EX-10.5 Credit and Security Agreement
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EX-10.5 3 b65129ppexv10w5.txt EX-10.5 CREDIT AND SECURITY AGREEMENT Exhibit 10.5 CREDIT AND SECURITY AGREEMENT THIS CREDIT AND SECURITY AGREEMENT (as the same may be amended, supplemented, restated or otherwise modified from time to time, the "AGREEMENT") is dated as of March 13, 2007 by and among PENWEST PHARMACEUTICALS CO., a Washington corporation, and any additional Borrower that may hereafter be added to this Agreement (each individually as a "BORROWER" and collectively as "BORROWERS"), MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., individually as a Lender, and as Administrative Agent, and the financial institutions or other entities from time to time parties hereto, each as a Lender. RECITALS Borrowers have requested that Lenders make available to Borrowers the financing facilities as described herein. Lenders are willing to extend such credit to Borrowers under the terms and conditions herein set forth. AGREEMENT NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrowers, Lenders and Administrative Agent agree as follows: ARTICLE 1 - DEFINITIONS SECTION 1.1 CERTAIN DEFINED TERMS. The following terms have the following meanings: "ACCOUNT DEBTOR" means "account debtor", as defined in Article 9 of the UCC, and any other obligor in respect of an Account. "ACCOUNTS" means collectively (a) any right to payment of a monetary obligation, whether or not earned by performance, (b) without duplication, any "account" (as defined in the UCC), any accounts receivable (whether in the form of payments for services rendered or goods sold, rents, license fees or otherwise), any "health-care-insurance receivables" (as defined in the UCC), any "payment intangibles" (as defined in the UCC) and all other rights to payment and/or reimbursement of every kind and description, whether or not earned by performance, and (c) all rights of enforcement and collection relating to the foregoing, all books and records evidencing or related to the foregoing. "ADMINISTRATIVE AGENT" means Merrill Lynch, in its capacity as administrative agent for the Lenders hereunder, as such capacity is established in, and subject to the provisions of, Article 11, and the successors of Merrill Lynch in such capacity. "AFFILIATE" means with respect to any Person (a) any Person that directly or indirectly controls such Person, and (b) any Person which is controlled by or is under common control with such controlling Person. As used in this definition, the term "control" of a Person means the possession, directly or indirectly, of the power to vote ten percent (10%) or more of any class of voting securities of such Person or to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "ANTI-TERRORISM LAWS" means any Laws relating to terrorism or money laundering, including Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by OFAC. "APPROVED FUND" means any (i) investment company, fund, trust, securitization vehicle or conduit that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business or (ii) any Person (other than a natural person) which temporarily warehouses loans for any Lender or any entity described in the preceding clause (i) and that, with respect to each of the preceding clauses (i) and (ii), is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) a Person (other than a natural person) or an Affiliate of a Person (other than a natural person) that administers or manages a Lender. "ASSET DISPOSITION" means any sale, lease, license, transfer, assignment or other consensual disposition by any Credit Party of any asset. "ASSIGNMENT AGREEMENT" means an agreement in form and substance satisfactory to Administrative Agent. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as the same may be amended, modified or supplemented from time to time, and any successor statute thereto. "BASE RATE" means the LIBOR Rate. "BASE RATE MARGIN" means five percent (5%) per annum with respect to the Term Loan and other Obligations. "BLOCKED PERSON" means any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) that commits, threatens or conspires to commit or supports "terrorism" as defined in Executive Order No. 13224, or (e) that is named a "specially designated national" or "blocked person" on the most current list published by OFAC or other similar list or is named as a "listed person" or "listed entity" on other lists made under any Anti-Terrorism Law. "BORROWER" and "BORROWERS" mean the entity(ies) described in the first paragraph of this Agreement and each of their successors and permitted assigns. "BORROWER REPRESENTATIVE" means Penwest Pharmaceuticals Co., in its capacity as Borrower Representative pursuant to the provisions of Section 2.9, or any successor Borrower Representative selected by Borrowers and approved by Administrative Agent. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which either the New York Stock Exchange is closed, or on which commercial banks in Chicago and New York City are authorized by law to close. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.A. Section 9601 et seq., as the same may be amended from time to time. "CHANGE IN CONTROL" means any of the following events: (a) any Person or two or more Persons (other than Persons holding, as of the date hereof, ten percent (10%) or more of the outstanding shares of the Principal Borrower) acting in concert shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of or control over, voting stock of Principal Borrower (or other securities convertible into such voting stock) representing 35% or more of the combined voting power of all voting stock of Principal Borrower or (b) Principal Borrower ceases to own, directly or indirectly, all of the outstanding capital stock of any other Borrower. As used herein, "beneficial ownership" shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934. "CLOSING DATE" means the date of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. Credit and Security Agreement 2 "COLLATERAL" means all property, now existing or hereafter acquired, that is mortgaged or pledged to, or purported to be subjected to a Lien in favor of, Administrative Agent, for the benefit of Administrative Agent and Lenders, pursuant to this Agreement and the Security Documents, including, without limitation, all of the property described in Schedule 9.1 hereto. "COMMITMENT ANNEX" means Annex A to this Agreement. "COMMITMENT EXPIRY DATE" means September 15, 2008. "COMMODITY ACCOUNT" means a "commodity account" as defined in Article 9 of the UCC. "COMPLIANCE CERTIFICATE" means a certificate, duly executed by a Responsible Officer of Borrower Representative, appropriately completed and substantially in the form of Exhibit B hereto. "CONTINGENT OBLIGATION" means, with respect to any Person, any direct or indirect liability of such Person: (a) with respect to any Debt of another Person (a "THIRD PARTY OBLIGATION") if the purpose or intent of such Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such Third Party Obligation that such Third Party Obligation will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Third Party Obligation will be protected, in whole or in part, against loss with respect thereto; (b) with respect to any undrawn portion of any letter of credit issued for the account of such Person or as to which such Person is otherwise liable for the reimbursement of any drawing; (c) under any Swap Contract, to the extent not yet due and payable; (d) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; or (e) for any obligations of another Person pursuant to any Guarantee or pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to preserve the solvency, financial condition or level of income of another Person. The amount of any Contingent Obligation shall be equal to the amount of the obligation so Guaranteed or otherwise supported or, if not a fixed and determinable amount, the maximum amount so Guaranteed or otherwise supported. "CONTROLLED GROUP" means all members of any group of corporations and all members of a group of trades or businesses (whether or not incorporated) under common control which, together with any Borrower, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA. "CREDIT EXPOSURE" means any period of time during which the Term Loan Commitment is outstanding or any Obligation remains unpaid or outstanding; provided, however, that no Credit Exposure shall be deemed to exist solely due to the existence of contingent indemnification liability, absent the assertion of a claim, or the known existence of a claim reasonably likely to be asserted, with respect thereto. "CREDIT PARTY" means any Guarantor under a Guarantee of the Obligations or any part thereof, any Borrower and any other Person (other than Administrative Agent, a Lender or a participant of a Lender), whether now existing or hereafter acquired or formed, that becomes obligated as a borrower, guarantor, surety, indemnitor, pledgor, assignor or other obligor under any Financing Document; and "CREDIT PARTIES" means all such Persons, collectively. "DEBT" of a Person means at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising and paid on a timely basis and in the Ordinary Course of Business, (d) all capital leases of such Person, (e) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, banker's acceptance or similar instrument, (f) all equity securities of such Person subject to repurchase or redemption otherwise than at the sole option of such Person, (g) all obligations secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, (h) all Debt of others guaranteed by such Person, (i) all Debt of others Guaranteed by such Person, and (j) off balance sheet liabilities of such Person. Without duplication of any of the foregoing, Debt of Borrowers shall include any and all Loans. Credit and Security Agreement 3 "DEFAULT" means any condition or event which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DEFAULTED LENDER" means, so long as such failure shall remain in existence and uncured, any Lender which shall have failed to make any Loan or other credit accommodation, disbursement, settlement or reimbursement required pursuant to the terms of any Financing Document. "DEPOSIT ACCOUNT" means a "deposit account" (as defined in Article 9 of the UCC), an investment account, or other account in which funds are held or invested for credit to or for the benefit of any Borrower. "DEPOSIT ACCOUNT CONTROL AGREEMENT" means an agreement, in form and substance reasonably satisfactory to Administrative Agent, among Administrative Agent, any applicable Borrower and each bank or financial institution in which such Borrower maintains a Deposit Account, which agreement provides that (a) such bank or financial institution acknowledges the security interest of Administrative Agent in such Deposit Account, (b) such bank or financial institution shall comply with instructions originated by Administrative Agent directing disposition of the funds in such Deposit Account without further consent by the applicable Borrower, and (c) such bank or financial institution shall agree that it shall have no Lien on, or right of setoff or recoupment against, such Deposit Account or the contents thereof, other than in respect of usual and customary service fees and of returned items for which Administrative Agent has been given value, in each such case expressly consented to by Administrative Agent, and containing such other or different terms and conditions as Administrative Agent may require. "DOLLARS" or "$" means the lawful currency of the United States of America. "DOMESTIC SUBSIDIARY" means any Subsidiary that is a "U.S. person" under and as defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended. "ELIGIBLE ASSIGNEE" means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an Approved Fund, and (iv) any other Person (other than a natural person) approved by (a) Administrative Agent, and (b) Borrower (unless an Event of Default has occurred and is continuing) (such approval of Borrower not to be unreasonably withheld or delayed, and shall be deemed provided unless expressly withheld by Borrower within five (5) Business Days of receipt of request therefor); provided that notwithstanding the foregoing, (x) "Eligible Assignee" shall not include any Borrower or any Affiliates or Subsidiaries of any Borrower and (y) no proposed assignee intending to assume any unfunded portion of the Term Loan Commitment shall be an Eligible Assignee unless such proposed assignee either already holds a portion of such Term Loan Commitment, or has been approved as an Eligible Assignee by Administrative Agent. "ELIGIBLE SWAP COUNTERPARTY" means Administrative Agent, any Affiliate of Administrative Agent, any Lender and/or any Affiliate of any Lender, that (a) at any time it occupies such role or capacity enters into a Permitted Swap Contract with any Borrower or any Guarantor who has pledged Collateral in respect of the Obligations or such Guarantee of the Obligations, and (b) in the case of a Lender or an Affiliate of a Lender other than Administrative Agent, is expressly identified by Administrative Agent as maintaining a reporting system acceptable to Administrative Agent with respect to Swap Contract exposure and agrees with Administrative Agent to provide regular reporting to Administrative Agent, in form and content reasonably satisfactory to Administrative Agent, with respect to such exposure. "ENVIRONMENTAL LAWS" means any applicable present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other governmental directives or requirements, as well as common law, pertaining to the environment, natural resources, pollution, health (including any environmental clean up statutes and all regulations adopted by any local, state, federal or other Governmental Authority, and any statute, ordinance, code, order, decree, law rule or regulation all of which pertain to or impose liability or standards of conduct concerning medical waste or medical products, equipment or supplies), safety or clean-up that apply to any Borrower and relate to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 5101 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et Credit and Security Agreement 4 seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), the Residential Lead-Based Paint Hazard Reduction Act (42 U.S.C. Section 4851 et seq.), any analogous state or local laws, any amendments thereto, and the regulations promulgated pursuant to said laws, together with all amendments from time to time to any of the foregoing and judicial interpretations thereof. "ENVIRONMENTAL LIENS" means all Liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of any Borrower or any other Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as the same may be amended, modified or supplemented from time to time, and any successor statute thereto, and any and all rules or regulations promulgated from time to time thereunder. "ERISA PLAN" means any "employee benefit plan", as such term is defined in Section 3(3) of ERISA (other than a Multiemployer Plan), which any Borrower maintains, sponsors or contributes to, or, in the case of an employee benefit plan which is subject to Section 412 of the Code or Title IV of ERISA, to which any Borrower or any member of the Controlled Group may have any liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five (5) years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "EVENT OF DEFAULT" has the meaning set forth in Section 10.1. "EXCLUDED PROPERTY" has the meaning set forth in Schedule 9.1. "FINANCING DOCUMENTS" means this Agreement, any Notes, the Security Documents, any fee letter among Merrill Lynch and any of the Borrowers relating to the transactions contemplated hereby, any subordination or intercreditor agreement pursuant to which any Debt and/or any Liens securing such Debt is subordinated to all or any portion of the Obligations and all other documents, instruments and agreements related to the Obligations and heretofore executed, executed concurrently herewith or executed at any time and from time to time hereafter, as any or all of the same may be amended, supplemented, restated or otherwise modified from time to time. "FOREIGN LENDER" has the meaning set forth in Section 2.8(c). "FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic Subsidiary. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the United States accounting profession), which are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, and any agency, department or Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation or other Person owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing, whether domestic or foreign. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation, or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part) (in each case under clause (a) or (b) whether arising by virtue of partnership arrangements, by agreement to keep-well or to make capital contributions or loans, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise), provided, however, that the term Guarantee shall not include endorsements for collection or deposit in Credit and Security Agreement 5 the Ordinary Course of Business. The term "GUARANTEE" used as a verb has a corresponding meaning. "GUARANTOR" means any Credit Party that has executed or delivered, or shall in the future execute or deliver, any Guarantee of any portion of the Obligations. "HAZARDOUS MATERIALS" means petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives, flammable materials; radioactive materials; polychlorinated biphenyls and compounds containing them; lead and lead-based paint; asbestos or asbestos-containing materials; underground or above-ground storage tanks, whether empty or containing any substance; toxic mold, any substance that requires special handling; and any other material or substance now or in the future defined as a "hazardous substance," "hazardous material," "hazardous waste," "toxic substance," "toxic pollutant," "contaminant," "pollutant" or other words of similar import within the meaning of any Environmental Law, including: (a) any "hazardous substance" defined as such in (or for purposes of) CERCLA, or any so-called "superfund" or "superlien" Law, including the judicial interpretation thereof; (b) any "pollutant or contaminant" as defined in 42 U.S.C.A. Section 9601(33); (c) any material now defined as "hazardous waste" pursuant to 40 C.F.R. Part 260; (d) any petroleum or petroleum by-products, including crude oil or any fraction thereof; (e) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (f) any "hazardous chemical" as defined pursuant to 29 C.F.R. Part 1910; (g) any toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls ("PCB'S"), flammable explosives, radioactive materials, infectious substances, materials containing lead-based paint or raw materials which include hazardous constituents); and (h) any other toxic substance or contaminant that is subject to any Environmental Laws or other past or present requirement of any Governmental Authority. "HAZARDOUS MATERIALS CONTAMINATION" means contamination (whether now existing or hereafter occurring) of the improvements, buildings, facilities, personalty, soil, groundwater, air or other elements on or of the relevant property by Hazardous Materials, or any derivatives thereof, or on or of any other property as a result of Hazardous Materials, or any derivatives thereof, generated on, emanating from or disposed of in connection with the relevant property. "INDEMNITEES" has the meaning set forth in Section 12.17. "INTELLECTUAL PROPERTY" means, with respect to any Person, all patents, patent applications and like protections, including improvements divisions, continuation, renewals, reissues, extensions and continuations in part of the same, trademarks, trade names, trade styles, trade dress, service marks, logos and other business identifiers and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of such Person connected with and symbolized thereby, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative works, whether published or unpublished, technology, know-how and processes, operating manuals, trade secrets, computer hardware and software, rights to unpatented inventions and all applications and licenses therefor, used in or necessary for the conduct of business by such Person and all claims for damages by way of any past, present or future infringement of any of the foregoing. "INTEREST-ONLY PERIOD" means the period commencing on the funding date of the applicable Tranche and ending on the date that is nine months from such funding date; provided, that with respect to the Tranche B Advance, the Interest Only Period will end no later than September 30, 2008. "INVESTMENT" means any investment in any Person, whether by means of acquiring (whether for cash, property, services, securities or otherwise) or holding securities, capital contributions, loans, time deposits, advances, Guarantees or otherwise. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect thereto. "IP PROCEEDS" has the meaning set forth in Schedule 9.1. Credit and Security Agreement 6 "JOINT VENTURE CONTRIBUTION" means any payment made in cash or in capital stock of the Principal Borrower, in the form of up front fees, milestone payments or investments to a third party or joint venture the purpose of which is consistent with the Principal Borrower's current business strategy of developing and commercializing pharmaceutical technologies and products. "Joint Venture Contribution" shall expressly include payments made to a third party or joint venture as funding for research and development costs of such third party or joint venture. "LAWS" means any and all federal, state, provincial, territorial, local and foreign statutes, laws, judicial decisions, regulations, guidances, guidelines, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, governmental agreements and governmental restrictions, whether now or hereafter in effect, which are applicable to any Credit Party in any particular circumstance. "LAWS" includes, without limitation, Healthcare Laws and Environmental Laws. "LENDER" means each of (a) Merrill Lynch, in its capacity as a lender hereunder, (b) each other Person party hereto in its capacity as a lender hereunder, (c) each other Person that becomes a party hereto as Lender pursuant to Section 12.6, and (d) the respective successors of all of the foregoing, and "Lenders" means all of the foregoing. In addition to the foregoing, for the purpose of identifying the Persons entitled to share in the Collateral and the proceeds thereof under, and in accordance with the provisions of, this Agreement and the Security Documents, the term "LENDER" shall include Eligible Swap Counterparties. "LIBOR RATE" means, with respect to each respective individual advance made under the Term Loan, a fixed rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to (a) the rate of interest which is identified and normally published by Bloomberg Professional Service Page BBAM 1 as the offered rate for loans in United States dollars for the period of one (1) month under the caption British Bankers Association LIBOR Rates as of 11:00 a.m. (London time) on the second full Business Day prior to the date such advance was made; divided by (b) the sum of one minus the daily average during the preceding month of the aggregate maximum reserve requirement (expressed as a decimal) then imposed under Regulation D of the Board of Governors of the Federal Reserve System (or any successor thereto) for "Eurocurrency Liabilities" (as defined therein). If Bloomberg Professional Service (or another nationally-recognized rate reporting source acceptable to Administrative Agent) no longer reports the LIBOR or Administrative Agent determines in good faith that the rate so reported no longer accurately reflects the rate available to Administrative Agent in the London Interbank Market or if such index no longer exists or if Page BBAM 1 no longer exists or accurately reflects the rate available to Administrative Agent in the London Interbank Market, Administrative Agent may select a comparable replacement index or replacement page, as the case may be. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement and the other Financing Documents, any Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "LITIGATION" means any action, suit or proceeding before any court, mediator, arbitrator or Governmental Authority. "LOAN ACCOUNT" has the meaning set forth in Section 2.6(b). "LOAN(S)" means the Term Loan and each and every advance under the Term Loan, or any combination of the foregoing, as the context may require. All references herein to the "making" of a Loan or words of similar import shall mean, with respect to the Term Loan, the making of any advance in respect of a Term Loan. "MARKET CAP CONDITION" means that the Principal Borrower's Market Capitalization is greater than or equal to the greater of (A) seventy-five percent (75%) of the Principal Borrower's Market Capitalization on the Closing Date and (B) Two Hundred Fifty Million Dollars ($250,000,000), "MARKET CAPITALIZATION" means an amount determined by multiplying the number of shares of the Credit and Security Agreement 7 Principal Borrower's common stock outstanding on the applicable date by the then current market price of the Principal Borrower's common stock on the NASDAQ Global National Market as reported on the Internet website "www.nasdaq.com" or if such website is unavailable, as reported in The Wall Street Journal as of such date. "MATERIAL ADVERSE EFFECT" means with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, (a) a material adverse change in, or a material adverse effect upon, any of (i) the financial condition, operations, business, or properties of any of the Credit Parties, (ii) the material rights and remedies of Administrative Agent or Lenders under any Financing Document, or the ability of any Credit Party to perform any of its material obligations under any Financing Document to which it is a party, (iii) the legality, validity or enforceability of any Financing Document, (iv) the existence, perfection or priority of any security interest granted in any Financing Document, or (v) the value of any material Collateral. "MATERIAL CONTRACTS" means (a) the Amended and Restated Strategic Alliance Agreement, dated as of April 2, 2002, by and between Principal Borrower and Endo Pharmaceuticals Inc., a Delaware corporation ("ENDO"), as amended by that certain Amendment Agreement, dated January 7, 2007, by and between Principal Borrower and Endo (as the same may from time to time be further amended, modified, supplemented or restated), or (b) any other agreements or instruments to which any Credit Party is a party, and the breach, nonperformance or cancellation of which, or the failure of which to renew, could reasonably be expected to have a Material Adverse Effect. "MAXIMUM LAWFUL RATE" has the meaning set forth in Section 2.7. "MERRILL LYNCH" means Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., and its successors. "MULTIEMPLOYER PLAN" means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA to which any Borrower or any other member of the Controlled Group (or any Person who in the last five years was a member of the Controlled Group) is making or accruing an obligation to make contributions or has within the preceding five plan years (as determined on the applicable date of determination) made contributions. "NOTES" shall have the meaning set forth in Section 2.3. "NOTICE OF BORROWING" means a notice of a Responsible Officer of Borrower Representative, appropriately completed and substantially in the form of Exhibit D hereto. "OBLIGATIONS" means all obligations, liabilities and indebtedness (monetary (including post-petition interest, whether or not allowed) or otherwise) of each Credit Party under this Agreement or any other Financing Document, in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due. In addition to, but without duplication of, the foregoing, the Obligations shall include, without limitation, all obligations, liabilities and indebtedness arising from or in connection with all Permitted Swap Contracts entered into with any Eligible Swap Counterparty. "OFAC" means the U.S. Department of Treasury Office of Foreign Assets Control. "OFAC LISTS" means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders. "OPANA CONDITION" shall mean the issuance of one or more valid claims relating to the product "Opana ER", or to an indication or use of the product "Opana ER", in either case in respect of any Opana Patent Application (or any continuing U.S. patent application that claims priority to any Opana Patent Application), and the subsequent listing of one or more of such valid claims in the Orange Book. Credit and Security Agreement 8 "OPANA PATENT APPLICATIONS" means, collectively, those U.S. Patent Applications identified on the Patent Side Letter, dated as of the date hereof, between the Principal Borrower and the Administrative Agent. "ORANGE BOOK" means the Food and Drug Administration's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly called the "Orange Book". "ORDINARY COURSE OF BUSINESS" means, in respect of any transaction involving any Credit Party, the ordinary course of business of such Credit Party, as conducted by such Credit Party in accordance with past practices. "ORGANIZATIONAL DOCUMENTS" means, with respect to any Person other than a natural person, the documents by which such Person was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Person (such as by-laws, a partnership agreement or an operating, limited liability or members agreement). "PAYMENT ACCOUNT" means the account specified on the signature pages hereof into which all payments by or on behalf of each Borrower to Administrative Agent under the Financing Documents shall be made, or such other account as Administrative Agent shall from time to time specify by written notice to Borrower Representative. "PAYMENT NOTIFICATION" means a written notification substantially in the form of Exhibit E hereto. "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to any or all of its functions under ERISA. "PENSION PLAN" means any ERISA Plan that is subject to Section 412 of the Code or Title IV of ERISA. "PERMITS" means all governmental licenses, authorizations, provider numbers, supplier numbers, registrations, permits, drug or device authorizations and approvals, certificates, franchises, qualifications, accreditations, consents and approvals required under all applicable Laws and required in order to carry on its business as now conducted. "PERMITTED AFFILIATE" means with respect to any Person (a) any Person that directly or indirectly controls such Person, and (b) any Person which is controlled by or is under common control with such controlling Person. As used in this definition, the term "control" of a Person means the possession, directly or indirectly, of the power to vote eighty percent (80%) or more of any class of voting securities of such Person or to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "PERMITTED ASSET DISPOSITIONS" means the following Asset Dispositions: (i) dispositions of Inventory in the Ordinary Course of Business and not pursuant to any bulk sale, (ii) dispositions of furniture, fixtures and equipment that the applicable Borrower determines in good faith is no longer used or useful in the business of such Borrower and its Subsidiaries, (iii) so long as no Event of Default exists or would result from such Asset Disposition, the granting of non exclusive licenses (or exclusive licenses limited to a particular geographic range or field of use), (iv) any sale or disposition of the Procardia Royalty Payments; and (v) dispositions approved by Administrative Agent and, if the disposition pertains to real property Collateral, by Required Lenders. "PERMITTED CONTEST" means, with respect to any tax obligation or other obligation allegedly or potentially owing from any Borrower to any governmental tax authority or other third party, a contest maintained in good faith by appropriate proceedings promptly