borrower. Borrower covenants and agrees that from the date
hereof and until payment in full of the Obligations and the formal termination of this Agreement,
Borrower and each Subsidiary:

          6.1 Debt. Shall not create or permit to exist any Debt, including any guaranties or
other contingent obligations, except the following (“Permitted Debt”):

                    (a) The Obligations;

                    (b) Endorsement of checks for collection in the ordinary course of business;

                    (c) Debt payable to suppliers and other trade creditors in the ordinary course of business on
ordinary and customary trade terms;

                    (d) Purchase money Debt (including capital leases) not exceeding Five Million Dollars
($5,000,000.00) in aggregate principal amount at any time outstanding for Borrower and all
Subsidiaries incurred to purchase Equipment, provided that the amount of such Debt shall not at any
time exceed the purchase price of the Equipment purchased;

                    (e) Debt existing on the Closing Date and not otherwise permitted under this Section 6.1, as
set forth in Schedule 9.9 of the Borrower Information Certificate, and the renewal and refinancing
(but not any increase in the aggregate principal amount thereof or any shortening of the maturity
thereof);

                    (f) Subordinated Debt; and

                    (g) Any Debt incurred under any Swap Agreements with Bank (or with any of its Affiliates).

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          6.2 Liens. Shall not create or permit any Liens on any of its property (regardless of
whether such property constitutes Collateral and including, without limitation, all Intellectual
Property) except the following (“Permitted Liens”):

                    (a) Liens securing the Obligations;

                    (b) Liens for taxes, assessments and other governmental charges or levies (excluding any Lien
imposed pursuant to any of the provisions of ERISA or Environmental Laws) not yet due and payable
or which are being Properly Contested;

                    (c) The claims of materialmen, mechanics, carriers, warehousemen, processor or landlords
arising out of operation of law so long as the obligations secured thereby are not past due or are
being Properly Contested;

                    (d) Liens consisting of deposits or pledges made in the ordinary course of business in
connection with workers’ compensation, unemployment insurance, social security and similar laws;

                    (e) Easements, rights-of-way, restrictions and other similar encumbrances affect Real Property
which, in the aggregate, are not substantial in amount, and which do not in any case materially
detract from the value of the property subject thereto or materially interfere with the ordinary
conduct of the business of Borrower;

                    (f) Judgment and other similar non-tax Liens arising in connection with court proceedings but
only if and for so long as (i) the execution or enforcement of such Liens is and continues to be
effectively stayed and bonded on appeal, (ii) the validity and/or amount of the claims secured
thereby are being Properly Contested and (iii) such Liens do not, in the aggregate, materially
detract from the value of the assets of the Person whose assets are subject to such Lien or
materially impair the use thereof in the operation of such Person’s business;

                    (g) Liens securing Permitted Debt incurred solely for the purpose of purchase money financing
for the acquisition of Equipment, provided that such Lien does not secure more than the purchase
price of such Equipment and does not encumber property other than the purchased property;

                    (h) Liens not otherwise permitted by this Section 6.2, in existence on the Closing Date and
described in Schedule 8.4 of the Borrower Information Certificate.

          6.3 Restricted Payments. Shall not pay or declare any dividends (other than stock
dividends) or other distributions or purchase, redeem or otherwise acquire any stock or other
equity interests or pay or acquire any Subordinated Debt except the following: (i) any Subsidiary
may pay dividends to Borrower or another Subsidiary wholly-owned by Borrower and (ii) Borrower may
purchase shares of common stock for the purpose of holding shares for future stock option grants,
provided that (a) the total amount of such purchases shall not exceed Two Million Five Hundred
Thousand Dollars ($2,500,000.00) per year and (b) after giving effect

46

 

to any such purchase, Borrower shall have at least Five Million Dollars ($5,000,000.00) of
Excess Availability.

          6.4 Loans and Other Investments. Shall not make or permit to exist any advances or
loans to, or guarantee or become contingently liable, directly or indirectly, in connection with
the obligations, leases, stock or dividends of, or own, purchase or make any commitment to purchase
any stock, bonds, notes, debentures or other securities of, or any interest in, or make any capital
contributions to (all of which are sometimes collectively referred to herein as “Investments”) any
Person, except for (a) cash and Cash Equivalents (b) existing investments in Subsidiaries, (c)
endorsement of negotiable instruments for collection in the ordinary course of business, (d)
advances to employees for business travel and other expenses incurred in the ordinary course of
business which do not at any time exceed Five Hundred Thousand Dollars ($500,000.00) in the
aggregate, (e) any Swap Agreements with Bank (or with any of its Affiliates) and (f) Permitted
Acquisitions.

          6.5 Change in Business. Shall not enter into any business which is substantially
different from the business in which it is engaged on the Closing Date.

          6.6 Accounts. (a) Shall not sell, assign or discount any of its Accounts, Chattel
Paper or any promissory notes held by it other than the discount of such notes in the ordinary
course of business for collection; (b) shall not create or accept any Account, Instrument, Chattel
Paper or other obligation of any kind due from or owed by as Sanctioned Person or enter into any
lease that secures the Obligations where the lessee is a Sanctioned Person; and (c) shall notify
Bank promptly in writing of any discount, offset or other deductions not shown on the face of an
Account invoice and any dispute over an Account except for discounts, offsets and other deductions
allowed in the ordinary course of business and disputes arising in the ordinary course of business
that could not reasonably be expected to have a Material Adverse Effect (provided all such
discounts, offsets, other deductions and disputes shall be included, as applicable, in all
information and reports delivered pursuant to Section 5.6 above), and any information relating to
an adverse change in any Account Debtor’s financial condition or ability to pay its obligations or
if it learns that any Account Debtor is a Sectioned Person.

          6.7 Transactions with Affiliates. Shall not directly or indirectly purchase, acquire
or lease any property from, or sell, transfer or lease any property to, pay any management fees to
or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate (other than
a Subsidiary); provided, however, that any acts or transactions prohibited by this Section may be
performed or engaged in after written notice to Bank if upon terms not less favorable to Borrower
or such Subsidiary than if no such relationship existed.

          6.8 No Change in Name, Offices or Jurisdiction of Organization; Removal of Collateral.
Shall not change its name or the jurisdiction in which Borrower or such Subsidiary is organized or,
unless it shall have given forty-five (45) days’ advance written notice thereof to Bank, (a) change
the location of its chief executive office or other office where books or records are kept, or (b)
permit any Inventory or other tangible Collateral to be located at any location other than as
specified in the Borrower Information Certificate or such other location as Borrower may elect to
keep such tangible Collateral, provided, Borrower shall have given thirty

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(30) days’ advance written notice thereof to Bank and within such thirty (30) day period
provided to Bank such Third Party Waivers as Bank may reasonably require.

          6.9 No Sale, Leaseback. Shall not enter into any sale-and-leaseback or similar
transaction.

          6.10 Margin Stock. Shall not use any proceeds of the Loan to purchase or carry any
margin stock (within the meaning of Regulation U of the Board of Governors of Federal Reserve
System) or extend credit to others for the purpose of purchasing or carrying any margin stock.

          6.11 Tangible Collateral. Shall not, except as otherwise provided herein, allow any
Inventory or other tangible Collateral to be commingled with, or become an accession to or part of,
any property of any other Person so long as such property is Collateral; nor allow any tangible
Collateral to become a fixture unless Bank shall have given its prior written authorization.

          6.12 Subsidiaries. Shall not acquire, form or dispose of any Subsidiaries or permit
any Subsidiary to issue capital stock except to its parent.

          6.13 Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets, Name and
Good Standing. Shall not (i) merge, reorganize, consolidate or amalgamate with any Person,
(ii) liquidate, wind up its affairs or dissolve itself, (iii) acquire by purchase, lease or
otherwise any of the assets of any Person other than a Permitted Acquisition, (iv) sell, transfer,
lease or otherwise dispose of any of its property or assets, except for Permitted Dispositions and
the voluntary termination of Swap Agreements to which Borrower or such Subsidiary is a party, or
sell or dispose of any equity ownership interests in any Subsidiary, in each case whether in a
single transaction or in a series of related transactions; (v) or change its name or jurisdiction
of organization or conduct business under any new fictitious name; (vi) change its Federal Employer
Identification Number; (vii) fail to remain in good standing and qualified to transact business as
a foreign entity in any state or other jurisdiction in which it is required to be qualified to
transact business as a foreign entity and in which the failure to be so qualified could reasonably
be expected to have a Material Adverse Effect.

          6.14 Change of Fiscal Year or Accounting Methods. Shall not change its fiscal year.
Borrower’s fiscal year end is December 31, as of the Closing Date. Borrower does not currently
capitalize research and development expenses and shall not do so in the future. If Borrower changes
it accounting methods, Bank shall have the right, at its option, to calculate Borrower’s compliance
with the financial covenants set forth in Sections 7.1 and 7.2 hereof using Borrower’s historical
methods of accounting.

          6.15 Deposit Accounts. Borrower shall not open or maintain any Deposit Accounts except
for (i) Deposit Accounts opened or maintained at Bank, (ii) Deposit Accounts which are not opened
or maintained at Bank but which are subject to Bank’s “control” (as such term is used in Article 9
of the Code) on terms reasonably satisfactory to Bank, (iii) an account maintained with Cathay Bank
solely for the purpose of paying weekly disbursements and with an amount on deposit at no time in
excess of Five Million Dollars ($5,000,000.00) and (iv) such

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other Deposit Accounts as shall be necessary for payroll, petty cash, local trade payables,
and other occasional needs of Borrower. The aggregate balance of any Deposit Accounts which are not
subject to Bank’s “control” (as such term is used in Article 9 of the Code) on terms reasonably
acceptable to Bank shall never exceed $200,000.00 without Bank’s prior written consent. All Deposit
Accounts maintained at Bank shall be deemed to be under Bank’s “control” as such term is used in
Article 9 of the Code.

          6.16 Negative-negative Pledge. Shall not enter into any agreement with any party other
than Bank prohibiting the creation of any Lien upon any of its properties or assets, whether now
owned or hereafter acquired.

          6.17 Material Adverse Contracts. Borrower will not become or be a party to any
contract or agreement which has or could have a Material Adverse Effect.

     7. Other Covenants of Borrower. Borrower covenants and agrees that from the date
hereof and until payment in full of the Obligations and the termination of this Agreement, Borrower
and each Subsidiary shall comply with the following additional covenants:

          7.1 Fixed Charge Coverage Ratio. At the end of each Applicable Fiscal Period,
Borrower shall have a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00; provided however,
for the Applicable Fiscal Period ending June 30, 2006 only, Borrower shall have a Fixed Charge
Coverage Ratio of not less than 1.0 to 1.0. As used herein, “Fixed Charge Coverage Ratio” means (i)
EBITDA, less the sum of (A) for any Applicable Fiscal Period during which Borrower does not have a
positive Net Cash Position for each day during such Applicable Fiscal Period, all unfinanced
Capital Expenditures made in the Applicable Fiscal Period, and (B) any dividends, distributions and
any other payments permitted under Section 6.3 above paid in the Applicable Fiscal Period and (C)
cash taxes paid in the Applicable Fiscal Period (without benefit of any refunds), divided by (ii)
the sum of (A) the current portion of scheduled principal amortization on Funded Debt coming due in
the next 12 months as of the end of the most recent fiscal quarter plus (B) cash interest payments
paid in the Applicable Fiscal Period. As used herein, (i) “EBITDA” means the sum of (A)
consolidated net income of Borrower and its Subsidiaries in the Applicable Fiscal Period (computed
without regard to any extraordinary items of gain or loss) plus (B) to the extent deducted from
revenue in computing consolidated net income for such period, the sum of (1) interest expense, (2)
income tax expense, and (3) depreciation and amortization, less any extraordinary cash losses for
such period; (ii) “Capital Expenditures” means for any period the aggregate cost of all capital
assets acquired by Borrower and its Subsidiaries during such period, as determined in accordance
with GAAP; (iii) “Applicable Fiscal Period” means a period of four (4) consecutive, trailing Fiscal
Quarters ending at the end of each fiscal quarter and (iv) “Funded Debt” means (A) debt for
borrowed funds, (B) to the extent not covered by the immediately preceding clause (A), indebtedness
having a term of one (1) year or more incurred as part of any purchase money obligation, and (C)
any Subordinated Debt.

          7.2 Capital Expenditures. Borrower shall not, directly or indirectly, make total
Capital Expenditures in excess of (a) Fifty Million Dollars ($50,000,000.00) for the period from
January 1, 2005 though December 31, 2006, and (b) Twenty-Five Million Dollars

49

 

($25,000,000.00) for the period from January 1, 2007 through December 31, 2007 and for each
calendar year thereafter.

          7.3 Effect of FAS 133 Charge. The effect, if any, of the FAS 133 Charge on the
financial covenants set forth herein shall be excluded from the calculation thereof so long as the
FAS 133 Charge does not exceed Two Hundred Thousand Dollars ($200,000.00) at the time of such
calculation. “FAS 133 Charge” means non-cash charges in connection with any Swap Agreements which
may be required from time to time to be recognized on the financial statements of Borrower pursuant
to Financial Account Standards Board Statement No. 133 (Accounting for Derivative Instruments and
Hedging Activities).

     8. Default.

          8.1 Events of Default. Each of the following shall constitute an Event of Default:

                    (a) There shall occur any default by Borrower in the payment, when due, of any principal of or
interest on the Note or any fee due, any other amounts due hereunder or any other Loan Document, or
any other Obligations; or

                    (b) There shall occur any default by Borrower in the performance of any agreement, covenant or
obligation contained in Section 5.1, 5.4, 5.5, 5.6, 5.12, 5.16, 5.18 or Section 6 or Section 7 of
this Agreement; or

                    (c) There shall occur any default by Borrower or any other party to any Loan Document (other
than Bank) in the performance of any other agreement, covenant or obligation contained in this
Agreement or such Loan Document not provided for elsewhere in this Section 8 and the breach of such
other agreement, covenant or obligation is not cured to Bank’s satisfaction within fifteen (15)
days after the sooner to occur of any Senior Officer’s receipt of notice of such breach from Bank
or the date on which such failure or neglect first becomes known to any Senior Officer; provided,
however, that such notice and opportunity to cure shall not apply in the case of any failure to
perform, keep or observe any covenant which is not capable of being cured at all or within such
fifteen (15) day period or which is a willful and knowing breach by Borrower or such other party;
or

                    (d) Any representation or warranty made by Borrower or any other party to any Loan Document
(other than Bank) herein or therein or in any certificate or report furnished in connection
herewith or therewith shall prove to have been untrue, misleading or incorrect in any material
respect when made; or

                    (e) Any other obligation now or hereafter owed by Borrower or any Subsidiary to Bank or any
Affiliate of Bank shall be in default and not cured within the grace period, if any, provided in
the agreement or other document under which such obligation arises; or

                    (f) Borrower or any Subsidiary shall fail to make any payment in respect of outstanding Debt
(other than the Obligations) in an aggregate principal amount of One Million Five Hundred Thousand
Dollars ($1,500,000.00) or more when due after the

50

 

expiration of any applicable grace period, or any event or condition shall occur which results
in the acceleration of the maturity of such Debt (including, without limitation, any required
mandatory prepayment or “put” of such Debt to any such Person) or enables (or, with the giving of
notice or lapse of time or both, would enable) the holders of such Debt or a commitment related to
such Debt (or any Person acting on such holders’ behalf) to accelerate the maturity thereof or
terminate any such commitment prior to its normal expiration (including, without limitation, any
required mandatory prepayment or “put” of such Debt to such Person); or

                    (g) Borrower or any Subsidiary shall (A) voluntarily dissolve, liquidate or terminate
operations or apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of such Person or of all or of a substantial part of its
assets, (B) admit in writing its inability, or be generally unable, to pay its debts as the debts
become due, (C) make a general assignment for the benefit of its creditors, (D) commence a
voluntary case under the federal Bankruptcy Code (as now or hereafter in effect), (E) file a
petition seeking to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, (F) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under Bankruptcy Code, or (G) take any corporate action for the purpose of
effecting any of the foregoing; or

                    (h) An involuntary petition or complaint shall be filed against Borrower seeking bankruptcy
relief or reorganization or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of Borrower or any Subsidiary, of all or substantially all of its assets, and such
petition or complaint shall not have been dismissed within sixty (60) days of the filing thereof;
or an order, order for relief, judgment or decree shall be entered by any court of competent
jurisdiction or other competent authority approving or ordering any of the foregoing actions; or

                    (i) A judgment in excess of Five Hundred Thousand Dollars ($500,000.00) or One Million Dollars
($1,000,000.00) when aggregated with all other judgments against Borrower and any Subsidiary shall
be rendered against Borrower or any Subsidiary and shall remain undischarged, undismissed and
unstayed for more than ten days (except judgments validly covered by insurance with a deductible of
not more than Fifty Thousand Dollars ($50,000.00) or there shall occur any levy upon, or
attachment, garnishment or other seizure of, any portion of the Collateral or other assets of
Borrower or any Subsidiary; or

                    (j) Loss, theft, damage or destruction of any material portion of the tangible Collateral for
which there is either no insurance coverage or for which, in the reasonable opinion of Bank, there
is insufficient insurance coverage;

                    (k) Any default by Borrower under any Material Contract, which default continues for more than
the applicable cure period, if any, with respect thereto and which results in the right of any
party thereto to terminate such Material Contract or cease performing under such Material Contract;

                    (l) Any material provision hereof or of any of the other Loan Documents shall for any reason
cease to be valid, binding and enforceable with respect to any

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party hereto or thereto (other than Bank) in accordance with its terms, or any such party
shall challenge the enforceability hereof or thereof, or shall assert in writing, or take any
action or fail to take any action based on the assertion that any provision hereof or of any of the
other Loan Documents has ceased to be or is otherwise not valid, binding or enforceable in
accordance with its terms, or any security interest provided for herein or in any of the other Loan
Documents shall cease to be a valid and perfected first priority security interest in any of the
Collateral purported to be subject thereto (except as otherwise permitted herein or therein);

                    (m) An ERISA Event shall occur which results in or could reasonably be expected to result in
liability of Borrower in an aggregate amount in excess of $1,000,000;

                    (n) Any Change of Control; or

                    (o) There shall occur any change in the condition (financial or otherwise) of Borrower which
could reasonably be expected to have a Material Adverse Effect.

