Document:

CONTINUING
      UNCONDITIONAL SECURED GUARANTY

     

    This
      Continuing Unconditional Secured Guaranty (“Guaranty”)
      is
      made as of June 22, 2005 by Acura Pharmaceutical Technologies, Inc., an Indiana
      corporation (“Guarantor”)
      in
      favor of Galen Partners III, L.P., a Delaware limited partnership, acting in
      its
      capacity as agent for the Lenders, as defined below (“Agent”),
      for
      the benefit of the Lenders.

     

    PRELIMINARY
      STATEMENTS

     

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

     

    AGREEMENT

     

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

     

    ARTICLE
      1

     

    GUARANTY

     

    1.1  GUARANTY

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1.2  NO
      FRAUDULENT CONVEYANCE

     

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

     

    1.3  GUARANTY
      UNCONDITIONAL

     

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

     

    1.4  WAIVERS

     

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

     

    
      
         

      

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

     

    1.5  NO
      SUBROGATION

     

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

     

    
      
         

      

      
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    1.6  LENDERS’
      RIGHTS WITH RESPECT TO BORROWER’S LIABILITIES

     

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

     

    1.7  INFORMATION

     

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

     

    1.8  REINSTATEMENT

     

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

     

    
      
         

      

      
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    1.9  ASSIGNMENTS
      BY LENDERS

     

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

     

    ARTICLE
      2 

     

    REPRESENTATIONS
      AND WARRANTIES

     

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

     

    ARTICLE
      3 

     

    MISCELLANEOUS

     

    3.1  SUCCESSORS
      AND ASSIGNS; ASSIGNMENT BY GUARANTOR

     

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

     

    
      
         

      

      
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    3.2  TERM
      OF GUARANTY

     

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

     

    3.3  SEVERABILITY

     

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

     

    3.4  GOVERNING
      LAW

     

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

     

    3.5  CONSENT
      TO JURISDICTION

     

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

     

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

     

    
      
         

      

      
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    3.6  WAIVER
      OF JURY TRIAL

     

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

     

    

    [SIGNATURE
      PAGE TO FOLLOW]

    
      
         

      

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

    

    ACURA
      PHARMACEUTICAL TECHNOLOGIES,
      INC.

    

    

    

    By:
      /s/
      Andrew D. Reddick 

    Name:
      Andrew D. Reddick

    Title:
      President and CEO

    

    

    
      
         

      

      
        8GUARANTORS
        GENERAL SECURITY AGREEMENT

       

      This
        Guarantors General Security Agreement (the “Agreement”)
        is
        dated as of June 22, 2005 by and among Acura Pharmaceutical Technologies,
        Inc.,
        an Indiana corporation with its principal place of business at 16235 State
        Road
        17, Culver, Indiana, 46511 (“APT”),
        Axiom
        Pharmaceutical Corporation, a Delaware corporation with its principal place
        of
        business at c/o Acura Pharmaceuticals, Inc., 616 N. North Court, Suite 120,
        Palatine, Illinois, 60067 (“Axiom”
        and,
        together with Houba, the “Guarantors”),
        and
[Galen
        Partners III, L.P., a Delaware limited partnership]
        with its
        principal place of business at 610 Fifth Avenue, Fifth Floor, New York, New
        York, 10020, acting in its capacity as agent for the Lenders, as defined
        below
        (the “Agent”),
        for
        the benefit of the Lenders.

       

       

      PRELIMINARY
        STATEMENTS

       

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

       

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

       

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

       

       

      AGREEMENT

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ARTICLE
        1  

       

      CREATION
        OF SECURITY INTEREST

       

      1.1  SECURITY
        INTEREST

       

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

       

      1.2  GUARANTORS
        REMAIN LIABLE

       

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

       

      ARTICLE
        2 

       

      COLLATERAL

       

      2.1  COLLATERAL

       

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

       

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

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

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

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

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

       

      2.2  PROCEEDS

       

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

       

      ARTICLE
        3

       

      REPRESENTATIONS
        AND WARRANTIES

       

      Each
        Guarantor severally represents and warrants as follows:

       

      3.1  ORGANIZATION
        AND EXISTENCE

       

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

       

      3.2  AUTHORIZATION

       

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

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      3.3  PLACES
        OF BUSINESS

       

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

       

      3.4  LOCATION
        OF COLLATERAL

       

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

       

      3.5  RESTRICTIONS
        ON COLLATERAL DISPOSITION

       

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

       

      3.6  STATUS
        OF ACCOUNTS

       

      Each
        Account is based on an actual and bona fide rendition of services or sale
        of
        goods or products to customers, made by such Guarantor in the ordinary course
        of
        its business. The Accounts created are such Guarantor’s exclusive property and
        are not and shall not be subject to any lien, consignment arrangement,
        encumbrance, security interest or financing statement whatsoever, except
        the
        lien in favor of the holders of the Senior Note under the Watson Term Loan
        and
        the documents executed in connection therewith, including, without limitation,
        the Watson Guarantors Security Agreement. To the best knowledge of such
        Guarantor, such Guarantor’s customers have accepted the goods, products and
        services and owe and are obligated to pay the full amounts stated in the
        invoices according to their terms, without any dispute, offset, defense or
        counterclaim.