instituted and diligently conducted and with respect to which such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made on the books and records and financial statements of the applicable Borrower(s); provided, however, that (a) Borrowers' title to, and its right to use, the Collateral is not materially and adversely affected thereby and Administrative Agent's Lien and priority on the Collateral are not materially and adversely affected, altered or impaired thereby; (b) the Collateral or any part thereof or any interest therein shall not be in any danger of being sold, forfeited or lost Credit and Security Agreement 9 by reason of such contest by Borrowers; (c) to the extent that the obligation being contested is equal to or exceeds $250,000, Borrowers have given Administrative Agent notice of the intent to so contest the obligation and the commencement of such contest and upon request by Administrative Agent, from time to time, notice of the status of such contest by Borrowers and/or confirmation of the continuing satisfaction of this definition; and (d) upon a final determination of such contest, Borrowers shall promptly comply with the requirements thereof. "PERMITTED CONTINGENT OBLIGATIONS" means: (a) Contingent Obligations arising in respect of the Debt under the Financing Documents; (b) Contingent Obligations resulting from endorsements for collection or deposit in the Ordinary Course of Business; (c) Contingent Obligations arising under or with respect to any Permitted Contest or Permitted Liens; (d) Contingent Obligations outstanding on the date of this Agreement and set forth on Schedule 5.1; (e) Contingent Obligations incurred in the Ordinary Course of Business with respect to surety and appeal bonds, performance bonds and other similar obligations not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate at any time outstanding and with respect to bonds provided to utilities with respect to utility services provided to Borrowers in the Ordinary Course of Business; (f) Contingent Obligations arising under indemnity agreements with title insurers to cause such title insurers to issue to Administrative Agent mortgagee title insurance policies with respect to any real estate Collateral (if any); (g) Contingent Obligations arising with respect to customary indemnification obligations in favor of purchasers in connection with dispositions permitted under Section 5.6; (h) Contingent Obligations arising in the Ordinary Course of Business of any Borrower that do not relate to Indebtedness of any Person; (i) Contingent Obligations relating to Permitted Indebtedness of any other Borrower or a Guarantor that has pledged its assets in compliance with Section 4.11(c) as security for the Obligations; (j) so long as there exists no Event of Default both immediately before and immediately after giving effect to any such transaction, Contingent Obligations existing or arising under any Permitted Swap Contract; and (k) other Contingent Obligations not permitted by clauses (a) through (i) above, not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate at any time outstanding. "PERMITTED INDEBTEDNESS" means: (a) Borrower's Debt to Administrative Agent and each Lender under this Agreement and the other Financing Documents; (b) Debt incurred as a result of endorsing negotiable instruments received in the Ordinary Course of Business; (c) purchase money Debt and/or capital leases, refinancings of such obligations and other equipment facilities, in an aggregate outstanding principal amount not to exceed Three Million Dollars ($3,000,000) at any time (whether in the form of a loan or a lease) used solely to acquire, refinance or reimburse a Borrower for the acquisition of equipment used in the Ordinary Course of Business and secured only by equipment and related attachments, and proceeds thereof; (d) Debt existing on the date of this Agreement and described on Schedule 5.1 (but not including any refinancings, extensions, increases or amendments to such Debt other than extensions of the maturity thereof without any other change in terms); (e) Debt, if any, arising under Swap Contracts; (f) trade accounts payable arising in the Ordinary Course of Business; (g) Permitted Contingent Obligations; (h) repurchase obligations permitted under Section 5.3; (i) Debt owed by a Borrower or a Guarantor to another Borrower or a Guarantor that has pledged its assets in compliance with Section 4.11(c) as security for the Obligations; and (j) other Debt not to exceed at any time $1,000,000 in an aggregate outstanding principal amount "PERMITTED INVESTMENTS" means: (a) Investments shown on Schedule 5.7 and existing on the Closing Date; (b) (i) cash equivalents, and (ii) any similar short term Investments permitted by Borrowers' investment policy as in effect on the Closing Date, as amended from time to time, provided that any such amendment thereto has been approved by the applicable Borrower's Board of Directors; (c) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the Ordinary Course of Business; (d) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the Ordinary Course of Business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrowers or their Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrowers' Board of Directors (or other governing body), but the aggregate of all such loans outstanding may not exceed Five Hundred Thousand Dollars ($500,000) at any time; (e) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the Ordinary Course of Business; (f) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the Ordinary Course of Business; provided that this subpart (f) shall not apply to Investments of Borrowers in any Subsidiary; (g) Investments consisting of Deposit Accounts or Securities Accounts in which (except with respect to any Deposit Account that is a payroll account) Credit and Security Agreement 10 Administrative Agent has received a Deposit Account Control Agreement or Securities Account Control Agreement; (h) Investments consisting of the acquisition of all or substantially all of the assets or a business line or capital stock of another Person provided that, after giving effect to such acquisition, no Event of Default has occurred and is continuing or would exist after giving effect to such acquisition, and such acquisition would not result in a decrease of more than twenty percent (20%) of the Tangible Net Worth of the Borrowers; (i) Investments by any Borrower in any other Borrower made in compliance with Section 4.11(c); (j) Investments by a Borrower into another Borrower; (k) Permitted Contingent Obligations; and (l) other Investments in an amount not exceeding One Million Dollars ($1,000,000) in the aggregate, and (m) Investments in Trust Assets in connection with the deferred compensation and supplemental executive retirement plan of the Principal Borrower. "PERMITTED JOINT VENTURE CONTRIBUTION" means a Joint Venture Contribution to any Person that is not an Affiliate of any Borrower (or that is a joint venture with a strategic partner that is not an Affiliate of any Borrower) that constitutes any of the following: (a) a Joint Venture Contribution made in cash (other than as described in clause (c) below) at any time during which (i) no Default or Event of Default then exists, and (ii) either: (x) immediately after giving effect to the making of such Joint Venture Contribution, the aggregate amount of the Borrowers' cash and cash equivalents is equal to or greater than an amount equal to three (3) times the then principal amount of the Loans then outstanding; or (y) the aggregate amount of such Joint Venture Contribution and all other Joint Venture Contributions made during any fiscal year of Borrowers under this clause (b) is less than or equal to $4,000,000; or (b) a Joint Venture Contribution made in capital stock of the Principal Borrower which does not, alone or with any other transaction, result in a Change of Control; or (c) a Joint Venture Contribution to fund research and development costs of such third party or joint venture. "PERMITTED LIENS" means: (a) deposits or pledges of cash to secure obligations under workmen's compensation, social security or similar laws, or under unemployment insurance (but excluding Liens arising under ERISA which would result in an Event of Default) pertaining to a Borrower's employees, if any; (b) deposits or pledges of cash to secure bids, tenders, contracts (other than contracts for the payment of money or the deferred purchase price of property or services), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the Ordinary Course of Business; (c) carrier's, warehousemen's, mechanic's, workmen's, materialmen's or other like Liens on Collateral, arising in the Ordinary Course of Business with respect to obligations which are not due, or which are being contested pursuant to a Permitted Contest; (d) Liens on Collateral, other than Accounts, for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or the subject of a Permitted Contest; (e) attachments, appeal bonds, judgments and other similar Liens on Collateral, for sums not exceeding Five Hundred Thousand Dollars ($500,000) in the aggregate arising in connection with court proceedings; provided, however, that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are the subject of a Permitted Contest; (f) with respect to real estate, easements, rights of way, restrictions, minor defects or irregularities of title, none of which, individually or in the aggregate, materially interfere with the benefits of the security intended to be provided by the Security Documents, materially affect the value or marketability of the Collateral, impair the use or operation of the Collateral for the use currently being made thereof or impair Borrowers' ability to pay the Obligations in a timely manner or impair the use of the Collateral or the ordinary conduct of the business of any Borrower or any Subsidiary and which, in the case of any real estate which is part of the Collateral, are set forth as exceptions to or subordinate matters in the title insurance policy accepted by Administrative Agent insuring the lien of the Security Documents; (g) Liens and encumbrances in favor of Administrative Agent under the Financing Documents; (h) Liens on Collateral existing on the date hereof and set forth on Schedule 5.2; (i) Liens on Procardia Royalty Payments; and (j) any Lien on any equipment securing Debt permitted under subpart (c) of the definition of Permitted Indebtedness. Credit and Security Agreement 11 "PERMITTED MERGERS" means a merger, consolidation or amalgamation of (a) Principal Borrower with or into any other Person who is not a Blocked Person provided that (i) the Principal Borrower is the surviving entity, (ii) the holders of the equity interests in the Principal Borrower immediately prior to such consolidation or merger or amalgamation represent more than fifty percent (50%) of the aggregate outstanding equity interests of the Principal Borrower immediately following such consolidation or merger or amalgamation, and (iii) such consolidation or merger or amalgamation would not result in a decrease of more than twenty percent (20%) of the Tangible Net Worth of the Principal Borrower, and (b) any Borrower (other than Principal Borrower) with or into any other Borrower. "PERMITTED MODIFICATIONS" means (a) such amendments or other modifications to a Borrower's Organizational Documents as are required under this Agreement or by applicable Law and fully disclosed to Administrative Agent within thirty (30) days after such amendments or modifications have become effective, (b) such amendments or modifications to a Borrower's Organizational Documents (other than those involving a change in the name of a Borrower or involving a reorganization of the Borrower under the laws of a different jurisdiction) that would not adversely affect the rights and interests of the Administrative Agent or Lenders and fully disclosed to Administrative Agent within thirty (30) days after such amendments or modifications have become effective, and (c) such modifications to the name of a Borrower or involving a reorganization of the Borrower under the laws of a different jurisdiction so long as the provisions of Section 9.2(d) are fully complied with prior to the effectiveness of such amendments or modifications. "PERMITTED SWAP CONTRACT" means any Swap Contract by Borrower to provide protection against fluctuations in interest or currency exchange rates in the Ordinary Course of Business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person and not for purposes of speculation but only to the extent Administrative Agent provides its prior written consent to the entry into such Swap Agreement. "PERSON" means any natural person, corporation, limited liability company, professional association, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority. "PRINCIPAL BORROWER" means Penwest Pharmaceuticals Co., a Washington corporation. "PRINCIPAL REPAYMENT PERIOD" means, with respect to a Tranche, the period commencing on the first day of the month following the end the Interest-Only Period and ending on the Termination Date of such Tranche. "PRO RATA SHARE" means (a) with respect to a Lender's obligation to make advances in respect of a Term Loan and such Lender's right to receive payments of principal and interest with respect to the Term Loans, the Term Loan Commitment Percentage of such Lender, and (b) for all other purposes with respect to any Lender, the percentage obtained by dividing (i) the sum of the Term Loan Commitment Amount of such Lender (or, in the event the Term Loan Commitment shall have been terminated, the then outstanding principal advances of such Lender under the Term Loan), by (ii) the sum of the Term Loan Commitment Amount (or, in the event the Term Loan Commitment shall have been terminated, the then outstanding principal advances of such Lenders under the Term Loan) of all Lenders. "PROCARDIA ROYALTY PAYMENTS" means (x) any and all right, title and interest of Borrower in that certain Product Development and Supply Agreement dated August 17, 1994 between the Principal Borrower (formerly known as Penwest Ltd.) and Mylan Pharmaceuticals, Inc., (ii) that certain Sales and Distribution Agreement, dated January 3, 1997, between such parties, and (iii) that certain Letter of Agreement, dated February 25, 2000, between such two parties, as each of the foregoing is amended and in effect from time to time, and (y) all rights under the foregoing, including without limitation, all "Royalties", "Additional Royalties", "Sales Royalties" or other royalty payments, as applicable, under such agreements, and proceeds thereof. "REQUIRED LENDERS" means at any time Lenders holding in the aggregate (a) sixty-six and two thirds percent (66 2/3%) or more of the Term Loan Commitment (taken as a whole), or (b) if the Term Loan Commitment has been terminated, sixty-six and two thirds percent (66 2/3%) or more of the aggregate outstanding principal Credit and Security Agreement 12 balance of the Loans; provided, however, that at any time during which there are only two Lenders, "Required Lenders" shall mean both such Lenders, so long as each Lender holds twenty percent (20%) or more of the Term Loan Commitment (taken as a whole), or if the Term Loan Commitment has been terminated, twenty percent 20%) or more of the aggregate outstanding principal balance of the Loans. For purposes of this definition only, a Lender shall be deemed to include itself, and any Lender that is an Affiliate or Approved Fund of such Lender. "RESPONSIBLE OFFICER" means any of the Chief Executive Officer or Chief Financial Officer of the applicable Borrower. "RESTRICTED DISTRIBUTION" means as to any Person (a) any dividend or other distribution (whether in cash, securities or other property) on any equity interest in such Person (except those payable solely in its equity interests of the same class), (b) any payment on account of (i) the purchase, redemption, retirement, defeasance, surrender, cancellation, termination or acquisition of any equity interests in such Person or any claim respecting the purchase or sale of any equity interest in such Person or (ii) any option, warrant or other right to acquire any equity interests in such Person, or (c) any management fees, or other fees or compensation to any Person holding an equity interest in a Borrower or a Subsidiary of a Borrower (other than (A) payments of salaries, deferred compensation, bonuses, and expense reimbursements to individuals, (B) directors fees, (C) the issuance of stock options or restricted stock to employees, consultants and board members, and (D) advances and reimbursements to employees or directors, all in the Ordinary Course of Business and consistent with past practices), an Affiliate of a Borrower or an Affiliate of any Subsidiary of a Borrower. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACCOUNT" means a "securities account" (as defined in Article 9 of the UCC), an investment account, or other account in which Investment Property or Securities are held or invested for credit to or for the benefit of any Borrower. "SECURITIES ACCOUNT CONTROL AGREEMENT" means an agreement, in form and substance reasonably satisfactory to Administrative Agent, among Administrative Agent, any applicable Borrower and each securities intermediary in which such Borrower maintains a Securities Account, which agreement provides that (a) such securities intermediary acknowledges the security interest of Administrative Agent in such Securities Account, (b) such securities intermediary shall comply with entitlement orders and any other instructions originated by Administrative Agent directing disposition of the assets and funds in such Securities Account without further consent by the applicable Borrower, and (c) such securities intermediary shall agree that it shall have no Lien on, or right of setoff or recoupment against, such Securities Account or the contents thereof, other than in respect of usual and customary service fees and of returned items for which Administrative Agent has been given value, in each such case expressly consented to by Administrative Agent, and containing such other or different terms and conditions as Administrative Agent may require. "SECURITY DOCUMENT" means this Agreement and any other agreement, document or instrument executed concurrently herewith or at any time hereafter pursuant to which one or more Credit Parties or any other Person either (a) Guarantees payment or performance of all or any portion of the Obligations, and/or (b) provides, as security for all or any portion of the Obligations, a Lien on any of its assets in favor of Administrative Agent for its own benefit and the benefit of the Lenders, as any or all of the same may be amended, supplemented, restated or otherwise modified from time to time. "SOLVENT" means, with respect to any Person, that such Person (a) owns and will own assets the fair saleable value of which are (i) greater than the total amount of its liabilities (including Contingent Obligations) required to be classified upon a balance sheet as liabilities in accordance with GAAP, and (ii) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to it; (b) has capital that is not unreasonably small in relation to its business as presently conducted or after giving effect to any contemplated transaction; and (c) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due. "SUBORDINATION AGREEMENT" means any agreement between Administrative Agent and another creditor of Credit and Security Agreement 13 Borrowers, as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof, pursuant to which the Debt owing from any Borrower(s) and/or the Liens securing such Debt granted by any Borrower(s) to such creditor are subordinated in any way to the Obligations and the Liens created under the Security Documents, the terms and provisions of which such Subordination Agreements have been agreed to by and are acceptable to Administrative Agent in the exercise of its sole discretion. "SUBSIDIARY" means, with respect to any Person, (a) any corporation of which an aggregate of more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, capital stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than fifty percent (50%) of such capital stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%) or of which any such Person is a general partner or may exercise the powers of a general partner. Unless the context otherwise requires, each reference to a Subsidiary shall be a reference to a Subsidiary of a Borrower. "SWAP CONTRACT" means any "swap agreement", as defined in Section 101 of the Bankruptcy Code. "TANGIBLE NET WORTH" means, on any date, the consolidated total assets of Borrowers and their Subsidiaries minus, (i) any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trademarks and service marks and names, copyrights and research and development expenses except prepaid expenses, and (c) reserves not already deducted from assets, and minus (ii) Total Liabilities. "TAXES" has the meaning set forth in Section 2.8. "TERM LOAN" has the meaning set forth in Section 2.1(a). "TERM LOAN COMMITMENT" means the sum of each Lender's Term Loan Commitment Amount, which is equal to Twenty Four Million Dollars ($24,000,000). "TERM LOAN COMMITMENT AMOUNT" means, (i) as to any Lender that is a Lender on the Closing Date, the dollar amount set forth opposite such Lender's name on the Commitment Annex under the column "Term Loan Commitment Amount", as such amount may be adjusted from time to time by any amounts assigned (with respect to such Lender's portion of Term Loans outstanding and its commitment to make advances in respect of the Term Loan) pursuant to the terms of any and all effective assignment agreements to which such Lender is a party and (ii) as to any Lender that becomes a Lender after the Closing Date, the amount of the "Term Loan Commitment Amount(s)" of other Lender(s) assigned to such new Lender pursuant to the terms of the effective assignment agreement(s) pursuant to which such new Lender shall become a Lender, as such amount may be adjusted from time to time by any amounts assigned (with respect to such Lender's portion of Term Loans outstanding and its commitment to make advances in respect of the Term Loan) pursuant to the terms of any and all effective assignment agreements to which such Lender is a party. "TERM LOAN COMMITMENT PERCENTAGE" means, as to any Lender, (a) on the Closing Date, the percentage set forth opposite such Lender's name on the Commitment Annex under the column "Term Loan Commitment Percentage" (if such Lender's name is not so set forth thereon, then, on the Closing Date, such percentage for such Lender shall be deemed to be zero), and (b) on any date following the Closing Date, the percentage equal to the Term Loan Commitment Amount of such Lender on such date divided by the Term Loan Commitment on such date. "TERM NOTE" means any note evidencing any portion of the Term Loan. "TERMINATION DATE" means, with respect to each Tranche, the earlier to occur of (a) the first (1st) day of the forty-second (42nd) month following the funding date of such Tranche or (b) any date on which Administrative Agent accelerates the maturity of the Loans pursuant to Section 10.2. For purposes of clarification, if the funding Credit and Security Agreement 14 date of Tranche B is May 15, 2007 then the Termination Date of Tranche B would be November 1, 2010. "TOTAL LIABILITIES" means, on any day, obligations that should, under GAAP, be classified as liabilities on Borrowers' consolidated balance sheet, including all Debt. "TRANCHE" is defined in Section 2.1.1(a)(i). "TRANCHE A ADVANCE" is defined in Section 2.1.1(a)(i). "TRANCHE B ADVANCE" is defined in Section 2.1.1(a)(i). "TRUST" means that certain rabbi trust established in connection with the deferred compensation plan and supplemental executive retirement plan of the Principal Borrower, as described in the Principal's most recent Form 10-K filed with the SEC prior to the Closing Date. "TRUST ASSETS" means those assets held and maintained by the Trust for liabilities with respect to the deferred compensation plan and supplemental executive retirement plan of the Principal Borrower, as described in the Principal's most recent Form 10-K filed with the SEC prior to the Closing Date. "UCC" means the Uniform Commercial Code of the State of Illinois or of any other state the laws of which are required to be applied in connection with the perfection of security interests in any Collateral. "UNITED STATES" means the United States of America. SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder (including, without limitation, determinations made pursuant to the exhibits hereto) shall be made, and all financial statements required to be delivered hereunder shall be prepared on a consolidated basis in accordance with GAAP applied on a basis consistent with the most recent audited consolidated financial statements of each Borrower and its consolidated subsidiaries delivered to Administrative Agent and each of the Lenders on or prior to the Closing Date. If at any time any change in GAAP would affect the computation of any financial ratio or financial requirement set forth in any Financing Document, and either Borrowers or the Required Lenders shall so request, the Administrative Agent, the Lenders and Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided, however, that until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrowers shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement which include a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. All amounts used for purposes of financial calculations required to be made herein shall be without duplication. SECTION 1.3 OTHER DEFINITIONAL PROVISIONS. References in this Agreement to "Articles", "Sections", "Annexes", "Exhibits" or "Schedules" shall be to Articles, Sections, Annexes, Exhibits or Schedules of or to this Agreement unless otherwise specifically provided. Any term defined herein may be used in the singular or plural. "Include", "includes" and "including" shall be deemed to be followed by "without limitation". Except as otherwise specified or limited herein, references to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. References to any statute or act shall include all related current regulations and all amendments and any successor statutes, acts and regulations. References to any statute or act, without additional reference, shall be deemed to refer to federal statutes and acts of the United States. References to any agreement, instrument or document shall include all schedules, exhibits, annexes and other attachments thereto. As used in this Agreement, the meaning of the term "material" or the phrase "in all material respects" is intended to refer to an act, omission, violation or condition which reflects or could reasonably be expected to result in a Material Adverse Effect. References to capitalized terms that are not defined herein, but are defined in the UCC, shall have the meanings given them in the UCC. Credit and Security Agreement 15 SECTION 1.4 FUNDING AND SETTLEMENT CURRENCY. Unless otherwise specified herein, the settlement of all payments and fundings hereunder between or among the parties hereto shall be made in lawful money of the United States and in immediately available funds. SECTION 1.5 RIDERS. All Riders attached hereto are hereby incorporated herein by this reference and made a part hereof. ARTICLE 2 - LOANS SECTION 2.1 TERM LOANS. (a) Term Loans. (i) Term Loan Amounts. On the terms and subject to the conditions set forth herein, the Lenders hereby agree to make to Borrowers a term loan in an original principal amount equal to the Term Loan Commitment ("TERM LOAN"). Each Lender's obligation to fund the Term Loan shall be limited to such Lender's Term Loan Commitment Percentage, and no Lender shall have any obligation to fund any portion of any Term Loan required to be funded by any other Lender, but not so funded. No Borrower shall have any right to reborrow any portion of the Term Loan that is repaid or prepaid from time to time. Subject to the terms and conditions contained herein, the Term Loan may be funded in two advances (each such advance being hereinafter referred to as a "TRANCHE") in an aggregate amount not to exceed the Term Loan Commitment, but no advances under the Term Loan shall be made after the Commitment Expiry Date. The initial Tranche of the Term Loan (the "TRANCHE A ADVANCE") shall be advanced on the date hereof in the amount of Twelve Million Dollars ($12,000,000). The second Tranche of the Term Loan (the "TRANCHE B ADVANCE") may be advanced in a single advance at any time through the Commitment Expiry Date and may not exceed Twelve Million Dollars ($12,000,000); provided, however, that the Tranche B Advance shall not be advanced at any time that either the Market Cap Condition or the Opana Condition has not been satisfied. Borrowers shall deliver to Administrative Agent a Notice of Borrowing with respect to each proposed Term Loan advance, such Notice of Borrowing to be delivered no later than noon (Chicago time) two (2) Business Days prior to the funding date of the applicable advance. (ii) Scheduled Repayments; Mandatory Prepayments; Optional Prepayments. (A) There shall become due and payable, and Borrowers shall repay the Term Loan through, scheduled payments as set forth on Schedule 2.1 attached hereto. Notwithstanding the payment schedule set forth above, the outstanding principal amount of each Tranche shall become immediately due and payable in full on the Termination Date with respect to such Tranche. (B) There shall become due and payable and Borrowers shall prepay the Term Loan in the following amounts and at the following times: (i) on the date on which any Credit Party (or Administrative Agent as loss payee or assignee) receives any net cash casualty proceeds in excess of One Million Dollars ($1,000,000) (in the aggregate for all such proceeds in any fiscal year) of assets upon which Administrative Agent maintained a Lien, an amount equal to one hundred percent (100%) of such proceeds (net of out-of-pocket expenses and repayment of secured debt permitted under clause (c) of the definition of Permitted Indebtedness and encumbering the property that suffered such casualty), or such lesser portion of such proceeds as Administrative Agent (with the consent of the Required Lenders) shall elect to apply to the Obligations; (ii) an amount equal to any interest that is deemed to be in excess of the Maximum Lawful Rate (as defined below) and is required to be applied to the reduction of the principal balance of the Loans by any Lender as provided for in Section 2.7; and (iii) upon receipt by any Credit Party of the proceeds of any Asset Disposition that is not a Permitted Asset Disposition, an amount equal to one hundred percent (100%) of the net cash proceeds of such Asset Disposition (net of out-of-pocket expenses and repayment of secured debt permitted under clause (c) Credit and Security Agreement 16 of the definition of Permitted Indebtedness and encumbering such asset), or such lesser portion as Administrative Agent (with the consent of the Required Lenders) shall elect to apply to the Obligations; provided that, for the avoidance of doubt, in this Section 2.1(a)(ii)(B), "Asset Disposition" shall include any consideration, including up-front payments and royalties or licensing fees paid over time, received by any Credit Party in connection with any exclusive license entered into by such Credit Party as licensor with respect to any Intellectual Property of such Credit Party, and "Permitted Asset Disposition" shall include any such exclusive license of the type that is referenced in the clause (iii) of the definition of "Permitted Asset Disposition". Notwithstanding the foregoing and so long as no Event of Default or Default then exists, any such casualty proceeds in excess of $1,000,000 may be used by Borrowers within one hundred eighty (180) days from the receipt of such proceeds to replace or repair any assets in respect of which such proceeds