          8.2 Remedies. If any Event of Default shall occur, Bank may, without notice to
Borrower, at its option, withhold further Loans or other extensions of credit to Borrower. If an
Event of Default shall have occurred and be continuing, Bank may at its option take any or all of
the following actions:

                    (a) Bank may declare any or all Obligations (other than Obligations under any Swap Agreements,
between Borrower and Bank or any Affiliate of Bank, which shall be due in accordance with and
governed by the provisions of said Swap Agreements) to be immediately due and payable (if not
earlier demanded), terminate its obligation to make Loans and other extensions of credit to
Borrower, reduce the maximum amount of Revolver Loans available to Borrower, bring suit against
Borrower to collect the Obligations, exercise any remedy available to Bank hereunder or at law and
take any action or exercise any remedy provided herein or in any other Loan Document or under
applicable law. No remedy shall be exclusive of other remedies or impair the right of Bank to
exercise any other remedies.

                    (b) Without waiving any of its other rights hereunder or under any other Loan Document, Bank
shall have all rights and remedies of a secured party under the Code (and the Uniform Commercial
Code of any other applicable jurisdiction) and such other rights and remedies as may be available
hereunder, under other applicable law or pursuant to contract. If requested by Bank, Borrower will
promptly assemble the Collateral and make it available to Bank at a place to be designated by Bank.
Borrower agrees that any notice by Bank of the sale or disposition of the Collateral or any other
intended action hereunder, whether required by the Code or otherwise, shall constitute reasonable
notice to Borrower if the notice is mailed to Borrower by regular or certified mail, postage
prepaid, at least five days before the action to be taken. Borrower shall be liable for any
deficiencies in the event the proceeds of the disposition of the Collateral do not satisfy the
Obligations in full.

                    (c) Bank may demand, collect and sue for all amounts owed pursuant to Accounts, General
Intangibles, Chattel Paper, Instruments, Documents or for

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proceeds of any Collateral (either in Borrower’s name or Bank’s name at the latter’s option),
with the right to enforce, compromise, settle or discharge any such amounts.

          8.3 Receiver. In addition to any other remedy available to it, Bank shall have the
absolute right, upon the occurrence of an Event of Default, to seek and obtain the appointment of a
receiver to take possession of and operate and/or dispose of the business and assets of Borrower
and any costs and expenses incurred by Bank in connection with such receivership shall bear
interest at the Default Rate, at Bank’s option, and shall be secured by all Collateral.

          8.4 Deposits. After the occurrence of an Event of Default, Borrower authorizes Bank to
collect and apply against the Obligations when due any cash or Deposit Accounts in its possession.

          8.5 Insurance. At its option, Bank may apply any insurance proceeds received by Bank
at any time to the cost of repairs or replacement of Collateral and/or to payment of the
Obligations, whether or not then due, in any order and in such manner as Bank may determine or hold
such proceeds as cash collateral for the Obligations, except that notwithstanding
anything to the contrary contained herein, if any Equipment is physically damaged or destroyed,
upon the written request of Borrower, Bank shall release the net cash proceeds from insurance
received by Bank pursuant to this Section 8.5 to Borrower as a result of such damage or destruction
to the extent necessary for the repair, refurbishing or replacement of such Equipment,
provided, that, each of the following conditions is satisfied: (i) no Event of
Default shall exist or have occurred and be continuing at the time immediately before or after
giving effect to such release, (ii) such proceeds shall be used solely to repair, refurbish or
replace the property so damaged or destroyed (free and clear of any security interests, liens,
claims or other encumbrances), (iii) the repair, refurbishing or replacement of the property so
damaged or destroyed shall be commenced as soon as reasonably practicable and shall be diligently
pursued to satisfactory completion, (iv) the proceeds shall be held by Bank as cash collateral for
the Obligations and shall be disbursed from such cash collateral from time to time as needed
and/or, at Bank’s option, released by Bank directly to the contractor, subcontractor, materialmen,
laborers, engineers, architects and other Persons rendering services or materials to repair,
refurbish or replace the property so damaged or destroyed, (v) the amount of the insurance proceeds
and Borrower’s unrestricted cash available for such purposes are sufficient in Bank’s reasonable
determination, to allow Borrower to effect such repair, refurbishing or replacement in a
satisfactory manner, (vi) the repair, refurbishing or replacement to which the proceeds are applied
shall cause the Equipment so damaged or destroyed to be of at least equal value and substantially
the same character as prior to such damage or destruction, (vii) the casualty shall have resulted
in payment of Three Hundred Thousand Dollars ($300,000.00) in insurance proceeds or less, and
(viii) such repair, refurbishing or replacement can, in the good faith estimate of Bank, be
completed prior to the end of the then current term of this Agreement. Upon completion of the work
and payment in full therefor, or upon the failure to commence, or diligently to continue the work
or the replacement of the Collateral, Bank may, at Bank’s option and after prior notice to
Borrower, either apply the amount of any such proceeds then or thereafter in the possession of Bank
to the payment of the Obligations or hold such proceeds as cash collateral for the Obligations,
provided, that, nothing contained herein shall limit the right of Bank to apply any
or all of such proceeds to the Obligations at any time an Event of Default shall exist or have
occurred and be continuing. Bank

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is granted a power of attorney by Borrower with full power of substitution to file any proof
of loss in Borrower’s or Bank’s name, to endorse Borrower’s name on any check, draft or other
instrument evidencing insurance proceeds, and to take any action or sign any document to pursue any
insurance loss claim. Such power being coupled with an interest is irrevocable.

     9. Security Agreement.

          9.1 Security Interest.

                    (a) As security for the payment and performance of any and all Obligations and the performance
of all obligations and covenants of Borrower to Bank and its Affiliates, whether hereunder and
under the other Loan Documents, Swap Agreements between Bank or any Affiliate of Bank and Borrower
or otherwise, certain or contingent, now existing or hereafter arising, which are now, or may at
any time or times hereafter be owing by Borrower to Bank or any of Bank’s Affiliates, Borrower
hereby grants to Bank (for itself and its Affiliates) a continuing security interest in and general
lien upon and right of set-off against, all right, title and interest of Borrower in and to the
Collateral, whether now owned or hereafter acquired by Borrower.

                    (b) Except as herein or by applicable law otherwise expressly provided, Bank shall not be
obligated to exercise any degree of care in connection with any Collateral in its possession, to
take any steps necessary to preserve any rights in any of the Collateral or to preserve any rights
therein against prior parties, and Borrower agrees to take such steps. In any case Bank shall be
deemed to have exercised reasonable care if it shall have taken such steps for the care and
preservation of the Collateral or rights therein as Borrower may have reasonably requested Bank to
take and Bank’s omission to take any action not requested by Borrower shall not be deemed a failure
to exercise reasonable care. No segregation or specific allocation by Bank of specified items of
Collateral against any liability of Borrower shall waive or affect any security interest in or Lien
against other items of Collateral or any of Bank’s options, powers or rights under this Agreement
or otherwise arising.

                    (c) Bank may at any time and from time to time, with or without notice to Borrower, (i)
transfer into the name of Bank or the name of Bank’s nominee any of the Collateral, (ii) notify any
Account Debtor or other obligor of any Collateral to make payment thereon direct to Bank of any
amounts due or to become due thereon and (iii) receive and direct the disposition of any proceeds
of any Collateral.

                    (d) Notwithstanding the foregoing, (i) no Account, Instrument, Chattel Paper or other
obligation or property of any kind due from, owed by or belonging to, a Sanctioned Person or (ii)
no lease in which the lessee is a Sanctioned Person shall be Collateral or shall be credited toward
the payment of the Obligations.

          9.2 Financing Statements; Power of Attorney. Borrower authorizes Bank at Borrower’s
expense to file any financing statements and/or amendments thereto relating to the Collateral
(without Borrower’s signature thereon) which Bank deems appropriate that (a) indicate the
Collateral (i) as “all assets” of Borrower or words of similar effect, if appropriate, regardless
of whether any particular asset comprised in the Collateral falls within the scope of

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Article 9 of the Code, or (ii) by specific Collateral category, and (b) provide any other
information required by part 5 of Article 9 of the Code for the sufficiency or filing office
acceptance of any financing statement or amendment. Borrower irrevocably appoints Bank as its
attorney-in-fact to execute any such financing statements and/or control agreements in Borrower’s
name and to perform all other acts, at Borrower’s expense, which Bank deems appropriate to perfect
and to continue perfection of the security interest of Bank. Borrower hereby appoints Bank as
Borrower’s attorney-in-fact to endorse, present and collect on behalf of Borrower and in Borrower’s
name any draft, checks or other documents necessary or desirable to collect any amounts which
Borrower may be owed. Bank is hereby granted a license or other right to use, without charge,
Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any Property of a similar nature, as it pertains to the
Collateral, in advertising for sale and selling any Collateral, and Borrower’s rights under all
licenses and all franchise agreements shall inure to Bank’s benefit. The proceeds realized from the
sale or other disposition of any Collateral may be applied, after allowing two (2) Business Days
for collection, first to the reasonable costs, expenses and attorneys’ fees and expenses incurred
by Bank for collection and for acquisition, completion, protection, removal, storage, sale and
delivering of the Collateral; secondly, to interest due upon any of the Obligations; and thirdly,
to the principal amount of the Obligations and to any other Obligations then outstanding. If any
deficiency shall arise, Borrower shall remain jointly and severally liable to Bank therefor.

          9.3 Entry. Borrower hereby irrevocably consents to any act by Bank or its agents in
entering upon any premises for the purposes of either (a) inspecting the Collateral or (b) if an
Event of Default has occurred and is continuing, taking possession of the Collateral, and in such
event Borrower hereby waives its right to assert against Bank or its agents any claim based upon
trespass or any similar cause of action for entering upon any premises where the Collateral may be
located. Bank agrees that, if an Event of Default has not occurred and is not continuing, Bank will
provide Borrower with twenty-four (24) hours prior notice of inspections and will conduct
inspections only during normal business hours,

          9.4 Other Rights. Borrower authorizes Bank without affecting Borrower’s obligations
hereunder or under any other Loan Document from time to time (a) to take from any party and hold
additional Collateral or guaranties for the payment of the Obligations or any part thereof, and to
exchange, enforce or release such collateral or guaranty of payment of the Obligations or any part
thereof and to release or substitute any endorser or guarantor or any party who has given any
security interest in any collateral as security for the payment of the Obligations or any part
thereof or any party in any way obligated to pay the Obligations or any part thereof; and (b) upon
the occurrence of any Event of Default to direct the manner of the disposition of the Collateral
and the enforcement of any endorsements, guaranties, letters of credit or other security relating
to the Obligations or any part thereof as Bank in its sole discretion may determine.

          9.5 Accounts. At any time after the occurrence and during the continuance of an Event
of Default, Bank may notify any Account Debtor of Bank’s security interest and may direct such
Account Debtor to make payment directly to Bank for application against the Obligations. Any such
payments received by or on behalf of Borrower at any time, whether before or after default, shall
be the property of Bank, shall be held in trust for Bank and not

55

 

commingled with any other assets of any Person (except to the extent they may be commingled
with other assets of Borrower in an account with Bank) and shall be immediately delivered to Bank
in the form received. Bank shall have the right to apply any proceeds of Collateral to such of the
Obligations as it may determine.

          9.6 Waiver of Marshaling. Borrower hereby waives any right it may have to require
marshaling of its assets.

          9.7 Control. Borrower will cooperate with Bank in obtaining control of, or control
agreements with respect to, Collateral for which control or a control agreement is required for
perfection of the Bank’s security interest under the Code.

     10. Miscellaneous.

          10.1 No Waiver, Remedies Cumulative. No failure on the part of Bank to exercise, and
no delay in exercising, any right hereunder or under any other Loan Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies herein provided are
cumulative and are in addition to any other remedies provided by law, any Loan Document or
otherwise.

          10.2 Survival of Representations. All representations and warranties made herein
shall survive the making of the Loan hereunder and the delivery of the Note, and shall continue in
full force and effect so long as any Obligations is outstanding, there exists any commitment by
Bank to Borrower, and until this Agreement is formally terminated in writing.

          10.3 Indemnity By Borrower; Expenses. In addition to all other Obligations, Borrower
agrees to defend, protect, indemnify and hold harmless Bank and its Affiliates and all of their
respective officers, directors, employees, attorneys, consultants and agents from and against any
and all losses, damages, liabilities, obligations, penalties, fines, fees, costs and expenses
(including, without limitation, attorneys’ and paralegals’ fees, costs and expenses, and fees,
costs and expenses for investigations and experts) incurred by such indemnitees, whether prior to
or from and after the date hereof, as a result of or arising from or relating to (a) the due
diligence effort (including, without limitation, public record search, recording fees, examinations
and investigations of the properties of Borrower and Borrower’s operations), negotiation,
preparation, execution and/or performance of any of the Loan Documents or of any document executed
in connection with the transactions contemplated thereby and the perfection of Bank’s Liens in the
Collateral, maintenance of the Loan by Bank, and any and all amendments, modifications, and
supplements of any of the Loan Documents or restructuring of the Obligations, (b) any suit,
investigation, action or proceeding by any Person (other than Borrower), whether threatened or
initiated, asserting a claim for any legal or equitable remedy against any Person under any
statute, regulation or common law principle, arising from or in connection with Bank’s furnishing
of funds to Borrower under this Agreement, (c) Bank’s preservation, administration and enforcement
of its rights under the Loan Documents and applicable law, including the reasonable fees and
disbursements of counsel for Bank in connection therewith, whether suit be brought or not and
whether incurred at trial or on appeal, and all costs of repossession, storage, disposition,
protection and collection of Collateral, (d)

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periodic field exams, audits and appraisals performed by Bank pursuant to Section 5.5 hereof,
(e) any civil penalty or fine assessed by OFAC against Bank or any Affiliate of Bank and all
reasonable costs and expense (including counsel fees and disbursements) incurred in connection with
defense thereof by Bank or such Affiliate, as a result of the funding of Loans or the extension of
credit, the acceptance of payments due under the Loan Documents or any Swap Agreement or acceptance
of Collateral, and/or (f) any matter relating to the financing transactions contemplated by the
Loan Documents or by any document executed in connection with the transactions contemplated
thereby, other than for such loss, damage, liability, obligation, penalty, fee, cost or expense
arising from such indemnitee’s gross negligence or willful misconduct. If Borrower should fail to
pay any tax or other amount required by this Agreement to be paid or which may be reasonably
necessary to protect or preserve any Collateral or Borrower’s or Bank’s interests therein, Bank may
make such payment and the amount thereof shall be payable on demand, may at Bank’s option be
debited against any Deposit Account of Borrower at Bank or converted to a Loan hereunder, shall
bear interest at the Default Rate from the date of demand until paid and shall be deemed to be
Obligations entitled to the benefit and security of the Loan Documents. In addition, Borrower
agrees to pay and save Bank harmless against any liability for payment of any state documentary
stamp taxes, intangible taxes or similar taxes (including interest or penalties, if any) which may
now or hereafter be determined to be payable in respect to the execution, delivery or recording of
any Loan Document or the making of any Loan, whether originally thought to be due or not, and
regardless of any mistake of fact or law on the part of Bank or Borrower with respect to the
applicability of such tax. Borrower’s obligation for indemnification for all of the foregoing
losses, damages, liabilities, obligations, penalties, fees, costs and expenses of Bank shall be
part of the Obligations, secured by the Collateral, chargeable against Borrower’s loan account, and
shall survive termination of this Agreement.

          10.4 Notices. Any notice or other communication hereunder or under the Note to any
party hereto or thereto shall be by hand delivery, overnight delivery via nationally recognized
overnight delivery service, facsimile with receipt confirmed, telegram, telex or registered or
certified United States mail with return receipt and unless otherwise provided herein shall be
deemed to have been given or made when delivered, telegraphed, telexed, faxed or, if sent via
United States mail, when receipt signed by the receiver, postage prepaid, addressed to the party at
its address specified below (or at any other address that the party may hereafter specify to the
other parties in writing):

	 	 	 
	If to Borrower:

	 	Impax Laboratories, Inc.
	 

	 	121 New Britain Blvd.
	 

	 	Chalfont, Pennsylvania 18914
	 

	 	Attention: Mr. Arthur A. Koch, Jr.
	 

	 	Telephone No.: 215-933-0351
	 

	 	Telecopy No.: 215-933-0359
	 
	 	 
	with a copy to:

	 	Dilworth Paxson LLP
	 

	 	3200 Mellon Bank Center
	 

	 	1735 Market Street
	 

	 	Philadelphia, Pennsylvania 19103-7595
	 

	 	Attention: Roger F. Wood, Esq.