       

      3.7  COPYRIGHTS,
        TRADEMARKS AND PATENTS

       

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

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

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

       

      3.8  INVENTORY

       

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

       

      3.9  OWNERSHIP

       

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

       

      ARTICLE
        4

       

      COVENANTS

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      4.1  DEFEND
        AGAINST CLAIMS

       

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

       

      4.2  CHANGE
        IN COLLATERAL LOCATION

       

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

       

      4.3  ADDITIONAL
        FINANCING STATEMENTS

       

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

       

      4.4  ADDITIONAL
        LIENS; TRANSFERS

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      4.5  CONTRACTUAL
        OBLIGATIONS

       

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

       

      4.6  AGENT’S
        RIGHT TO PROTECT COLLATERAL

       

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

       

      4.7  FURTHER
        OBLIGATIONS WITH RESPECT TO ACCOUNTS

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      4.8  INSURANCE

       

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

       

      4.9  TAXES

       

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

       

      4.10  COMPLIANCE
        WITH LAWS

       

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

       

      4.11  MAINTENANCE
        OF PROPERTY

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      4.12  ENVIRONMENTAL
        AND OTHER MATTERS

       

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

       

      4.13  INTELLECTUAL
        PROPERTY

       

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

       

      4.14  FURTHER
        ASSURANCES

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ARTICLE
        5

       

      REMEDIES

       

      5.1  OBTAINING
        COLLATERAL UPON DEFAULT

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      5.2  DISPOSITION
        OF COLLATERAL

       

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

       

      5.3  POWER
        OF ATTORNEY

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      5.4  WAIVER
        OF CLAIMS

       

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

       

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

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

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

       

      5.5  REMEDIES
        CUMULATIVE

       

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

       

      ARTICLE
        6  

       

      MISCELLANEOUS
        PROVISIONS

       

      6.1  NOTICES

       

      All
        notices, approvals, consents or other communications required or desired
        to be
        given hereunder shall be delivered in person, by facsimile transmission followed
        promptly by first class mail, by a nationally recognized courier service
        marked
        for next business day delivery or by overnight mail, and delivered if to
        the
        Agent, then to the attention of Bruce F. Wesson, c/o Galen Partners III,
        L.P.,
        610 Fifth Avenue, Fifth Floor, New York, New York, 10020, fax no. (212)
        218-4990, with a copy to George N. Abrahams, Esq., c/o Blank Rome, LLP, Chrysler
        Building, 405 Lexington Avenue, New York, New York 10174, fax no. (917)
        332-3763, and if to the Guarantors, then to c/o Acura Pharmaceuticals, Inc.,
        attention of Mr. Andrew D. Reddick, 695 N. Perryville Road, Rockford, Illinois,
        61107, with a copy to John P. Reilly, Esq., St. John & Wayne, L.L.C., 2 Penn
        Plaza East, Newark, New Jersey, 07105, fax no. (973) 491-3555.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

         

      

      6.2  HEADINGS

       

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

       

      6.3  SEVERABILITY

       

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

       

      6.4  AMENDMENTS,
        WAIVERS AND CONSENTS

       

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

       

      6.5  INTERPRETATION
        OF AGREEMENT

       

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

       

      6.6  CONTINUING
        SECURITY INTEREST

       

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

       

      6.7  REINSTATEMENT

       

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

       

      6.8  SURVIVAL
        OF PROVISIONS

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      6.9  SETOFF

       

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

       

      6.10  POWER
        OF ATTORNEY

       

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

       

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

       

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

       

      6.11  INDEMNIFICATION;
        AUTHORITY OF AGENT

       

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

       

      6.12  RELEASE;
        TERMINATION OF AGREEMENT

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      6.13  COUNTERPARTS

       

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

       

      6.14  GOVERNING
        LAW

       

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

       

      6.15  SUBMISSION
        TO JURISDICTION

       

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

       

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

       

      6.16  SERVICE
        OF PROCESS

       

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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      6.17  LIMITATION
        OF LIABILITY

       

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

       

      6.18  DELAYS;
        PARTIAL EXERCISE OF REMEDIES

       

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

       

      6.19  JURY
        TRIAL

       

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

      

      [SIGNATURE
        PAGE TO FOLLOW]

       

      
        
           

        

        
           

          
            

          

        

        
           

          
          

        

      

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

       

      

             

      

      

        ACURA
          PHARMACEUTICAL         

        TECHNOLOGIES,
          INC.

      By:
        /s/
        Andrew D. Reddick   

      Name:
        Andrew D. Reddick

      Title:
        President and Chief Executive Officer

      

      

      AXIOM
        PHARMACEUTICAL

      CORPORATION

      

      

      By:
        /s/
        Andrew D. Reddick        

      Name:
        Andrew D. Reddick

      Title:
        President and Chief Executive Officer

      

      

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

      

      

      GALEN
        PARTNERS III, L.P. 

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

      610
        Fifth
        Avenue, 5th
        Fl.

      New
        York,
        New York 10019

       

      By:
        /s/
        Srini Coonjeevaram

      Name:
        Srini Conjeevaram, its General Partner

      Title:
        President and Chief Executive Officer

      
        
           

        

        
           

          
            

          

        

        
           

          
          

        

      

      SCHEDULE
        A

      

      Section
        3.3

      

      ·APT

      

      16235
        State Road 17, Culver, Indiana 46511.

      

      

      ·Axiom

      

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

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