were paid so long as (x) prior to the receipt of such proceeds, Borrowers have delivered to Administrative Agent a reinvestment plan detailing such replacement or repair acceptable to Administrative Agent in its reasonable discretion and (y) such proceeds are deposited into an account over which Administrative Agent has control promptly upon receipt by such Borrower. All sums held by Administrative Agent pending reinvestment as described above shall be deemed additional collateral for the Obligations and may be commingled with the general funds of Administrative Agent. (C) Borrowers may from time to time, with at least two (2) Business Day's prior delivery to Administrative Agent of an appropriately completed Payment Notification, prepay the Term Loan, plus all accrued interest, in whole but not in part (other than mandatory partial prepayments required under this Agreement); provided, however, that each such prepayment shall be accompanied by any prepayment fees required hereunder. (iii) All Prepayments. Except as this Agreement may specifically provide otherwise, all prepayments of the Term Loan shall be applied by Administrative Agent to the Obligations in inverse order of maturity; provided, however, that upon the occurrence and during an Event of Default, all prepayments of the Term Loan shall be applied in accordance with Section 10.6. The monthly payments required under Schedule 2.1 shall continue in the same amount (for so long as the Term Loan and/or (if applicable) any advance thereunder shall remain outstanding) notwithstanding any partial prepayment, whether mandatory or optional, of the Term Loan. SECTION 2.2 INTEREST, INTEREST CALCULATIONS AND CERTAIN FEES. (a) Interest. From and following the Closing Date, the Loans and the other Obligations shall bear interest at a fixed rate equal to the sum of the Base Rate plus the applicable Base Rate Margin (provided that, in the case of any Obligations other than the Loans, such Obligations shall bear interest as of any date at the highest rate applicable to any of the advances under the Loans outstanding on such date), subject to the provisions of Section 10.4 below regarding default rates of interest. Interest on the Loans shall be paid in arrears on the first (1st) day of each month and on the maturity of such Loans, whether by acceleration or otherwise. Interest on all other Obligations shall be payable on demand and upon the Termination Date. For purposes of calculating interest, all funds transferred from the Payment Account for application to the Term Loan shall be subject to a two (2) Business Day clearance period. (b) Reserved. (c) Exit Fee. Borrowers shall pay to Administrative Agent, for the benefit of all Lenders, as compensation for the costs of making funds available to Borrowers under this Agreement an exit fee (the "EXIT FEE") calculated in accordance with this subsection and upon the date or dates required under this subsection. The Exit Fee shall be equal to three percent (3%) of the original principal amount of the applicable Tranche. The Exit Fee with regard to a Tranche shall be due and payable on the earlier to occur of (i) the Termination Date of such Tranche or (ii) payment in full of the aggregate principal amount of such Tranche (whether voluntary, involuntary or mandatory). All fees payable pursuant to this paragraph shall be deemed fully accrued and earned as of the Closing Date. Credit and Security Agreement 17 (d) Prepayment Fee. If any advance under the Term Loan is prepaid at any time, in whole or in part, for any reason (whether by voluntary prepayment by Borrowers, mandatory prepayment by Borrowers (but only to the extent required under Section 2.1(a)(ii)(B)(iii)), by reason of the occurrence of an Event of Default or the acceleration of the Term Loan, or otherwise), or if the Term Loan shall become accelerated and due and payable in full, Borrowers shall pay to Administrative Agent, for the benefit of all Lenders, as compensation for the costs of such Lenders making funds available to Borrowers under this Agreement, a prepayment fee (the "PREPAYMENT FEE") calculated in accordance with this subsection. If such prepayment occurs prior to the first anniversary date of the Closing Date, the Prepayment Fee for the Term Loan shall be equal to the amount prepaid multiplied by three percent (3.0%), if such prepayment occurs on or after the first anniversary date of the Closing Date, but prior to the second anniversary date of the Closing Date, the Prepayment Fee for the Term Loan shall be equal to the amount prepaid multiplied by two percent (2.0%) and if such prepayment occurs on or after the second anniversary date of the Closing Date and prior to the Maturity Date, the Prepayment Fee for the Term Loan shall be equal to the amount prepaid multiplied by one percent (1.0%). All fees payable pursuant to this paragraph shall be deemed fully earned and non-refundable as of the Closing Date. For the avoidance of doubt, the obligations of Borrowers under Sections 2.2(b) and (c) are distinct and separate obligations, and Borrowers shall be obligated to pay the Exit Fee and the Prepayment Fee in accordance with Sections 2.2(b) and (c), respectively. (e) Audit Fees. Borrowers shall pay to Administrative Agent, for its own account and not for the benefit of any other Lenders, all reasonable fees and expenses not to exceed $5,000 in each instance in connection with audits and inspections of Borrowers' books and records, audits, valuations or appraisals of the Collateral, audits of Borrowers' compliance with applicable Laws and such other matters as Administrative Agent shall deem appropriate, which shall be due and payable on the later of (i) the first Business Day of the month following the date of issuance by Administrative Agent of a written request for payment thereof to Borrowers, or (ii) the tenth (10th) day following the issuance of such notice; provided, that so long as no Event of Default or Default has occurred, Borrowers shall be liable for such fees and expenses for no more than one (1) such audit in any given calendar year. (e) Wire Fees. Borrowers shall pay to Administrative Agent, for its own account and not for the account of any other Lenders, on written demand, any and all fees, costs or expenses which Administrative Agent pays to a bank or other similar institution (including, without limitation, any fees paid by Administrative Agent to any other Lender) arising out of or in connection with (i) the forwarding to Borrowers or any other Person on behalf of Borrowers, by Administrative Agent, of proceeds of the Loans made by any Lender to Borrowers pursuant to this Agreement, and (ii) the depositing for collection, by Administrative Agent, of any check or item of payment received or delivered to Administrative Agent on account of Obligations. (f) Late Charges. If payments of principal (other than a final installment of principal upon the Termination Date), interest due on the Obligations, or any other amounts due hereunder or under the other Financing Documents are not timely made and remain overdue for a period of five (5) days, Borrowers, without notice or demand by Administrative Agent, promptly shall pay to Administrative Agent, for the benefit of the Lenders, as additional compensation to Administrative Agent in administering the Obligations, an amount equal to five percent (5.0%) of each delinquent payment. (g) Computation of Interest and Related Fees. All interest and fees under each Financing Document shall be calculated on the basis of a 360-day year for the actual number of days elapsed. The date of funding of a Loan shall be included in the calculation of interest. The date of payment of a Loan shall be excluded from the calculation of interest. If a Loan is repaid on the same day that it is made, one (1) day's interest shall be charged. (h) Automated Clearing House Payments. If Borrower Representative so directs the Administrative Agent, monthly payments of interest and amortization shall be paid to Administrative Agent by Automated Clearing House debit of immediately available funds from the financial institution account designated by Borrower Representative in the Automated Clearing House debit authorization executed by Borrowers or Borrower Representative in connection with this Agreement, and shall be effective upon receipt. Borrowers shall execute any and all forms and documentation necessary from time to time to effectuate such automatic debiting. In no event shall any such payments be refunded to Borrowers. SECTION 2.3 NOTES. The portion of the Loans made by each Lender shall be evidenced, if so requested by such Lender, by one or more promissory notes executed by Borrowers on a joint and several basis (each, a Credit and Security Agreement 18 "NOTE") in an original principal amount equal to such Lender's Term Loan Commitment. SECTION 2.4 RESERVED. SECTION 2.5 RESERVED. SECTION 2.6 GENERAL PROVISIONS REGARDING PAYMENT; LOAN ACCOUNT. (a) All payments to be made by each Borrower under any Financing Document, including payments of principal and interest made hereunder and pursuant to any other Financing Document, and all fees, expenses, indemnities and reimbursements, shall be made without set-off, recoupment or counterclaim, in lawful money of the United States and in immediately available funds. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension (it being understood and agreed that, solely for purposes of computations contained herein and determining compliance therewith, if payment is made, in full, on any such extended due date, such payment shall be deemed to have been paid on the original due date without giving effect to any extension thereto). Any payments received in the Payment Account before noon (Chicago time) on any date shall be deemed received by Administrative Agent on such date, and any payments received in the Payment Account after noon (Chicago time) on any date shall be deemed received by Administrative Agent on the next succeeding Business Day. (b) Administrative Agent shall maintain a loan account (the "LOAN ACCOUNT") on its books to record Loans and other extensions of credit made by the Lenders hereunder or under any other Financing Document, and all payments thereon made by each Borrower. All entries in the Loan Account shall be made in accordance with Administrative Agent's customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded in Administrative Agent's books and records at any time shall be prima facie evidence of the amounts due and owing to Administrative Agent by each Borrower absent manifest error; provided, however, that any failure to so record or any error in so recording shall not limit or otherwise affect any Borrower's duty to pay all amounts owing hereunder or under any other Financing Document. Administrative Agent shall endeavor to provide Borrowers with a monthly statement regarding the Loan Account (but neither Administrative Agent nor any Lender shall have any liability if Administrative Agent shall fail to provide any such statement). Unless any Borrower notifies Administrative Agent of any objection to any such statement (specifically describing the basis for such objection) within ninety (90) days after the date of receipt thereof, it shall be deemed final, binding and conclusive upon Borrowers in all respects as to all matters reflected therein, absent manifest error. SECTION 2.7 MAXIMUM INTEREST. In no event shall the interest charged with respect to the Loans or any other Obligations of any Borrower under any Financing Document exceed the maximum amount permitted under the laws of the State of Illinois or of any other applicable jurisdiction. Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of interest payable hereunder or under any Note or other Financing Document (the "STATED RATE") would exceed the highest rate of interest permitted under any applicable law to be charged (the "MAXIMUM LAWFUL RATE"), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, each Borrower shall, to the extent permitted by law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable. Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply. In no event shall the total interest received by any Lender exceed the amount which it could lawfully have received had the interest been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of the Loans or to other amounts (other than interest) payable hereunder, and if no such principal or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrowers. Any such reduction in the principal balance shall be applied to the Obligations owing to Lenders in accordance with the Pro Rata Share of each Lender. In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. Credit and Security Agreement 19 SECTION 2.8 TAXES; CAPITAL ADEQUACY. (a) All payments of principal and interest on the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp, documentary, payroll, employment, property or franchise taxes and other taxes, fees, duties, levies, assessments, withholdings or other charges of any nature whatsoever (including interest and penalties thereon) imposed by any taxing authority, excluding taxes imposed on or measured by Administrative Agent's or any Lender's net income by the jurisdictions under which Administrative Agent or such Lender is organized or conducts business (other than solely as the result of entering into any of the Financing Documents or taking any action thereunder) (all non-excluded items being called "TAXES"). If any withholding or deduction from any payment to be made by any Borrower hereunder is required in respect of any Taxes pursuant to any applicable Law, then Borrowers will: (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to Administrative Agent (with a copy to the applicable Lender) an official receipt or other documentation reasonably satisfactory to Administrative Agent evidencing such payment to such authority; and (iii) pay to Administrative Agent (and such applicable Lender) for the account of Administrative Agent and Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by Administrative Agent and each Lender will equal the full amount Administrative Agent and such Lender would have received had no such withholding or deduction been required. If any Taxes are directly asserted against Administrative Agent or any Lender with respect to any payment received by Administrative Agent or such Lender hereunder, Administrative Agent or such Lender may pay such Taxes and Borrowers will promptly pay such additional amounts (including any penalty, interest or expense) as is necessary in order that the net amount received by such Person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Taxes not been asserted so long as such amounts have accrued on or after the day which is one hundred eighty (180) days prior to the date on which Administrative Agent or such Lender first made written demand therefor. (b) If any Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to Administrative Agent, for the account of Administrative Agent and the respective Lenders, the required receipts or other required documentary evidence, Borrowers shall indemnify Administrative Agent and Lenders for any incremental Taxes, interest or penalties that may become payable by Administrative Agent or any Lender as a result of any such failure. (c) Each Lender that (i) is organized or incorporated under the laws of a jurisdiction other than the United States, and (ii)(A) is a party hereto on the Closing Date or (B) purports to become an assignee of an interest as a Lender under this Agreement after the Closing Date (unless such Lender was already a Lender hereunder immediately prior to such assignment) (each such Lender a "FOREIGN LENDER") shall execute and deliver to each of Borrowers and Administrative Agent one or more (as Borrowers or Administrative Agent may reasonably request) United States Internal Revenue Service Forms W-8ECI, W-8BEN, W-8IMY (as applicable) and other applicable forms, certificates or documents prescribed by the United States Internal Revenue Service or reasonably requested by Administrative Agent certifying as to such Lender's entitlement to a complete exemption from withholding or deduction of Taxes. Borrowers shall not be required to pay additional amounts to any Lender pursuant to this Section 2.8 with respect to United States withholding and income Taxes to the extent that the obligation to pay such additional amounts would not have arisen but for the failure of such Lender to comply with this paragraph other than as a result of a change in law. (d) If any Lender shall determine in its commercially reasonable judgment that the adoption or taking effect of, or any change in, any applicable Law regarding capital adequacy, in each instance, after the Closing Date, or any change after the Closing Date in the interpretation, administration or application thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation, administration or application thereof, or the compliance by any Lender or any Person controlling such Lender with any request, guideline or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency adopted or otherwise taking effect after the Closing Date, has or would have the effect of reducing the rate of return on such Lender's or such controlling Person's capital as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such controlling Person could reasonably have achieved but for such adoption, taking effect, change, interpretation, administration, application or compliance (taking into consideration such Lender's or such controlling Person's policies with respect to capital adequacy) then from time to time, upon written demand by such Lender (which demand shall be Credit and Security Agreement 20 accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Administrative Agent), Borrowers shall promptly pay to such Lender such additional amount as will compensate such Lender or such controlling Person for such reduction, so long as such amounts have accrued on or after the day which is one hundred eighty (270) days prior to the date on which such Lender first made demand therefor. (e) If any Lender requires compensation under Section 2.8(d), or requires any Borrower to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.8(a), then, upon the written request of Borrower Representative, such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder (subject to the terms of this Agreement) to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or materially reduce amounts payable pursuant to any such subsection, as the case may be, in the future, and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender (as determined in its sole discretion). Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. SECTION 2.9 APPOINTMENT OF BORROWER REPRESENTATIVE. Each Borrower hereby designates Borrower Representative as its representative and agent on its behalf for the purposes of issuing Notices of Borrowing, and giving instructions with respect to the disbursement of the proceeds of the Loans, giving and receiving all other notices and consents hereunder or under any of the other Financing Documents and taking all other actions (including in respect of compliance with covenants) on behalf of any Borrower or Borrowers under the Financing Documents. Borrower Representative hereby accepts such appointment. Notwithstanding anything to the contrary contained in this Agreement, no Borrower other than Borrower Representative shall be entitled to take any of the foregoing actions. The proceeds of each Loan made hereunder shall be advanced to or at the direction of Borrower Representative and if not used by Borrower Representative in its business (for the purposes provided in this Agreement) shall be deemed to be immediately advanced by Borrower Representative to the appropriate other Borrower hereunder as an intercompany loan (collectively, "INTERCOMPANY LOANS"). All proceeds of Collateral of each Borrower received by Administrative Agent and applied to the Obligations shall be deemed to be repayments of the Intercompany Loans owing by such Borrower to Borrower Representative. Borrowers shall maintain accurate books and records with respect to all Intercompany Loans and all repayments thereof. Administrative Agent and each Lender may regard any notice or other communication pursuant to any Financing Document from Borrower Representative as a notice or communication from all Borrowers, and may give any notice or communication required or permitted to be given to any Borrower or all Borrowers hereunder to Borrower Representative on behalf of such Borrower or all Borrowers. Each Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by Borrower Representative shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower. SECTION 2.10 JOINT AND SEVERAL LIABILITY. Borrowers are defined collectively to include all Persons named as one of the Borrowers herein; provided, however, that any references herein to "any Borrower", "each Borrower" or similar references, shall be construed as a reference to each individual Person named as one of the Borrowers herein. Each Person so named shall be jointly and severally liable for all of the obligations of Borrowers under this Agreement. Each Borrower, individually, expressly understands, agrees and acknowledges, that the credit facilities would not be made available on the terms herein in the absence of the collective credit of all of the Persons named as the Borrowers herein, the joint and several liability of all such Persons, and the cross-collateralization of the collateral of all such Persons. Accordingly, each Borrower, individually acknowledges that the benefit to each of the Persons named as one of the Borrowers as a whole constitutes reasonably equivalent value, regardless of the amount of the credit facilities actually borrowed by, advanced to, or the amount of collateral provided by, any individual Borrower. In addition, each entity named as one of the Borrowers herein hereby acknowledges and agrees that all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in this Agreement shall be applicable to and shall be binding upon and measured and enforceable individually against each Person named as one of the Borrowers herein as well as all such Persons when taken together. By way of illustration, but without limiting the generality of the foregoing, the terms of Section 10.1 of this Agreement are to be applied to each individual Person named as one of the Borrowers herein (as well as to all such Persons taken as a whole), such that the occurrence of any of the events described in Section 10.1 of this Credit and Security Agreement 21 Agreement as to any Person named as one of the Borrowers herein shall constitute an Event of Default even if such event has not occurred as to any other Persons named as the Borrowers or as to all such Persons taken as a whole. ARTICLE 3 - REPRESENTATIONS AND WARRANTIES To induce Administrative Agent and Lenders to enter into this Agreement and to make the Loans and other credit accommodations contemplated hereby, each Borrower hereby represents and warrants to Administrative Agent and each Lender that: SECTION 3.1 EXISTENCE AND POWER. Each Credit Party is an entity as specified on Schedule 3.1, is duly organized, validly existing and in good standing under the laws of the jurisdiction specified on Schedule 3.1 and no other jurisdiction, has the same legal name as it appears in such Credit Party's Organizational Documents and an organizational identification number (if any), in each case as specified on Schedule 3.1 (except to the extent of any change in the foregoing information as to any Credit Party following the Closing Date so long as such change was made and notice of such change was given to Administrative Agent in accordance with Section 9.2(e)), and has all powers and all Permits necessary in the operation of its business as presently conducted or as proposed to be conducted, except where the failure to have such powers or Permits could not reasonably be expected to have a Material Adverse Effect. Each Credit Party is qualified to do business as a foreign entity in each jurisdiction in which it is required to be so qualified, which jurisdictions as of the Closing Date are specified on Schedule 3.1, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 3.1, no Credit Party, over the five (5) year period preceding the Closing Date, (a) has had any name other than its current name, or (b) was incorporated or organized under the laws of any jurisdiction other than its current jurisdiction of incorporation or organization. SECTION 3.2 ORGANIZATION AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by each Credit Party of the Financing Documents to which it is a party are within its powers, have been duly authorized by all necessary action pursuant to its Organizational Documents, require no further action by or in respect of, or filing with, any Governmental Authority and do not violate, conflict with or cause a breach or a default under (a) any Law applicable to any Credit Party or any of the Organizational Documents of any Credit Party, or (b) any agreement or instrument binding upon it, except for such violations, conflicts, breaches or defaults as could not, with respect to this clause (b), reasonably be expected to have a Material Adverse Effect. SECTION 3.3 BINDING EFFECT. Each of the Financing Documents to which any Credit Party is a party constitutes a valid and binding agreement or instrument of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors' rights generally and by general equitable principles. SECTION 3.4 CAPITALIZATION. The authorized equity securities of each of the Credit Parties as of the Closing Date is as set forth on Schedule 3.4. All issued and outstanding equity securities of each of the Credit Parties are duly authorized and validly issued, fully paid and nonassessable, and such equity securities were issued in compliance with applicable Laws. All issued and outstanding securities of each of the Credit Parties other than the Principal Borrower are free and clear of all Liens other than those in favor of Administrative Agent for the benefit of Administrative Agent and Lenders. The identity of the holders of the equity securities of each of the Credit Parties (other than the Principal Borrower) and the percentage of their fully-diluted ownership of the equity securities of each of the Credit Parties (other than Principal Borrower) as of the Closing Date is set forth on Schedule 3.4. No shares of the capital stock or other equity securities of any Credit Party, other than those described above, are issued and outstanding as of the Closing Date. Except as set forth on Schedule 3.4, as of the Closing Date there are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from any Credit Party of any equity securities of any such entity. Principal Borrower is, as of the Closing Date, and will be at all times, an entity whose voting common equity shares are traded on the NASDAQ exchange. None of the authorized and/or issued capital stock or other equity securities of any Credit Party are subject to any mandatory repurchase or redemption provisions or put rights in favor of any holder thereof (not including any repurchase or redemption provisions exercisable solely at the option of such Credit Party) or otherwise constitute Debt under the definition set forth herein or are subject to any provisions requiring Credit and Security Agreement 22 the mandatory payment of any dividends at any time (not including any specified dividends which accrue at specified times but which are payable only as, when and if declared by the board of directors or other similar governance body or manager or partner of such Credit Party and/or upon liquidation of such Credit Party). SECTION 3.5 FINANCIAL INFORMATION. All information delivered to Administrative Agent and pertaining to the financial condition of any Credit Party fairly presents in all material respects the financial position of such Credit Party as of such date in conformity with GAAP (and as to unaudited financial statements, subject to normal year-end adjustments and the absence of footnote disclosures). Since December 31, 2006, there has been no material adverse change in the business, operations, properties, prospects or condition (financial or otherwise) of any business, assets or entities being purchased by Borrowers pursuant to the Financing Documents. SECTION 3.6 LITIGATION. Except as set forth on Schedule 3.6 as of the Closing Date, and except as hereafter disclosed to Administrative Agent in writing, there is no Litigation pending against, or to such Borrower's knowledge threatened against or affecting, any Credit Party in which an adverse decision could reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of any of the Financing Documents. SECTION 3.7 OWNERSHIP OF PROPERTY. Each Borrower and each of its Subsidiaries is the lawful owner of, has good and marketable title to and is in lawful possession of, or has valid leasehold interests in, all properties and other assets (real or personal, tangible, intangible or mixed) purported or reported to be owned or leased (as the case may be) by such Person. SECTION 3.8 NO DEFAULT. No Event of Default, or to such Borrower's knowledge, Default, has occurred and is continuing. No Credit Party is in breach or default under or with respect to any contract, agreement, lease or other instrument to which it is a party or by which its property is bound or affected, which breach or default could reasonably be expected to have a Material Adverse Effect. SECTION 3.9 LABOR MATTERS. As of the Closing Date, there are no strikes or other labor disputes pending or, to any Borrower's knowledge, threatened against any Credit Party. Hours worked and payments made to the employees of the Credit Parties have not been in violation of the Fair Labor Standards Act or any other applicable Law dealing with such matters, other than violations that are both unintentional and immaterial. All payments due from the Credit Parties, or for which any claim may be made against any of them, on account of wages and employee and retiree health and welfare insurance and other benefits have been paid or accrued as a liability on their books, as the case may be, except for the unintentional failure to make immaterial payments. The consummation of the transactions contemplated by the Financing Documents will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which it is a party or by which it is bound. SECTION 3.10 REGULATED ENTITIES. No Credit Party is an "investment company" or a company "controlled" by an "investment company" or a "subsidiary" of an "investment company," all within the meaning of the Investment Company Act of 1940. SECTION 3.11 MARGIN REGULATIONS. None of the proceeds from the Loans have been or will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" (as defined in Regulation U of the Federal Reserve Board), for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any "margin stock" or for any other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation T, U or X of the Federal Reserve Board. SECTION 3.12 COMPLIANCE WITH LAWS; ANTI-TERRORISM LAWS. (a) Each Credit Party is in compliance with the requirements of all applicable Laws, except for such Laws the noncompliance with which could not reasonably be expected to have a Material Adverse Effect. (b) None of the Credit Parties is (i) in violation of any Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts Credit and Security Agreement 23 to violate, any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person. No Credit Party nor, to the knowledge of any Credit Party, any of its Affiliates or agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement, (x) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (y) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law. SECTION 3.13 TAXES. All federal, state and material local tax returns, reports and statements required to be filed by or on behalf of each Credit Party have been filed with the appropriate Governmental Authorities in all jurisdictions in which such returns, reports and statements