57

 

	 	 	 
	 

	 	Telephone No. 215-575-7068
	 

	 	Telecopy No.: 215-575-7200
	 
	 	 
	If to Bank:

	 	Wachovia Bank, National Association
	 

	 	One South Broad Street
	 

	 	PA 4812
	 

	 	Philadelphia, PA 19107
	 

	 	Attention: Margaret A. Byrne, Vice President
	 

	 	Telephone No.: 267-321-6673
	 

	 	Telecopy No. 267-321-6741
	 
	 	 
	with a copy to:

	 	Wolf, Block, Schorr & Solis-Cohen LLP
	 

	 	1650 Arch Street
	 

	 	Philadelphia, PA 19103-2097
	 

	 	Attention: Richard Zucker, Esq.
	 

	 	Telephone No.: 215-977-2479
	 

	 	Telecopy No.: 215-405-3908

          10.5 Governing Law. This Agreement and the Loan Documents shall be deemed contracts
made under the laws of the State of the Jurisdiction and shall be governed by and construed in
accordance with the laws of said state (excluding its conflict of laws provisions if such
provisions would require application of the laws of another jurisdiction) except insofar as the
laws of another jurisdiction may, by reason of mandatory provisions of law, govern the perfection,
priority and enforcement of security interests in the Collateral.

          10.6 Successors and Assigns. This Agreement shall be binding upon and shall inure to
the benefit of Borrower and Bank, and their respective successors and assigns; provided, that
Borrower may not assign any of its rights hereunder without the prior written consent of Bank, and
any such assignment made without such consent will be void.

          10.7 Counterparts; Telecopied Signatures. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument. Any signature delivered by a party by facsimile
transmission shall be deemed to be an original signature hereto.

          10.8 No Usury. Regardless of any other provision of this Agreement, the Note or in any
other Loan Document, if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to, and shall be, such maximum lawful
interest, and (a) the amount which would be excessive interest shall be deemed applied to the
reduction of the principal balance of the Note and not to the payment of interest, and (b) if the
loan evidenced by the Note has been or is thereby paid in fall, the excess shall be returned to the
party paying same, such application to the principal balance of the Note or the refunding of excess
to be a complete settlement and acquittance thereof.

          10.9 Powers. All powers of attorney granted to Bank are coupled with an interest and
are irrevocable.

58

 

          10.10 Approvals; Amendments. If this Agreement calls for the approval or consent of
Bank, such approval or consent may be given or withheld in the reasonable discretion of Bank unless
otherwise specified herein. This Agreement and the other Loan Documents may not be modified,
altered or amended, except by an agreement in writing signed by Borrower and Bank and may not be
modified in any manner adverse to a provider under any secured or guarantied Swap Agreement without
that provider’s prior written consent.

          10.11 Participations and Assignments. Upon prior notice to Borrower, Bank shall have
the right to enter into one or more participation with other lenders with respect to the
Obligations and to assign to one or more assignees all or a portion of its interest, rights and
obligations under the Loan Documents. Upon prior notice to Borrower of such participation or
assignment, Borrower shall thereafter furnish to such participant or assignee any information
famished by Borrower to Bank pursuant to the terms of the Loan Documents. Nothing in this Agreement
or any other Loan Document shall prohibit Bank from pledging or assigning this Agreement and Bank’s
rights under any of the other Loan Documents, including collateral therefor, to any Federal Reserve
Bank in accordance with applicable law.

          10.12 Waiver of Certain Defenses. To the fullest extent permitted by applicable law,
upon the occurrence of any Event of Default, neither Borrower nor anyone claiming by or under
Borrower will claim or seek to take advantage of any other law requiring Bank to attempt to realize
upon any Collateral or collateral of any surety or guarantor, or any appraisement, evaluation,
stay, extension, homestead, redemption or exemption laws now or hereafter in force in order to
prevent or hinder the enforcement of this Agreement. Borrower, for itself and all who may at any
time claim through or under Borrower, hereby expressly waives to the fullest extent permitted by
law the benefit of all such laws. All rights of Bank and all obligations of Borrower hereunder
shall be absolute and unconditional irrespective of (a) any change in the time, manner or place of
payment of, or any other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from any provision of the Loan Documents, (b) any exchange,
release or non-perfection of any other collateral given as security for the Obligations, or any
release or amendment or waiver of or consent to departure from any guaranty for all or any of the
Obligations, or (c) any other circumstance which might otherwise constitute a defense available to,
or a discharge of, Borrower or any third party, other than payment and performance in full of the
Obligations.

          10.13 Integration; Final Agreement. This Agreement and the other loan documents
represent the final agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral
agreements between the parties.

          10.14 LIMITATION ON LIABILITY; WAIVER OF PUNITIVE DAMAGES. EACH OF THE PARTIES HERETO,
INCLUDING BANK BY ACCEPTANCE HEREOF, AGREES THAT IN ANY JUDICIAL, MEDIATION OR ARBITRATION
PROCEEDING OR ANY CLAIM OR CONTROVERSY BETWEEN OR AMONG THEM (A “DISPUTE”) THAT MAY ARISE OUT OF OR
BE IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT
BETWEEN AMONG THEM OR THE OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN NO EVENT SHALL ANY
PARTY HAVE A REMEDY OF, OR BE LIABLE TO THE

59

 

OTHER FOR, (1) INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY
DAMAGES. EACH OF THE PARTIES HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY
DAMAGES THEY MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY DISPUTE, WHETHER THE
DISPUTE IS RESOLVED BY ARBITRATION, MEDIATION, JUDICIALLY OR OTHERWISE.

          10.15 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF
BORROWER BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT
HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ENTER INTO AND ACCEPT THIS AGREEMENT.
EACH OF THE PARTIES AGREES THAT THE TERMS HEREOF SHALL SUPERSEDE AND REPLACE ANY PRIOR AGREEMENT
RELATED TO ARBITRATION OF DISPUTES BETWEEN THE PARTIES CONTAINED IN ANY LOAN DOCUMENT OR ANY OTHER
DOCUMENT OR AGREEMENT HERETOFORE EXECUTED IN CONNECTION WITH, RELATED TO OR BEING REPLACED,
SUPPLEMENTED, EXTENDED OR MODIFIED BY, THIS AGREEMENT.

          10.16 Amendment and Restatement of Existing Loan Agreement.

                    (a) Amendment and Restatement. This Agreement constitutes an amendment and complete
restatement of the Existing Loan Agreement.

                    (b) No Termination; No Release. Etc.

                         (i) The other Existing Loan Documents, to the extent not amended or otherwise explicitly
terminated or released in connection with the execution of this Agreement or any of the other Loan
Documents, are valid, binding and in full force and effect as of the date hereof.

                         (ii) Neither this Agreement nor any other Loan Document shall be deemed or construed to be a
compromise, satisfaction, novation or release of the Existing Loan Agreement or any other Existing
Loan Documents or any rights or obligations hereunder or thereunder, to the extent not amended or
otherwise explicitly terminated in connection with the execution of this Agreement or the other
Loan Documents, nor shall the credit facilities under this Agreement be deemed to be a repayment of
any of the indebtedness evidenced thereby. The credit facilities under this Agreement are amending
and restating, in accordance with the terms and conditions of this Agreement, the obligations
evidenced and secured by the Existing Loan Agreement.

60

 

                         (iii) All liens, security interests, rights and remedies granted to the lender under the
Existing Loan Agreement or any other Existing Loan Documents, to the extent not amended or
otherwise explicitly terminated in connection with the execution of this Agreement or the other
Loan Documents, are hereby ratified, confirmed and continued and shall secure the performance by
Obligors of their obligations under this Agreement and all of the other Loan Documents.

                         (iv) Borrower has no defense, setoff, counterclaim or challenge against the payment of any
sums owing under the Existing Loan Agreement or the other Existing Loan Documents or the
enforcement of any of the terms and conditions thereof.

                    (c) Existing Loan Agreement Revolver Loans. Loans outstanding under the Existing Loan
Agreement on the date immediately prior to the Closing Date shall be deemed Revolver Loans
outstanding under this Agreement on the Closing Date.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

61

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.

	 	 	 	 	 
	 	IMPAX LABORATORIES, INC.

 	 
	 	By:  	/s/  Arthur A. Koch, Jr.
 	 
	 	 	Arthur A. Koch, Jr. 	 
	 	 	Chief Financial Officer, Senior Vice
President and Corporate Secretary 	 
	 
	 	Accepted in Philadelphia, PA:

WACHOVIA BANK, NATIONAL 

ASSOCIATION

 	 
	 	By:  	/s/ Margaret A. Byrne
 	 
	 	 	Margaret Byrne, Vice President 	 
	 	 	 	 

[SIGNATURE PAGE TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT]

 

 

SCHEDULE OF EXHIBITS

	 	 	 	 	 
	EXHIBIT	 	SECTION REFERENCE	 	TITLE
	A-1

	 	2.1.2
	 	Revolver Note
	 
	 	 	 	 
	Article 3
	 	 	 	 
	 

3.1.2

	 	 3.1.2(f)
(“Supporting Documents”)
	 	Borrower
Information Certificate
	 
	 	 	 	 
	Article 5
	 	 	 	 
	 

5.6(a)

	 	5.6(a)
(“Periodic Borrowing Base
Information”)
	 	Borrowing
Base Certificate
	5.6(e)

	 	5.6(e) (“Compliance and No
Default Certificates”)
	 	Compliance and No Default
Certificates

 

 

EXHIBIT A-1

REVOLVER NOTE

SEE ATTACHED

 

 

REVOLVER NOTE

			
	 	 	 
	$35,000,000.00
	 	December 15, 2005

FOR VALUE RECEIVED, the undersigned IMPAX LABORATORIES, INC., a corporation organized under the
laws of Delaware, (“Borrower”), promises to pay to the order of WACHOVIA BANK, NATIONAL ASSOCIATION
(“Bank”) at the place and times provided in the Agreement referred to below, the principal sum of
THIRTY-FIVE MILLION DOLLARS ($35,000,000.00) or the principal amount of all Revolver Loans made by
Bank from time to time pursuant to that certain Amended and Restated Loan and Security Agreement
dated as of December 15, 2005 (as amended, restated or otherwise modified, the “Agreement”) by and
between Borrower and Bank. Capitalized terms used herein and not defined herein shall have the
meanings assigned thereto in the Agreement.

The unpaid principal amount of this Revolver Note from time to time outstanding is subject to
mandatory repayment from time to time as provided in the Agreement and shall bear interest as
provided in the Agreement. All payments of principal and interest on this Revolver Note shall be
payable to Bank or the holder of this Revolver Note in lawful currency of the United States of
America in immediately available funds in the manner and location indicated in the Agreement or
wherever else Bank or such holder may specify.

This Revolver Note is entitled to the benefits of, and evidences Obligations incurred under, the
Agreement, to which reference is made for a description of the security for this Revolver Note and
for a statement of the terms and conditions on which Borrower is permitted and required to make
prepayments and repayments of principal of the Obligations evidenced by this Revolver Note and on
which such Obligations may be declared to be immediately due and payable.

This Revolver Note shall be governed, construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania, without reference to the conflicts or choice of law principles
thereof.

Borrower hereby waives all requirements as to diligence, presentment, demand of payment, protest
and (except as required by the Agreement) notice of any kind with respect to this Revolver Note.

BORROWER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN
THE COMMONWEALTH OF PENNSYLVANIA, OR IN ANY OTHER JURISDICTION WHICH PERMITS THE ENTRY OF JUDGMENT
BY CONFESSION, TO APPEAR FOR BORROWER AT ANY TIME AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER
THE AGREEMENT IN ANY ACTION BROUGHT AGAINST BORROWER ON THIS NOTE OR THE LOAN DOCUMENTS AT THE SUIT
OF BANK, WITH OR WITHOUT COMPLAINT OR DECLARATION FILED, WITHOUT STAY OF EXECUTION, AS OF ANY TERM
OR TIME, AM) THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE UNPAID
OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AND ALL OTHER SUMS TO BE PAID BY BORROWER TO OR ON BEHALF
OF BANK PURSUANT TO THE TERMS HEREOF OR OF THE LOAN DOCUMENTS AND ALL ARREARAGES OF INTEREST
THEREON, TOGETHER WITH ALL COSTS AND OTHER EXPENSES AND AN ATTORNEY’S COLLECTION COMMISSION OF
FIFTEEN PERCENT (15%) OF THE AGGREGATE AMOUNT OF THE FOREGOING SUMS, BUT IN

 

 

NO EVENT LESS THAN $5,000.00; AND FOR SO DOING THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT
SHALL BE A SUFFICIENT WARRANT.

THE AUTHORITY GRANTED HEREIN TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF BUT
SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL PAYMENT IN FULL OF ALL THE AMOUNTS DUE
HEREUNDER. BORROWER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE
EXECUTION AND DELIVERY OF THIS NOTE AND THAT IT KNOWINGLY WAIVES ITS RIGHT TO BE HEARD PRIOR TO THE
ENTRY OF SUCH JUDGMENT AND UNDERSTANDS THAT, UPON SUCH ENTRY, SUCH JUDGMENT SHALL BECOME A LIEN ON
ALL REAL PROPERTY OF BORROWER IN THE COUNTY WHERE SUCH JUDGMENT IS ENTERED AND THAT EXECUTION MAY
IMMEDIATELY BE ISSUED ON THE JUDGMENT TO GARNISH, LEVY ON OR ATTACH ANY PERSONAL PROPERTY OF
BORROWER.

BORROWER WAIVES AND RELINQUISHES ALL ERRORS, DEFECTS AND IMPERFECTIONS IN THE ENTRY OF JUDGMENT AS
AFORESAID, OR IN ANY PROCEEDING PURSUANT THERETO, AND ALL BENEFITS THAT MAY ACCRUE TO BORROWER BY
VIRTUE OF ANY LAW OR RULE OF COURT RELATING TO A STAY OF EXECUTION OR EXEMPTING ANY PROPERTY FROM
LEVY OR SALE UNDER EXECUTION.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

2

 

IN WITNESS WHEREOF, the undersigned has executed this Revolver Note under seal as of the day and
year first written above.

	 	 	 	 	 
	 	IMPAX LABORATORIES, INC.

 	 
	 	By:  	/s/ Arthur A. Koch, Jr.
 	 
	 	 	Arthur A. Koch, Jr. 	 
	 	 	Chief Financial Officer, Senior Vice

President and Corporate Secretary 	 
	 

[SIGNATURE PAGE TO REVOLVER NOTE]

 

 

	 	 	 
	COMMONWEALTH OF PENNSYLVANIA

	 	:
	 
	 	 
	 

	 	SS.
	 
	 	 
	COUNTY OF                                                     

	 	:

On this, the            day of December, 2005 before me, a Notary Public, personally appeared Arthur A.
Koch, Jr., who acknowledged himself to be the Chief Financial Officer, Senior Vice President and
Corporate Secretary of Impax Laboratories, Inc. corporation, and that he as such officer, being
authorized to do so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

	 	 	 	 	 
	 	 	 
	 	
 	 
	 	Notary Public 	 
	 	My commission expires: 	 

 

 

	 	 	 	 	 

Exhibit 5.6(a)

BORROWING BASE CERTIFICATE

SEE ATTACHED

 

 

 

 

 

 

 

 

Exhibit 5.6(e)

COMPLIANCE AND NO DEFAULT CERTIFICATES

In accordance with the terms of the Amended and Restated Loan and Security Agreement dated
                                        , 2005 (the “Loan Agreement”) by and between Wachovia Bank, National Association
and IMPAX LABORATORIES (“Borrower”), I hereby certify that:

	1.	 	I am the President [chief financial officer] of Borrower;
	 
	2.	 	The enclosed financial statements are prepared in accordance with generally accepted
accounting principles;
	 
	3.	 	No Default (as defined in the Loan Documents) or any event which, upon the giving of notice
or lapse of time or both, would constitute such a Default, has occurred.
	 
	4.	 	Borrower is in compliance with the Financial Covenant(s) set forth in the Loan Agreement, as
demonstrated by the calculations contained in the Covenant Compliance Certificate attached
hereto as Schedule 1.

	 	 	 	 	 
	 	 	 	 	 
	 

Signature	 	 
	 
	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 
	 	 
	Title:
	 	 	 	 
	 

	 	 
	 	 

 

 

SCHEDULE 1

COVENANT COMPLIANCE CERTIFICATE

Borrower Name: IMPAX LABORATORIES INC.

	 	 	 	 	 	 
	For the fiscal

	 	 	 	ended 	 	 	 
	 

	 	 
(enter text; i.e., year, quarter)	 	 	 	 	 	 
	 	 
	 

	 		 	 	 	 

ALL CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS GIVEN IN THE LOAN
AGREEMENT.

	 	 	 	 	 
	COVENANT
	 	ACTUAL
	 	REQUIRED

[Insert Financial Covenant Calculations]exv10w2

EXHIBIT 10.2

$75,000,000

IMPAX LABORATORIES, INC.

3.50% CONVERTIBLE SENIOR SUBORDINATED DEBENTURES DUE 2012

PURCHASE AGREEMENT

June 26, 2005

To the purchasers set forth on Schedule I hereto.

Dear Sirs and Mesdames:

Impax Laboratories, Inc., a Delaware corporation (the “COMPANY”), confirms its agreement with
respect to the proposed issuance and sale to the several purchasers named in Schedule I hereto
(each, a “PURCHASER” and collectively, the “PURCHASERS”) of $75,000,000 principal amount of the
Company’s 3.50% Convertible Senior Subordinated Debentures Due 2012 (the “SECURITIES”) to be issued
pursuant to the provisions of an Indenture to be dated as of June 27, 2005 (the “INDENTURE”)
between the Company and HSBC Bank USA, National Association, as Trustee (the “TRUSTEE”). The
Securities will be convertible into shares (the “UNDERLYING SECURITIES”) of common stock, par value
$.01 per share, of the Company (the “COMMON STOCK”).