are required to be filed and, except to the extent subject to a Permitted Contest, all Taxes (including real property Taxes) and other charges shown to be due and payable have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for nonpayment thereof. Except to the extent subject to a Permitted Contest, all state and material local sales and use Taxes required to be paid by each Credit Party have been paid. All federal and state returns have been filed by each Credit Party for all periods for which returns were due with respect to employee income tax withholding, social security and unemployment taxes, and, except to the extent subject to a Permitted Contest, the amounts shown thereon to be due and payable have been paid in full or adequate provisions therefor have been made. SECTION 3.14 COMPLIANCE WITH ERISA. (a) Each ERISA Plan (and the related trusts and funding agreements) complies in form and in operation with, has been administered in compliance with, and the terms of each ERISA Plan satisfy, the applicable requirements of ERISA and the Code in all material respects. Each ERISA Plan which is intended to be qualified under Section 401(a) of the Code is so qualified, and the United States Internal Revenue Service has issued a favorable determination letter with respect to each such ERISA Plan which may be relied on currently. No Credit Party has incurred liability for any material excise tax under any of Sections 4971 through 5000 of the Code. (b) During the thirty-six (36) month period prior to the Closing Date or the making of any Loan, (i) no steps have been taken to terminate any Pension Plan and (ii) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA with respect to an aggregate amount in excess of $250,000. No condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by any Credit Party of any material liability, fine or penalty. No Credit Party has incurred liability to the PBGC (other than for current premiums) with respect to any employee Pension Plan with respect to an aggregate amount in excess of $250,000. Except with respect to amounts in an aggregate not in excess of $250,000: all contributions (if any) have been made on a timely basis to any Multiemployer Plan that are required to be made by any Credit Party or any other member of the Controlled Group under the terms of the plan or of any collective bargaining agreement or by applicable Law; no Credit Party nor any member of the Controlled Group has withdrawn or partially withdrawn from any Multiemployer Plan, incurred any withdrawal liability with respect to any such plan or received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any such plan, and no condition has occurred which, if continued, could result in a withdrawal or partial withdrawal from any such plan, and no Credit Party nor any member of the Controlled Group has received any notice that any Multiemployer Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent. SECTION 3.15 RESERVED. SECTION 3.16 RESERVED. SECTION 3.17 MATERIAL CONTRACTS. The consummation of the transactions contemplated by the Financing Documents will not give rise to a right of termination in favor of any party to any Material Contract (other than any Credit Party). SECTION 3.18 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS; NO HAZARDOUS MATERIALS. Credit and Security Agreement 24 Except in each case as set forth on Schedule 3.18 or as would no reasonably be expected to result in a Material Adverse Effect: (a) no notice, notification, demand, request for information, citation, summons, complaint or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending, or to such Borrower's knowledge, threatened to or against any Credit Party or any Credit Party's real or personal property (now owned or leased or previously owned or leased) by any Governmental Authority or other Person with respect to any (i) alleged violation by any Credit Party of any Environmental Law, (ii) alleged failure by any Credit Party to have any Permits under any Environmental Law or relating to any Hazardous Materials required in connection with the conduct of its business or to comply with the terms and conditions thereof, (iii) generation, treatment, storage, recycling, transportation or disposal of any Hazardous Materials, or (iv) release of Hazardous Materials; and (b) no property now owned or leased by any Credit Party and, to the knowledge of each Borrower, no such property previously owned or leased by any Credit Party, on which any Credit Party has generated, stored or disposed of or to which any Credit Party has, directly or indirectly, transported or arranged for the transportation of any Hazardous Materials, is listed or, to such Borrower's knowledge, proposed for listing, on the National Priorities List promulgated pursuant to CERCLA, or CERCLIS (as defined in CERCLA) or any similar state list or is the subject of federal, state or local enforcement actions or other investigations which may lead to claims against any Credit Party for clean-up costs, remedial work, damage to natural resources or personal injury claims, including, without limitation, claims under CERCLA. For purposes of this Section 3.18, each Credit Party shall be deemed to include any business or business entity (including a corporation) that is, in whole or in part, a predecessor of such Credit Party. SECTION 3.19 INTELLECTUAL PROPERTY. Each Credit Party owns, is licensed to use or otherwise has the right to use, all Intellectual Property relating to the product Opana ER and all other Intellectual Property that is used for its business and operations. All Intellectual Property existing as of the Closing Date relating to Opana ER and registered with any United States Governmental Authority (including without limitation any and all applications for the registration of any such Intellectual Property with any such United States Governmental Authority) and all licenses under which any Borrower is the licensee of any such registered Intellectual Property (or any such application for the registration of Intellectual Property) owned by another Person, are set forth on Schedule 3.19. Such Schedule 3.19 indicates in each case whether such registered Intellectual Property (or application therefor) is owned or licensed by such Credit Party, and in the case of any such licensed registered Intellectual Property (or application therefor), lists the name and address of the licensor and the name and date of the agreement pursuant to which such item of Intellectual Property is licensed and whether or not such license is an exclusive license and indicates whether there are any purported restrictions in such license on the ability to such Credit Party to grant a security interest in and/or to transfer any of its rights as a licensee under such license. The applicable Credit Party is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to each such registered Intellectual Property (or application therefor) purported to be owned by such Borrower, free and clear of any Liens and/or licenses in favor of third parties or agreements or covenants not such sue third parties for infringement. U.S. Patent Number 5,128,143, which relates to Opana ER, is owned by the Principal Borrower and currently expires on September 19, 2008. The Food and Drug Administration has granted to Endo Pharmaceuticals, Inc. new dosage form exclusivity with respect to Opana ER that expires on June 22, 2009. To the Borrower's knowledge, each Credit Party conducts its business without infringement or claim of infringement of any Intellectual Property rights of others and there is no infringement or claim of infringement by others of any Intellectual Property rights of any Credit Party, which infringement or claim of infringement could reasonably be expected to have a Material Adverse Effect. SECTION 3.20 SOLVENCY. Each Borrower and each additional Credit Party is Solvent. SECTION 3.21 FULL DISCLOSURE. None of the written information (financial or otherwise) furnished by or on behalf of any Credit Party to Administrative Agent or any Lender in connection with the consummation of the transactions contemplated in connection with the Financing Documents after the Closing Date, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which such statements were made. All financial Credit and Security Agreement 25 projections delivered to Administrative Agent and the Lenders by Borrowers (or their agents) have been prepared on the basis of the assumptions stated therein. Such projections represented such Borrower's good faith estimate as of the date thereof of such Borrower's future financial performance and such assumptions were believed by such Borrower to be fair and reasonable as of the date thereof in light of business conditions then prevailing; provided, however, that Borrowers can give no assurance that any such projections will be attained. SECTION 3.22 INTEREST RATE. The rate of interest paid under the Notes and the method and manner of the calculation thereof do not violate any usury or other law or applicable Laws, any of the Organizational Documents or any of the Financing Documents. SECTION 3.23 SUBSIDIARIES. Borrowers do not own any stock, partnership interests, limited liability company interests or other equity securities except for Permitted Investments. ARTICLE 4 - AFFIRMATIVE COVENANTS Each Borrower agrees that, so long as any Credit Exposure exists: SECTION 4.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower Representative will deliver to Administrative Agent: (1) as soon as available, but no later than forty five (45) days after the last day of each quarter, a company prepared consolidated balance sheet, cash flow and income statement covering Borrower's consolidated operations during the period, prepared under GAAP, consistently applied, certified by a Responsible Officer and in a form reasonably acceptable to Administrative Agent; (2) as soon as available, but no later than ninety (90) days after the last day of Borrower's fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Administrative Agent in its reasonable discretion, (3) within five (5) days of delivery or filing thereof, copies of all statements, reports and notices made available to Borrower's security holders and copies of all reports and other filings made by Borrower with any stock exchange on which any securities of any Borrower are traded and/or the SEC; (4) a prompt report of any legal actions pending or threatened against any Borrower or any of its Subsidiaries that could result in damages or costs to any Borrower or any of its Subsidiaries of One Million Dollars ($1,000,000) or more; (5) prompt written notice after any Borrower becomes aware of an event that materially and adversely affects any Intellectual Property relating to Opana ER; and (6) budgets, sales projections, operating plans and other financial information and information, reports or statements regarding the Borrowers, their business and the Collateral as Administrative Agent may from time to time reasonably request. Each Borrower will, in conjunction with the delivery of each set of financial statements required under clause (l) above, deliver to Administrative Agent, a duly completed Compliance Certificate signed by a Responsible Officer. Promptly upon their becoming available, Borrowers shall deliver to Administrative Agent copies of all Swap Contracts to which any Borrower is a party. Promptly upon Administrative Agent's receipt of any of the foregoing in this Section 4.1, Administrative Agent shall deliver a copy to each Lender. SECTION 4.2 PAYMENT AND PERFORMANCE OF OBLIGATIONS. Each Borrower (a) will pay and discharge at or prior to maturity, all of their respective obligations and liabilities, including tax liabilities, except for such obligations and/or liabilities (i) that may be the subject of a Permitted Contest, or (ii) the nonpayment or nondischarge of which could not reasonably be expected to have a Material Adverse Effect, (b) will maintain in accordance with GAAP, appropriate reserves for the accrual of all of their respective obligations and liabilities, and (c) will not breach or permit any Subsidiary to breach, or permit to exist any default under, the terms of any Material Contract or any other lease, commitment, contract, instrument or obligation to which it is a party, or by which its properties or assets are bound, except for such breaches or defaults which could not reasonably be expected to have a Material Adverse Effect. SECTION 4.3 MAINTENANCE OF EXISTENCE. Each Borrower will preserve, renew and keep in full force and effect and in good standing their respective existence and their respective rights, privileges and franchises necessary in the normal conduct of business. SECTION 4.4 MAINTENANCE OF PROPERTY; INSURANCE. Credit and Security Agreement 26 (a) Each Borrower will keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. If all or any part of the Collateral useful or necessary in its business, becomes damaged or destroyed, each Borrower will promptly and completely repair and/or restore the affected Collateral in a good and workmanlike manner, to the extent that insurance proceeds are available pursuant to Section 2.1(a)(ii)(B) hereof. (b) Upon completion of any Permitted Contest, Borrowers shall promptly pay the amount due, if any, and deliver to Administrative Agent proof of the completion of the contest and payment of the amount due, if any, following which Administrative Agent shall return the security, if any, deposited with Administrative Agent pursuant to the definition of Permitted Contest. (c) Each Borrower will maintain all insurance described on Schedule 4.4, upon the terms and with the coverages and rights in favor of Administrative Agent and Lenders as described in Schedule 4.4; PROVIDED, HOWEVER, that, in no event shall such insurance be in amounts or with coverage less than, or with carriers with qualifications inferior to, any of the insurance or carriers in existence as of the Closing Date (or required to be in existence after the Closing Date under a Financing Document), as evidenced by the insurance certificates attached hereto as Schedule 4.4, or such other types and amounts of insurance as may be reasonable for other companies in the same industry that are similarly situated. All such insurance shall be provided by insurers having an A.M. Best policyholders rating reasonably acceptable to Administrative Agent. (d) On or prior to the Closing Date, and at all times thereafter, each Borrower will cause Administrative Agent, for the benefit of Lenders, to be named as an additional insured and loss payee (which shall include, as applicable, identification as mortgagee), as applicable, on each insurance policy required to be maintained pursuant to this Section 4.4 pursuant to endorsements in form and content reasonably acceptable to Administrative Agent. Borrowers will deliver to Administrative Agent and the Lenders (i) on the Closing Date, a certificate from Borrowers' insurance broker dated such date (or a date reasonably close thereto) showing the amount of coverage as of such date, and that such policies will include effective waivers (whether under the terms of any such policy or otherwise) by the insurer of all claims for insurance premiums against all loss payees and additional insureds and all rights of subrogation against all loss payees and additional insureds, and that if all or any part of such policy is canceled, terminated or expires, the insurer will forthwith give notice thereof to each additional insured, assignee and loss payee and that no cancellation, reduction in amount or material change in coverage thereof shall be effective until at least thirty (30) days after receipt by each additional insured and loss payee of written notice thereof, (ii) upon the request of any Lender through Administrative Agent from time to time full information as to the insurance carried, (iii) within five (5) days of receipt of notice from any insurer, a copy of any notice of cancellation, nonrenewal or material change in coverage from that existing on the date of this Agreement, and (iv) forthwith, notice of any cancellation or nonrenewal of coverage by any Borrower. (e) In the event any Borrower (i) fails to maintain the insurance coverage required by this Agreement, or (ii) fails to provide Administrative Agent with evidence of the insurance coverage required by this Agreement and such failure to provide evidence continues for five (5) Business Days, Administrative Agent may (but shall have no obligation to) purchase insurance at Borrowers' expense to protect Administrative Agent's and each Lender's interests in the Collateral and to protect Administrative Agent and Lenders from liability claims relating to the Borrowers' operations, and the costs and expenses of Administrative Agent in obtaining and paying the premiums on any such insurance shall constitute part of the Obligations for which the Borrowers are jointly and severally liable hereunder and which are secured by the Collateral. SECTION 4.5 COMPLIANCE WITH LAWS. Each Borrower will comply with the requirements of all applicable Laws, except to the extent that failure to so comply could not reasonably be expected to (a) have a Material Adverse Effect, or (b) result in any Lien (other than a Permitted Lien) upon any of the assets of any such Person in favor of any Governmental Authority. SECTION 4.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS. Each Borrower will keep proper books of record substantially in accordance with GAAP in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit at the sole cost of Borrowers (subject, however, to any limitations set forth in Section 2.2(d) and, so long as no Event of Default then exists, at reasonable intervals), representatives of Administrative Agent and of any Lender (but at such Lender's expense unless such Credit and Security Agreement 27 visit or inspection is made concurrently with Administrative Agent) to visit and inspect any of their respective properties, to examine and make abstracts or copies from any of their respective books and records, to conduct a collateral audit and analysis of their respective operations and the Collateral, to verify the amount and age of the Accounts, the identity and credit of the respective Account Debtors, to review the billing practices of Borrower and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants as often as may reasonably be desired. In the absence of an Event of Default, Administrative Agent or any Lender exercising any rights pursuant to this Section 4.6 shall give the applicable Borrower or any applicable Subsidiary commercially reasonable prior notice of such exercise, shall attempt to schedule such audit at a reasonably convenient time for the Borrower, and shall otherwise use reasonable efforts to minimize disruption of the Borrowers' business in conducting such audit. No notice shall be required during the existence and continuance of any Event of Default or any time during which Administrative Agent reasonably believes an Event of Default exists. SECTION 4.7 USE OF PROCEEDS. Borrowers shall use the proceeds of the Term Loan solely for working capital needs and general corporate purposes. No portion of the proceeds of the Loans will be used for family, personal, agricultural or household use. SECTION 4.8 RESERVED. SECTION 4.9 NOTICES OF LITIGATION AND DEFAULTS. (a) Borrowers will give prompt written notice to Administrative Agent of any litigation or governmental proceedings pending or threatened (in writing) against Borrowers or other Credit Party which would reasonably be expected to have a Material Adverse Effect with respect to Borrowers or any other Credit Party. (b) Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within three (3) Business Days) upon any Borrower becoming aware of the existence of any Default or Event of Default, Borrowers shall give written notice to Administrative Agent of such occurrence, which such notice shall include a reasonably detailed description of such Default or Event of Default. SECTION 4.10 HAZARDOUS MATERIALS; REMEDIATION. (a) If any release or disposal of Hazardous Materials shall occur or shall have occurred on any real property or any other assets of any Borrower or any other Credit Party, such Borrower will cause, or direct the applicable Credit Party to cause, the prompt containment and removal of such Hazardous Materials and the remediation of such real property or other assets as is necessary to comply with all Environmental Laws and to preserve the value of such real property or other assets, except where the failure to do so would not reasonably be expected to result in a Material Adverse Change. Without limiting the generality of the foregoing, each Borrower shall, and shall cause each other Credit Party to, comply with each Environmental Law requiring the performance at any real property by any Borrower or any other Credit Party of activities in response to the release or threatened release of a Hazardous Material. (b) Borrowers will provide Administrative Agent within thirty (30) days after written demand therefor with a bond, letter of credit or similar financial assurance evidencing to the reasonable satisfaction of Administrative Agent that sufficient funds are available to pay the cost of removing, treating and disposing of any Hazardous Materials or Hazardous Materials Contamination and discharging any assessment which may be established on any property as a result thereof, such demand to be made, if at all, upon Administrative Agent's reasonable business determination that the failure to remove, treat or dispose of any Hazardous Materials or Hazardous Materials Contamination, or the failure to discharge any such assessment could reasonably be expected to have a Material Adverse Effect. SECTION 4.11 FURTHER ASSURANCES. (a) Each Borrower will, at its own cost and expense, cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as may from time to time be necessary Credit and Security Agreement 28 or as Administrative Agent or the Required Lenders may from time to time reasonably request in order to carry out the intent and purposes of the Financing Documents and the transactions contemplated thereby, including all such actions to (i) establish, create, preserve, protect and perfect a first priority Lien (subject only to Permitted Liens) in favor of Administrative Agent for the benefit of the Lenders on the Collateral (including Collateral acquired after the date hereof), and (ii) unless Required Lenders shall agree otherwise in writing, cause all Domestic Subsidiaries of Borrowers to be jointly and severally obligated with the other Borrowers under all covenants and obligations under this Agreement, including the obligation to repay the Obligations. Without limiting the generality of the foregoing, at the request of Administrative Agent or the Required Lenders, following the disclosure by Borrowers on any Compliance Certificate of the acquisition by any Credit Party of any rights under a license as a licensee with respect to any registered Intellectual Property or application for the registration of any Intellectual Property owned by another Person, Borrowers shall execute any documents requested by Administrative Agent or the Required Lenders to establish, create, preserve, protect and perfect a first priority lien in favor of Administrative Agent, to the extent legally possible, in such Borrower's rights under such license and shall use their commercially reasonable best efforts to obtain the written consent of the licensor to the granting in favor of Administrative Agent of a Lien on such Borrower's rights as licensee under such license. (b) Upon receipt of an affidavit of an officer of Administrative Agent or a Lender as to the loss, theft, destruction or mutilation of any Note or any other Financing Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or other applicable Financing Document, and in the case of any such loss, an indemnity reasonably acceptable to the Borrower Representative, Borrowers will issue, in lieu thereof, a replacement Note or other applicable Financing Document, dated the date of such lost, stolen, destroyed or mutilated Note or other Financing Document in the same principal amount thereof and otherwise of like tenor. (c) Upon the formation or acquisition of a new Subsidiary, Borrowers shall (i) pledge, have pledged or cause or have caused to be pledged to Administrative Agent pursuant to a pledge agreement in form and substance satisfactory to Administrative Agent, (A) all of the outstanding equity interests of each new Domestic Subsidiary owned directly or indirectly by any Borrower and (B) 65% of the outstanding equity interests of each new Foreign Subsidiary owned directly by any Borrower or by any Domestic Subsidiary of any Borrower, in each case, along with undated stock or equivalent powers for such equity interests, executed in blank; (ii) unless the Required Lenders shall agree otherwise in writing, cause the new Domestic Subsidiary to take such other actions (including entering into or joining any Security Documents) as are necessary or advisable in the reasonable opinion of the Administrative Agent or the Required Lenders in order to grant the Administrative Agent, acting on behalf of the Lenders, a first priority Lien to secure the Obligations of all Credit Parties on all real and personal property (but limited to 65% of the outstanding equity interest of any Foreign Subsidiary of such Subsidiary) and leasehold estates of such Subsidiary in existence as of such date and in all after acquired property, which first priority Liens are required to be granted pursuant to this Agreement; (iii) unless the Required Lenders shall agree otherwise in writing, cause such new Domestic Subsidiary to either (at the election of the Required Lenders) become a Borrower hereunder with joint and several liability for all obligations of Borrowers hereunder and under the other Financing Documents pursuant to a joinder agreement or other similar agreement in form and substance satisfactory to Administrative Agent or to become a Guarantor of the obligations of Borrowers hereunder and under the other Financing Documents pursuant to a guaranty and suretyship agreement in form and substance satisfactory to Administrative Agent; and (iv) cause each new Subsidiary to deliver certified copies of such Subsidiary's certificate or articles of incorporation, together with good standing certificates, by-laws (or other operating agreement or governing documents), resolutions of the Board of Directors or other governing body, approving and authorizing the execution and delivery of the Security Documents, incumbency certificates and to execute and/or deliver such other documents and legal opinions or to take such other actions as may be requested by the Administrative Agent or the Required Lenders, in each case, in form and substance satisfactory to the Administrative Agent or the Required Lenders. (d) Upon the request of Administrative Agent or the Required Lenders, Borrowers shall obtain a landlord's agreement or mortgagee agreement, as applicable, from the lessor of each leased property or mortgagee of owned property with respect to any business location where any portion of the Collateral having a value in excess of $500,000, or the material records relating to such Collateral and/or software and equipment relating to such records or Collateral, is stored or located, which agreement or letter shall be reasonably satisfactory in form and substance to Administrative Agent. Borrowers shall timely and fully pay and perform its obligations under all leases Credit and Security Agreement 29 and other agreements with respect to each leased location where any Collateral, or any records related thereto, is or may be located. SECTION 4.12 UPDATES OF REPRESENTATIONS. Borrowers shall deliver to Administrative Agent within fifteen (15) days of the written request of Administrative Agent an Officer's Certificate updating all of the representations and warranties contained in this Agreement and the other Financing Documents and certifying that all of the representations and warranties contained in this Agreement and the other Financing Documents, as updated pursuant to such Officer's Certificate, are true, accurate and complete as of the date of such Officer's Certificate. SECTION 4.13 POWER OF ATTORNEY. Each of the officers of Administrative Agent is hereby irrevocably made, constituted and appointed the true and lawful attorney for Borrowers (without requiring any of them to act as such) with full power of substitution to do the following after the occurrence and during the continuance of an Event of Default: (a) endorse the name of Borrowers upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to Borrowers and constitute collections on Borrowers' Accounts; (b) so long as Administrative Agent has provided not less than three (3) Business Days' prior written notice to Borrowers to perform the same and Borrowers have failed to take such action, execute in the name of Borrowers any schedules, assignments, instruments, documents, and statements that Borrowers are obligated to give Administrative Agent under this Agreement; (c) take any action Borrowers are required to take under this Agreement; (d) do such other and further acts and deeds in the name of Borrowers that Administrative Agent may deem necessary or desirable to enforce any Account or other Collateral or perfect Administrative Agent's security interest or Lien in any Collateral; and (e) do such other and further acts and deeds in the name of Borrowers that Administrative Agent may deem necessary or desirable to enforce its rights with regard to any Account or other Collateral. This power of attorney shall be irrevocable and coupled with an interest. SECTION 4.14 COLLATERAL ADMINISTRATION. (a) All data and other information relating to Accounts or other intangible Collateral shall at all times be kept by Borrowers at their respective principal and/or chief executive offices and shall not be moved from such locations without (i) providing prior written notice to Administrative Agent, and (ii) obtaining the prior written consent of Administrative Agent, which consent shall not be unreasonably withheld. (b) Administrative Agent reserves the right, during the existence of any Event of Default, to notify Account Debtors that Administrative Agent has been granted a Lien upon all Accounts. (c) Borrowers will conduct a physical count of the Inventory in accordance with historical practices, and during the existence of any Event of Default, at such other times as Administrative Agent requests, and Borrowers shall provide to Administrative Agent a written accounting of such physical count in form and substance reasonably satisfactory to Administrative Agent. Borrowers will use commercially reasonable efforts to at all times keep its Inventory in good and marketable condition consistent with historical practices. ARTICLE 5 - NEGATIVE COVENANTS Each Borrower agrees that, so long as any Credit Exposure exists: SECTION 5.1 DEBT; CONTINGENT OBLIGATIONS. No Borrower will, or will permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to, any Debt, except for Permitted Indebtedness. No Borrower will, or will permit any Subsidiary to, directly or indirectly, create, assume, incur or suffer to exist any Contingent Obligations, except for Permitted Contingent Obligations. SECTION 5.2 LIENS. No Borrower will, or will permit any Subsidiary to, directly or indirectly, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except for Permitted Liens. Without limiting the generality of the foregoing, no Borrower will, or will permit any Subsidiary to, directly or indirectly, create, assume or suffer to exist any Lien on any of its or their Intellectual Property, except for Permitted Liens. Credit and Security Agreement 30 SECTION 5.3 RESTRICTED DISTRIBUTIONS. No Borrower will, or will permit any Subsidiary to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Distribution; provided, however, that the following Restricted Distributions may be paid: (a) at any time, dividends may be paid