The Securities are being issued and sold to the Purchasers in compliance with an exemption from
registration under the Securities Act of 1933, as amended (the “SECURITIES ACT”).

Pursuant to the terms of the Securities and the Indenture, the Securities may be resold or
otherwise transferred only if the resale or transfer is hereinafter registered under the Securities
Act or an exemption from registration under the Securities Act is available. The Purchasers and
their permitted transferees will be entitled to the benefits of a Registration Rights Agreement
dated as of the Closing Date (as defined herein) among the Company and the Purchasers (the
“REGISTRATION RIGHTS AGREEMENT” and collectively with this Agreement, the Indenture and the
Securities, the “TRANSACTION DOCUMENTS”).

1. Representations and Warranties. The Company represents and warrants to, and agrees with, the
Purchasers that, except as disclosed in the disclosure schedule attached to this Purchase Agreement
(the “DISCLOSURE SCHEDULE”), the Exchange Act Documents (as defined in Section 1(a) of this
Purchase Agreement) or the 8-K Filing (as defined in Section 6(k) of this Purchase Agreement):

 

 

(a) Each document, if any, filed with the Securities and Exchange Commission (the “COMMISSION”)
pursuant to the Securities Exchange Act of 1934, as amended (the “EXCHANGE ACT”), since January 1,
2003 (collectively, the “EXCHANGE ACT DOCUMENTS”) complied in all material respects with the
requirements of the Exchange Act and the applicable rules and regulations of the Commission
thereunder and, when taken together, do not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

(b) The Company has been duly incorporated, is validly existing as a corporation in good standing
under the laws of the State of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Exchange Act Documents and is duly qualified as a
foreign corporation to transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, “MATERIAL ADVERSE EFFECT” means any material adverse
effect on the business, assets, results of operations or condition (financial or otherwise) of the
Company or on the transactions contemplated hereby and in the Transaction Documents or on the
authority or ability of the Company to perform its obligations contemplated hereby or thereby.

(c) The Company has no direct or indirect subsidiaries.

(d) This Agreement has been duly authorized, executed and delivered by the Company and constitutes
the legal, valid and binding obligations of the Company, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and
to general principles of equity, including principles of materiality, commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity) and except that rights to indemnification and contribution thereunder may be limited by
federal or state securities laws or public policy relating thereto that have not been previously
waived (collectively, the “ENFORCEABILITY EXCEPTIONS”).

(e) The authorized capital stock of the Company conforms in all material respects to the
description thereof contained in Section 1(e) of the Disclosure Schedule, and which description
conforms in all material respects to the rights in the instruments defining the same.

2

 

(f) The shares of Common Stock outstanding prior to the issuance of the Securities have been duly
authorized and are validly issued, fully paid and non-assessable.

(g) The Securities have been duly authorized and, when executed and authenticated in accordance
with the provisions of the Indenture and delivered to and paid for by the Purchasers in accordance
with the terms of this Agreement, will be valid and binding obligations of the Company, enforceable
in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to
the benefits of the Indenture and the Registration Rights Agreement.

(h) The Underlying Securities issuable upon conversion of the Securities have been duly authorized
and reserved and, when issued upon conversion of the Securities in accordance with the terms of the
Securities, will be validly issued, fully paid and non-assessable, and the issuance of the
Underlying Securities will not be subject to any preemptive or similar rights.

(i) Except for the registration rights contained in (A) the Registration Rights Agreement and (B)
(i) the Strategic Alliance Agreement dated June 27, 2001, between Teva Pharmaceuticals Curacao,
N.V. and Impax Laboratories, Inc. (ii) the Registration Rights Agreement dated as of June 27, 2001
by and between Impax Laboratories, Inc. and Teva Pharmaceuticals Curacao, N.V., and (iii) the
Registration Rights Agreement dated as of May 7, 2003 by and among the Company and the investors
named therein, the Company has not granted or agreed to grant to any person any rights (including
“piggy-back” registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied or waived.

(j) Except for the Stockholders’ Agreement dated December 14, 1999 by and among Global
Pharmaceutical Corporation (known now as Impax Laboratories, Inc.) and the investors named therein,
as amended by Amendment No. 1 thereto dated as of March 23, 2000, there are no voting agreements,
voting trusts, proxies or other agreements or understandings with respect to the voting of any
capital stock of the Company of which the Company is a party.

(k) Each of the Indenture and the Registration Rights Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company enforceable in accordance
with its terms, subject to the Enforceability Exceptions.

(l) The execution and delivery by the Company of, and the performance by the Company of its
obligations under, the Transaction Documents will not contravene in any material respect any
provision of

3

 

applicable law or the certificate of incorporation or by-laws of the Company or any agreement or
other instrument binding upon the Company that is material to the Company for which a waiver or
consent has not been obtained, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the performance by the Company
of its obligations under the Transaction Documents, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer and sale of the
Securities and by Federal and state securities laws with respect to the obligations of the Company
under the Registration Rights Agreement or as may be required by the National Association of
Securities Dealers, Inc. (“NASD”) or such the failure of which to obtain would not, individually or
in the aggregate, have a Material Adverse Effect.

(m) Since September 30, 2004, there has been no change or development that has had a Material
Adverse Effect. The Company has not taken any steps to seek protection pursuant to any bankruptcy
law nor does the Company have knowledge that its creditors intend to initiate involuntary
bankruptcy proceedings or knowledge of any fact which would reasonably lead a creditor to do so.
The Company is not as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will not be Insolvent. For purposes hereof, “INSOLVENT” shall have
the meaning specified in Section 271 of Article 10 of the New York Debtor and Creditor Law, as the
same has been construed by case law in existence as of the date hereof. All Indebtedness of the
Company as of May 31, 2005 is disclosed on Section 1(m) of the Disclosure Schedule. There has been
no material change in the Indebtedness since such date.

(n) The Company is not in violation of its certificate of incorporation or by-laws or in default in
the performance of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is material to the Company to
which the Company is a party or by which the Company or its properties or assets is subject or
bound, except for such defaults that would not, individually or in the aggregate, have a Material
Adverse Effect.

(o) There are no legal or governmental proceedings, orders, judgments, writs, injunctions, decrees
or demands pending or, to the Company’s knowledge, threatened to which the Company is a party or to
which any of the properties or assets of the Company is subject or bound other than proceedings,
orders, judgments, writs, injunctions, decrees or

4

 

demands that would not, individually or in the aggregate, have a Material Adverse Effect.

(p) To the Company’s knowledge, the Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants
(“ENVIRONMENTAL LAWS”), (ii) has received all permits, licenses or other approvals required of it
under applicable Environmental Laws to conduct its business, (iii) is in compliance with all
material terms and conditions of any such permit, license or approval, (iv) is in compliance with
any provisions of the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) or the
rules and regulations promulgated thereunder and (v) is in compliance with any provisions of the
U.S. Foreign Corrupt Practices Act of 1977, as amended, (the “FOREIGN CORRUPT PRACTICE ACT”) or the
rules and regulations promulgated thereunder, except, with respect to clauses (i) through (v),
where such noncompliance with Environmental Laws, failure to receive required permits, licenses or
other approvals, or noncompliance with ERISA or the Foreign Corrupt Practices Act or failure to
comply with the terms and conditions of such permits, licenses or approvals, would not,
individually or in the aggregate, have a Material Adverse Effect

(q) There are no costs or liabilities to the Company associated with Environmental Laws (including,
without limitation, any capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third parties) which would,
individually or in the aggregate, have a Material Adverse Effect.

(r) The Company is not, and after giving effect to the issuance and sale of the Securities and the
application of the proceeds thereof as contemplated in Section 3 hereof will not be, required to
register as an “investment company” as such term is defined in the Investment Company Act of 1940,
as amended.

(s) Neither the Company nor any of its affiliates (as defined in Rule 501(b) of Regulation D under
the Securities Act, each an “AFFILIATE”) has directly, or through any agent, (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in
the Securities Act) which is or will be integrated with the sale of the Securities in a manner that
would require the registration under the Securities Act of the Securities or
(ii) offered, solicited offers to buy or sold the Securities by any form of general solicitation or
general advertising (as those terms are used in Regulation D under the Securities Act) or in any
manner

5

 

involving a public offering within the meaning of Section 4(2) of the Securities Act.

(t) Subject to compliance by the Purchasers with the representations and warranties set forth in
Section 7, it is not necessary in connection with the offer, sale and delivery of the Securities to
the Purchasers in the manner contemplated by this Agreement to register the Securities under the
Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended.

(u) The Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act.

(v) The books, records and accounts of the Company in all material respects accurately and fairly
reflect, in reasonable detail, the transactions in, and dispositions of, the assets of, and the
results of operations of, the Company. The Company maintains a system of accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed in accordance with
management’s general or specific authorization, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.

(w) The Company owns or possesses, or has the right to use, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures), trademarks, service
marks, trade names and approved FDA new drug applications, approved abbreviated new drug
applications and approved new animal drug applications currently employed or required by it in
connection with the business currently conducted by it, or as currently proposed to be conducted,
as described in the Exchange Act Documents, except such as the failure to so own or possess or have
the right to use would not have, individually or in the aggregate, a Material Adverse Effect. To
the Company’s knowledge, there are no valid and enforceable United States patents that are
infringed by the business currently conducted by the Company, or as currently proposed to be
conducted by the Company, as described in the Exchange Act Documents and which infringement would
have a Material Adverse Effect. The Company is not aware of any basis for a finding that the
Company does not have valid title or license rights to the patents and patent applications
referenced in the Exchange Act Documents as owned or licensed by the Company. To the

6

 

Company’s knowledge, the Company is not subject to any judgment, order, writ, injunction or decree
of any court or any Federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any arbitrator, nor has it
entered into or are a party to any contract, which restricts or impairs the use of any of the
foregoing which would, individually or in the aggregate, have a Material Adverse Effect. The
Company is not aware of any prior art that may render any patent application owned by the Company
which has not been disclosed to the United States Patent and Trademark Office and which would,
individually or in the aggregate, have a Material Adverse Effect. The Company has not received any
written notice of infringement of or conflict with asserted rights of any third party with respect
to the business currently conducted by them as described in the Exchange Act Documents and which
would, individually or in the aggregate, have a Material Adverse Effect.

(x) Other than with respect to Environmental Laws and ERISA (which are governed by Section 1(p))
the Company has such permits, licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an “AUTHORIZATION”) of, and has made all filings with and notices to, all
appropriate federal, state, local or foreign governmental or regulatory authorities and self
regulatory organizations and all courts and other tribunals, as are necessary to own, lease,
license and operate its respective properties and to conduct its business, except to the extent the
failure to have any such Authorization or to make any such filing or notice would not, individually
or in the aggregate, have a Material Adverse Effect. Each such Authorization is valid and in full
force and effect and the Company is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having jurisdiction with
respect thereto, and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or lapse of time or
both, would allow, revocation, suspension or termination of any such Authorization or results or,
after notice or lapse of time or both, would result in any other impairment of the rights of the
holder of any such Authorization except to the extent such failure to be valid and in full force
and effect or to be in compliance, the occurrence of any such event or the presence of any such
restriction would not, individually or in the aggregate, have a Material Adverse Effect.

(y) There are no outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or liens granted or issued by the Company relating to or entitling
any person to purchase or otherwise to acquire any shares of the capital stock of the Company,
except for options granted to directors and employees of the Company in the ordinary course of
business since December 31, 2003.

7

 

(z) The financial statements included or incorporated by reference in the Exchange Act Documents,
together with related schedules and notes, present fairly in all material respects the financial
position, results of operations and changes in financial position of the Company on the basis
stated therein at the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set forth in the Exchange Act
Documents are, in all material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company.

(aa) There are no existing or, to the Company’s knowledge, threatened labor disputes with the
employees of the Company which would, individually or in the aggregate, have a Material Adverse
Effect.

(bb) The Company’s manufacturing, distribution and marketing practices are in compliance with all
applicable laws, rules, regulations, orders, licenses, judgments, writs, injunctions, or decrees,
including, without limitation, laws and regulations administered by the United States Food and Drug
Administration (the “FDA”) and the Drug Enforcement Administration (“DEA”) and comparable
regulatory agencies in each country in which the Company’s products are marketed, except for such
noncompliances that would not, individually or in the aggregate, have a Material Adverse Effect.

(cc) The Company has not and will not use the services of any person debarred under the provisions
of the Generic Drug Enforcement Act of 1992, 21 U.S.C. Section 335(a)(b). None of the Company’s
officers or employees has been convicted of a felony under federal law for conduct relating to the
development, approval or regulation of any product subject to the Federal Food, Drug, and Cosmetic
Act or the Controlled Substances Act.

(dd) There are no rulemaking or similar proceedings before the FDA or comparable Federal, state,
local or foreign government bodies which involves the Company, which, if the subject of an action
unfavorable to the Company, would, individually or in the aggregate, have a Material Adverse
Effect.

(ee) The Company has not received any written communication notifying the Company as to the
termination or threatened termination or modification or threatened modification of any consulting,
licensing, marketing, research and development, cooperative or any similar agreement described in
the Exchange Act Documents.

8

 

(ff) The statements relating to legal matters or proceedings, as specified on Section 1(ff) of the
Disclosure Schedule, fairly summarize in all material respects such matters or proceedings as of
the date hereof.

(gg) Neither the Company, nor to the Company’s knowledge, any of its officers, directors or
affiliates has taken, directly or indirectly, any action designed to or which has constituted the
stabilization or manipulation of the price of the Common Stock or any security convertible into or
exchangeable or exercisable for Common Stock to facilitate the sale or resale of any of the
Securities.

(hh) The Company has filed all Federal, state, local and foreign tax returns which are required to
be filed through the date hereof (except where the failure to so file would not have a material
adverse effect on the Company), which returns are true and correct in all material respects, or
have received extensions thereof, and have paid all taxes shown on such returns and all assessments
received by them to the extent that the same are material and have become due. To the Company’s
knowledge, there are no tax audits or investigations pending, which if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect.

(ii) The Company is insured against such losses and risks and in such amounts as are customary in
the businesses in which it is engaged or currently proposes to engage including, but not limited
to, insurance covering clinical trial liability, product liability and real or personal property
owned or leased against theft, damage, destruction, act of vandalism and all other risks
customarily insured against. All policies of insurance and fidelity or surety bonds insuring the
Company or the Company’s businesses, assets, employees, officers and directors are in full force
and effect. The Company is in compliance with the terms of such policies and instruments in all
material respects. The Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that would not,
individually or in the aggregate, have a Material Adverse Effect. Since January 1, 2003, the
Company has not been denied any insurance coverage which it has sought or for which it has applied.

(jj) The Company has good and marketable title in fee simple to all real property and good and
valid title to all personal property it purports to own, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the Company. Any real
property and buildings held under lease by the Company is held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere with

9

 

the use made and proposed to be made of such property and buildings by the Company.

(kk) There is no document, contract or other agreement of a character required to be filed with the
Commission under the Exchange Act which is not filed as required by the Exchange Act or the rules
and regulations of the Commission thereunder. Each description of a contract, document or other
agreement in the Exchange Act Documents fairly reflects in all material respects the material terms
of the underlying document, contract or agreement. Each material agreement described in the
Exchange Act Documents or incorporated by reference is in full force and effect and is valid and
enforceable by and against the Company in accordance with its terms.

(ll) Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is
understood and acknowledged by the Company (i) that none of the Purchasers have been asked to
agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued by the Company or
to hold the Securities for any specified term and (ii) that any Purchaser, and counter parties in
“derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently
may have a “short” position in the Common Stock. The Company further understands and acknowledges
that one or more Purchasers may engage in hedging activities at various times during the period
that the Securities are outstanding.

(mm) The Company confirms that, after giving effect to the 8-K Filing (as defined below), neither
it nor, to its knowledge, any officer, director or agent of the Company has provided any of the
Purchasers or their respective agents or counsel with any information that constitutes in the
Company’s reasonable determination material, nonpublic information. The Company understands and
confirms that each of the Purchasers will rely on the foregoing representations in effecting
transactions relating to the Securities. All written disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of the Company, taken as a whole, are true
and correct and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, except that at the request of the
Purchasers, the Company has not disclosed to the Purchasers information concerning the financial
condition, results of operations and cash flows of the Company as of and for the year ended
December 31, 2004 and as of and for the three months ended March 31, 2005. The Company acknowledges
and agrees that no Purchaser makes or

10

 

has made any representations or warranties with respect to the transactions contemplated hereby
other than those specifically set forth in Section 7.

2. Agreements to Sell and Purchase. On the basis of the representations and warranties contained in
this Agreement and subject to its terms and conditions, the Company hereby agrees to sell to the
several Purchasers, and each Purchaser, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from the Company the respective principal amount of Securities set forth in Schedule I
hereto opposite its name at a purchase price of 100% of the principal amount thereof (the “PURCHASE
PRICE”).

3. Delivery of Proceeds. The proceeds to be delivered on the Closing Date (as defined in Section 4
hereof) in the aggregate amount of $75,000,000 (less the expenses of Highbridge International LLC
(the “LEAD PURCHASER”) payable pursuant to Section 6(b) hereof, as set forth on a schedule to be
provided by the Lead Purchaser to the Company prior to the Closing) shall be used only to satisfy
the payment obligations arising from the acceleration of the Company’s 1.25% Convertible Senior
Subordinated Debentures due April 1, 2024, which satisfaction shall be effective simultaneously
with the Closing.