by any Subsidiary of any Borrower to such parent Borrower (and/or to any intermediate Subsidiary who is also a Borrower); (b) any Borrower may pay dividends solely in common stock; (c) Borrower may repurchase the stock of former employees, directors or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided that such repurchase does not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate per fiscal year; and (d) payments or distributions of Trust Assets as required pursuant to the deferred compensation plan or supplemental executive retirement plan of the Principal Borrower. SECTION 5.4 RESTRICTIVE AGREEMENTS. No Borrower will, or will permit any Subsidiary to, directly or indirectly (a) enter into or assume any agreement (other than the Financing Documents and any agreements for purchase money debt or capital leases permitted under clause (c) of the definition of Permitted Indebtedness) prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired (other than in connection with the Trust and Trust Assets), or (b) create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind (except as provided by the Financing Documents) on the ability of any Subsidiary to: (i) pay or make Restricted Distributions to any Borrower or any Subsidiary; (ii) pay any Debt owed to any Borrower or any Subsidiary; (iii) make loans or advances to any Borrower or any Subsidiary; or (iv) transfer any of its property or assets to any Borrower or any Subsidiary. SECTION 5.5 RESERVED. SECTION 5.6 CONSOLIDATIONS, MERGERS AND SALES OF ASSETS; CHANGE IN CONTROL. No Borrower will, or will permit any Subsidiary to, directly or indirectly (a) consolidate or merge or amalgamate with or into any other Person, other than Permitted Mergers, or (b) consummate any Asset Dispositions other than Permitted Asset Dispositions. No Borrower will suffer or permit to occur any Change in Control with respect to itself, any Subsidiary or any Guarantor. Notwithstanding the foregoing, the Borrowers shall be permitted to make any Permitted Joint Venture Contribution. SECTION 5.7 PURCHASE OF ASSETS, INVESTMENTS. No Borrower will, or will permit any Subsidiary to, directly or indirectly (a) acquire or enter into any agreement to acquire any assets other than (x) in the Ordinary Course of Business, (y) as permitted under clause (h) of the definition of Permitted Investments, or (z) in-licensing which is consistent with the business strategy of the Borrowers, so long as any Joint Venture Contributions in connection therewith are Permitted Joint Venture Contributions; (b) engage or enter into any agreement to engage in any joint venture or partnership with any other Person; or (c) acquire or own or enter into any agreement to acquire or own any Investment in any Person other than Permitted Investments. Notwithstanding the foregoing, the Borrowers shall be permitted to make any Permitted Joint Venture Contribution. SECTION 5.8 TRANSACTIONS WITH AFFILIATES. Except as otherwise disclosed on Schedule 5.8, except for transactions between Borrowers, and except for transactions which contain terms that are no less favorable to the applicable Borrower or any Subsidiary, as the case may be, than those which might be obtained from a third party not an Affiliate of any Credit Party, no Borrower will, or will permit any Subsidiary to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of any Borrower. Prior to any Borrower or any Subsidiary entering into any transaction with any Affiliate (other than another Borrower), involving aggregate consideration in excess of $1,000,000, Borrowers will disclose such transaction to Administrative Agent. SECTION 5.9 MODIFICATION OF ORGANIZATIONAL DOCUMENTS. No Borrower will, or will permit any Subsidiary to, directly or indirectly, amend or otherwise modify any Organizational Documents of such Person, except for Permitted Modifications. Without limiting the generality of the provisions of Section 5.1, no Borrower Credit and Security Agreement 31 will, or will permit any Subsidiary to, authorize and/or issue any capital stock or other equity securities which are subject to any mandatory repurchase or redemption provisions or put rights in favor of any holder thereof (not including any repurchase or redemption provisions exercisable solely at the option of such Borrower or Subsidiary) or otherwise constitute Debt under the definition set forth herein or are subject to any provisions requiring the mandatory payment of any dividends at any time (not including any specified dividends which accrue at specified times but which are payable only as, when and if declared by the board of directors or other similar governance body or manager or partner of such Borrower or Subsidiary and/or upon liquidation of such Borrower or Subsidiary). SECTION 5.10 RESERVED. SECTION 5.11 CONDUCT OF BUSINESS. No Borrower will, or will permit any Subsidiary to, directly or indirectly, engage in any line of business other than those businesses engaged in on the Closing Date and described on Schedule 5.11 and businesses reasonably related thereto. SECTION 5.12 RESERVED. SECTION 5.13 LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. No Borrower will, or will permit any Subsidiary to, directly or indirectly, enter into any arrangement with any Person whereby, in a substantially contemporaneous transaction, any Borrower or any Subsidiaries sells or transfers all or substantially all of its right, title and interest in an asset and, in connection therewith, acquires or leases back the right to use such asset. SECTION 5.14 DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS. Schedule 5.14 lists all of the Deposit Accounts and Securities Accounts of each Borrower as of the Closing Date. No Borrower will, or will permit any Subsidiary to, directly or indirectly, establish any new bank account, Deposit Account or Securities Account without prior written notice to Administrative Agent and unless Administrative Agent, such Borrower or such Subsidiary and the bank, financial institution or securities intermediary at which the account is to be opened enter into a Deposit Account Control Agreement or Securities Account Control Agreement prior to or concurrently with the establishment of such bank account, Deposit Account or Securities Account. SECTION 5.15 COMPLIANCE WITH ANTI-TERRORISM LAWS. Administrative Agent and each Lender hereby notifies Borrowers that pursuant to the requirements of Anti-Terrorism Laws, and Administrative Agent's and each Lender's policies and practices, Administrative Agent and each Lender is required to obtain, verify and record certain information and documentation that identifies Borrowers and its principals, which information includes the name and address of each Borrower and its principals and such other information that will allow Administrative Agent to identify such party in accordance with Anti-Terrorism Laws. No Borrower will, or will permit any Subsidiary to, directly or indirectly, knowingly enter into any Material Contracts with any Blocked Person or any Person listed on the OFAC Lists. Each Borrower shall immediately notify Administrative Agent and each Lender if such Borrower has knowledge that any Borrower or any additional Credit Party becomes a Blocked Person or becomes listed on the OFAC Lists or (a) is convicted on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering. No Borrower will, or will permit any Subsidiary to, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law. ARTICLE 6 - [RESERVED] ARTICLE 7 - CONDITIONS SECTION 7.1 CONDITIONS TO CLOSING. The obligation of each Lender to make the initial Loan shall be subject to the receipt by Administrative Agent of each agreement, document and instrument set forth on the closing checklist prepared by Administrative Agent or its counsel, each in form and substance satisfactory to Administrative Credit and Security Agreement 32 Agent, and such other closing deliverables reasonably requested by Administrative Agent and Lenders, and to the satisfaction of the following conditions precedent, each to the satisfaction of Administrative Agent and Lenders and their respective counsel in their sole discretion: (a) [Reserved] (b) the payment of all fees, expenses and other amounts due and payable under each Financing Document; (c) the absence, since December 31, 2006, of any material adverse change in any aspect of the business, operations, properties, or financial condition of any Credit Party, or any event or condition which could reasonably be expected to result in such a material adverse change; and (d) the receipt by Administrative Agent of such other documents, instruments and/or agreements as Administrative Agent may reasonably request. SECTION 7.2 CONDITIONS TO EACH LOAN. The obligation of the Lenders to make an advance in respect of any Loan (including on the Closing Date) is subject to the satisfaction of the following additional conditions: (a) receipt by Administrative Agent of a Notice of Borrowing; (b) the fact that, immediately before and after such advance, no Default or Event of Default shall have occurred and be continuing; (c) the fact that the representations and warranties of each Credit Party contained in the Financing Documents shall be true, correct and complete on and as of the date of such borrowing, except to the extent that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true and correct as of such earlier date; and (d) the fact that no material adverse change in the financial condition, properties, business, or operations of Borrowers or any other Credit Party shall have occurred and be continuing with respect to Borrowers or any Credit Party since the date of this Agreement. Each giving of a Notice of Borrowing hereunder and each acceptance by any Borrower of the proceeds of any Loan made hereunder shall be deemed to be (y) a representation and warranty by each Borrower on the date of such notice or acceptance as to the facts specified in this Section, and (z) a restatement by each Borrower that each and every one of the representations made by it in any of the Financing Documents is true and correct in all material respects (except to the extent that such representations and warranties expressly relate solely to an earlier date). SECTION 7.3 SEARCHES. Before the Closing Date, and thereafter (as and when determined by Administrative Agent in its discretion), Administrative Agent shall have the right to perform, all at Borrowers' expense, the searches described in clauses (a), (b), (c) and (d) below against Borrowers and any other Credit Party, the results of which are to be consistent with Borrowers' representations and warranties under this Agreement and the satisfactory results of which shall be a condition precedent to all advances of Loan proceeds: (a) UCC searches with the Secretary of State of each jurisdiction in which the applicable Person is organized, and, if applicable, local UCC fixture filings searches in each jurisdiction where any real estate Collateral or fixtures Collateral is located; (b) judgment, pending litigation, federal tax lien, personal property tax lien, and corporate and partnership tax lien searches, in the state and/or local filing offices (as applicable) of each jurisdiction where the applicable Person maintains its executive offices, a place of business, or assets and the jurisdiction in which the applicable Person is organized; (c) real property title and lien searches in each jurisdiction in which any real property Collateral is located; and (d) searches of applicable corporate, limited liability company, partnership and related records to confirm the continued existence, organization and good standing of the applicable Person and the exact legal name under which such Person is organized. Credit and Security Agreement 33 SECTION 7.4 POST CLOSING REQUIREMENTS. Borrowers shall complete each of the post closing obligations and/or provide to Administrative Agent each of the documents, instruments, agreements and information listed on Schedule 7.4 attached hereto on or before the date set forth for each such item thereon, each of which shall be completed or provided in form and substance satisfactory to Administrative Agent. SECTION 7.5 ESTOPPEL CERTIFICATE. As an additional condition to the making of the Tranche B Loan, Borrowers at their expense, will furnish Administrative Agent with a statement, duly acknowledged and certified, and dated the date on which the Tranche B Loan is requested, setting forth (a) the amount of the original principal amount of the Notes, and the unpaid principal amount of the Notes, (b) the rate of interest of the Notes, (c) the date payments of interest and/or principal were last paid, (d) any offsets or defenses to the payment of the Obligations, and if any are alleged, the nature thereof, (e) that the Notes and this Agreement have not been modified or if modified, giving particulars of such modification, and (f) that there has occurred and is then continuing no Default or Event of Default or if such Default or Event of Default exists, the nature thereof, the period of time it has existed, and the action being taken to remedy such Default or Event of Default. ARTICLE 8 - [RESERVED] ARTICLE 9 - SECURITY AGREEMENT SECTION 9.1 GENERALLY. As security for the payment and performance of the Obligations, and without limiting any other grant of a Lien and security interest in any Security Document, Borrowers hereby pledge and grant to Administrative Agent, for the benefit of Lenders, a continuing first priority Lien on and security interest in, upon, and to the personal property set forth on Schedule 9.1 attached hereto and made a part hereof. SECTION 9.2 REPRESENTATIONS AND WARRANTIES AND COVENANTS RELATING TO COLLATERAL. (a) Each Borrower has good title to, has rights in, and the power to transfer each item of Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Except to the extent that the Borrowers have notified the Administrative Agent of any changes thereof in accordance with the terms of Section 9.2 (d) of this Agreement and otherwise complied with the requirements of such Section 9.2(d), Schedule 9.2 sets forth (i) each chief executive office and principal place of business of each Borrower and each of their respective Subsidiaries and (ii) all of the addresses (including all warehouses) at which any of the Collateral is located and/or books and records of Borrowers regarding any of the Collateral are kept, which such Schedule 9.2 (or such subsequent notice) indicates in each case which Borrower(s) have Collateral and/or books and records located at such address, and, in the case of any such address not owned by one or more of the Borrowers(s), indicates the nature of such location (e.g., leased business location operated by Borrower(s), third party warehouse, consignment location, processor location, etc.) and the name and address of the third party owning and/or operating such location; provided ,however, that no such prior written notice shall be required with respect to any Collateral consisting of inventory and/or equipment having a value of less than $500,000 at any location. (b) Without limiting the generality of Section 3.2, except as indicated on Schedule 3.19 with respect to any rights of any Borrower as a licensee under any license of Intellectual Property owned by another Person, and except for the filing of financing statements under the UCC and filings that may be necessary to comply with applicable securities laws upon the exercise of any remedies in respect of Collateral consisting of stock or other equity interests, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or consent of any other Person is required for (i) the grant by each Borrower to Administrative Agent of the security interests and Liens in the Collateral provided for under this Agreement and the other Security Documents (if any), or (ii) the exercise by Administrative Agent of its rights and remedies with respect to the Collateral provided for under this Agreement and the other Security Documents or under any applicable Law, including the UCC and neither any such grant of Liens in favor of Administrative Agent or exercise of rights by Administrative Agent shall violate or cause a default under any material agreement between any Borrower and any other Person relating to any such Collateral, including any material license to which a Borrower is a party, whether as licensor or licensee, with respect to any material Intellectual Property, whether owned by such Borrower or any other Person. Credit and Security Agreement 34 (c) As of the Closing Date, no Borrower has any ownership interest in any material Chattel Paper, Letter of Credit Rights, Commercial Tort Claims, Instruments, Documents or Investment Property (other than equity interests in any Subsidiaries of such Borrower disclosed on Schedule 3.4 or which relate to payroll accounts), and Borrowers shall give notice to Administrative Agent promptly (but in any event not later than the delivery by Borrowers of the next Compliance Certificate required pursuant to Section 4.1 above) upon the acquisition by any Borrower of any such Chattel Paper, Letter of Credit Rights, Commercial Tort Claims, Instruments, Documents or Investment Property. No Person other than Administrative Agent or (if applicable) any Lender has "control" (as defined in Article 9 of the UCC) over any Deposit Account, Investment Property (including Securities Accounts and Commodities Account), Letter of Credit Rights or Electronic Chattel Paper in which any Borrower has any interest (except for such control arising by operation of law in favor of any bank or securities intermediary or commodities intermediary with whom any Deposit Account, Securities Account or Commodities Account of Borrowers is maintained). (d) Borrowers shall not, and shall not permit any Credit Party to, take any of the following actions or make any of the following changes unless Borrowers have given at least thirty (30) days prior written notice to Administrative Agent of Borrowers' intention to take any such action (which such written notice shall include an updated version of any Schedule impacted by such change) and have executed any and all documents, instruments and agreements and taken any other actions which Administrative Agent may reasonably request after receiving such written notice in order to protect and preserve the Liens, rights and remedies of Administrative Agent with respect to the Collateral: (i) change the legal name or organizational identification number of any Borrower as it appears in official filings in the jurisdiction of its organization, (ii) change the jurisdiction of incorporation or formation of any Borrower or Credit Party or allow any Borrower or Credit Party to designate any jurisdiction as an additional jurisdiction of incorporation for such Borrower or Credit Party, or change the type of entity that it is, or (iii) change its chief executive office, principal place of business, or the location of its records concerning the Collateral, or move any Collateral to or place any Collateral on any location that is not then listed on the Schedules and/or establish any business location at any location that is not then listed on the Schedules, provided that no such prior written notice shall be required with respect to any Collateral constituting of inventory and/or equipment having a value of less than $500,000 at any location. (e) Without limiting the generality of this Agreement or any other provisions of any of the Financing Documents relating to the rights of Administrative Agent after the occurrence and during the continuance of an Event of Default, Administrative Agent shall have the right at any time after the occurrence and during the continuance of an Event of Default (acting upon the direction of the Required Lenders) to: (i) exercise the rights of Borrowers with respect to the obligation of any Account Debtor to make payment or otherwise render performance to Borrowers and with respect to any property that secures the obligations of any Account Debtor or any other Person obligated on the Collateral, and (ii) adjust, settle or compromise the amount or payment of any of Borrowers' Accounts. (f) Without limiting the generality of Sections 9.2(c) and 9.2(e): (i) Borrowers shall deliver to Administrative Agent all Tangible Chattel Paper and all Instruments and Documents owned by any Borrower upon the request of the Administrative Agent or if the aggregate amount thereof constituting part of the Collateral exceeds $250,000, duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to Administrative Agent. Borrowers shall provide Administrative Agent with "control" (as defined in Article 9 of the UCC) of all Electronic Chattel Paper upon the request of the Administrative Agent or if the aggregate amount thereof constituting part of the Collateral exceeds $250,000, by having Administrative Agent identified as the assignee on the records pertaining to the single authoritative copy thereof and otherwise complying with the applicable elements of control set forth in the UCC. During the existence of any Event of Default or at the request of the Administrative Agent, Borrowers also shall deliver to Administrative Agent all security agreements securing any such Chattel Paper and securing any such Instruments. At the request of the Administrative Agent, Borrowers will mark conspicuously all such Chattel Paper and all such Instruments and Documents with a legend, in form and substance satisfactory to Administrative Agent, indicating that such Chattel Paper and such Instruments and Documents are subject to the security interests and Liens in favor of Administrative Agent created pursuant to this Agreement and the Security Documents. Borrowers shall comply with all the provisions of Section 5.14 with respect to the Deposit Accounts and Securities Accounts of Borrowers. Credit and Security Agreement 35 (ii) If the aggregate face amount thereof exceeds $250,000 or at the request of the Administrative Agent, Borrowers shall deliver to Administrative Agent all letters of credit on which any Borrower is the beneficiary and which give rise to Letter-of-Credit Rights owned by such Borrower which constitute part of the Collateral in each case duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Administrative Agent. Borrowers shall take any and all actions as may be necessary or desirable, or that Administrative Agent may request, from time to time, to cause Administrative Agent to obtain exclusive "control" (as defined in Article 9 of the UCC) of any such Letter-of-Credit Rights in a manner acceptable to Administrative Agent. (iii) Borrowers shall promptly advise Administrative Agent upon any Borrower becoming aware that it has any interests in any Commercial Tort Claim involving an amount in controversy in excess of $1,000,000 that constitutes part of the Collateral, which such notice shall include descriptions of the events and circumstances giving rise to such Commercial Tort Claim and the dates such events and circumstances occurred, the potential defendants with respect such Commercial Tort Claim and any court proceedings that have been instituted with respect to such Commercial Tort Claim, and Borrowers shall, with respect to any such Commercial Tort Claim, execute and deliver to Administrative Agent such documents as Administrative Agent shall reasonably request to perfect, preserve or protect the Liens, rights and remedies of Administrative Agent with respect to any such Commercial Tort Claim. (iv) Except for Accounts and Inventory in an aggregate amount of not more than Five Hundred Thousand Dollars ($500,000), no Accounts or Inventory or other Collateral shall at any time be in the possession or control of any warehouse, consignee, bailee or any of Borrowers' agents or processors without prior written notice to Administrative Agent and the receipt by Administrative Agent, if Administrative Agent has so requested, of warehouse receipts, consignment agreements or bailee lien waivers (as applicable) reasonably satisfactory to Administrative Agent prior to the commencement of such possession or control. Borrower has notified Administrative Agent that Inventory is currently located at the locations set forth on Schedule 9.2. Borrowers shall, upon the request of Administrative Agent, notify any such warehouse, consignee, bailee, agent or processor of the security interests and Liens in favor of Administrative Agent created pursuant to this Agreement and the Security Documents, instruct such Person to hold all such Collateral for Administrative Agent's account subject to Administrative Agent's instructions and shall obtain an acknowledgement from such Person that such Person holds the Collateral for Administrative Agent's benefit. (v) Borrowers shall cause all Equipment and other tangible Personal Property other than Inventory to be maintained and preserved in the same condition, repair and in working order as when new, ordinary wear and tear excepted, and shall promptly make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or desirable to such end. Upon request of Administrative Agent, Borrowers shall promptly deliver to Administrative Agent any and all certificates of title, applications for title or similar evidence of ownership of all such tangible Personal Property and shall cause Administrative Agent to be named as lienholder on any such certificate of title or other evidence of ownership. Borrowers shall not permit any such tangible Personal Property (other than leasehold improvements) to become Fixtures to real estate unless such real estate is subject to a Lien in favor of Administrative Agent. (vi) Each Borrower hereby authorizes Administrative Agent to file without the signature of such Borrower one or more UCC financing statements relating to liens on personal property relating to all or any part of the Collateral, which financing statements may list Administrative Agent as the "secured party" and such Borrower as the "debtor" and which describe and indicate the collateral covered thereby as all or any part of the Collateral under the Financing Documents (including an indication of the collateral covered by any such financing statement as "all assets" of such Borrower now owned or hereafter acquired, excluding only the Excluded Property), in such jurisdictions as Administrative Agent from time to time determines are appropriate, and to file without the signature of such Borrower any continuations of or corrective amendments to any such financing statements, in any such case in order for Administrative Agent to perfect, preserve or protect the Liens, rights and remedies of Administrative Agent with respect to the Collateral. (vii) As of the Closing Date, no Borrower holds, and after the Closing Date Borrowers shall promptly notify Administrative Agent in writing upon creation or acquisition by any Borrower of, any Collateral having a value, individually or in the aggregate, of $100,000, which constitutes a claim against any Governmental Credit and Security Agreement 36 Authority, including, without limitation, the federal government of the United States or any instrumentality or agency thereof, the assignment of which claim is restricted by any applicable Law, including, without limitation, the federal Assignment of Claims Act and any other comparable Law. Upon the request of Administrative Agent, Borrowers shall take such steps as may be necessary or desirable, or that Administrative Agent may request, to comply with any such applicable Law. (viii) Borrowers shall furnish to Administrative Agent from time to time any statements and schedules further identifying or describing the Collateral and any other information, reports or evidence concerning the Collateral as Administrative Agent may reasonably request from time to time. SECTION 9.3 UCC REMEDIES. (a) Upon the occurrence of and during the continuance of an Event of Default under this Agreement or the other Financing Documents, Administrative Agent shall, if requested by the Required Lenders, in addition to all other rights, options, and remedies granted to Administrative Agent under this Agreement or at law or in equity, exercise, either directly or through one or more assignees or designees, all rights and remedies granted to it under all Financing Documents and under the UCC in effect in the applicable jurisdiction(s) and under any other applicable law; including, without limitation: (i) The right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process; (ii) The right to (by its own means or with judicial assistance) enter any of Borrowers' premises and take possession of the Collateral, or render it unusable, or to render it usable or saleable, or dispose of the Collateral on such premises in compliance with subsection (iii) below and to take possession of Borrowers' original books and records, to obtain access to Borrowers' data processing equipment, computer hardware and software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner Administrative Agent deems appropriate, without any liability to Borrowers for rent, storage, utilities, or other sums, and Borrowers shall not resist or interfere with such action (if Borrowers' books and records are prepared or maintained by an accounting service, contractor or other third party agent, Borrowers hereby irrevocably authorize such service, contractor or other agent, upon notice by Administrative Agent to such Person that an Event of Default has occurred and is continuing, to deliver to Administrative Agent or its designees such books and records, and to follow Administrative Agent's instructions with respect to further services to be rendered); (iii) The right to require Borrowers at Borrowers' expense to assemble all or any part of the Collateral and make it available to Administrative Agent at any place designated by the Administrative Agent; (iv) The right to notify postal authorities to change the address for delivery of Borrowers' mail to an address designated by Administrative Agent and to receive, open and dispose of all mail addressed to any Borrower. (v) The right to enforce Borrowers' rights against Account Debtors and other obligors, including, without limitation, (i) the right to collect Accounts directly in Administrative Agent's own name (as agent for Lenders) and to charge the collection costs and expenses, including attorneys' fees, to Borrowers, and (ii) the right, in the name of Administrative Agent or any designee of Administrative Agent or Borrowers, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise, including, without limitation, verification of Borrowers' compliance with applicable Laws. Borrowers shall cooperate fully with Administrative Agent in an effort to facilitate and promptly conclude such verification process. Such verification may include contacts between Administrative Agent and applicable federal, state and local regulatory authorities having jurisdiction over the Borrowers' affairs, all of which contacts Borrowers hereby irrevocably authorize. (b) Each Borrower agrees that a notice received by it at least ten (10) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any Credit and Security Agreement 37 perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Administrative Agent without prior notice to Borrowers. At any sale or disposition of Collateral, Administrative Agent may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrowers, which right is hereby waived and released. Each Borrower covenants and agrees not to interfere with or impose any obstacle to Administrative Agent's exercise of its rights and remedies with respect to the Collateral. Administrative Agent shall have no obligation to clean-up or otherwise prepare the Collateral for sale. Administrative Agent may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. Administrative Agent may sell the Collateral without giving any warranties as to the Collateral. Administrative Agent may specifically disclaim any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. If Administrative Agent sells any of the Collateral upon credit, Borrowers will be credited only with payments actually made by the purchaser, received