4. Payment and Delivery. Payment for the Securities shall be made to, or as directed by, the
Company in Federal or other funds immediately available in New York City against delivery of such
Securities for the respective accounts of the several Purchasers at 10:00 a.m., New York City time,
on June 27, 2005, or at such other time on the same or such other date as shall be mutually
agreeable to the Company and the Lead Purchaser. The time and date of such payment are hereinafter
referred to as the “CLOSING DATE.”

The Securities shall be in definitive form or global form, as specified by the Lead Purchaser, and
registered in such names and in such denominations as the applicable Purchaser shall request in
writing not later than one full Business Day prior to the Closing Date. The Securities shall be
delivered to each Purchaser on the Closing Date for the account of such Purchaser, with any
transfer taxes, if any, payable in connection with the transfer of the Securities to the Purchasers
duly paid, against payment of the Purchase Price therefor.

5. Conditions to the Purchasers’ Obligations. The several obligations of the Purchasers to purchase
and pay for the Securities on the Closing Date are subject to the following conditions:

(a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date:

(i) there shall not have occurred any downgrading, nor shall any notice have been given of any
intended or potential downgrading or of any review for a possible change that does not

11

 

indicate the direction of the possible change, in the rating accorded the Company or any of the
Company’s securities or in the rating outlook for the Company by any “nationally recognized
statistical rating organization,” as such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and

(ii) there shall not have occurred any event that has a Material Adverse Effect.

(b) The Purchasers shall have received on the Closing Date a certificate, dated the Closing Date
and signed by an executive officer of the Company, to the effect set forth in Section 5(a)(i) and
to the effect that the representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder
on or before the Closing Date.

The officer signing and delivering such certificate may rely upon the best of his or her knowledge
as to the matters set forth in

Section 5(a)(i) or as to proceedings threatened.

(c) The Purchasers shall have received on the Closing Date an opinion of (1) Blank Rome LLP,
counsel for the Company, dated the Closing Date, to the effect set forth in Exhibit A-1 and (2)
Sonnenschein Nath & Rosenthal, special FDA counsel for the Company, dated the Closing Date, to the
effect set forth in Exhibit A-2. Such opinions shall be rendered to the Purchasers at the request
of the Company and shall so state therein.

(d) The “lock-up” agreements, each substantially in the form of Exhibit B hereto, between the
Purchasers and certain executive officers and directors of the Company relating to sales and
certain other dispositions of shares of common stock or certain other securities, delivered to the
Purchasers on or before the date hereof, shall be in full force and effect on the Closing Date.

(e) The Company will cause the Securities to be eligible for trading on the Private Offering,
Resales and Trading through Automatic Linkages (“PORTAL”) system of the NASD.

(f) The Purchasers shall have received on the Closing Date the consent of Wachovia Bank, N.A. in
the form attached hereto as Exhibit C.

6. Covenants of the Company. In further consideration of the agreements of the Purchasers contained
in this Agreement, the Company covenants with each Purchaser as follows:

12

 

(a) The Company will endeavor to qualify the Securities for offer and sale under the securities or
Blue Sky laws of such jurisdictions as you shall reasonably request, provided, however, that the
Company shall not be required to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing business in any jurisdiction in
which it is otherwise not so subject.

(b) Whether or not the transactions contemplated in this Agreement are consummated or this
Agreement is terminated, the Company shall pay or cause to be paid all expenses incident to the
performance of its obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company’s counsel and the Company’s accountants, if applicable, in connection with
the issuance and sale of the Securities and all other fees or expenses in connection with the
preparation of the Transaction Documents and all amendments and supplements thereto, (ii) all costs
and expenses related to the transfer and delivery of the Securities to the Purchasers, including
any transfer or other taxes payable thereon, (iii) the fees and expenses, if any, incurred in
connection with the admission of the Securities for trading in PORTAL or any appropriate market
system, (iv) the costs and charges of the Trustee and any transfer agent, registrar or depositary,
(v) the cost of the preparation, issuance and delivery of the Securities, (vi) the legal fees and
expenses of the Lead Purchaser incurred in connection with the negotiation, due diligence and
documentation of the Transaction Documents and the transactions contemplated hereby and thereby
(“PURCHASER EXPENSES”) and (vii) all other cost and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made in this Section. The
Lead Purchaser may, on the Closing Date, reduce its portion of the Purchase Price by the amount of
Purchaser Expenses less any Purchaser Expenses paid by the Company prior to the Closing Date
provided, that if the schedule described in Section 3 is not delivered to the Company at the time
set forth therein, the Company shall pay the expenses and fees specified therein within five
Business Days of its delivery.

(c) Neither the Company nor any Affiliate will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities Act) which could be
integrated with the sale of the Securities in a manner which would require the registration under
the Securities Act of the Securities.

(d) The Company will not solicit any offer to buy or offer or sell the Securities or the Underlying
Securities by means of any form of general solicitation or general advertising (as those terms are
used in

13

 

Regulation D under the Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.

(e) While any of the Securities or the Underlying Securities remain “restricted securities” within
the meaning of the Securities Act, the Company will make available, upon request, to any seller of
such Securities the information specified in Rule 144A(d)(4) under the Securities Act, unless the
Company is then subject to Section 13 or 15(d) of the Exchange Act.

(f) The Company will use its commercially reasonable efforts to permit the Securities to be
designated PORTAL securities in accordance with the rules and regulations adopted by the NASD
relating to trading in PORTAL.

(g) During the period of two years after the Closing Date, the Company will not, and will not
permit any of its affiliates under its control (as defined in Rule 144 under the Securities Act) to
resell any of the Securities or the Underlying Securities which constitute “restricted securities”
under Rule 144 that have been reacquired by any of them.

(h) The Company will not take any action prohibited by Regulation M under the Exchange Act in
connection with the distribution of the Securities contemplated hereby.

(i) The Company hereby agrees that, without the prior written consent of the Lead Purchaser (on
behalf of the Purchasers), it will not, during the period ending 60 days after the date hereof, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock of the Company or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.
The foregoing sentence shall not apply to the following issuances (the “EXCLUDED ISSUANCES”) (A) to
the sale of the Securities under this Agreement or the issuance of the Underlying Securities, (B)
to the issuance by the Company of any shares of Common Stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof, provided that the terms of
such option, warrant or convertible security relating to any purchase, exercise or conversion price
thereunder, the number of securities issuable thereunder or any time period relating to the
exercise or conversion thereunder are not

14

 

amended, modified or changed on or after the date hereof, (C) to the grant of any option or
issuance of any stock, restricted stock or stock appreciation right or other stock-linked security
under any employee equity or employee equity-linked plan of the Company that exist as of the date
hereof or that is approved by the independent members of the Company’s Board of Directors; (D) in
connection with any bona-fide merger or acquisition as approved by the Company’s Board of
Directors; provided that any issuance by the Company of shares of Common Stock is not to raise cash
to fund such merger or acquisition; (E) in connection with any bona-fide strategic agreement, joint
venture agreement, limited liability company agreement or similar agreement entered into with any
supplier, manufacturer, distributor or customer that is approved by the Company’s Board of
Directors, the primary purpose of which is not to raise cash; (F) to shares of Common Stock or
other equity securities or equity linked securities of the Company pursuant to a bona fide firm
commitment underwritten public offering with gross proceeds to the Company of at least $30 million
with a nationally or regionally recognized underwriter; or (G) the filing of a registration
statement to permit sales of the Company’s common stock by Teva Pharmaceuticals Curacao, N.V.;
provided, however, that in the case of any dispositions pursuant to (D) or (E), the transferee, in
each case, agrees to be bound by the terms of the previous sentence.

(j) The Company shall apply the Purchase Price only as specified in Section 3 hereof.

(k) On or before 8:30 a.m., New York time, on the first business day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the terms of the
transactions contemplated by the Transaction Documents in the form required by the 1934 Act and
attaching the material Transaction Documents (including, without limitation, this Agreement, the
Indenture, the form of the Debenture and the Registration Rights Agreement) as exhibits to such
filing (including all attachments, the “8-K FILING”). From and after the filing of the 8-K Filing
with the Commission, no Purchaser shall be in possession of any material, nonpublic information
received from the Company or any of its officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. Subject to the foregoing, neither the Company nor any Purchaser shall
issue any press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Purchaser, to make any press release or other public disclosure with respect to
such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith
or (ii) as, in the reasonable judgment of the Company or its counsel, is required by applicable law
or regulations or applicable stock exchange rules (provided that in the case of

15

 

clause (i) each Purchaser shall be provided by the Company with a draft of such press release or
other public disclosure prior to its release). Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing
with the Commission or any regulatory agency or the applicable stock exchange, without the prior
written consent of such Purchaser, except (i) for disclosure thereof in the 8-K Filing or
Registration Statement or similar disclosure as required in future Commission filings or (ii) as
required by applicable law or regulations or applicable stock exchange rules or any order of any
court or other governmental agency, in which case the Company shall use its reasonable best efforts
to provide such Purchaser with prior notice of such disclosure.

7. Representations and Warranties of Purchasers. Each Purchaser, severally and not jointly,
represents and warrants to, and agrees with, the Company that:

7.1 Authorization; Enforceability. Such Purchaser is duly and validly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or organization with
the requisite corporate power and authority to purchase the Securities being purchased by it
hereunder and to execute and deliver this Agreement and the other Transaction Documents to which it
is a party. This Agreement constitutes, and upon execution and delivery thereof, each other
Transaction Document to which such Purchaser is a party will constitute, such Purchaser’s valid and
legally binding obligation, enforceable in accordance with its terms, subject to the Enforceability
Exceptions.

7.2 Investment Intent. Such Purchaser is acquiring the Securities being purchased by it hereunder
solely for its own account, and not with a present view to the public resale or distribution of all
or any part thereof, except pursuant to sales that are registered under, or are exempt from the
registration requirements of, the Securities Act.

7.3 Information. Such Purchaser has had access to all of the filings of the Company that are filed
on the EDGAR system prior to the date hereof. To the extent requested by such Purchaser, the
Company has, prior to the date hereof, provided such Purchaser with information regarding the
business, operations and financial condition of the Company, and has, prior to the date hereof,
granted to such Purchaser the opportunity to ask questions of and receive satisfactory answers from
representatives of the Company, its officers, directors, employees and agents concerning the
Company and materials relating to the terms and conditions of the

16

 

purchase and sale of the Securities hereunder, and based thereon, such Purchaser believes it can
make an informed decision with respect to its investment in the Securities. Neither such
information nor any other investigation conducted by such Purchaser or its representatives shall
modify, amend or otherwise affect such Purchaser’s right to rely on the Company’s representations
and warranties contained in this Agreement.

7.4 Restrictions on Transfer. (a) Such Purchaser is a qualified institutional buyer as defined in
Rule 144A under the Securities Act (a “QIB”) and an institutional “accredited investor” within the
meaning of Regulation D under the Securities Act. Each Purchaser, severally and not jointly, agrees
with the Company that it will not solicit offers for, or offer or sell, such Securities by any form
of general solicitation or general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act. Each Purchaser, severally and not jointly, agrees to offer, sell or otherwise
transfer the Securities, prior to the date which is two years after the Closing Date, only (a) to
the Company or any parent or subsidiary thereof, (b) for so long as the Securities are eligible for
resale pursuant to Rule 144A, to a person it reasonably believes is a QIB that purchases for its
own account or for the account of a QIB to which notice is given that the transfer is being made in
reliance on Rule 144A, (c) pursuant to a registration statement which has been declared effective
under the Securities Act, or (d) pursuant to another available exemption from the registration
requirements of the Securities Act and applicable state securities or “blue sky” laws, subject to
the Company’s and the Trustee’s right prior to any such offer, sale or transfer pursuant to clause
(d) to require the delivery of an opinion of counsel, certification and/or other information
reasonably satisfactory to each of them, and in each of the foregoing cases, a certificate of
transfer in the form specified in the Indenture and the Securities is completed and delivered by
the transferor to the Trustee.

(b) Such Purchaser (i) agrees that it will only sell the Securities or other securities of the
Company in a transaction that complies in all material respects with applicable federal and state
securities laws, (ii) agrees that it will not sell or otherwise dispose of or transfer the
Securities or other securities of the Company or any interest therein in a transaction that is part
of a plan or scheme to evade the registration requirements of the Securities Act and (iii)
acknowledges and agrees that notwithstanding the effectiveness of a registration

17

 

statement covering the Securities, the Securities will remain “restricted securities” until such
Securities have been sold pursuant to (x) an effective registration statement or (y) Rule 144, and
such Purchaser will remain responsible for compliance with applicable federal and state securities
laws in connection with any resale by the Purchaser of the Securities.

(c) Such Purchaser understands that the Company is relying on the representations of such Purchaser
set forth in this Section 7.4 in order to determine compliance with applicable securities laws in
connection with the sale of the Securities to such Purchaser.

7.5 Legend. Such Purchaser understands that the certificates representing the Securities may bear a
restrictive legend reflecting the transfer restrictions set forth above.

7.6 Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and
sold to it in reliance upon specific exemptions from the registration requirements of federal and
state securities laws and that the Company is relying upon the truth and accuracy of the
representations and warranties of such Purchaser set forth in this Section 7 in order to determine
the availability of such exemptions and the eligibility of such Purchaser to acquire the
Securities.

7.7 Non-Affiliate Status. Such Purchaser is not an Affiliate of the Company. Such Purchaser’s
investment in the Securities is not for the purpose of acquiring, directly or indirectly, control
of, and it has no intent to acquire or exercise control of, the Company or to influence the
decisions or policies of the Board of Directors.

8. Indemnity. (a) The Company agrees to indemnify and hold harmless each Purchaser, each person, if
any, who controls any Purchaser within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, and each affiliate of any Purchaser within the meaning of Rule 405
under the Securities Act (each, an “INDEMNIFIED PERSON”) from and against any and all losses,
claims, damages, penalties, fees and liabilities, including, without limitation, the reasonable
legal fees and other reasonable expenses of one counsel (in addition to any local counsel) incurred
(irrespective of whether any such indemnitee is a party to the action for which indemnification
hereunder is sought) in connection with any suit, action or proceeding or any claim (collectively,
“Losses”), as incurred, as a result of, or arising out of or relating to (a) any misrepresentation
or breach of any representation or warranty made by the Company in the Transaction Documents, (b)
any breach of any covenant,

18

 

agreement or obligation of the Company contained in any Transaction Document or
(c) any cause of action, suit or claim brought or made against such Indemnified Person by a third
party (including for these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from the execution, delivery or performance by the Company of the
Transaction Documents or any other certificate, instrument or document contemplated hereby or
thereby; provided that the Company shall not be required to indemnify any of the Indemnified
Persons to the extent Losses arise or result from a material misrepresentation or material breach
of any representation or warranty made by such Purchaser or other Indemnified Person contained in
the Transaction Documents, or a material breach of any covenant, agreement or obligation by such
Purchaser or other Indemnified Person contained in the Transaction Documents.

(b) If any suit, action, proceeding (including any governmental or regulatory investigation), claim
or demand shall be brought or asserted against any Indemnified Person, such Indemnified Person
shall promptly notify the Company in writing, and the Company shall have the right to retain one
counsel (in addition to any local counsel) reasonably satisfactory to the Indemnified Person to
represent the Indemnified Person and any others the Company may designate in such proceeding and
shall pay the reasonable fees and expenses of such counsel related to such proceeding; provided,
however, that failure to so notify the Company shall not relieve such Company from any liability
hereunder except to the extent the Company is prejudiced as a result thereof. In any such
proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person unless (i) Company and
the Indemnified Person shall have mutually agreed to the contrary, (ii) the Company has failed
within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or
(iii) the named parties in any such proceeding (including any impleaded parties) include both the
Company and the Indemnified Person, the Company proposes to have the same counsel represent it and
the Indemnified Person, and representation of both parties by the same counsel would, in the
opinion of counsel for the Indemnified Person, constitute a conflict of interest. It is understood
that the Company shall reimburse all such reasonable fees and expenses actually incurred (upon
delivery to the Company of reasonable documentation therefor setting forth such expenses in
reasonable detail) unless a bona fide dispute exists with respect to such expenses. The Company
shall not be liable for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final, non-appealable judgment for the plaintiff, the
Company agrees to indemnify any Indemnified Person from and against any Liabilities by reason of
such settlement or judgment. The Company shall not, without the prior written consent of the
Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of
which any Indemnified Person is a party, unless such settlement includes an unconditional release
of such Indemnified

19

 

Person from all liability on claims that are the subject matter of such proceeding and no admission
of fault on the part of the Indemnified Person.

(c) The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or
remedies that may otherwise be available to any Indemnified Person at law or in equity.

(d) The indemnity provisions contained in this Section 8 and the representations, warranties and
other statements of the Company contained in this Agreement shall remain operative and in full
force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on behalf of any
Purchaser, any person controlling any Purchaser or any affiliate of any Purchaser or by or on
behalf of the Company, its officers, directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Securities.

9. Termination. The Purchasers may terminate this Agreement by notice given to the Company executed
by the Lead Purchaser (except in the case of clauses (i) and (v), which termination right may be
exercised by each Purchaser as to itself but not the other Purchasers), if prior to the Closing
Date (i) in the good faith judgment of a Purchaser a Material Adverse Effect shall have occurred
between the date hereof and the Closing Date, (ii) trading in securities generally on the New York
Stock Exchange, Inc., the American Stock Exchange or the Nasdaq National Market shall have been
suspended or materially limited, (iii) a material disruption in securities settlement, payment or
clearance services in the United States shall have occurred, (iv) any moratorium on commercial
banking activities shall have been declared by United States or New York State authorities, (v)
there shall have been (A) an outbreak or escalation of hostilities between the United States and
any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international calamity or emergency, or (C)
any material change in the financial markets of the United States which, in the case of (A), (B) or
(C) above and in the judgment of a Purchaser, makes it impracticable or inadvisable to proceed with
the transactions contemplated by this Agreement or (vi) the failure of the Company to satisfy the
conditions set forth in Section 5 of this Agreement on or before June 30, 2005.