by Administrative Agent and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Administrative Agent may resell the Collateral and Borrowers shall be credited with the proceeds of the sale. Borrowers shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Obligations. (c) Without restricting the generality of the foregoing and for the purposes aforesaid, each Borrower hereby appoints and constitutes Administrative Agent its lawful attorney-in-fact with full power of substitution in the Collateral, upon the occurrence and during the continuance of a Default, to use unadvanced funds remaining under this Agreement or which may be reserved, escrowed or set aside for any purposes hereunder at any time, or to advance funds in excess of the face amount of the Notes, to pay, settle or compromise all existing bills and claims, which may be Liens or security interests, or to avoid such bills and claims becoming Liens against the Collateral; to execute all applications and certificates in the name of such Borrower and to prosecute and defend all actions or proceedings in connection with the Collateral; and to do any and every act which such Borrower might do in its own behalf; it being understood and agreed that this power of attorney shall be a power coupled with an interest and cannot be revoked. (d) Administrative Agent and each Lender is hereby granted an irrevocable, non-exclusive, royalty-free license or other right to use, without charge, Borrowers' labels, mask works, rights of use of any name, any other Intellectual Property and advertising matter, and any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Administrative Agent's exercise of its rights under this Article, Borrowers' rights under all licenses and all franchise agreements inure to Administrative Agent's and each Lender's benefit. SECTION 9.4 ROYALTY PAYMENTS; EQUIPMENT SECURING PERMITTED INDEBTEDNESS. (a) If the Principal Borrower pledges the Procardia Royalty Payments in favor of any lender other than the Lenders, or if the Principal Borrower sells or otherwise disposes of the Procardia Royalty Payments, then, upon written notice to the Administrative Agent of such pledge, sale or disposition, the Administrative Agent's and the Lenders' Lien on such pledged Procardia Royalty Payments shall be terminated and the Administrative Agent shall, at the Borrowers' written request and at the Borrowers' expense, file an amendment in a form reasonably acceptable to the Administrative Agent to the financing statements filed by the Administrative Agent and the Lenders in connection with the Collateral to evidence the release of the Administrative Agent's and the Lenders' Lien on such pledged Procardia Royalty Payments. In the event that any pledge of the Procardia Royalty Payments referenced above is rescinded, terminated, released or otherwise no longer in effect, the Administrative Agent's and the Lenders' Lien on the Procardia Royalty Payments shall be reinstated and the Administrative Agent shall be authorized to file, at the Borrowers' expense, a further amendment to the financing statements filed by the Administrative Agent and the Lenders in connection with the Collateral to evidence the Administrative Agent's and the Lenders' Lien on the Procardia Royalty Payments. (b) If any Borrower pledges any equipment, attachments thereto and proceeds thereof as security for any equipment financing permitted under clause (c) of the definition of Permitted Indebtedness, and in connection therewith, such Borrower desires that the Administrative Agent and the Lenders release their lien in such equipment, attachments thereto and proceeds thereof, then such Borrower shall provide the Administrative Agent with a written request to release such lien, which written request shall include a description of such equipment and related assets to Credit and Security Agreement 38 be released, and the Administrative Agent shall, at the Borrower's written request and at the Borrowers' expense, file an amendment in a form reasonably acceptable to the Administrative Agent to the financing statements filed by the Administrative Agent and the Lenders in connection with the Collateral to evidence the release of the Administrative Agent's and the Lenders' Lien on such equipment, attachments thereto and proceeds thereof. In the event that the lien in any equipment, attachments and proceeds in favor of any other Person and securing any such financing is rescinded, terminated, released or otherwise no longer in effect, the Administrative Agent's and the Lenders' Lien on such equipment, attachments and proceeds shall be reinstated and the Administrative Agent shall be authorized to file, at the Borrowers' expense, a further amendment to the financing statements filed by the Administrative Agent and the Lenders in connection with the Collateral to evidence the Administrative Agent's and the Lenders' Lien on such equipment, attachments and proceeds.. ARTICLE 10 - EVENTS OF DEFAULT SECTION 10.1 EVENTS OF DEFAULT. For purposes of the Financing Documents, the occurrence of any of the following conditions and/or events, whether voluntary or involuntary, by operation of law or otherwise, shall constitute an "EVENT OF DEFAULT": (a) any Borrower shall fail to pay when due any principal, interest, premium or fee under any Financing Document or any other amount payable under any Financing Document, or there shall occur any default in the performance of or compliance with any of the following sections of this Agreement: Article 5; Sections 4.1, 4.3 (solely as it relates to maintaining its existence), 4.4 and 4.6; (b) any Credit Party defaults in the performance of or compliance with any term contained in this Agreement or in any other Financing Document (other than occurrences described in other provisions of this Section 10.1 for which a different grace or cure period is specified or for which no grace or cure period is specified and thereby constitute immediate Events of Default) and such default is not remedied by the Credit Party or waived by the Required Lenders within thirty (30) days; (c) any representation, warranty, certification or statement made by any Credit Party in any Financing Document or in any certificate, financial statement or other document delivered pursuant to any Financing Document is incorrect in any respect (or in any material respect if such representation, warranty, certification or statement is not by its terms already qualified as to materiality) when made (or deemed made); (d) failure of any Credit Party to pay when due or within any applicable grace period any principal, interest or other amount on Debt (other than the Loans) or in respect of any Swap Contract, or the occurrence of any breach, default, condition or event with respect to any Debt (other than the Loans) or in respect of any Swap Contract, if the effect of such failure or occurrence is to cause or to permit the holder or holders of any such Debt, or the counterparty under any such Swap Contract, to cause, Debt or other liabilities having an individual principal amount in excess of Five Hundred Thousand Dollars ($500,000) or having an aggregate principal amount in excess of One Million Dollars ($1,000,000) to become or be declared due prior to its stated maturity; (e) any Credit Party or any Subsidiary of a Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (f) an involuntary case or other proceeding shall be commenced against any Credit Party or any Subsidiary of a Borrower seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of forty-five (45) days; or Credit and Security Agreement 39 an order for relief shall be entered against any Credit Party or any Subsidiary of a Borrower under applicable federal bankruptcy, insolvency or other similar law in respect of (i) bankruptcy, liquidation, winding-up, dissolution or suspension of general operations, (ii) composition, rescheduling, reorganization, arrangement or readjustment of, or other relief from, or stay of proceedings to enforce, some or all of the debts or obligations, or (iii) possession, foreclosure, seizure or retention, sale or other disposition of, or other proceedings to enforce security over, all or any substantial part of the assets of such Credit Party or Subsidiary; (g) (i) institution of any steps by any Person to terminate a Pension Plan if as a result of such termination any Credit Party or any member of the Controlled Group could reasonably be expected to be required to make a contribution to such Pension Plan in an amount in excess of One Hundred Thousand Dollars ($100,000), or could reasonably be expected to incur a liability or obligation to such Pension Plan, in excess of One Hundred Thousand Dollars ($100,000), (ii) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA, or (iii) there shall occur any withdrawal or partial withdrawal from a Multiemployer Plan and the withdrawal liability (without unaccrued interest) to Multiemployer Plans as a result of such withdrawal (including any outstanding withdrawal liability that any Credit Party or any member of the Controlled Group have incurred on the date of such withdrawal) exceeds One Hundred Thousand Dollars ($100,000); (h) one or more judgments or orders for the payment of money (not paid or fully covered by insurance maintained in accordance with the requirements of this Agreement and as to which the relevant insurance company has acknowledged coverage) aggregating in excess of One Million Dollars ($1,000,000) shall be rendered against any or all Credit Parties and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgments or orders, or (ii) there shall be any period of twenty (20) consecutive days during which a stay of enforcement of any such judgments or orders, by reason of a pending appeal, bond or otherwise, shall not be in effect; (i) any Lien created by any of the Security Documents shall at any time fail to constitute a valid and perfected Lien on any portion of the Collateral having a value in excess of Two Hundred Fifty Thousand Dollars ($250,000) and purported to be encumbered thereby, subject to no prior or equal Lien except Permitted Liens, or any Credit Party shall so assert; (j) the institution by any Governmental Authority of criminal proceedings involving an alleged felony against any Credit Party; (k) a default or event of default occurs under any Guarantee of any portion of the Obligations; (l) any Borrower makes any payment on account of any Debt that has been subordinated to any of the Obligations, other than payments specifically permitted by the terms of such subordination; (m) if any Borrower is or becomes an entity whose equity is registered with the SEC, and/or is publicly traded on and/or registered with a public securities exchange, such Borrower's equity fails to remain registered with the SEC in good standing, and/or such equity fails to remain publicly traded on and registered with a public securities exchange; (n) the occurrence of any fact, event or circumstance that has a Material Adverse Effect, if such default shall have continued unremedied for a period of ten (10) days after written notice from Administrative Agent or the Required Lenders; or (o) if any Financing Document or any material provision thereof is deemed null and void or any Credit Party repudiates or denies in writing any portion of its liability or obligation for the Obligations. All cure periods provided for in this Section shall run concurrently with any cure period provided for in any applicable Financing Documents under which the default occurred. SECTION 10.2 ACCELERATION AND SUSPENSION OR TERMINATION OF TERM LOAN COMMITMENT. Upon the Credit and Security Agreement 40 occurrence and during the continuance of an Event of Default, Administrative Agent shall, if requested by Required Lenders, (a) by notice to Borrower Representative suspend or terminate the Term Loan Commitment and the obligations of Administrative Agent and Lenders with respect thereto, in whole or in part (and, if in part, each Lender's Term Loan Commitment shall be reduced in accordance with its Pro Rata Share), and/or (b) by notice to Borrower Representative declare all or any portion of the Obligations to be, and all or such portion of the Obligations shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower and Borrowers will pay the same; provided, however, that in the case of any of the Events of Default specified in Section 10.1(e) or 10.1(f) above, without any notice to any Borrower or any other act by Administrative Agent or the Lenders, the Term Loan Commitment and the obligations of Administrative Agent and the Lenders with respect thereto shall thereupon immediately and automatically terminate and all of the Obligations shall become immediately and automatically due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower and Borrowers will pay the same. SECTION 10.3 RESERVED. SECTION 10.4 DEFAULT RATE OF INTEREST. At the election of Required Lenders, after the occurrence of an Event of Default and for so long as it continues, the Loans and other Obligations shall bear interest at rates that are five percent (5%) per annum in excess of the rates otherwise payable under this Agreement; provided that, notwithstanding anything to the contrary contained in the foregoing or otherwise in this Agreement, the increased rates of default interest provided for in this section shall be applicable automatically and immediately upon the occurrence and during the continuance of any Event of Default occurring under Section 10.1(e) or 10.1(f) above without the necessity of any further affirmative action by any party. SECTION 10.5 SETOFF RIGHTS. During the continuance of any Event of Default, each Lender is hereby authorized by each Borrower at any time or from time to time, with reasonably prompt subsequent notice to such Borrower (provided that any failure to provide any such notice shall not impair the validity of the applicable set-off right) (any prior or contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances held by such Lender or any of such Lender's Affiliates at any of its offices for the account of such Borrower or any of its Subsidiaries (regardless of whether such balances are then due to such Borrower or its Subsidiaries), and (b) other property at any time held or owing by such Lender to or for the credit or for the account of such Borrower or any of its Subsidiaries, against and on account of any of the Obligations; except that no Lender shall exercise any such right without the prior written consent of Administrative Agent. Any Lender exercising a right to set off shall purchase for cash (and the other Lenders shall sell) interests in each of such other Lender's Pro Rata Share of the Obligations as would be necessary to cause all Lenders to share the amount so set off with each other Lender in accordance with their respective Pro Rata Share of the Obligations. Each Borrower agrees, to the fullest extent permitted by law, that any Lender and any of such Lender's Affiliates may exercise its right to set off with respect to the Obligations as provided in this Section 10.5. SECTION 10.6 APPLICATION OF PROCEEDS. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, (a) each Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Administrative Agent from or on behalf of such Borrower or any other Credit Party of all or any part of the Obligations, and, as between Borrowers on the one hand and Administrative Agent and Lenders on the other, Administrative Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received against the Obligations in such manner as Administrative Agent may deem advisable notwithstanding any previous application by Administrative Agent, and (b) the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any payment after an Event of Default shall be applied: first, to all fees, costs, indemnities, liabilities, obligations and expenses incurred by or owing to Administrative Agent, in its capacity as Administrative Agent and not in its capacity as a Lender, with respect to this Agreement, the other Financing Documents or the Collateral; second, to all fees, costs, indemnities, liabilities, obligations and expenses incurred by or owing to any Lender with respect to this Agreement, the other Financing Documents or the Collateral; third, to accrued and unpaid interest on the Obligations (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts); fourth, to any other indebtedness or obligations of Borrowers owing to Administrative Agent or any Lender under the Financing Documents; and fifth, to the Obligations owing to any Eligible Swap Counterparty in respect of any Swap Contracts. Any balance remaining Credit and Security Agreement 41 shall be delivered to Borrowers or to whoever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct. In carrying out the foregoing, (x) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category, and (y) each of the Persons entitled to receive a payment in any particular category shall receive an amount equal to its pro rata share of amounts available to be applied pursuant thereto for such category. SECTION 10.7 WAIVERS. (a) Except as otherwise provided for in this Agreement and to the fullest extent permitted by applicable law, each Borrower waives: (i) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Financing Documents, the Notes or any other notes, commercial paper, Accounts, contracts, Documents, Instruments, Chattel Paper and Guarantees at any time held by Lenders on which any Borrower may in any way be liable; (ii) all rights to notice and a hearing prior to Administrative Agent's or any Lender's taking possession or control of, or to Administrative Agent's or any Lender's replevy, attachment or levy upon, any Collateral or any bond or security which might be required by any court prior to allowing Administrative Agent or any Lender to exercise any of its remedies; and (iii) the benefit of all valuation, appraisal and exemption Laws. Each Borrower acknowledges that it has been advised by counsel of its choices and decisions with respect to this Agreement, the other Financing Documents and the transactions evidenced hereby and thereby. (b) Each Borrower for itself and all its successors and assigns, (i) agrees that its liability shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by Administrative Agent or any Lender; (ii) consents to any indulgences and all extensions of time, renewals, waivers, or modifications that may be granted by Administrative Agent or any Lender with respect to the payment or other provisions of the Financing Documents, and to any substitution, exchange or release of the Collateral, or any part thereof, with or without substitution, and agrees to the addition or release of any Borrower, endorsers, guarantors, or sureties, or whether primarily or secondarily liable, without notice to any other Borrower and without affecting its liability hereunder; (iii) agrees that its liability shall be unconditional and without regard to the liability of any other Borrower, Administrative Agent or any Lender for any tax on the indebtedness; and (iv) to the fullest extent permitted by law, expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. (c) To the extent that Administrative Agent or any Lender may have acquiesced in any noncompliance with any requirements or conditions precedent to the closing of the Loans or to any subsequent disbursement of Loan proceeds, such acquiescence shall not be deemed to constitute a waiver by Administrative Agent or any Lender of such requirements with respect to any future disbursements of Loan proceeds and Administrative Agent may at any time after such acquiescence require Borrowers to comply with all such requirements. Any forbearance by Administrative Agent or any Lender in exercising any right or remedy under any of the Financing Documents, or otherwise afforded by applicable law, including any failure to accelerate the maturity date of the Loans, shall not be a waiver of or preclude the exercise of any right or remedy nor shall it serve as a novation of the Notes or as a reinstatement of the Loans or a waiver of such right of acceleration or the right to insist upon strict compliance of the terms of the Financing Documents. Administrative Agent's or any Lender's acceptance of payment of any sum secured by any of the Financing Documents after the due date of such payment shall not be a waiver of Administrative Agent's and such Lender's right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. The procurement of insurance or the payment of taxes or other Liens or charges by Administrative Agent as the result of an Event of Default shall not be a waiver of Administrative Agent's right to accelerate the maturity of the Loans, nor shall Administrative Agent's receipt of any condemnation awards, insurance proceeds, or damages under this Agreement operate to cure or waive any Credit Party's default in payment of sums secured by any of the Financing Documents. (d) Without limiting the generality of anything contained in this Agreement or the other Financing Documents, each Borrower agrees that if an Event of Default is continuing (i) Administrative Agent and Lenders shall not be subject to any "one action" or "election of remedies" law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Administrative Agent or Lenders shall remain in full force and effect until Administrative Agent or Lenders have exhausted all remedies against the Collateral and any other properties owned by Borrowers and the Financing Documents and other security instruments or agreements securing the Loans have Credit and Security Agreement 42 been foreclosed, sold and/or otherwise realized upon in satisfaction of Borrowers' obligations under the Financing Documents. (e) Nothing contained herein or in any other Financing Document shall be construed as requiring Administrative Agent or any Lender to resort to any part of the Collateral for the satisfaction of any of Borrowers' obligations under the Financing Documents in preference or priority to any other Collateral, and Administrative Agent may seek satisfaction out of all of the Collateral or any part thereof, in its absolute discretion in respect of Borrowers' obligations under the Financing Documents. In addition, Administrative Agent shall have the right from time to time during the existence of any Event of Default to partially foreclose upon any Collateral in any manner and for any amounts secured by the Financing Documents then due and payable as determined by Administrative Agent in its sole discretion (acting upon the direction of the Required Lenders), including, without limitation, the following circumstances: (i) in the event any Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and/or interest, Administrative Agent may foreclose upon all or any part of the Collateral to recover such delinquent payments, or (ii) in the event Administrative Agent elects, during the existence of any Event of Default, to accelerate less than the entire outstanding principal balance of the Loans, Administrative Agent may foreclose all or any part of the Collateral to recover so much of the principal balance of the Loans as Administrative Agent may accelerate and such other sums secured by one or more of the Financing Documents as Administrative Agent may elect. Notwithstanding one or more partial foreclosures, any unforeclosed Collateral shall remain subject to the Financing Documents to secure payment of sums secured by the Financing Documents and not previously recovered. (f) To the fullest extent permitted by law, each Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Collateral any equitable right otherwise available to any Credit Party which would require the separate sale of any of the Collateral or require Administrative Agent or Lenders to exhaust their remedies against any part of the Collateral before proceeding against any other part of the Collateral; and further in the event of such foreclosure each Borrower does hereby expressly consent to and authorize, at the option of Administrative Agent, the foreclosure and sale either separately or together of each part of the Collateral. SECTION 10.8 INJUNCTIVE RELIEF. The parties acknowledge and agree that, in the event of a breach or threatened breach of any Credit Party's obligations under any Financing Documents, Administrative Agent and Lenders may have no adequate remedy in money damages and, accordingly, shall be entitled to an injunction (including, without limitation, a temporary restraining order, preliminary injunction, writ of attachment, or order compelling an audit) against such breach or threatened breach, including, without limitation, maintaining any cash management and collection procedure described herein. However, no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against any other legal or equitable remedies in the event of a breach or threatened breach of any provision of this Agreement. Each Credit Party waives, to the fullest extent permitted by law, the requirement of the posting of any bond in connection with such injunctive relief. By joining in the Financing Documents as a Credit Party, each Credit Party specifically joins in this Section as if this Section were a part of each Financing Document executed by such Credit Party. SECTION 10.9 MARSHALLING. Administrative Agent and Lenders shall have no obligation to marshal any assets in favor of any Credit Party, or against or in payment of any of the other Obligations or any other obligation owed to Administrative Agent or Lenders by any Credit Party and each Credit Party hereby waives any such right to marshalling (and by joining in the Financing Documents as a Credit Party, each Credit Party specifically joins in this Section as if this Section were a part of each Financing Document executed by such Credit Party). ARTICLE 11 - AGENT SECTION 11.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby irrevocably appoints and authorizes Administrative Agent to be such Lender's agent under and with respect to this Agreement and the other Financing Documents and the transactions contemplated hereby and thereby to the extent provided for herein and therein and in any separate interlender or agency agreement entered into by Lenders and Administrative Agent in connection herewith and therewith and more specifically (without limiting the generality of the foregoing) to enter into each of the Financing Documents to which such Lender is a party (other than this Agreement) on its behalf and to take such actions as Administrative Agent on such Lender's behalf and to exercise such powers under the Financing Documents as are delegated to Administrative Agent by the terms thereof, and/or by the terms of any Credit and Security Agreement 43 interlender or agency agreement entered into among Administrative Agent and Lenders, together with all such powers as are reasonably incidental thereto. Subject to the terms of Section 12.5 below and the other Financing Documents and/or any such interlender or agency agreement, Administrative Agent is authorized and empowered to amend, modify, or waive any provisions of this Agreement or the other Financing Documents on behalf of Lenders. The provisions of this Article 11 are solely for the benefit of Administrative Agent and Lenders and neither any Borrower nor any other Credit Party shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, Administrative Agent shall act solely as agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any Borrower or any other Credit Party. Administrative Agent may perform any of its duties hereunder, or under the Financing Documents and/or any such interlender or agency agreement, by or through its agents or employees. SECTION 11.2 LIABILITY OF ADMINISTRATIVE AGENT. Neither Administrative Agent nor any of its directors, officers, agents or employees shall be liable to any Lender for any action taken or not taken by it in connection with the Financing Documents, except that Administrative Agent shall be liable with respect to its specific duties set forth hereunder but only to the extent of its own gross negligence or willful misconduct in the discharge thereof as determined by a final non-appealable judgment of a court of competent jurisdiction. Neither Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (a) any statement, warranty or representation made in connection with any Financing Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements specified in any Financing Document; (c) the satisfaction of any condition specified in any Financing Document; (d) the validity, effectiveness, sufficiency or genuineness of any Financing Document, any Lien purported to be created or perfected thereby or any other instrument or writing furnished in connection therewith; (e) the existence or non-existence of any Default or Event of Default; or (f) the financial condition of any Credit Party. Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile or electronic transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. Administrative Agent shall not be liable for any apportionment or distribution of payments made by it in good faith and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). SECTION 11.3 INDEMNIFICATION. Each Lender shall, in accordance with its Pro Rata Share, indemnify Administrative Agent (to the extent not reimbursed by Borrowers) upon demand against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from Administrative Agent's gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction) that Administrative Agent, in its capacity as Administrative Agent and not in its capacity as a Lender, may suffer or incur in connection with the Financing Documents or any action taken or omitted by Administrative Agent hereunder or thereunder. If any indemnity furnished to Administrative Agent for any purpose shall, in the opinion of Administrative Agent, be insufficient or become impaired, Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against even if so directed by Required Lenders until such additional indemnity is furnished. SECTION 11.4 COLLATERAL MATTERS. Lenders irrevocably authorize Administrative Agent, at its option and in its discretion, to (a) release any Lien granted to or held by Administrative Agent under any Security Document (i) upon termination of the Loan Commitment and payment in full of all Obligations, and, to the extent required by Administrative Agent in its sole discretion, the expiration, termination or cash collateralization (to the satisfaction of Administrative Agent) of all Swap Contracts secured, in whole or in part, by any Collateral; or (ii) constituting property sold or disposed of as part of or in connection with any disposition permitted under any Financing Document (it being understood and agreed that Administrative Agent may conclusively rely without further inquiry on a certificate of a Responsible Officer as to the sale or other disposition of property being made in full compliance with the provisions of the Financing Documents); and (b) release or subordinate any Lien granted to or held by Administrative Agent under any Security Document constituting personal property described in Section 5.7 (it being understood and agreed that Administrative Agent may conclusively rely without further inquiry on a certificate of a Responsible Officer as to the identification of any personal property described in Section 5.7). Upon Credit and Security Agreement 44 request by Administrative Agent at any time, Lenders will confirm Administrative Agent's authority to release and/or subordinate particular types or items of Collateral pursuant to this Section 11.4. SECTION 11.5 AGENCY FOR PERFECTION. Administrative Agent and each Lender hereby appoint each other Lender as agent for the purpose of perfecting Administrative Agent's security interest in assets which, in accordance with the Uniform Commercial Code in any applicable jurisdiction, can be perfected by possession or control. Should any Lender (other than Administrative Agent) obtain possession or control of any such assets, such Lender shall notify Administrative Agent thereof, and, promptly upon Administrative Agent's request therefor, shall deliver such assets to Administrative Agent or in accordance with Administrative Agent's instructions or transfer control to Administrative Agent in accordance with Administrative Agent's instructions. Each Lender agrees that it will not have any right individually to enforce or seek to enforce any Security Document or to realize upon any Collateral for the Loan unless instructed to do so by Administrative Agent (except as provided in Section 10.5), it being understood and agreed that such rights and remedies may be exercised only by Administrative Agent. SECTION 11.6 SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may at any time give notice of its resignation to the Lenders and Borrowers. Upon receipt of any such notice of resignation, Required Lenders shall have the right, in consultation with Borrowers (provided no Event of Default has occurred and is continuing), to appoint a successor Administrative Agent. Upon the acceptance of a successor's appointment as Administrative Agent hereunder and notice of such acceptance to the retiring Administrative Agent, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, the retiring Administrative Agent's resignation shall become immediately effective and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder and under the other Financing Documents (if such resignation was not already effective and such duties and obligations not already discharged, as provided below in this paragraph). The fees payable by Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed among Borrowers and such successor. If no such successor shall have been so appointed by Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders (but without any obligation) appoint a successor Administrative Agent. From and following the expiration of such thirty (30) day period, Administrative Agent shall have the exclusive right, upon one (1) Business Days' notice to Borrower Representative and the Lenders, and the delivery to a Lender, for the benefit of all Lenders, of all Collateral in the possession of the retiring Administrative Agent, to make its resignation effective immediately. From and following the effectiveness of such notice, (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Financing Documents, and (b) all payments, communications and determinations provided to be made by, to or through Administrative Agent shall instead be made by or to each Lender directly, until such time as Required Lenders appoint a successor Administrative Agent as provided for above in this paragraph. The provisions of this Agreement shall continue in effect for the benefit of any retiring Administrative Agent and its sub-agents after the effectiveness of its resignation hereunder and under the other Financing Documents in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting or was continuing to act as Administrative Agent. SECTION 11.7 PAYMENT AND SHARING OF PAYMENT. (a) Loan Payments. Payments of principal, interest and fees in respect of the Loan will be settled on the date of receipt if received by Administrative Agent on a Business Day prior to noon (Chicago time) or on the Business Day immediately following the date of receipt if received after noon (Chicago time). All payments of principal, interest and fees (other than fees owed to Administrative Agent, in its capacity as Administrative Agent and not as a Lender, pursuant to the express provisions of this Agreement), shall be allocated among the Lenders in accordance with their respective Pro Rata Shares. (b) Return of Payments. (i) If Administrative Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Administrative Agent from a Borrower and such related payment is not received by Administrative Agent, then Administrative Agent will be entitled to recover such Credit and Security Agreement 45 amount from such Lender on demand without setoff, counterclaim or deduction of any kind, together with interest accruing on a daily basis at the Federal Funds Rate. (ii) If Administrative Agent determines at any time that any amount received by Administrative Agent under this Agreement must be returned to any Borrower or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Financing Document, Administrative Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Administrative Agent on demand any portion of such amount that Administrative Agent has distributed to such Lender, together with interest at such rate, if any, as Administrative Agent is required to pay to any Borrower or such other Person, without setoff, counterclaim or deduction of any kind. (c) Defaulted Lenders. The failure of any Defaulted Lender to make any payment required by it hereunder shall not relieve any other Lender of its obligations to make payment, but neither any other Lender nor Administrative Agent shall be responsible for the failure of any Defaulted Lender to make any payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Defaulted Lender shall not have any voting or consent rights under or with respect to any Financing Document or constitute a "Lender" (or be included in the calculation of "Required Lenders" hereunder) for any voting or consent rights under or with respect to any Financing Document. (d) Sharing of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan in excess of its Pro Rata Share of payments entitled pursuant to the other provisions of this Section 11.7, such Lender shall purchase from the other Lenders such participations in extensions of credit made by such other Lenders (without recourse, representation or warranty) as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery, without interest. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this clause (d) may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 10.5) with respect to such participation as fully as if such Lender were the direct creditor of Borrowers in the amount of such participation). If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this clause (d) applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this clause (d) to share in the benefits of any recovery on such secured claim. SECTION 11.8 RIGHT TO PERFORM, PRESERVE AND PROTECT. If any Credit Party fails to perform any obligation hereunder or under any other Financing Document, Administrative Agent itself may, but shall not be obligated to, cause such obligation to be performed at Borrowers' expense. Administrative Agent is further authorized by Borrowers and the Lenders to make expenditures from time to time which Administrative Agent, in its reasonable business judgment, deems necessary or desirable to (a) preserve or protect the business conducted by Borrowers, the Collateral, or any portion thereof, and/or (b) enhance the likelihood of, or maximize the amount of, repayment of the Loan and other Obligations. Each Borrower hereby agrees to reimburse Administrative Agent on demand for any and all costs, liabilities and obligations incurred by Administrative Agent pursuant to this Section 11.8. Each Lender hereby agrees to indemnify Administrative Agent upon demand for any and all costs, liabilities and obligations incurred by Administrative Agent pursuant to this Section 11.8, in accordance with the provisions of Section 11.3. SECTION 11.9 ADMINISTRATIVE AGENT AND AFFILIATES. Administrative Agent shall have the same rights and powers under the Financing Documents as any other Lender and may exercise or refrain from exercising the same as though it were not Administrative Agent, and Administrative Agent and its Affiliates may lend money to, invest in and generally engage in any kind of business with each Credit Party or Affiliate of any Credit Party as if it were not Administrative Agent hereunder. SECTION 11.10 ACTION BY ADMINISTRATIVE AGENT. The duties of Administrative Agent shall be mechanical and administrative in nature. Administrative Agent shall not have by reason of this Agreement a Credit and Security Agreement 46 fiduciary relationship in respect of any Lender. Nothing in this Agreement or any of the Financing Documents is intended to or shall be construed to impose upon Administrative Agent any obligations in respect of this Agreement or any of the Financing Documents except as expressly set forth herein or therein. SECTION 11.11 CONSULTATION WITH EXPERTS. Administrative Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 11.12 RIGHT TO REQUEST AND ACT ON INSTRUCTIONS. Administrative Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the Financing Documents Administrative Agent is permitted or desires to take or to grant, and if such instructions are promptly requested, Administrative Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Financing Documents until it shall have received such instructions from Required Lenders or all or such other portion of the Lenders as shall be prescribed by this Agreement. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Administrative Agent as a result of Administrative Agent acting or refraining from acting under this Agreement or any of the other Financing Documents in accordance with the instructions of Required Lenders (or all or such other portion of the Lenders as shall be prescribed by this Agreement) and, notwithstanding the instructions of Required Lenders (or such other applicable portion of the Lenders), Administrative Agent shall have no obligation to take any action if it believes, in good faith, that such action would violate applicable Law or exposes Administrative Agent to any liability for which it has not received satisfactory indemnification in accordance with the provisions of Section 11.3. SECTION 11.13 CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under the Financing Documents. SECTION 11.14 NOTICE OF DEFAULT. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default except with respect to defaults in the payment of principal, interest and fees required to be paid to Administrative Agent for the account of Lenders, unless Administrative Agent shall have received written notice from a Lender or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". Administrative Agent will notify each Lender of its receipt of any such notice. Administrative Agent shall take such action with respect to such Default or Event of Default as may be requested by Required Lenders (or all or such other portion of the Lenders as shall be prescribed by this Agreement) in accordance with the terms hereof. Unless and until Administrative Agent has received any such request, Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interests of Lenders. SECTION 11.15 ADDITIONAL TITLED AGENTS. Except for rights and powers, if any, expressly reserved under this Agreement to any bookrunner, arranger or to any titled agent named on the cover page of this Agreement, other than Administrative Agent (collectively, the "Additional Titled Agents"), and except for obligations, liabilities, duties and responsibilities, if any, expressly assumed under this Agreement by any Additional Titled Agent, no Additional Titled Agent, in such capacity, has any rights, powers, liabilities, duties or responsibilities hereunder or under any of the other Financing Documents. Without limiting the foregoing, no Additional Titled Agent shall have nor be deemed to have a fiduciary relationship with any Lender. At any time that any Lender serving as an Additional Titled Agent shall have transferred to any other Person (other than any Affiliates) all of its interests in the Loan, such Lender shall be deemed to have concurrently resigned as such Additional Titled Agent. SECTION 11.16 RESERVED. Credit and Security Agreement 47 SECTION 11.17 DEFINITIONS. As used in this Article 11, the following terms have the following meanings: "ADDITIONAL TITLED AGENTS" has the meaning set forth in Section 11.15. "FEDERAL FUNDS RATE" means, for any day, the rate of interest per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided, however, that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day, and (b) if no such rate is so published on such next preceding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Administrative Agent on such day on such transactions as determined by Administrative Agent. ARTICLE 12 - MISCELLANEOUS SECTION 12.1 SURVIVAL. All agreements, representations and warranties made herein and in every other Financing Document shall survive the execution and delivery of this Agreement and the other Financing Documents. The provisions of Section 2.8 and Articles 10, 11 and 12 shall survive the payment of the Obligations (both with respect to any Lender and all Lenders collectively) and any termination of this Agreement and any judgment with respect to any Obligations, including any final foreclosure judgment with respect to any Security Document, and no unpaid or unperformed, current or future, Obligations will merge into any such judgment. SECTION 12.2 NO WAIVERS. No failure or delay by Administrative Agent or any Lender in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Any reference in any Financing Document to the "continuing" nature of any Event of Default shall not be construed as establishing or otherwise indicating that any Borrower or any other Credit Party has the independent right to cure any such Event of Default, but is rather presented merely for convenience should such Event of Default be waived in accordance with the terms of the applicable Financing Documents. SECTION 12.3 NOTICES. (a) All notices, requests and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to such party at its address, facsimile number or e-mail address set forth on the signature pages hereof (or, in the case of any such Lender who becomes a Lender after the date hereof, in an assignment agreement or in a notice delivered to Borrower Representative and Administrative Agent by the assignee Lender forthwith upon such assignment) or at such other address, facsimile number or e-mail address as such party may hereafter specify for the purpose by notice to Administrative Agent and Borrower Representative; provided, however, that notices, requests or other communications shall be permitted by electronic means only in accordance with the provisions of Section 12.3(b) and (c). Each such notice, request or other communication shall be effective (i) if given by facsimile, when such notice is received during normal business hours to the facsimile number specified by this Section and the sender receives a confirmation of transmission from the sending facsimile machine, or (ii) if given by mail, prepaid overnight courier or any other means, when received during normal business hours or when receipt is refused at the applicable address specified by this Section 12.3(a); provided, however, that if any such notice or other communication is not received during normal business hours, such notice or communication shall be deemed to have been received at the opening of business on the next Business Day. (b) Notices and other communications to the parties hereto may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved from time to time by Administrative Agent, provided, however, that the foregoing shall not apply to notices sent directly to any Lender if such Lender has notified the Administrative Agent that it is incapable of receiving notices by electronic communication. The Administrative Agent or Borrower Representative may, in their discretion, agree to accept notices and other communications to them hereunder by electronic communications pursuant to procedures Credit and Security Agreement 48 approved by it, provided, however, that approval of such procedures may be limited to particular notices or communications. (c) Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgment from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgment), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor, provided, however, that if any such notice or other communication is not sent or posted during normal business hours, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day. SECTION 12.4 SEVERABILITY. In case any provision of or obligation under this Agreement or any other Financing Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 12.5 AMENDMENTS AND WAIVERS. (a) No provision of this Agreement or any other Financing Document may be amended, waived or otherwise modified unless such amendment, waiver or other modification is in writing and is signed or otherwise approved by Borrowers and the Required Lenders; provided that (i) no such amendment, waiver or other modification that would have the effect of increasing or reducing a Lender's Term Loan Commitment Amount or Term Loan Commitment Percentage shall be effective as to such Lender without such Lender's written consent; (ii) no such amendment, waiver or modification that would affect the rights and duties of Administrative Agent shall be effective without Administrative Agent's written consent or signature; (iii) no such amendment, waiver or other modification shall, unless signed by all the Lenders directly affected thereby, (A) reduce the principal of, rate of interest on or any fees with respect to any Loan or forgive any principal, interest (other than default interest) or fees (other than late charges) with respect to any Loan (B) postpone the date fixed for, or waive, any payment of principal of any Loan or of interest on any Loan (other than default interest) or any fees provided for hereunder (other than late charges or for any termination of any commitment); (C) change the definition of the term Required Lenders or the percentage of Lenders which shall be required for Lenders to take any action hereunder; (D) release all or substantially all or any material portion of the Collateral, authorize any Borrower to sell or otherwise dispose of all or substantially all or any material portion of the Collateral, subordinate the Liens of the Administrative Agent or the Lenders hereunder, or release any Guarantor of all or any portion of the Obligations or its Guarantee obligations with respect thereto, except, in each case with respect to this clause (D), as otherwise may be expressly permitted under this Agreement or the other Financing Documents (including in connection with any disposition permitted hereunder); (E) amend, waive or otherwise modify this Section 12.5 or the definitions of the terms used in this Section 12.5 insofar as the definitions affect the substance of this Section 12.5; (F) consent to the assignment, delegation or other transfer by any Credit Party of any of its rights and obligations under any Financing Document or release any Borrower of its payment obligations under any Financing Document, except, in each case with respect to this clause (F), pursuant to a merger or consolidation permitted pursuant to this Agreement or (G) amend any of the provisions of Section 10.6 or 11.7 or amend any of the definitions Pro Rata Share, Term Loan Commitment, Term Loan Commitment Amount, Term Loan Commitment Percentage or that provide for the Lenders to receive their Pro Rata Shares of any fees, payments, setoffs or proceeds of Collateral hereunder. It is hereby understood and agreed that all Lenders shall be deemed directly affected by an amendment, waiver or other modification of the type described in the preceding clauses (C), (D), (E), (F) and (G) of the preceding sentence; (iv) the provisions of the foregoing clauses (i), (ii) and (iii) are subject to the provisions of any interlender or agency agreement among the Lenders and Administrative Agent pursuant to which any Lender Credit and Security Agreement 49 may agree to give its consent in connection with any amendment, waiver or modification of the Financing Documents only in the event of the unanimous agreement of all Lenders. (b) Without limitation of the provisions of the preceding clause (a), no waiver, amendment or other modification to this Agreement shall, unless signed by each Eligible Swap Counterparty then in existence, modify the provisions of Section 10.6 in any manner adverse to the interests of each such Eligible Swap Counterparty. SECTION 12.6 ASSIGNMENTS; PARTICIPATIONS; REPLACEMENT OF LENDERS. (a) Assignments. (i) Any Lender may at any time assign to one or more Eligible Assignees all or any portion of such Lender's Loans and interest in the Term Loan Commitment, together with all related obligations of such Lender hereunder. Except as Administrative Agent may otherwise agree, the amount of any such assignment (determined as of the date of the applicable Assignment Agreement or, if a "Trade Date" is specified in such Assignment Agreement, as of such Trade Date) shall be in a minimum aggregate amount equal to $1,000,000 or, if less, the assignor's entire interests in the Term Loan Commitment and outstanding Loans; provided, that, in connection with simultaneous assignments to two or more related Approved Funds, such Approved Funds shall be treated as one assignee for purposes of determining compliance with the minimum assignment size referred to above. Borrowers and Administrative Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned to an Eligible Assignee until Administrative Agent shall have received and accepted an effective Assignment Agreement executed, delivered and fully completed by the applicable parties thereto, such other information regarding such Eligible Assignee as Administrative Agent reasonably shall require and a processing fee of $3,500; provided, only one processing fee shall be payable in connection with simultaneous assignments to two or more related Approved Funds. (ii) From and after the date on which the conditions described above have been met, (i) such Eligible Assignee shall be deemed automatically to have become a party hereto and, to the extent of the interests assigned to such Eligible Assignee pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (ii) the assigning Lender, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, shall be released from its rights and obligations hereunder (other than those that survive termination pursuant to Section 12.1). Upon the request of the Eligible Assignee (and, as applicable, the assigning Lender) pursuant to an effective Assignment Agreement, Borrower shall execute and deliver to Administrative Agent for delivery to the Eligible Assignee (and, as applicable, the assigning Lender) Notes in the aggregate principal amount of the Eligible Assignee's percentage interest in the Term Loan Commitment (and, as applicable, Notes in the principal amount of that portion of the Term Loan Commitment retained by the assigning Lender). Upon receipt by the assigning Lender of such Note, the assigning Lender shall return to Borrower any prior Note held by it. (iii) Administrative Agent, acting solely for this purpose as an agent of Borrower, shall maintain at its offices located in Chicago, Illinois a copy of each Assignment Agreement delivered to it and a register for the recordation of the names and addresses of each Lender, and the commitments of, and principal amount of the Loans owing to, such Lender pursuant to the terms hereof. The entries in such register shall be conclusive, and Borrower, Administrative Agent and Lenders may treat each Person whose name is recorded therein pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. Such register shall be available for inspection by Borrower and any Lender, at any reasonable time upon reasonable prior notice to Administrative Agent. (iv) Notwithstanding the foregoing provisions of this Section 12.6(a) or any other provision of this Agreement, any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (v) Notwithstanding the foregoing provisions of this Section 12.6(a) or any other provision of this Agreement, Administrative Agent has the right, but not the obligation, to effectuate assignments of Loans and Credit and Security Agreement 50 Term Loan Commitments via an electronic settlement system acceptable to Administrative Agent as designated in writing from time to time to the Lenders by Administrative Agent (the "SETTLEMENT SERVICE"). At any time when the Administrative Agent elects, in its sole discretion, to implement such Settlement Service, each such assignment shall be effected by the assigning Lender and proposed assignee pursuant to the procedures then in effect under the Settlement Service, which procedures shall be consistent with the other provisions of this Section 12.6(a). Each assigning Lender and proposed Eligible Assignee shall comply with the requirements of the Settlement Service in connection with effecting any assignment of Loans and Term Loan Commitments pursuant to the Settlement Service (without any cost to the Lender, except for the processing fee referred to in clause (1) above). With the prior approval of each of Administrative Agent and the Borrower, Administrative Agent's and the Borrower's approval of such Eligible Assignee shall be deemed to have been automatically granted with respect to any transfer effected through the Settlement Service. Assignments and assumptions of the Loans and Term Loan Commitments shall be effected by the provisions otherwise set forth herein until Administrative Agent notifies Lenders of the Settlement Service as set forth herein. (b) Participations. Any Lender may at any time, without the consent of, or notice to, Borrower or Administrative Agent, sell to one or more Persons participating interests in its Loans, commitments or other interests hereunder (any such Person, a "PARTICIPANT"). In the event of a sale by a Lender of a participating interest to a Participant, (a) such Lender's obligations hereunder shall remain unchanged for all purposes, (b) Borrower and Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations hereunder and (c) all amounts payable by Borrower shall be determined as if such Lender had not sold such participation and shall be paid directly to such Lender. No Participant shall have any direct or indirect voting rights hereunder except with respect to any event described in Section 12.5 expressly requiring the unanimous vote of all Lenders or, as applicable, all affected Lenders. Borrower agrees that if amounts outstanding under this Agreement are due and payable (as a result of acceleration or otherwise), each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement; provided that such right of set-off shall be subject to the obligation of each Participant to share with Lenders, and Lenders agree to share with each Participant, as provided in Section 10.5. (c) Replacement of Lenders. Within thirty (30) days after: (i) receipt by Administrative Agent of notice and demand from any Lender for payment of additional costs as provided in Section 2.8(d), which demand shall not have been revoked, (ii) Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.8(a) or 2.8(b), or (iii) any Lender is a Defaulted Lender, and the circumstances causing such status shall not have been cured or waived (each relevant Lender in the foregoing clauses (i) through (iii) being an "AFFECTED LENDER"), each of Borrower and Administrative Agent may, at its option, notify such Affected Lender and, in the case of Borrower election, the Administrative Agent, of such Person's intention to obtain, at Borrowers' expense, a replacement Lender ("REPLACEMENT LENDER") for such Lender, which Replacement Lender shall be an Eligible Assignee. In the event Administrative Agent obtains a Replacement Lender within ninety (90) days following notice of its intention to do so, the Affected Lender shall sell, at par, and assign all of its Loans and funding commitments hereunder to such Replacement Lender in accordance with the procedures set forth in Section 12.6(a); provided, that (i) Borrowers shall have, as applicable, reimbursed such Lender for its increased costs and additional payments for which it is entitled to reimbursement under Sections 2.8 of this Agreement through the date of such sale and assignment and (ii) Borrowers shall pay to Administrative Agent the $3,500 processing fee in respect of such assignment. In the event that a replaced Lender does not execute an Assignment Agreement pursuant to Section 12.6(a) within five (5) Business Days after receipt by such replaced Lender of notice of replacement pursuant to this Section 12.6(c) and presentation to such replaced Lender of an Assignment Agreement evidencing an assignment pursuant to this Section 12.6(c), such replaced Lender shall be deemed to have consented to the terms of such Assignment Agreement, and any such Assignment Agreement executed by Administrative Agent, the Replacement Lender and, to the extent required pursuant to Section 12.6(a), Borrower, shall be effective for purposes of this Section 12.6(c) and Section 12.6(a). Upon any such assignment and payment, such replaced Lender shall no longer constitute a "Lender" for purposes hereof, other than with respect to such rights and obligations that survive termination as set forth in Section 12.1. (d) Credit Party Assignments. No Credit Party may assign, delegate or otherwise transfer any of its rights or other obligations hereunder or under any other Financing Document without the prior written consent of each Lender. Credit and Security Agreement 51 SECTION 12.7 HEADINGS. Headings and captions used in the Financing Documents (including the Exhibits, Schedules and Annexes hereto and thereto) are included for convenience of reference only and shall not be given any substantive effect. SECTION 12.8 CONFIDENTIALITY. Administrative Agent and each Lender shall hold all Non-Public Information regarding the Credit Parties and their respective businesses in accordance with such Person's customary procedures for handling information of such nature (which shall be no less stringent than procedures for handling its own confidential information), except that disclosure of such Non-Public Information may be made (a) to their respective agents, employees, Subsidiaries, Affiliates, attorneys, auditors, professional consultants, rating agencies, insurance industry associations and portfolio management services, (b) to prospective transferees or purchasers of any interest in the Loans, and to prospective contractual counterparties (or the professional advisors thereto) in Permitted Swap Contracts permitted hereby, provided, however, that any such Persons shall have agreed to be bound by the provisions of this Section 12.8, (c) as required by Law, subpoena, judicial order or similar order and in connection with any litigation, (d) as may be required in connection with the examination, audit or similar investigation of such Person, and (e) to a Person that is a trustee, investment advisor, collateral manager, servicer, noteholder or secured party in a Securitization (as hereinafter defined) in connection with the administration, servicing and reporting on the assets serving as collateral for such Securitization. For the purposes of this Section, "Securitization" shall mean a public or private offering by a Lender or any of its Affiliates or their respective successors and assigns, of securities which represent an interest in, or which are collateralized, in whole or in part, by the Loans. The obligations of Administrative Agent and Lenders under this Section 12.8 shall supersede and replace the obligations of Administrative Agent and Lenders under any confidentiality agreement in respect of this financing executed and delivered by Administrative Agent or any Lender prior to the date hereof. For purposes hereof, "NON PUBLIC INFORMATION" shall mean and include any information (whether written or oral) that Borrower or its directors, officers, employees, Affiliates, agents or other representatives furnish to the Administrative Agent or any Lender in connection with this Agreement and the financing transactions evidenced hereby, together with analysis, compilations, studies or other documents prepared by the Administrative Agent, any Lender, or any of their respective directors, officers, employees, Affiliates, agents, representatives, (including attorneys, accountants and financial advisors) (collectively, "REPRESENTATIVES") which contain or otherwise reflect such information. Non-Public Information includes any such information furnished to the Administrative Agent or any Lender or gathered by inspection or audit, regardless of whether such information is specifically identified as "confidential", and expressly includes all such information delivered to the Administrative Agent prior to the Closing Date. Non Public Information does not include information which (i) is or becomes generally available to the public other than as a result of disclosure by the Administrative Agent, any Lender or any of their Representatives as a result of a breach of confidentiality obligations to any Borrower, (ii) was or becomes available to the Administrative Agent, any Lender or any of their Representatives from a source other than any of the Borrowers or their representatives, provided that such source is not prohibited from disclosing such information to the Administrative Agent, any Lender or any of their Representatives by a contractual, legal or fiduciary obligation to the Borrowers or their representatives, (iii) is independently developed by the Administrative Agent, any Lender or any of their Representatives without violation their obligations under this Section 12.8 or utilizing any Non-Public Information, or (iv) was in the possession of the Administrative Agent, any Lender or any of their Representatives prior to its disclosure to the Administrative Agent, such Lender or such Representative. SECTION 12.9 WAIVER OF CONSEQUENTIAL AND OTHER DAMAGES. To the fullest extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee (as defined below), on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of this Agreement, any other Financing Document or any agreement or instrument contemplated hereby or thereby, the transactions contemplated hereby or thereby, or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Financing Documents or the transactions contemplated hereby or thereby. SECTION 12.