10. Effectiveness. This Agreement shall become effective upon the execution and delivery hereof by
the parties hereto.

If this Agreement shall be terminated by the Purchasers, or any of them, because of any failure or
refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Purchasers or such Purchasers as have so terminated
this Agreement with respect to themselves, severally, for all out-of-pocket

20

 

expenses (including the fees and disbursements of their counsel) reasonably incurred by such
Purchasers in connection with this Agreement or the issuance of Securities contemplated hereunder.

11. Rights of Participation. (a) In the event that, within one year from the Closing Date, the
Company proposes to issue equity securities or other securities exchangeable or exercisable for or
convertible into equity securities (other than Excluded Issuances), the Company shall offer the
Lead Purchaser the opportunity to purchase such securities, on the same terms and conditions as
those offered to all other purchasers and pursuant to documentation reasonably satisfactory to the
Company and the Lead Purchaser.

(b) (i) The Company shall deliver to the Lead Purchaser a written notice (the “OFFER NOTICE”) of
any proposed or intended issuance or sale or exchange (the “OFFER”) of the securities being offered
(the “OFFERED SECURITIES”) pursuant to Section 11(a) above, which Offer Notice shall (x) identify
and describe the Offered Securities, (y) describe the price and other terms upon which they are to
be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold
or exchanged and (z) offer to issue and sell to or exchange with such Purchasers the Offered
Securities.

(ii) To accept an Offer, in whole or in part, such Purchaser must deliver a written notice to the
Company prior to the end of the fifth Business Day after such Purchaser’s receipt of the Offer
Notice if the Purchaser enters into a confidentiality agreement in form and substance reasonably
satisfactory to the Company relating to the Offer, or the second Business Day after such
Purchaser’s receipt of the Offer Notice if the Purchaser does not enter into a confidentiality
agreement in form and substance reasonably satisfactory to the Company relating to the Offer, (the
“OFFER PERIOD”), setting forth the portion of the Offered Securities, if any, that the Lead
Purchaser elects to purchase (the “NOTICE OF ACCEPTANCE”); provided, however, if the Lead Purchaser
desires to accept an offer for less than all of the Offered Securities, it may only accept an Offer
for 50% or less of the Offered Securities.

(iii) The Company shall have ten Business Days from the expiration of the Offer Period above to
offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Purchasers during the Offer Period (the “REFUSED SECURITIES”),
only upon terms and conditions (including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or

21

 

persons or less favorable to the Company than those set forth in the Offer Notice.

(iv) In the event the Company shall propose to sell less than all the Refused Securities (any such
sale to be in the manner and on the terms specified in Section 11(b)(iii) above), then the Lead
Purchaser may, at its sole option and in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the Offered Securities that such Purchaser elected to purchase pursuant to
Section 11(b)(ii) above multiplied by a fraction, (i) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to such Purchaser pursuant to Section 11(b)(iii) above
prior to such reduction) and (ii) the denominator of which shall be the original amount of the
Offered Securities. In the event that such Purchaser so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or
exchange more than the reduced number or amount of the Offered Securities unless and until such
securities have again been offered to the Lead Purchaser in accordance with Section 11(b)(i) above.

(v) Upon the closing of the issuance, sale or exchange of all or less than all of the Offered
Securities, the Lead Purchaser shall acquire from the Company, and the Company shall issue to the
Lead Purchaser within a reasonable period of time, the number or amount of Offered Securities
specified in the Notices of Acceptance, as reduced pursuant to Section 11(b)(iv) above if the
Purchasers have so elected, upon the terms and conditions specified in the Offer. The purchase by
the Purchasers of any Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers, within a reasonable period of time, of a purchase
agreement relating to such Offered Securities reasonably satisfactory in form and substance to the
Purchasers and their respective counsel.

(vi) Any Offered Securities not acquired by the Purchasers or other persons in accordance with this
Section 11(b) above may not be issued, sold or exchanged until they are again offered to the
Purchasers under the procedures specified in this Agreement.

12. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the
Company and the Purchasers, any controlling persons

22

 

referred to herein and their respective successors and assigns; provided, that the rights and
obligations of the Lead Purchaser with respect to the rights of participation set forth in Section
11 of this Purchase Agreement may not be assigned to any party, other than a successor to the
entire business of the Lead Purchaser, without the prior written consent of the Company; provided,
further, that the rights and obligations of the Company pursuant to this Purchase Agreement may not
be assigned to any party other than a successor to the entire business of the Company.

13. Notices. All notices and other communications hereunder shall be in writing and shall be deemed
to have been duly given if mailed by registered or certified mail, postage prepaid, return receipt
requested, or otherwise delivered by hand or by messenger.

Notices to the Purchasers shall be given at the address as set forth on Schedule I hereto, with a
copy to (solely for informational purposes):

Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022

	 	 	 	 	 
	 

	 	Telephone: (212) 756-2000
	 	 
	 

	 	Facsimile: (212) 593-5955	 	 
	 

	 	Attention: Eleazer Klein, Esq.	 	 

Notices to the Company shall be given to the Company at:

IMPAX Laboratories, Inc.

3735 Castor Avenue

Philadelphia, PA 19124

Attention: Mr. Barry R. Edwards

Chief Executive Officer

Facsimile: (215) 289-5932

with a copy to (solely for informational purposes):

Blank Rome LLP

One Logan Square

Philadelphia, PA 19103-6998

Attention: Ronald Fisher, Esq.

Facsimile: (215) 832-5479

14. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto were upon the same
instrument.

23

 

15. Severability. If any provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable, or void, portions of such provision, or such provision
in its entirety, to the extent necessary, shall be severed from this Agreement and the balance of
this Agreement shall be enforceable in accordance with its terms.

16. Amendment and Waivers. Any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company and the Lead
Purchaser.

17. Entire Agreement. This Agreement constitutes the full and entire understanding and agreement
among the parties with regard to the subjects hereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver, discharge, or termination is sought.

18. Survival. The respective representations, warranties, covenants and agreements of the Company
and the Purchasers set forth in or made pursuant to this Agreement will remain in full force and
effect and will survive delivery of and payment for the Securities sold hereunder and any
termination of this Agreement.

19. Independence of Purchasers. The obligations of each Purchaser under any Transaction Document
are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other Purchaser under any
Transaction Document. Nothing contained herein or in any other Transaction Document, and no action
taken by the Purchasers pursuant hereto or thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind of entity, or create a presumption
that the Purchasers are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents. The Purchasers represent and warrant
that they are not acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and confirm that they have or legal counsel
has on their behalf independently participated in the negotiation of the transaction contemplated
hereby. Each Purchaser shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any Purchaser to be joined as an
additional party in any proceeding for such purpose.

20. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK. To the fullest extent permitted by

24

 

applicable law, the Company hereby irrevocably submits to the non-exclusive jurisdiction of any New
York State court or Federal court sitting in the County of New York in respect of any suit, action
or proceeding arising out of or relating to the provisions of this Agreement and irrevocably agree
that all claims in respect of any such suit, action or proceeding may be heard and determined in
any such court. The parties hereto hereby waive, to the fullest extent permitted by applicable law,
any objection that they may now or hereafter have to the laying of venue of any such suit, action
or proceeding brought in any such court, and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

21. Headings. The headings of the sections of this Agreement have been inserted for convenience of
reference only and shall not be deemed a part of this Agreement.

[Remainder of Page Intentionally Left Blank.]

25

 

Very truly yours,

	 	 	 	 	 
	 	 	IMPAX LABORATORIES, INC.

 	 
	 	By:  	/s/ Barry R. Edwards
 	 
	 	 	Name:  	Barry R. Edwards 	 
	 	 	Title:  	Chief Executive Officer 	 

 

 

	 	 	 	 	 

Accepted as of the date hereof

PURCHASERS:

HIGHBRIDGE INTERNATIONAL LLC

By: Highbridge Capital Management, LLC

	 	 	 	 	 
	 	 	 
	 	By:  	/s/ Adam J. Chill
 	 
	 	 	Name:  	Adam J. Chill 	 
	 	 	Title:  	Managing Director 	 

 

 

	 	 	 	 	 

SCHEDULE I

	 	 	 	 	 
	PURCHASER	 	 	 
	NAME AND ADDRESS	 	SECURITIES TO BE PURCHASED	 
	Highbridge International LLC

c/o Highbridge Capital Management, LLC

9 West 57th Street, 27th Floor

New York, NY 10019

Attn: Ari J. Storch / Adam J. Chill

Tel: (212) 287-4720

	Fax: (212) 751-0755
	 	$	75,000,000
	   and

Attn: Andrew Martin

Tel: (212) 287-4735

Fax: (212) 755-4250

	 	 	 	 
	 
	 	 	 	 
	Residence: Cayman Islands
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 
	      Total:

	 	$	75,000,000	 
	 
	 	 	 

 

 

EXHIBIT A-1

OPINION OF BLANK, ROME LLP

The opinion of Blank, Rome LLP, to be delivered pursuant to Section 5(c) of the Purchase Agreement
shall be to the effect that:

A. The Company is validly existing as a corporation in good standing under the laws of the State of
Delaware.

B. The Company is duly qualified to do business as a foreign corporation and is in good standing in
the Commonwealth of Pennsylvania and the State of California.

C. The Company has the corporate power and authority to enter into and perform its obligations
under each of the Purchase Agreement, the Registration Rights Agreement, the Indenture and the
Securities.

D. Each of the Purchase Agreement, the Registration Rights Agreement and the Indenture has been
duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable against the Company in accordance with its terms.

E. The Securities have been duly authorized by the Company and, when executed and authenticated in
accordance with the provisions of the Indenture, and delivered to and paid for by the Purchasers,
in each case in accordance with the terms of the Purchase Agreement, will be valid and binding
obligations of the Company, enforceable against the Company in accordance with their terms.

F. The Underlying Securities reserved for issuance upon conversion of the Securities have been duly
authorized and reserved and, when issued upon conversion of the Securities in accordance with the
terms of the Securities, will be validly issued, fully paid and non-assessable, and the issuance of
the Underlying Securities will not be subject to any preemptive or similar rights of any
stockholder under the General Corporation Law of the State of Delaware (the “GCL”), the Company’s
Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), or the
Company’s By-Laws (the “By-Laws”), or by any contract listed in Annex A to this opinion letter.

G. The execution and delivery by the Company of, and the performance by the Company of its
obligations under, the Purchase Agreement, the Indenture, the Registration Rights Agreement and the
Securities will not contravene in any material respect any provision of applicable law or the
Certificate of

 

 

Incorporation or By-Laws of the Company or any agreement or other instrument binding upon the
Company that is listed in Annex A to this opinion letter, or, to such counsel’s knowledge, any
judgment, order or decree of any governmental body, agency or court having jurisdiction over the
Company; and no consent, approval, authorization or order of, or qualification with, any
governmental body or agency under the GCL, any law, rule or regulation of the State of New York, or
any federal law, rule or regulation of the United States, is required for the performance by the
Company of its obligations under the Purchase Agreement, the Indenture, the Registration Rights
Agreement or the Securities, except such as may be required by the securities or “blue sky” laws of
the various states in connection with the offer and sale of the Securities and by U.S. federal and
state securities laws with respect to the Company’s obligations under the Indenture and the
Registration Rights Agreement.

H. To such counsel’s knowledge, the Company is not, and after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as described in Section 3 of the
Purchase Agreement will not be, required to register as an “investment company” as such term is
defined in the Investment Company Act of 1940, as amended.

I. Based on the representations, warranties and agreements of the Company in Sections 1(s), 1(t),
1(u), 6(c) and 6(d) of the Purchase Agreement and of the Purchasers in Section 7 of the Purchase
Agreement, it is not necessary in connection with the offer, sale and delivery of the Securities to
the Purchasers under the Purchase Agreement to register the Securities under the Securities Act of
1933 or to qualify the Indenture under the Trust Indenture Act of 1939, it being understood that no
opinion is expressed as to any subsequent resale of any Security or Underlying Security.

2

 

EXHIBIT A-2

OPINION OF SONNENSCHEIN NATH & ROSENTHAL

The opinion of Sonnenschein Nath & Rosenthal to be delivered pursuant to
Section 5(c) of the Purchase Agreement shall be to the effect that:

A. To the best of such counsel’s knowledge, except as disclosed in
Section 1(w) of the Purchase Agreement, the Company possesses all approvals, certificates,
registrations, authorizations and permits issued by the FDA, or any other federal or state agencies
or bodies engaged in the regulation of pharmaceuticals, necessary to conduct its business, except
for such approvals, certificates, registrations, authorizations or permits the absence of which to
maintain would not have a material adverse effect on the Company.

B. To the best of such counsel’s knowledge, the Company has not received any notice of proceedings
relating to the revocation or modification of any such approval, certificate, registration,
authorization or permit which, singly or in the aggregate, if the subject of any unfavorable
decision, ruling or finding, would have a material adverse effect on the Company.

C. To the best of such counsel’s knowledge, except as disclosed in
Section 1(bb) of the Purchase Agreement, the Company is in compliance with all applicable federal
laws, regulations, orders and decrees governing its business as prescribed by the FDA or any other
federal agencies or bodies engaged in the regulation of pharmaceuticals, except where noncompliance
would not singly, or in the aggregate, have a material adverse effect on the Company.

D. To the best of such counsel’s knowledge, all bioavailability studies undertaken to support
approval of the Company’s products for commercialization have been conducted in compliance with all
applicable federal laws, orders or regulations in all material respects.

E. To the best of such counsel’s knowledge, no filing or submission to the FDA or any other federal
or state regulatory body, that is intended to be the basis for any approval, contains any material
omission or material false information.

 

 

EXHIBIT B

[FORM OF LOCK-UP LETTER]

June ___, 2005

Highbridge International LLC

c/o Highbridge Capital Management, LLC

9 West 57th Street, 27th Floor

New York, NY 10019

Dear Sirs and Mesdames:

The undersigned understands that you propose to enter into a Purchase Agreement (the “PURCHASE
AGREEMENT”) with IMPAX Laboratories, Inc., a Delaware corporation (the “COMPANY”), providing for
the issuance by the Company (the “OFFERING”) to Highbridge International LLC and such other
Purchasers identified therein (collectively, the “PURCHASERS”) of the Company’s Convertible Senior
Subordinated Debentures Due 2012 (the “SECURITIES”). The Securities will be convertible into shares
of common stock, par value $.01, of the Company (the “COMMON STOCK”).

To induce the Purchasers to enter into the Purchase Agreement, the undersigned hereby agrees that,
without the prior written consent of Highbridge International LLC on behalf of the Purchasers, it
will not, during the period commencing on the date hereof and ending 60 days after the Closing Date
(as defined in the Purchase Agreement), (1) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of the Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Securities to the Purchasers pursuant to the Purchase Agreement, (b) transactions relating to
shares of Common Stock or other securities acquired in open market transactions after the
completion of the

 

 

Offering, (c) exercises of options or warrants to purchase Common Stock, (d) dispositions of Common
Stock as a bona fide gift, (e) dispositions by will or the laws of descent or distribution, or (f)
dispositions to members of the undersigned’s immediate family; provided, however, that in the case
of any dispositions pursuant to (d), (e) or (f) the transferee, in each case, agrees to be bound by
the terms of this Lock-Up Agreement.

In addition, the undersigned agrees that, without the prior written consent of Highbridge
International LLC on behalf of the Purchasers, it will not, during the period commencing on the
date hereof and ending 60 days after the Closing Date, make any demand for or exercise any right
with respect to, the registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock other than in connection with the filing by the
Company of a Registration Statement on Form S-8. The undersigned also agrees and consents to the
entry of stop transfer instructions with the Company’s transfer agent and registrar against the
transfer of the undersigned’s shares of Common Stock except in compliance with the foregoing
restrictions. The undersigned further agrees to suspend any existing trading plans or other
arrangements pursuant to Rule 10b5-1 (a “10b5-1 PLAN”) under the Securities Exchange Act of 1934,
as amended, during the period commencing on the date hereof and ending 60 days after the Closing
Date. Notwithstanding the restrictions contained in the previous sentence, the undersigned shall be
permitted subsequent to the date hereof to enter into a 10b5-1 Plan, provided that the undersigned
hereby expressly agrees to suspend any trading or other transactions pursuant to such 10b5-1 Plan
during the period commencing on the date hereof and ending 60 days after the Closing Date.

The undersigned understands that the Company and the Purchasers are relying upon this Lock-Up
Agreement in purchasing the Securities provided for in the Purchase Agreement. The undersigned
further understands that this Lock-Up Agreement is irrevocable and shall be binding upon the
undersigned’s heirs, legal representatives, successors and assigns.

2

 

Very truly yours,

	 	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	(Name)
	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	(Address)	 	 

3

 

DISCLOSURE SCHEDULE

SECTION 1(A):

The Company filed the following amendments to its reports filed with the Commission since January
1, 2003:

Form 10-Q/A filed on March 16, 2005 Form 10-Q/A filed on November 17, 2004 Form 10-Q/A filed on
November 16, 2004 Form 10-Q/A filed on May 26, 2004 Form 10-Q/A filed on May 12, 2004 Form 10-Q/A
filed on May 28, 2003 Form 10-Q/A filed on May 22, 2003

Also, see disclosure under section 1(z).

SECTION 1(E):

Authorized Capital Stock

Our authorized capital stock consists of 75,000,000 shares of common stock, $.01 par value per
share, and 2,000,000 shares of preferred stock, $.01 par value per share. As of December 31, 2003,
there were 53,307,136 shares of our common stock and 75,000 shares of Series 2 preferred stock
outstanding. On January 30, 2004, holders of the Series 2 preferred stock converted 75,000 shares
of Series 2 preferred stock into 1,500,000 shares of our common stock.

Common Stock

The shares of common stock currently outstanding are validly issued, fully paid and non-assessable.
Subject to the rights of the holders of shares of preferred stock outstanding, if any, holders of
shares of our common stock:

o are entitled to receive dividends when and as declared by the board of directors from legally
available funds;

o are entitled, upon our liquidation, dissolution or winding up, to a pro rata distribution of the
assets and funds available for distribution to stockholders;

o are entitled to one vote per share on all matters on which stockholders generally are entitled to
vote; and

o do not have preemptive rights to subscribe for additional shares of common stock or securities
convertible into shares of common stock.

Only holders of common stock vote on all matters brought for the stockholders’ approval, except as
otherwise required by law and subject to the

 

 

voting rights of the holders of any outstanding shares of preferred stock. As of February 27, 2004,
no shares of preferred stock were outstanding.

Preferred Stock

Our restated certificate of incorporation provides that we may, by vote of our board of directors,
issue preferred stock in one or more series having the rights, preferences, privileges and
restrictions thereon, including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or designation of such series without further vote or action by the
stockholders. The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of us without further action by the stockholders and may adversely
affect the voting and other rights of the holders of common stock. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the holders of common
stock, including the loss of voting control to others.

SECTION 1(L):

Consent and waiver of Wachovia Bank, National Association (“Wachovia”) is required under the Loan
and Security Agreement, as amended, between Wachovia (as successor to Congress Financial
Corporation) and the Company, which consent and waiver shall be obtained as a condition to the
consummation of the transactions contemplated by the Purchase Agreement to which this Disclosure
Agreement is attached.

Consents and waivers pursuant to the documentation entered into in connection with the Company’s
1.25% Convertible Senior Subordinated Debentures due April 1, 2024, which consents and waivers will
not be required upon the satisfaction of said Debentures as contemplated pursuant to Section 3 of
the Purchase Agreement to which this Disclosure Schedule is attached.

SECTION 1(M):

See disclosure under section 1(n).

All Indebtedness as of December 31, 2004 and as of May 31, 2005:

	 	 	 	 	 	 	 	 	 
	 	 	December 31, 2004	 	 	May 31, 2005	 
	 	 	(in thousands)	 
	$95 million 1.25% convertible senior subordinated debentures due 2024
	 	$	95,000	 	 	$	95,000	 
	 
	 	 	 	 	 	 
	8.17% loan payable to Cathay Bank in 83 monthly installments of $19,540
commencing June 28, 2001, through May 27, 2008, with a balance of
$2,332,117 due on June 28, 2008 
	 	 	2,350	 	 	 	2,332	 
	7.50% loan payable to Cathay Bank in 83 monthly installments of $24,629
commencing November 14, 2001, through October 13, 2008, with a balance
of $3,120,740 due on November 14, 2008 
	 	 	3,146	 	 	 	3,121	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	December 31, 2004	 	 	May 31, 2005	 
	 	 	(in thousands)	 
	Loan payable to Wachovia N.A. in 60 monthly installments of $52,500
commencing December 1, 2002, through November 30, 2007, at prime
interest rate plus 1.5% (the interest rate at 12/31/04 was 6.75%)
	 	 	2,470	 	 	 	2,129	 
	 
	 	 	 	 	 	 
	 
	 	$	7,966	 	 	$	7,582	 
	Less: Current portion of long-term debt
	 	 	(923	)	 	 	(923	)
	 
	 	 	 	 	 	 
	 
	 	$	7,043	 	 	$	6,659	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Short term credit facility
	 	 	5,000	 	 	 	5,000	 
	 
	 	 	 	 	 	 	 	 
	 
	 	$	107,043	 	 	$	107,582	 
	 
	 	 	 	 	 	 

SECTION 1(N):

As a result of the Company’s receipt of a notice of default from a holder of more than 25%
aggregate principal amount of its outstanding 1.250% Convertible Senior Subordinated Debentures due
2024 (the “Debentures”), based upon the Company’s failure to file its Annual Report on Form 10-K
for the year ended December 31, 2004, and the Company’s failure to file such report by June 21,
2005, the Trustee under the Indenture relating to the Debentures or holders of 25% in aggregate
principal amount of the outstanding Debentures may declare immediately due and payable the entire
$95.0 million principal amount, and premium, if any, of the Debentures and any interest accrued
thereon.

The Debenture default has also resulted in a default under the Company’s existing credit agreement
with Wachovia Bank.

SECTION 1(O):

See the Company’s filings on Form 8-K filed with the Commission and disclosure under section 1(ff).

SECTION 1(V):

See the disclosure concerning material weaknesses in Exhibit 99.5 to the draft Form 8-K report
previously provided.

SECTION 1(W):

See section 1(ff) below.

SECTION 1(Y):

Warrants to purchase 741,503 shares of Common Stock issued to investors pursuant to Common Stock
and Warrant Purchase Agreement dated May 6, 2003 between the Company and the purchasers listed
therein.

 

 

$95.0 million in aggregate principal amount of 1.250% convertible senior subordinated debentures
due 2024, issued on April 5, 2004.

Stock Option Plans — approximately 6,020,000 options outstanding to purchase Common Stock under the
Company’s various plans. There remain options available under our stock option plans for future
grant covering approximately 1.3 million additional shares.

SECTION 1(Z):

Depending upon the guidance received by the Company from the Office of the Chief Accountant of the
Commission and the advice of the Company’s auditors concerning the Company’s recognition of
revenues related to its strategic alliance agreement with a subsidiary of Teva Pharmaceutical
Industries Ltd., it is possible that the Company’s financial statements included in its quarterly
reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2004 will be
restated.

SECTION 1(FF):

See section 1(o) above. The material pending litigation involving the Company is as follows:

Patent Litigation

There has been substantial litigation in the pharmaceutical, biological, and biotechnology
industries with respect to the manufacture, use, and sale of new products that are the subject of
conflicting patent rights. One or more patents cover most of the brand name controlled-release
products for which we are developing generic versions. Under the Hatch-Waxman Amendments, when a
drug developer files an ANDA for a generic drug, seeking approval before expiration of a patent
which has been listed with the FDA as covering that brand name product the developer must certify
that its product will not infringe on the listed patent(s) and/or that the listed patent is invalid
or unenforceable. That certification must also be provided to the patent holder, who may challenge
the developer’s certification of non-infringement, invalidity or unenforceability by filing a suit
for patent infringement within 45 days of the patent holder’s receipt of such certification. If the
patent holder files suit, the FDA can review and approve the ANDA, but is prevented from granting
final marketing approval of the product until a final judgment in the action has been rendered, or
30 months from the date the certification was received, whichever is sooner. Should a patent holder
commence a lawsuit with respect to an alleged patent infringement by us, the uncertainties inherent
in patent litigation make the outcome of such litigation difficult to predict. The delay in
obtaining FDA approval to market our product candidates as a result of litigation, as well as the
expense of such litigation, whether or not we are successful, could have a material adverse effect
on our results of operations and financial position. In addition, there can be no assurance that
any patent litigation will be resolved prior to the 30-month period. As a result, even if the FDA
were to approve a

 

 

product upon expiration of the end of the 30-month period, we may elect not to commence marketing
that product if patent litigation is still pending.

Lawsuits have been filed against us in connection with fourteen of our Paragraph IV filings. The
outcome of such litigation is difficult to predict because of the uncertainties inherent in patent
litigation.

ASTRAZENECA AB ET AL. V. IMPAX: THE OMEPRAZOLE CASES

In May 2000, AstraZeneca AB and four of its related companies filed suit against us in the U.S.
District Court in Wilmington, Delaware claiming that the Company’s submission of an ANDA for
Omeprazole Delayed Release Capsules, 10 mg and 20 mg, constitutes infringement of six U.S. patents
relating to AstraZeneca’s Prilosec product. The action seeks an order enjoining us from marketing
Omeprazole Delayed Release Capsules, 10 mg and 20 mg until February 4, 2014, and reimbursement for
costs and attorney fees associated with this litigation.

In February 2001, AstraZeneca and the same related companies filed the same suit against us in the
same federal court in Delaware for infringement, based upon the Company’s amendment to its ANDA
adding 40 mg strength Omeprazole Delayed Release Capsules.

AstraZeneca filed similar lawsuits against nine other generic pharmaceutical companies (Andrx,
Genpharm, Cheminor, Kremers, LEK, Eon, Mylan, Apotex, and Zenith). Due to the number of these
cases, a multidistrict litigation proceeding, In re Omeprazole 10 mg, 20 mg, and 40 mg Delayed
Released Capsules Patent Litigation, MDL-1291, has been established to coordinate pre-trial
proceedings. Both lawsuits filed by AstraZeneca against the Company have been transferred to the
multidistrict litigation jurisdiction.

Early in the multidistrict litigation, the trial court ruled that one of the six patents-in-suit
was not infringed by the sale of a generic omeprazole product and that certain other patents were
invalid. These rulings effectively eliminated four patents from the trial of these infringement
cases, although AstraZeneca may appeal these rulings as part of the overall appeal process in the
case.

On October 11, 2002, after a trial involving Andrx, Genpharm, Cheminor, and Kremers, the trial
judge handling the multidistrict litigation ruled on AstraZeneca’s complaints that three of these
four defendants (“First Wave Defendants”) infringed the remaining patents-in-suit. The trial judge
ruled that three of the First Wave defendants, Andrx, Genpharm, and Cheminor, infringed the
remaining two patents asserted by AstraZeneca in its complaints, and that those patents are valid
until 2007. In the same ruling, the trial court ruled that the remaining First Wave Defendant,
Kremers, did not infringe either of the remaining two patents. Kremers’ formulation was held to
differ from the formulation used by the other First Wave Defendants in several respects. In
mid-December 2003, the U.S. Court of Appeals for the Federal Circuit affirmed the October 2002
ruling in all respects. Subsequent petitions for rehearing have been denied.

 

 

The formulation that we employ in manufacturing its generic equivalent of omeprazole has not been
publicly announced. Our formulation has elements that resemble those of other First Wave Defendants
in certain respects, but it also has elements that differ. The Company believes that it has
defenses to AstraZeneca’s claims of infringement, but the opinion rendered by the trial court in
the First Wave cases makes the outcome of AstraZeneca’s litigation against us is uncertain.

In August 2003, the court issued an order dismissing four of the patents-in-suit, three with
prejudice. On September 30, 2003, as a result of the court’s dismissal, AstraZeneca served each of
the Second Wave Defendants, including IMPAX, with an amended complaint. In October 2003, we filed
an answer to the amended complaint in which we asserted a new counterclaim with antitrust
allegations. The counterclaim will be severed, and proceedings relating to it will be stayed until
after trial of the patent infringement case.

In December 2003, the trial court entered a new scheduling order governing pre-trial proceedings
relating to the Second Wave Defendants, including us. The schedule for completion of the litigation
in the Second Wave, including AstraZeneca’s litigation against the Company, now provides that all
fact and expert discovery is complete. AstraZeneca’s expert reports on issues as to which it bears
the burden of proof, including issues of alleged infringement, were served on February 17, 2004.
Our responsive expert reports were served on July 12, 2004. Astra’s reply reports were served in
early September 2004, prior to the launch of our commercial product.

The December 2003 scheduling order was amended most recently in August 2004. The amended scheduling
order also allows for the filing of summary judgment motions beginning in March 2005. The Company
has filed two motions for summary judgment against AstraZeneca: one alleging that the
patents-in-suit are invalid under 35 U.S.C. Sect. 102(b) due to public usage of the invention prior
to the filing of the patents; the other alleging that our ANDA products do not infringe any claim
of the patents-in-suit. AstraZeneca did not file any summary judgment motions against the Company.
Briefing on the summary judgment motions has yet to be completed, and we do not have any timetable
by which decisions on the summary judgment motions should be expected.

This matter is pending before Judge Jones of the Southern District of New York, together with
AstraZeneca’s patent infringement cases against four other defendants who have separately filed
ANDAs seeking approval from the FDA to market omeprazole drug products. The case remains in
discovery pretrial proceedings. No trial date has yet been set. The Company intends to defend
vigorously. The amended scheduling order states that no further extensions of time shall be granted
to the parties.

In conjunction with our strategic partner, Teva, we recently have initiated a commercial launch of
certain omeprazole products which were the subject of its ANDA application and which are at issue
in this litigation. If we are not ultimately successful in establishing invalidity or
non-infringement, the court may award monetary damages associated with the commercial sale of our
omeprazole products. Pursuant to the Strategic Alliance Agreement with Teva,

 

 

however, Teva is responsible for indemnifying the Company with respect to any such monetary
damages, provided certain conditions are met.

On January 4, 2005, AstraZeneca moved to amend its Complaint against the Company to add claims of
willful infringement and for enhanced damages on the basis of this commercial launch. The Company
and AstraZeneca subsequently reached a stipulation that was approved by the Court allowing the
Amended Complaint to be filed. On February 14, 2005, the Company filed its answer and counterclaims
to the Amended Complaint. Among the Company’s counterclaims are a number of claims for relief under
federal antitrust law, including claims arising under Section 2 of the Sherman Act, and claims
seeking declaratory judgment that the patents are not infringed and are unenforceable.

AVENTIS PHARMACEUTICALS INC., ET AL. V. IMPAX: THE FEXOFENADINE CASES

On March 25, 2002, Aventis Pharmaceuticals Inc., Merrell Pharmaceuticals Inc., and Carderm Capital
L.P. (collectively referred to as Aventis) sued the Company in the U.S. District Court for the
District of New Jersey (Civil Action No. 02-CV-1322) alleging that IMPAX’s proposed fexofenadine
and pseudoephedrine hydrochloride tablets, containing 60 mg of fexofenadine and 120 mg of
pseudoephedrine hydrochloride, infringe U.S. Patent Nos. 6,039,974; 6,037,353; 5,738,872;
6,187,791; 5,855,912; and 6,113,942. On November 7, 2002, Aventis filed an amended complaint, which
added an allegation that IMPAX’s Fexofenadine and Pseudoephedrine Hydrochloride 60 mg/120 mg
Extended Release Tablet product infringes U.S. Patent No. 6,399,632. Aventis seeks an injunction
preventing us from marketing its Fexofenadine and Pseudoephedrine Hydrochloride 60 mg/120 mg
Extended Release Tablet product until the patents-in-suit have expired, and an award of damages for
any commercial manufacture, use, or sale of our Fexofenadine and Pseudoephedrine Hydrochloride 60
mg/120 mg Extended Release Tablet product, together with costs and attorneys’ fees. The Company
believes that it has defenses to the claims made by Aventis based on noninfringement and
invalidity.

Aventis has also filed a suit against Barr Laboratories, Inc., Mylan Pharmaceuticals, Inc., Dr.
Reddy’s Pharmaceuticals and Teva Pharmaceuticals USA, Inc. in New Jersey asserting the same patent
infringement against these defendants’ proposed Fexofenadine and Pseudoephedrine or Fexofenadine
products. Our case has been consolidated for trial with the Barr, Mylan, Dr. Reddy and Teva cases.

On March 25, 2004, Aventis and AMR filed a complaint and first amended complaint against the
Company and Ranbaxy, alleging infringement of two additional patents relating to the process for
making the active pharmaceutical ingredient, fexofenadine hydrochloride. These patents, United
States Patent Nos. 5,581,011 and 5,750,703, are owned by AMR and exclusively licensed to Aventis.

On July 23, 2003, we filed Summary Judgment motions for non-infringement of U.S. Patent Nos.
6,039,974, 6,113,942, and 5,855,912; and for non-infringement and invalidity of U.S. Patent No.
5,738,872. On June 29, 2004, the court granted the Company’s Motions for Summary Judgment of
Non-infringement of the `912 and `942 patents and denied the Company’s Motion

 

 

for Summary Judgment of Non-infringement of the `974 patent. At the same time, the court ordered
that a ruling on the Company’s motion for Summary Judgment for the Non-infringement and invalidity
of the `872 patent was reserved pending a Markman hearing held on September 9, 2004 to assist the
court in construing the patent’s product-by-process claims. On October 4, 2004, Judge Greenaway
construed the claims of the fifth patent in favor of us and the other defendants. The parties
submitted further briefs regarding the invalidity of the `872 patent in light of the court’s claim
construction. On May 16, 2005, Judge Greenway granted Summary Judgment of invalidity on the 872
patent . We will have the opportunity to file additional summary judgment motions and to assert
both non-infringement and invalidity of the remaining patents (if necessary) at trial.

According to the current scheduling order, fact discovery is scheduled to close on June 30, 2005
and expert discovery will close on December 14, 2005. No trial date has been set.

PURDUE PHARMA L.P. ET AL. V IMPAX: THE OXYCODONE CASES

On April 11, 2002, Purdue Pharma and related companies filed a complaint in the U.S. District Court
for the Southern District of New York alleging that IMPAX’s submission of ANDA No. 76-318 for 80 mg
oxycodone tablets infringes three patents owned by Purdue. The Purdue patents are U.S. Patent Nos.
5,508,042, 5,549,912 and 5,656,295; all directed to controlled release opioid formulations. On
September 19, 2002, Purdue filed a second Infringement Complaint regarding our 40 mg oxycodone
generic product. On October 9, 2002, Purdue filed a third Infringement Complaint regarding our 10
mg and 20 mg oxycodone generic products. We filed its answer and counterclaims in each case on
October 3, 2003. On November 25, 2003, Purdue submitted their reply to our counterclaims. Purdue is
seeking, among other things, a court order preventing us from manufacturing, using or selling any
drug product that infringes the subject Purdue patents.