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT, EACH NOTE AND EACH OTHER FINANCING DOCUMENT, AND ALL MATTERS RELATING HERETO OR THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN Credit and Security Agreement 52 ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. EACH BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN CHICAGO, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO ADMINISTRATIVE AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER FINANCING DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. SECTION 12.11 WAIVER OF JURY TRIAL. EACH BORROWER, ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER WARRANTS AND REPRESENTS THAT IT HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS. SECTION 12.12 PUBLICATION; ADVERTISEMENT. (a) Publication. No Credit Party will directly or indirectly publish, disclose or otherwise use in any public disclosure, advertising material, promotional material, press release or interview, any reference to the name, logo or any trademark of any Lender or any Affiliate of any Lender or any reference to this Agreement or the financing evidenced hereby, in any case except (i) as required by Law, subpoena or judicial or similar order, in which case the applicable Credit Party shall give such Lender prior written notice of such publication or other disclosure, or (ii) with such Lender's prior written consent. (b) Advertisement. Each Credit Party hereby authorizes each Lender (and the Affiliates of each Lender) (hereinafter referred to as the "ADVERTISING PARTY") to publish the name of each such Lender and Credit Party, the existence of the financing arrangements referenced under this Agreement, the primary purpose and/or structure of those arrangements, the amount of credit extended under each facility, the title and role of each party to this Agreement, and the total amount of the financing evidenced hereby in any "tombstone", comparable advertisement or press release which such Advertising Party elects to submit for publication, provided that the Principal Borrower received and approved a copy thereof prior to its use. In addition, each Credit Party agrees that each Advertising Party may provide lending industry trade organizations with information necessary and customary for inclusion in league table measurements after the Closing Date. With respect to any of the foregoing, such Advertising Party shall provide Borrowers with an opportunity to review and approve the contents of any such tombstone, advertisement or information, as applicable, prior to its submission for publication and, following such review period, such Advertising Party may, from time to time, publish such information in any media form desired by such other Lender (or such Affiliate), until such time that Borrowers shall have requested such Advertising Party cease any such further publication. SECTION 12.13 COUNTERPARTS; INTEGRATION. This Agreement and the other Financing Documents 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. Signatures by facsimile or by email delivery of an electronic version of an executed signature page shall bind the parties hereto. This Agreement and the other Financing Documents constitute the entire agreement and understanding among the parties hereto and supersede any and all Credit and Security Agreement 53 prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 12.14 NO STRICT CONSTRUCTION. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. SECTION 12.15 TIME. Time is of the essence in each Borrower's and each other Credit Party's performance under this Agreement and all other Financing Documents. SECTION 12.16 LENDER APPROVALS. Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Administrative Agent or Lenders with respect to any matter that is the subject of this Agreement, the other Financing Documents may be granted or withheld by Administrative Agent and Lenders in their sole and absolute discretion and credit judgment. SECTION 12.17 EXPENSES; INDEMNITY (a) Borrowers agree to pay all reasonable legal, audit and appraisal fees and all other reasonable out-of-pocket charges and expenses incurred by Administrative Agent and Lenders (including the fees and expenses of Administrative Agent's counsel, advisors and consultants) in connection with the negotiation, preparation, legal review and execution of each of the Financing Documents, including but not limited to UCC and judgment lien searches and UCC filings and fees for post-closing UCC and judgment lien searches, provided that such amount shall not exceed $40,000. In addition, Borrowers shall pay all such reasonable fees and expenses associated with any amendments, modifications and terminations to the Financing Documents following closing. (b) Borrowers agree to pay all out-of-pocket charges and expenses incurred by Administrative Agent (including the fees and expenses of Administrative Agent's counsel, advisers and consultants) in connection with the administration of this Agreement and the other Financing Documents and the credit facilities provided hereunder and thereunder, the administration, enforcement, protection or preservation of any right or claim of Administrative Agent, the termination of this Agreement, the termination of any Liens of Administrative Agent on the Collateral, or the collection of any amounts due under the Financing Documents, including any such charges and expenses incurred in connection with any "work-out" or with any proceeding under the Bankruptcy Code with respect to any Credit Party. (c) Borrowers hereby indemnify and agree to defend (with counsel reasonably acceptable to Administrative Agent) and hold harmless Administrative Agent, each Lender, and their respective shareholders, directors, partners, officers, agents and employees (collectively in the singular, "Indemnitee") from and against any liability, loss, cost, expense (including reasonable attorneys' fees and expenses for both in-house and outside counsel), claim, damage, suit, action or proceeding ever suffered or incurred by any Indemnitee or in which an Indemnitee may ever be or become involved (whether as a party, witness or otherwise) (a) arising from any Credit Party's failure to observe, perform or discharge any of its covenants, obligations, agreements or duties under the Financing Documents, (b) arising from the breach of any of the representations or warranties contained in any Financing Document, (c) arising by reason of this Agreement, the other Financing Documents or the transactions contemplated hereby or thereby, or (d) relating to claims of any Person with respect to the Collateral; provided, however, Borrower shall not be liable under this Section 12.17(c) to the extent such loss is solely related to Indemnitee's gross negligence or willful misconduct. (d) Notwithstanding any contrary provision in this Agreement, the obligations of Borrowers under this Section 12.17 shall survive the payment in full of the Obligations and the termination of this Agreement. NO INDEMNITEE SHALL BE RESPONSIBLE OR LIABLE TO THE BORROWERS OR TO ANY OTHER PARTY TO ANY FINANCING DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER. Credit and Security Agreement 54 SECTION 12.18 RESERVED. SECTION 12.19 REINSTATEMENT. This Agreement shall remain in full force and effect and continue to be effective should any petition or other proceeding be filed by or against any Credit Party for liquidation or reorganization, should any Credit Party become insolvent or make an assignment for the benefit of any creditor or creditors or should an interim receiver, receiver, receiver and manger or trustee be appointed for all or any significant part of any Credit Party's assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a fraudulent conveyance, preference or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. [SIGNATURES APPEAR ON FOLLOWING PAGES] Credit and Security Agreement 55 IN WITNESS WHEREOF, intending to be legally bound, and intending that this document constitute an instrument executed and delivered under seal, the parties hereto have caused this Agreement to be duly executed under seal by their respective authorized officers as of the day and year first above written. BORROWERS: PENWEST PHARMACEUTICALS CO. By: /s/ Benjamin L. Palleiko [SEAL] ------------------------------------- Name: Benjamin L. Palleiko Title: SVP & CFO Address: 39 Old Ridgebury Road, Suite 11 Danbury, Connecticut 06810 Attn: - ---------------------------------- Facsimile: (___) ------------------------ Email: ---------------------------------- AGENT: MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., as Administrative Agent and a Lender By: /s/ Maurice Amsellem [SEAL] ------------------------------------- Name: Maurice Amsellem Title: VP Address: 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Account Manager for MLC-HCF Penwest Pharmaceuticals Co. transaction Facsimile: (866) 231-8408 E-Mail: ***@*** With copies to: Merrill Lynch Capital 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Group Senior Transaction Attorney, Healthcare Finance Facsimile Number: (312) 499-3245 Merrill Lynch Capital 7700 Wisconsin Ave., Suite 400 Bethesda, Maryland 20814 Attn: Group Senior Transaction Attorney, Healthcare Finance Facsimile Number: (866) 341-9053 Signature Page to Credit and Security Agreement Payment Account Designation: LaSalle Bank 200 West Monroe Chicago, IL 60606 ABA #: 071000505 Account Name: MLBFS Healthcare Finance Account #: 5800395088 Attention: Penwest Pharmaceuticals Co. LENDERS: MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., AS LENDER By: /s/ Maurice Amsellem [SEAL] ------------------------------------- Name: Maurice Amsellem Title: VP Address: 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Account Manager for MLC-HCF Penwest Pharmaceuticals Co. transaction Facsimile: (866) 231-8408 E-Mail: ***@*** With copies to: Merrill Lynch Capital 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Group Senior Transaction Attorney, Healthcare Finance Facsimile Number: (312) 499-3245 and Merrill Lynch Capital 7700 Wisconsin Ave., Suite 400 Bethesda, Maryland 20814 Attn: Group Senior Transaction Attorney, Healthcare Finance Facsimile Number: (866) 341-9053 Signature Page to Credit and Security Agreement ANNEXES, EXHIBITS, RIDERS AND SCHEDULES
Annexes, Exhibits, Riders and Schedules to Credit and Security Agreement (MERRILL LYNCH LOGO) ANNEX A TO CREDIT AND SECURITY AGREEMENT (COMMITMENT ANNEX)
Exhibit A to Credit and Security Agreement (Commitment Annex) (MERRILL LYNCH LOGO) EXHIBIT A TO CREDIT AND SECURITY AGREEMENT Exhibit A to Credit and Security Agreement (Assignment Agreement) (MERRILL LYNCH LOGO) EXHIBIT B TO CREDIT AND SECURITY AGREEMENT (COMPLIANCE CERTIFICATE) COMPLIANCE CERTIFICATE DATE: __________, _____ This certificate is given by _____________________, a Responsible Officer of Penwest Pharmaceuticals Co. ("BORROWER REPRESENTATIVE"), pursuant to that certain Credit and Security Agreement dated as of March ___, 2007 among Borrower Representative, _______________________________ and any additional Borrower that may be a party thereto or from time to time be added thereto (collectively, "BORROWERS"), Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., individually as a Lender and as Administrative Agent, and the financial institutions or other entities from time to time parties thereto, each as a Lender (as such agreement may have been amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement. The undersigned Responsible Officer hereby certifies, in his or her capacity as an officer of the Borrower Representative, to Administrative Agent and Lenders that: (a) the financial statements delivered with this certificate in accordance with Section 4.1 of the Credit Agreement fairly present in all material respects the results of operations and financial condition of Borrowers and their Subsidiaries as of the dates and the accounting period covered by such financial statements; (b) I have reviewed the terms of the Credit Agreement and have made, or caused to be made under my supervision, a review in reasonable detail of the transactions and conditions of Borrowers and their Subsidiaries during the accounting period covered by such financial statements; (c) such review has not disclosed the existence during or at the end of such accounting period, and I have no knowledge of the existence as of the date hereof, of any condition or event that constitutes a Default or an Event of Default, except as set forth in Schedule 1 hereto, which includes a description of the nature and period of existence of such Default or an Event of Default and what action Borrowers have taken, are undertaking and propose to take with respect thereto; (d) Except as noted on Schedule 2 attached hereto, the Credit Agreement contains a complete and accurate list of all business locations of Borrowers and Guarantors at which Collateral having a value in excess of $500,000 is located, and all names under which Borrowers or Guarantors currently conduct business; Schedule 2 specifically notes any changes in the names under which Borrowers or Guarantors conduct business; (e) Except as noted on Schedule 3 attached hereto, the undersigned has no knowledge of any federal or state tax liens having been filed against the Borrowers, Guarantors or any Collateral; (f) Except as noted on Schedule 3 attached hereto, the undersigned has no knowledge of any intentional or material failure of the Borrowers or Guarantors to make required payments of withholding or other tax obligations of the Borrowers or Guarantors during the accounting period to which the attached statements pertain or any subsequent period. (g) If the Credit Agreement contemplates a lien on the Deposit Accounts and Securities Accounts of the Borrowers and/or Guarantors in favor of Administrative Agent, Schedule 4 attached hereto contains a complete and accurate statement of all Deposit Accounts and Securities Accounts (other than payroll accounts) maintained by Borrowers or Guarantors; (h) Except as described in the Credit Agreement or in Schedule 5 attached hereto, the undersigned has no knowledge of any current, pending or threatened: Exhibit B to Credit and Security Agreement (Compliance Certificate) 1 (i) Litigation against the Borrowers or Guarantors which could reasonably be expected to result in an Event of Default or a Material Adverse Effect; (ii) inquiries, investigations or proceedings concerning the business affairs, practices, licensing or reimbursement entitlements of Borrowers or Guarantors which in any such case could reasonably be expected to result in a Material Adverse Effect; (iii) any material default by Borrowers or Guarantors under any Material Contract to which either of them is a party; or (iv any material adverse effect with respect to any Intellectual Property relating to Opana ER. (i) Except as noted on Schedule 6 attached hereto, no Borrower has acquired, by purchase, by the approval or granting of any application for registration (whether or not such application was previously disclosed to Administrative Agent by Borrowers) or otherwise, any Intellectual Property relating to Opana ER that is registered with any United States Governmental Authority, or has filed with any such United States Governmental Authority, any new application for the registration of any Intellectual Property relating to Opana ER, or acquired rights under a license as a licensee with respect to any such registered Intellectual Property (or any such application for the registration of such Intellectual Property) owned by another Person, that has not previously been reported to Administrative Agent on Schedule 3.19 to the Credit Agreement or any Schedule 6 to any previous Compliance Certificate delivered by Borrower Representative to Administrative Agent. Exhibit B to Credit and Security Agreement (Compliance Certificate) 2 The foregoing certifications and computations are made as of ___________________, _____ (end of month) and delivered this ____ day of _____________, 20___. Sincerely, PENWEST PHARMACEUTICALS CO. By --------------------------------- Name ------------------------------- Title ------------------------------ SCHEDULES TO COMPLIANCE CERTIFICATE Schedule 1 - Non-Compliance with Covenants Schedule 2 - Business Locations and Names of Borrowers and Guarantors Schedule 3 - Tax Liens; Unpaid Tax or Withholding Obligations Schedule 4 - List of all Deposit Accounts and Securities Accounts of Borrowers and Guarantors Schedule 5 -Pending Litigation; Inquiries or Investigations; Defaults under Material Contracts Schedule 6 - Newly Acquired Intellectual Property and Intellectual Property Licenses Schedules to Compliance Certificate of Credit and Security Agreement (MERRILL LYNCH LOGO) EXHIBIT C TO CREDIT AND SECURITY AGREEMENT [RESERVED] Exhibit C to Credit and Security Agreement (MERRILL LYNCH LOGO) EXHIBIT D TO CREDIT AND SECURITY AGREEMENT (NOTICE OF BORROWING) BORROWER REPRESENTATIVE DATE: ___________, ______ This certificate is given by ____________________, a Responsible Officer of Penwest Pharmaceuticals Co. ("BORROWER REPRESENTATIVE"), pursuant to Section 2.1(b)(i) of that certain Credit and Security Agreement dated as of March ___, 2007 among Borrower Representative, ________________________ and any additional Borrower that may be a party thereto or from time to time be added thereto (collectively, "BORROWERS"), the Lenders from time to time party thereto and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent for Lenders (as such agreement may have been amended, restated, supplemented or otherwise modified from time to time the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement. The undersigned Responsible Officer hereby gives notice to Administrative Agent of Borrower Representative's request to on ________________ ___, 2007 borrow _____________________ Dollars ($_____________) of the Term Loan. The undersigned officer hereby certifies in his or her capacity as an officer of the Borrower Representative that, both before and after giving effect to the request above (a) each of the conditions precedent set forth in Sections 7.1 and 7.2 have been satisfied, (b) all of the representations and warranties contained in the Credit Agreement and the other Financing Documents are true, correct and complete in all respects (or in all material respects if such representation, warranty, certification or statement is not by its terms already qualified as to materiality) as of the date hereof, except to the extent such representation or warranty relates to a specific date, in which case such representation or warranty is true, correct and complete in all respects (or in all material respects if such representation, warranty, certification or statement is not by its terms already qualified as to materiality) as of such earlier date, and (c) no Default or Event of Default has occurred and is continuing on the date hereof. IN WITNESS WHEREOF, the undersigned officer has executed and delivered this certificate this ____ day of __________________ ___, 2007. By: -------------------------------- Name: ------------------------------ Title: Authorized Signatory for Borrower Representative Exhibit D to Credit and Security Agreement (Notice of Borrowing) (MERRILL LYNCH LOGO) EXHIBIT E TO CREDIT AND SECURITY AGREEMENT (PAYMENT NOTIFICATION) BORROWER REPRESENTATIVE DATE: ___________, ______ Reference is hereby made to the Credit and Security Agreement dated March ___, 2007 among the undersigned and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent and the financial institutions party thereto. Capitalized terms used here have the meanings ascribed thereto in the Credit Agreement. Please be advised that funds in the amount of $_____________ will be wire transferred to Administrative Agent on _________, 200_. Such funds shall constitute [an optional] [a mandatory] prepayment of the Term Loans, with such prepayments to be applied in the manner specified in Section 2.1(a)(iii). [Such mandatory prepayment is being made pursuant to Section _____________ of the Credit Agreement.] Fax to MLC Operations ###-###-#### no later than noon Chicago time. Note: Funds must be received no later than noon Chicago time for same day application Wire Instructions: Bank Name: LaSalle Bank National Association 200 West Monroe Chicago, IL 60606 ABA# 071000505 Account Name: MLBFS Healthcare Finance Account #: 5800395088 Reference: Penwest Pharmaceuticals Co. Address: Merrill Lynch Capital 222 N. LaSalle Street, 16th Floor Chicago, IL 60601 IN WITNESS WHEREOF, the undersigned officer has executed and delivered this certificate this ____ day of ___________, ____. By: -------------------------------- Name: ------------------------------ Title: Authorized Signatory for Borrower Representative Exhibit E to Credit and Security Agreement (Payment Notification) PHARMA RIDER This Pharma Rider is made a part of and is incorporated by reference into that certain Credit and Security Agreement (the "Credit Agreement") dated March 13, 2007 by and among PENWEST PHARMACEUTICALS CO., a Washington corporation, and any additional Borrower that may hereafter be added to the Credit Agreement (each individually as a "BORROWER" and collectively as "BORROWERS"), MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., individually as a Lender, and as Administrative Agent, and the financial institutions or other entities from time to time parties hereto, each as a Lender. In consideration of the premises and the agreements, provisions and covenants herein contained and in the Credit Agreement, Borrowers, Lenders and Administrative Agent agree as follows: SECTION 1 DEFINITIONS. All capitalized terms not otherwise defined in this Rider shall have the meanings given them in the Credit Agreement. SECTION 1.1 ADDITIONAL DEFINED TERMS. The following additional definitions are hereby appended to Section 1.1 of the Credit Agreement: "DEA" means the Drug Enforcement Administration of the United States of America and any successor agency thereof. "FDA" means the Food and Drug Administration of the United States of America or any successor entity thereto. "FDCA" means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C. Section 301 et seq. and all regulations promulgated thereunder. "GOOD MANUFACTURING PRACTICES" means current good manufacturing practices, as set forth in 21 C.F.R. Parts 210 and 211. "PRODUCT" means the product known as Opana ER. "REQUIRED PERMIT" means a Permit issued or required to be issued or held by Borrower in order to conduct its business, other than Permits the failure to be so issued could reasonably be expected to have a Material Adverse Effect. SECTION 2 ADDITIONAL REPRESENTATIONS AND WARRANTIES. The following is hereby appended to the Credit Agreement as new Section 3.24: SECTION 3.24 COMPLIANCE OF PRODUCTS. (a) Each Credit Party: (i) has obtained all Required Permits; (ii) to its knowledge, has not used the services of any Person debarred under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. Section 335a (a) or (b), where the use of such Person to perform such services could reasonably be expected to result in a Material Adverse Effect; (iii) warrants and represents that, to its knowledge, none of its officers, directors, or employees has been convicted of any crime or engaged in any conduct for which debarment is mandated by 21 U.S.C. Section 335a (a) or authorized by 21 U.S. Section 335a (b); (iv) warrants and represents that none of its officers, directors or employees has, on behalf of the Company, made an untrue statement of material fact or fraudulent statement to the FDA or failed to disclose a material fact required to be disclosed to the FDA, or committed an act, made a statement, or failed to make a statement that, in the case of each of the foregoing, could reasonably be expected to result in the FDA invoking its policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities," set forth in 56 Fed. Regulation 46191 (September 10, 1991); (v) has not received any written notice from any Governmental Authority, including without limitation the FDA, the DEA, the Office of the Inspector General of HHS or the United States Department of Justice, that such Governmental Authority has commenced or threatened to initiate any action to enjoin the Borrower from conducting any material portion of its busine ss or for any material civil penalty, injunction, seizure or criminal action material to the business of the Borrower; (vi) except as set forth on Schedule 3.24, has not received from the FDA or the DEA, at any time since January 1, 2003, a Warning Letter, Form FDA-483 or "Untitled Letter," setting forth alleged violations of laws and regulations enforced by the FDA or the DEA, or any comparable correspondence from any state or local authority responsible for regulating drug products and establishments, or any comparable correspondence from any foreign counterpart of the FDA or DEA, or any comparable correspondence from any foreign counterpart of any state or local authority with regard to any Product or the manufacture, processing, packing, or holding thereof, which violations could reasonably be expected to result in a Material Adverse Effect. (b) [RESERVED.] SECTION 3 ADDITIONAL AFFIRMATIVE COVENANTS. The following is hereby appended to the Credit Agreement as new Section 4.15: SECTION 4.15 COVENANTS REGARDING PRODUCTS AND COMPLIANCE WITH REQUIRED PERMITS Without limiting the generality of Section 4.5, in connection with the development, testing, manufacture, marketing or sale of each and any Product by any Borrower, Borrowers shall comply in all material respects with all Required Permits at all times issued by any Government Authority. SECTION 4 EVENTS OF DEFAULT. In addition to the events listed in Section 10.1, the occurrence of any of the following conditions and/or events, whether voluntary or involuntary, by operation of law or otherwise, shall constitute an "Event of Default" under the Credit Agreement: (a) the institution of any proceeding by FDA or similar Governmental Authority to order the withdrawal of any Product from the market or to enjoin Credit Party or any representative of a Credit Party from manufacturing, marketing, selling or distributing any Product or Product category, which results in the Product no longer being sold for at least 60 consecutive days; provided, however, that if on any date of determination prior to the expiration of such 60 consecutive day period it is no longer reasonably expected that the Product will be made available for sale prior to the expiration of such 60 day period, an Event of Default shall be deemed to exist from the later of (x) the date which is 30 days after the last date on which the Product was sold, and (y) such date of determination. (b) the institution of any action or proceeding by any DEA, FDA, or any other Governmental Authority to revoke, suspend, reject, withdraw, limit, or restrict any Required Permit held by a Credit Party or any representative of a Credit Party which could reasonably be expected to result in a Material Adverse Effect, which is not cured within thirty (30) days; (c) the commencement of any enforcement action against any Credit Party by DEA, FDA, or any other Governmental Authority which could reasonably be expected to result in a Material Adverse Effect, which is not cured within thirty (30) days; or (d) the recall of any Products from the market, the voluntary withdrawal of any Products from the market, or actions to discontinue the sale of any Products, which results in the Product no longer being sold for at least 60 consecutive days; provided, however, that if on any date of determination prior to the expiration of such 60 consecutive day period it is no longer reasonably expected that the Product will be made available for sale prior to the expiration of such 60 day period, an Event of Default shall be deemed to exist from the later of (x) the date which is 30 days after the last date on which the Product was sold, and (y) such date of determination. [SIGNATURES APPEAR ON FOLLOWING PAGES] IN WITNESS WHEREOF, intending to be legally bound, and intending that this document constitute an instrument executed and delivered under seal, the undersigned have executed this document under seal as of the date of the Credit Agreement. BORROWER: PENWEST PHARMACEUTICALS CO. By: /s/ Benjamin L. Palleiko [SEAL] ------------------------------------- Name: Benjamin L. Palleiko Title: SVP & CFO Address: 39 Old Ridgebury Road, Suite 11 Danbury, Connecticut 06810 Attn: ----------------------------------- Facsimile: (___) ------------------------ Email: ---------------------------------- AGENT: MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., as Administrative Agent and a Lender By: /s/ Maurice Amsellem [SEAL] ------------------------------------- Name: Maurice Amsellem Title: VP Address: 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Account Manager for MLC-HCF Penwest Pharmaceuticals Co. transaction Facsimile: (866) 231-8408 E-Mail: ***@*** With copies to: Merrill Lynch Capital 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Group Senior Transaction Attorney, Healthcare Finance Facsimile Number: (312) 499-3245 Merrill Lynch Capital 7700 Wisconsin Ave., Suite 400 Bethesda, Maryland 20814 Attn: Group Senior Transaction Attorney, Healthcare Finance Facsimile Number: (866) 341-9053 Signature Page to Pharma Rider Payment Account Designation: LaSalle Bank 200 West Monroe Chicago, IL 60606 ABA #: 071000505 Account Name: MLBFS Healthcare Finance Account #: 5800395088 Attention: Penwest Pharmaceuticals Co. LENDERS: MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., AS LENDER By: /s/ Maurice Amsellem [SEAL] ------------------------------------- Name: Maurice Amsellem Title: VP Address: 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Account Manager for MLC-HCF Penwest Pharmaceuticals Co. transaction Facsimile: (866) 231-8408 E-Mail: ***@*** With copies to: Merrill Lynch Capital 222 N. LaSalle Street, 16th Floor Chicago, Illinois 60601 Attn: Group Senior Transaction Attorney, Healthcare Finance Facsimile Number: (312) 499-3245 and Merrill Lynch Capital 7700 Wisconsin Ave., Suite 400 Bethesda, Maryland 20814 Attn: Group Senior Transaction Attorney, Healthcare Finance Facsimile Number: (866) 341-9053 Signature Page to Pharma Rider