Purdue previously sued Boehringer Ingelheim/Roxane, Endo and Teva on the same patents. One or more
of these defendants may resolve the invalidity issues surrounding the Purdue patents prior to when
our case goes to trial. The Boehringer Ingelheim/Roxane suit is stayed. The Endo action was tried
in June 2003. In January 2004, the judge in the Endo action ruled that the three patents in suit,
the same patents that Purdue has asserted against the Company, are unenforceable because they were
inequitably procured and enjoined their enforcement. Purdue appealed that ruling to the Court of
Appeals for the Federal Circuit. We were granted Summary Judgment on January 10, 2005, dismissing
Purdue’s charges of infringement and holding the patents to be unenforceable, based on the Endo
decision.

The Company commenced shipping Oxycodone 80mg in March 2005.

On June 7, 2005, the Court of Appeals for the Federal Circuit affirmed the District Court’s ruling
that the patents in suit were unenforceable due to inequitable conduct. Purdue has stated that they
intend to file a Petition for Re-hearing En Banc. If the Endo decision is ultimately reversed, and
Purdue were to prevail in litigation against us, we would be liable for Purdue’s damages, up to its
lost profits from our infringing sales. If the infringement were found to be willful, our damages
could be increased by up to three times.

IMPAX V. AVENTIS PHARMACEUTICALS, INC.: THE RILUZOLE CASE

In June 2002, we filed suit against Aventis Pharmaceuticals, Inc. in the U.S. District Court in
Wilmington, Delaware, seeking a declaration that the filing of an ANDA to engage in a commercial
manufacture and/or sale of Riluzole

 

 

50 mg Tablets for treatment of patients with amyotrophic lateral scleroses (ALS) does not infringe
claims of Aventis’ U.S. Patent No. 5,527,814 (`814 patent) and a declaration that this patent is
invalid.

In response to our complaint, Aventis filed counterclaims for direct infringement and inducement of
infringement of the `814 patent. In December 2002, the district court granted Aventis’ Motion for
Preliminary Injunction and enjoined us from infringing, contributory infringing, or inducing any
other person to infringe Claims 1, 4 or 5 of the `814 patent by selling, offering for sale,
distributing, marketing or exporting from the United States any pharmaceutical product or compound
containing riluzole or salt thereof for the treatment of ALS.

The trial was completed on October 30, 2003, and post-trial briefing was completed in December
2003. On January 30, 2004, the court denied our Motion for Summary Judgment on inequitable conduct
and, on February 5, 2004, the court denied our Motion for Summary Judgment on non-infringement of
certain claims. In September 2004, the court ruled the `814 patent is valid, enforceable and
infringed by our proposed generic riluzole product. On March 11, 2005, Aventis submitted to the
court a proposed form of final judgment in favor of Aventis, reflecting the court’s prior rulings
that claims 1 through 5 of the `814 patent are not invalid or unenforceable, and that our proposed
manufacture and sale of riluzole would induce infringement of claims 1 through 5 of the `814
patent. On March 16, 2005, the Federal District Court entered final judgment. We filed a Notice of
Appeal on March 21, 2005.

If we are not ultimately successful in proving invalidity or unenforceability, there is a
substantial likelihood that the court will enter a permanent injunction enjoining us from marketing
Riluzole 50 mg Tablets for the treatment of ALS in the United States until the expiration of the
`814 patent (June 18, 2013). If we are ultimately successful in proving either defense, the
preliminary injunction would be set aside and the Company would be permitted to market its Riluzole
50 mg Tablet product for the treatment of ALS in the United States.

ABBOTT LABORATORIES V. IMPAX: THE FENOFIBRATE TABLET CASES

In January 2003, Abbott Laboratories and Fournier Industrie et Sante and a related company filed
suit against the Company in the U.S. District Court in Wilmington, Delaware claiming that our
submission of an ANDA for Fenofibrate

 

 

Tablets, 160 mg, constitutes infringement of two U.S. patents owned by Fournier and exclusively
licensed to Abbott, relating to Abbott’s Tricor tablet product.

In March 2003, Abbott and Fournier filed a second action against IMPAX in the same court making the
same claims against our 54 mg Fenofibrate Tablets. These cases were consolidated in April 2003.

In September 2003, Abbott and Fournier filed a third action against the Company in the U.S.
District Court in Wilmington, Delaware, claiming that our submission of its ANDA for 54 mg and 160
mg Fenofibrate Tablets constitutes infringement of a third patent recently issued to Fournier and
exclusively licensed to Abbott. This action was also consolidated with the two previously
consolidated actions in December 2003. In January 2004, Abbott and Fournier filed a fourth action
relating to our 54 mg and 160 mg Fenofibrate Tablets based upon a claim of infringement of a fourth
patent. The asserted patents are U.S. Patent Nos. 6,652,881, 6,589,552, 6,277,405 and 6,074,670.
All four cases were consolidated in March 2004. This matter was consolidated for trial with the
Abbott Laboratories v. Teva Pharmaceuticals USA, Inc. matter, an action before the same judge
involving similar claims of patent infringement by Teva and similar defenses.

Fact and expert discovery in the consolidated cases closed in November 2004. A claim construction
hearing was held on February 28, 2005. On March 7, 2005, the District Court dismissed U.S. Patent
No. 6,074,670 from the lawsuit. On March 18, 2005, we moved to amend and supplement its answer to
assert antitrust counterclaims. A Markman claims construction ruling issued on April 22, 2005.

On May 6, 2005, the court issued a ruling on summary judgment and other motions. The Court (1)
denied our motion for a separate trial and to stay discovery on the willful infringement claim; (2)
granted IMPAX’s motion for partial summary judgment of non- infringement due to the lack of at
least 20% by weight of a hydrophilic polymer; (3) granted our motion for partial summary judgment
of non-infringement of U.S. Patent No. 6,074,670 (the motion having been made before the March 7
dismissal). The Court also granted in part our motion for partial summary judgment of
non-infringement of U.S. Patent No. 6,652,881 and some claims of U.S. Patent No. 6,277,405 and U.S.
Patent No. 6,589,552 insofar as Abbott claims infringement by the doctrine of equivalents, but
denied summary judgment as to literal infringement claims.

At the pretrial conference held on May 9, 2005, the court permitted the inequitable conduct defense
to be added for trial, and stayed consideration of the amendment to add the antitrust claim. On May
20, 2005, Plaintiffs moved to voluntarily dismiss the complaints and also the Company’s and Teva’s
declaratory judgment counterclaims for lack of subject matter jurisdiction based upon a proposed
covenant not to sue the defendants with respect to the patents-in-suit. By agreement between the
parties, the patent claims will be dismissed. The Company’s motion to supplement and amend its
answers to assert antitrust counterclaims remains pending.

 

 

ALZA CORPORATION V. IMPAX: THE OXYBUTYNIN CASE

On September 4, 2003, Alza Corporation (“Alza”) filed a lawsuit against IMPAX in the U.S. District
Court for the Northern District of California alleging patent infringement of one patent, U.S.
Patent No. 6,124,355, related to our filing of an ANDA for a generic version of Ditropan XL
(Oxybutynin Chloride) Tablets, 5 mg, 10 mg, and 15 mg. Alza seeks an injunction, a declaration of
infringement, attorney’s fees and costs. On October 24, 2003, we filed its Answer to the Complaint,
which included defenses to the infringement claim, and counterclaimed for patent non-infringement
and invalidity. On March 11, 2005, the Court issued an order construing the claims of the patent in
suit. In so doing, the Court adopted the claim construction involving the same patent that was
issued on December 7, 2004, in Alza Corp. v. Mylan Labs. et al., Civil Action No. 1:03CV61, which
is currently pending in the United States District Court for the Northern District of West
Virginia. The litigation is ongoing.

On October 24, 2003, we filed a lawsuit against Alza in the U.S. District Court for the Northern
District of California seeking a declaratory judgment that four Alza patents relating to our filing
of an ANDA for a generic version of Ditropan XL (Oxybutynin Chloride) Tablets, 5 mg, 10 mg, and 15
mg are invalid and/or not infringed by the commercial manufacture, use, offer for sale, sale, or
importation of our product. On November 17, 2003, Alza moved to dismiss the Company’s complaint for
lack of subject matter jurisdiction based on Alza’s argument that there is no case or controversy
between the parties with respect to these four patents. On April 19, 2004, the Court denied Alza’s
motion. On May 18, 2004, the Court ordered the entry of a stipulation of dismissal based on a
covenant not to sue issued by Alza to the Company with respect to the four Alza patents in that
case.

SHIRE LABORATORIES INC. V IMPAX: THE GENERIC ADDERALL XR CASE

On December 29, 2003, Shire Laboratories, Inc., a subsidiary of Shire Pharmaceuticals Group, PLC,
filed a lawsuit against the Company in the U.S. District Court for the District of Delaware
alleging patent infringement on U.S. Patent Nos. 6,322,819 and 6,605,300 related to filing of an
ANDA to market a generic version of Adderall XR 30 mg capsules. We filed its answer on January 20,
2004, denying infringement and contesting the validity of both patents. Discovery in this matter is
complete. A Markman claim construction ruling was issued on February 9, 2005. The Parties submitted
expert reports on March 16, 2005 for the issues on which they bear the burden of proof. Shire now
concedes that it is unable to prove literal infringement based upon the court’s claim construction.
Rebuttal reports were due on April 6, 2005. On February 25, 2005, we moved to amend its answer to
allege inequitable conduct with respect to both patents-in-suit, which motion was granted

Shire filed a new suit against us on January 13, 2005, No. 05-20 (GMS), asserting the same two
patents as in the first suit. The second complaint relates to an amendment to our ANDA in which we
added 5 mg, 10 mg, 15 mg, 20 mg and 25 mg dosage strengths. A scheduling conference took place on
April 11, 2005, when it was decided that the two actions would be consolidated for trial.

 

 

Discovery in the second action is proceeding. The court has authorized the Company to file a
summary judgment brief on September 12, 2005, regarding (1) non-infringement of U.S. Patent Nos.
6,322,819 and 6,605,300, and (2) no willful infringement. Fact discovery in the second matter is to
be completed by August 1, 2005. A seven-day bench trial is scheduled to begin on February 23, 2006.

BIOVAIL LABORATORIES INC. V IMPAX: THE GENERIC WELLBUTRIN XL CASE

On March 7, 2005, Biovail Laboratories Inc., a subsidiary of Biovail Corporation, commenced patent
litigation against us in the United States District Court, Eastern District of Pennsylvania
(Philadelphia), alleging patent infringement on U.S. Patent No. 6,096,341 related to our filing for
a generic version of Wellbutrin XL 150 mg. The Company has submitted its ANDA filing with the FDA
under Paragraph IV of the Hatch-Waxman Amendments, stating that it believes its generic versions of
Wellbutrin XL 150 and 300 mg tablets do not infringe Biovail’s listed patents or that the listed
patents are invalid or unenforceable. In April 2005, Biovail amended its suit against the Company
relating to a subsequent filing of the 300 mg dosage strength asserting the same patent as in the
earlier complaint. On May 11, 2005, the Company filed its answer to the amended complaint, which
included defenses to the infringement claim. Fact discovery is scheduled to close on December 2,
2005. No trial date has been set.

Other Litigation

STATE OF CALIFORNIA V. IMPAX

On August 7, 2003, IMPAX received an Accusation from the Department of Justice, Bureau of Narcotic
Enforcement, State of California (“BNE”), alleging that we failed to maintain adequate controls to
safeguard precursors from theft or loss regarding our pseudoephedrine product in January 2003. We
contested the allegations in the Accusation and entered into discussions with the State of
California, Department of Justice, to bring resolution to this matter. The Company has implemented
a number of remedial measures aimed at improving the security and accountability of precursor
substances used by the Company and regulated by the California Department of Justice, Bureau of
Narcotic Enforcement. In March 2004, following a theft of pseudoephedrine from our facilities, the
BNE filed an Amended Accusation, again alleging that the Company failed to maintain adequate
controls to safeguard precursors from theft or loss regarding our pseudoephedrine product. In May
2004, a Notice of Hearing was received from BNE, which set the hearing of this matter, should one
be necessary, for October 18 and October 19, 2004.

On October 11, 2004 we entered into a Stipulation with the BNE regarding our California Precursor
Business Permit #201, applicable to the our facility located at 31153 San Antonio Street, Hayward,
California. Pursuant to the Stipulation, Permit #201 is provisionally suspended, with such
suspension stayed, for a period of two (2) years, in which the Company must comply with the terms
and conditions of the Stipulation. The Stipulation provides: “Upon

 

 

successful completion of the terms of the Stipulation for the period of time in which it is in
effect, the Company’s permit will be fully restored without having been suspended.”

The Stipulation resolves both the original Accusation and the Amended Accusation.

SOLVAY PHARMACEUTICALS V. IMPAX: THE CREON CASE

On April 11, 2003, Solvay Pharmaceuticals, Inc., manufacturer of the Creon line pancreatic enzyme
products, brought suit against the Company in the U.S. District Court for the District of Minnesota
claiming that we have engaged in false advertising, unfair competition, and unfair trade practices
under federal and Minnesota law in connection with the Company’s marketing and sale of its Lipram
products. The suit seeks actual and consequential damages, including treble damages, attorneys’
fees, injunctive relief and declaratory judgments that would prohibit the substitution of Lipram
for prescriptions of Creon. On June 6, 2003, we filed a Motion for Dismissal of Plaintiff’s
Complaint, which sought to dismiss each count of Solvay’s complaint. On January 9, 2004, the U.S.
District Court issued a ruling on our Motion for Dismissal, dismissing two of the counts set forth
in the Complaint, including the count that sought a declaratory judgment that Lipram may not
lawfully be substituted for prescriptions of Creon. On January 26, 2004, IMPAX filed its Answer to
the Complaint and Counterclaim alleging that Solvay wrongfully interfered with IMPAX’s business
relationships. On February 17, 2004, Solvay filed its Reply to our Counterclaim. Under the current
scheduling order, the discovery deadline is set for July 22, 2005, and a trial date is set for
February 1, 2006. Discovery is currently ongoing on this case. The Company believes it has defenses
to Solvay’s allegations and intends to pursue these defenses vigorously.

SECURITIES LITIGATION

In September 2004 and January 2005, the Company was served with several complaints filed by
shareholders in the Superior Court for Alameda County, California, all of which have since been
consolidated as case No. RG04176541, purporting to state a derivative claim on behalf of the
Company, as a nominal defendant. The complaints assert claims against all of the Company’s
Directors and David S. Doll and Cornel C. Spiegler, each of whom is an Officer or Director, or
both, of IMPAX, and allege that each sold shares of the Company’s common stock in June 2004 on the
basis of material nonpublic information. The complaints, asserting claims against these individuals
under California Corporations Code ss. 25402 and California’s common law, seek treble damages,
imposition of a constructive trust on the individual defendants’ profits, attorneys fees and costs,
and other relief as the court determines.

Our Board of Directors has appointed a Special Litigation Committee (SLC) of disinterested
directors to investigate the merits of the allegations in these complaints and to engage special
counsel to assist in such investigation. The actions have been stayed pending completion of the
SLC’s investigation and report to the court. The SLC has completed its investigation and on April
22, 2005 issued its report, concluding that the allegations in the derivative

 

 

actions are without merit and that there is no likelihood that the defendants would be found liable
if the actions were to proceed and recommending that we should seek to have the actions dismissed.
The Company intends to file a motion to dismiss the action based upon the SLC’s investigation and
report.

In November and December 2004, IMPAX, all of its Directors, Cornel Spiegler and David Doll were
served with several class action complaints filed in the United States District Court for the
Northern District of California, all of which have since been consolidated as case No. 04- 4808-JW.
These actions, brought on behalf of all purchasers of our stock between May 5 and November 3, 2004,
allege that the Company and the individual defendants, in violation of the antifraud provisions of
the federal securities laws, artificially inflated the market price of the stock during this period
by filing false financial statements for the first and second quarters of 2004, based upon the
Company’s subsequent restatement of its results for those periods. Plaintiffs have recently filed a
consolidated amended complaint. The Company is currently preparing a motion to dismiss the amended
complaint for failure to state a claim upon which relief can be granted, which motion is required
to be filed by July 20, 2005.

LOUIS PICCONE V. IMPAX LABORATORIES. INC., an entity, and Larry Hsu, its President, individually
and in his official capacity, Superior Court of California for the County of Alameda, Case No.
HG04189310

On February 9, 2005, Louis Piccone, a former Intellectual Property attorney for the Company, sued
for retaliation in violation of the California Family Rights Act (“CFRA”) and the Fair Employment
and Housing Act (“FEHA”), alleging denial of reinstatement and failure to provide medical leave,
failure to accommodate a disability, discrimination on account of a disability, wrongful
termination in violation of public policy, breach of contract terminable only for good cause,
breach of the implied covenant of good faith and fair dealing, defamation, misrepresentation in
violation of Labor Code Section 970, fraud, and unfair business practices. The Company is in the
process of responding to the complaint. The Company intends to defend itself vigorously.

SECTION 1(KK):

Offer Letter to Arthur Koch.

Amendment dated March 16, 2005 to the Development License and Supply Agreement between Wyeth and
the Company.

Amendment dated March 25, 2005 to the Strategic Alliance Agreement dated June 27, 2001 between Teva
Pharmaceuticals Curacao NV and the Company.

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